G.R. No.

188288 January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.
CONTINENTAL AIRLINES, INC.,

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision1 of
the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses
Fernando and Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding
US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997
until fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as exemplary damages, [P]40,000.00 as
attorneys fees and costs of suit to plaintiffs-appellees is hereby REVERSED and SET ASIDE.

Defendant-appellants counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision, giving
due course to the complaint for sum of money and damages filed by petitioners Fernando Viloria
(Fernando) and Lourdes Viloria (Lourdes), collectively called Spouses Viloria, against respondent
Continental Airlines, Inc. (CAI). As culled from the records, below are the facts giving rise to such
complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife,
Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on board
Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency called
"Holiday Travel" and was attended to by a certain Margaret Mager (Mager). According to Spouses
Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were no available
seats at Amtrak, an intercity passenger train service provider in the United States. Per the tickets,
Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on
August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or
August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully
booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando opted
to request for a refund. Mager, however, denied his request as the subject tickets are non-refundable
and the only option that Continental Airlines can offer is the re-issuance of new tickets within one (1)
year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats with
Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station
where he saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats
available and he can travel on Amtrak anytime and any day he pleased. Fernando then purchased two
(2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling
her that she had misled them into buying the Continental Airlines tickets by misrepresenting that
Amtrak was already fully booked. Fernando reiterated his demand for a refund but Mager was firm in
her position that the subject tickets are non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a
refund and alleging that Mager had deluded them into purchasing the subject tickets.3

In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had
been referred to the Customer Refund Services of Continental Airlines at Houston, Texas.4

In a letter dated March 24, 1998, Continental Micronesia denied Fernandos request for a refund and
advised him that he may take the subject tickets to any Continental ticketing location for the re-issuance
of new tickets within two (2) years from the date they were issued. Continental Micronesia informed
Fernando that the subject tickets may be used as a form of payment for the purchase of another
Continental ticket, albeit with a re-issuance fee.5

On June 17, 1999, Fernando went to Continentals ticketing office at Ayala Avenue, Makati City to have
the subject tickets replaced by a single round trip ticket to Los Angeles, California under his name.
Therein, Fernando was informed that Lourdes ticket was non-transferable, thus, cannot be used for the
purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was
US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego to Newark
round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer
wished to have them replaced. In addition to the dubious circumstances under which the subject tickets
were issued, Fernando claimed that CAIs act of charging him with US$1,867.40 for a round trip ticket to
Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use Lourdes ticket,
breached its undertaking under its March 24, 1998 letter.6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to
refund the money they used in the purchase of the subject tickets with legal interest from July 21, 1997
and to payP1,000,000.00 as moral damages, P500,000.00 as exemplary damages and P250,000.00 as
attorneys fees.7
CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject
tickets are non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes name for the
purchase of a round trip ticket to Los Angeles since the same is non-transferable; (c) as Mager is not a
CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents did not act in bad
faith as to entitle Spouses Viloria to moral and exemplary damages and attorneys fees. CAI also invoked
the following clause printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier
are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carriers conditions of
carriage and related regulations which are made part hereof (and are available on application at the
offices of carrier), except in transportation between a place in the United States or Canada and any
place outside thereof to which tariffs in force in those countries apply.8

According to CAI, one of the conditions attached to their contract of carriage is the non-transferability
and non-refundability of the subject tickets.

The RTCs Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are
entitled to a refund in view of Magers misrepresentation in obtaining their consent in the purchase of
the subject tickets.9The relevant portion of the April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in
presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via
AMTRAK, but defendants agent misled him into purchasing Continental Airlines tickets instead on the
fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant Airline did not specifically
denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline
tickets on Ms. Magers misleading misrepresentations. Continental Airlines agent Ms. Mager further
relied on and exploited plaintiff Fernandos need and told him that they must book a flight immediately
or risk not being able to travel at all on the couples preferred date. Unfortunately, plaintiffs spouses fell
prey to the airlines and its agents unethical tactics for baiting trusting customers."10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAIs agent, hence, bound by
her bad faith and misrepresentation. As far as the RTC is concerned, there is no issue as to whether
Mager was CAIs agent in view of CAIs implied recognition of her status as such in its March 24, 1998
letter.

The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code
provisions on agency:

Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.

Agency may be oral, unless the law requires a specific form.

As its very name implies, a travel agency binds itself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. This court takes
judicial notice of the common services rendered by travel agencies that represent themselves as such,
specifically the reservation and booking of local and foreign tours as well as the issuance of airline
tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997
were no different from those offered in any other travel agency. Defendant airline impliedly if not
expressly acknowledged its principal-agent relationship with Ms. Mager by its offer in the letter dated
March 24, 1998 an obvious attempt to assuage plaintiffs spouses hurt feelings.11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the
subject tickets within two (2) years from their date of issue when it charged Fernando with the amount
of US$1,867.40 for a round trip ticket to Los Angeles and when it refused to allow Fernando to use
Lourdes ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue. When defendant airline still
charged plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the
unused tickets when the same were presented within two (2) years from date of issue, defendant airline
exhibited callous treatment of passengers.12

The Appellate Courts Ruling

On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding that CAI cannot be held liable for
Magers act in the absence of any proof that a principal-agent relationship existed between CAI and
Holiday Travel. According to the CA, Spouses Viloria, who have the burden of proof to establish the fact
of agency, failed to present evidence demonstrating that Holiday Travel is CAIs agent. Furthermore,
contrary to Spouses Vilorias claim, the contractual relationship between Holiday Travel and CAI is not
an agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing
agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this
premise, they contend that Continental Airlines should be held liable for the acts of Mager. The trial
court held the same view.

We do not agree. By the contract of agency, a person binds him/herself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter. The
elements of agency are: (1) consent, express or implied, of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for him/herself; and (4) the agent acts within the scope of his/her authority. As
the basis of agency is representation, there must be, on the part of the principal, an actual intention to
appoint, an intention naturally inferable from the principals words or actions. In the same manner,
there must be an intention on the part of the agent to accept the appointment and act upon it. Absent
such mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an
assumed agent are bound at their peril, if they would hold the principal liable, to ascertain not only the
fact of agency but also the nature and extent of authority, and in case either is controverted, the burden
of proof is upon them to establish it. Agency is never presumed, neither is it created by the mere use of
the word in a trade or business name. We have perused the evidence and documents so far presented.
We find nothing except bare allegations of plaintiffs-appellees that Mager/Holiday Travel was acting in
behalf of Continental Airlines. From all sides of legal prism, the transaction in issue was simply a contract
of sale, wherein Holiday Travel buys airline tickets from Continental Airlines and then, through its
employees, Mager included, sells it at a premium to clients.13

The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was
clearly printed on the face of the subject tickets, which constitute their contract with CAI. Therefore, the
grant of their prayer for a refund would violate the proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher
amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no
compulsion for CAI to charge the lower amount of US$856.00, which Spouses Viloria claim to be the fee
charged by other airlines. The matter of fixing the prices for its services is CAIs prerogative, which
Spouses Viloria cannot intervene. In particular:

It is within the respective rights of persons owning and/or operating business entities to peg the
premium of the services and items which they provide at a price which they deem fit, no matter how
expensive or exhorbitant said price may seem vis--vis those of the competing companies. The Spouses
Viloria may not intervene with the business judgment of Continental Airlines.14

The Petitioners Case

In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latters
reversal of the RTCs April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria claim
that CAI acted in bad faith when it required them to pay a higher amount for a round trip ticket to Los
Angeles considering CAIs undertaking to re-issue new tickets to them within the period stated in their
March 24, 1998 letter. CAI likewise acted in bad faith when it disallowed Fernando to use Lourdes ticket
to purchase a round trip to Los Angeles given that there is nothing in Lourdes ticket indicating that it is
non-transferable. As a common carrier, it is CAIs duty to inform its passengers of the terms and
conditions of their contract and passengers cannot be bound by such terms and conditions which they
are not made aware of. Also, the subject contract of carriage is a contract of adhesion; therefore, any
ambiguities should be construed against CAI. Notably, the petitioners are no longer questioning the
validity of the subject contracts and limited its claim for a refund on CAIs alleged breach of its
undertaking in its March 24, 1998 letter.
The Respondents Case

In its Comment, CAI claimed that Spouses Vilorias allegation of bad faith is negated by its willingness to
issue new tickets to them and to credit the value of the subject tickets against the value of the new
ticket Fernando requested. CAI argued that Spouses Vilorias sole basis to claim that the price at which
CAI was willing to issue the new tickets is unconscionable is a piece of hearsay evidence an
advertisement appearing on a newspaper stating that airfares from Manila to Los Angeles or San
Francisco cost US$818.00.15 Also, the advertisement pertains to airfares in September 2000 and not to
airfares prevailing in June 1999, the time when Fernando asked CAI to apply the value of the subject
tickets for the purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses
Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation was to
apply the value of the subject tickets to the purchase of the newly issued tickets.

With respect to Spouses Vilorias claim that they are not aware of CAIs restrictions on the subject
tickets and that the terms and conditions that are printed on them are ambiguous, CAI denies any
ambiguity and alleged that its representative informed Fernando that the subject tickets are non-
transferable when he applied for the issuance of a new ticket. On the other hand, the word "non-
refundable" clearly appears on the face of the subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency
relationship exists between them. As an independent contractor, Holiday Travel was without capacity to
bind CAI.

Issues

To determine the propriety of disturbing the CAs January 30, 2009 Decision and whether Spouses
Viloria have the right to the reliefs they prayed for, this Court deems it necessary to resolve the
following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts
of Holiday Travels agents and employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travels agents and employees, can the
representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the
consent of Spouse Viloria in the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and non-refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by
Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of
the subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes ticket
and in charging a higher price for a round trip ticket to Los Angeles?

This Courts Ruling

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court to review and re-
examine the evidence presented by the parties below, this Court takes exception to the general rule
that the CAs findings of fact are conclusive upon Us and our jurisdiction is limited to the review of
questions of law. It is well-settled to the point of being axiomatic that this Court is authorized to resolve
questions of fact if confronted with contrasting factual findings of the trial court and appellate court and
if the findings of the CA are contradicted by the evidence on record.17

According to the CA, agency is never presumed and that he who alleges that it exists has the burden of
proof. Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short of
indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAIs denial that Holiday Travel is
one of its agents. Furthermore, in erroneously characterizing the contractual relationship between CAI
and Holiday Travel as a contract of sale, the CA failed to apply the fundamental civil law principles
governing agency and differentiating it from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency and
spelled out the essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of the relationship of
agencywhereby one party, called the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements of
agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself, and (4) the agent acts within the scope of his authority.1avvphi1

Agency is basically personal, representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done
within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts
himself."19

Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second
elements are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby
Holiday Travel would enter into contracts of carriage with third persons on CAIs behalf. The third
element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity
and it is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday
Travel on its behalf. The fourth element is also present considering that CAI has not made any allegation
that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently maintains the
validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager
was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to
enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March
24, 1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday
Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them
the subject tickets, CAI did not deny that Holiday Travel is its authorized agent.

Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted that it gave Holiday Travel the
power and authority to conclude contracts of carriage on its behalf. As clearly extant from the records,
CAI recognized the validity of the contracts of carriage that Holiday Travel entered into with Spouses
Viloria and considered itself bound with Spouses Viloria by the terms and conditions thereof; and this
constitutes an unequivocal testament to Holiday Travels authority to act as its agent. This Court cannot
therefore allow CAI to take an altogether different position and deny that Holiday Travel is its agent
without condoning or giving imprimatur to whatever damage or prejudice that may result from such
denial or retraction to Spouses Viloria, who relied on good faith on CAIs acts in recognition of Holiday
Travels authority. Estoppel is primarily based on the doctrine of good faith and the avoidance of harm
that will befall an innocent party due to its injurious reliance, the failure to apply it in this case would
result in gross travesty of justice.20 Estoppel bars CAI from making such denial.

As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied from
the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority."

Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar
that the CA had branded the contractual relationship between CAI and Holiday Travel as one of sale. The
distinctions between a sale and an agency are not difficult to discern and this Court, as early as 1970,
had already formulated the guidelines that would aid in differentiating the two (2) contracts.
In Commissioner of Internal Revenue v. Constantino,21 this Court extrapolated that the primordial
differentiating consideration between the two (2) contracts is the transfer of ownership or title over the
property subject of the contract. In an agency, the principal retains ownership and control over the
property and the agent merely acts on the principals behalf and under his instructions in furtherance of
the objectives for which the agency was established. On the other hand, the contract is clearly a sale if
the parties intended that the delivery of the property will effect a relinquishment of title, control and
ownership in such a way that the recipient may do with the property as he pleases.

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, tested under the following criterion:

"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. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1;
Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119)22

As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a
sale is certainly confounding, considering that CAI is the one bound by the contracts of carriage
embodied by the tickets being sold by Holiday Travel on its behalf. It is undisputed that CAI and not
Holiday Travel who is the party to the contracts of carriage executed by Holiday Travel with third
persons who desire to travel via Continental Airlines, and this conclusively indicates the existence of a
principal-agent relationship. That the principal is bound by all the obligations contracted by the agent
within the scope of the authority granted to him is clearly provided under Article 1910 of the Civil Code
and this constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its
agents employees if it has been established by preponderance of evidence that the principal was also
at fault or negligent or that the principal exercise control and supervision over them.

Considering that Holiday Travel is CAIs agent, does it necessarily follow that CAI is liable for the fault or
negligence of Holiday Travels employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,23 CAI
argues that it cannot be held liable for the actions of the employee of its ticketing agent in the absence
of an employer-employee relationship.

An examination of this Courts pronouncements in China Air Lines will reveal that an airline company is
not completely exonerated from any liability for the tort committed by its agents employees. A prior
determination of the nature of the passengers cause of action is necessary. If the passengers cause of
action against the airline company is premised on culpa aquiliana or quasi-delict for a tort committed by
the employee of the airline companys agent, there must be an independent showing that the airline
company was at fault or negligent or has contributed to the negligence or tortuous conduct committed
by the employee of its agent. The mere fact that the employee of the airline companys agent has
committed a tort is not sufficient to hold the airline company liable. There is novinculum juris between
the airline company and its agents employees and the contractual relationship between the airline
company and its agent does not operate to create a juridical tie between the airline company and its
agents employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the
tort committed by its agents employees and the principal-agency relationship per se does not make the
principal a party to such tort; hence, the need to prove the principals own fault or negligence.

On the other hand, if the passengers cause of action for damages against the airline company is based
on contractual breach or culpa contractual, it is not necessary that there be evidence of the airline
companys fault or negligence. As this Court previously stated in China Air Lines and reiterated in Air
France vs. Gillego,24 "in an action based on a breach of contract of carriage, the aggrieved party does not
have to prove that the common carrier was at fault or was negligent. All that he has to prove is the
existence of the contract and the fact of its non-performance by the carrier."

Spouses Vilorias cause of action on the basis of Magers alleged fraudulent misrepresentation is clearly
one of tort or quasi-delict, there being no pre-existing contractual relationship between them.
Therefore, it was incumbent upon Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAIs alleged liability can be substantiated.
Apart from their claim that CAI must be held liable for Magers supposed fraud because Holiday Travel is
CAIs agent, Spouses Viloria did not present evidence that CAI was a party or had contributed to Magers
complained act either by instructing or authorizing Holiday Travel and Mager to issue the said
misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and
conditions of the subject contracts, which Mager entered into with them on CAIs behalf, in order to
deny Spouses Vilorias request for a refund or Fernandos use of Lourdes ticket for the re-issuance of a
new one, and simultaneously claim that they are not bound by Magers supposed misrepresentation for
purposes of avoiding Spouses Vilorias claim for damages and maintaining the validity of the subject
contracts. It may likewise be argued that CAI cannot deny liability as it benefited from Magers acts,
which were performed in compliance with Holiday Travels obligations as CAIs agent.

However, a persons vicarious liability is anchored on his possession of control, whether absolute or
limited, on the tortfeasor. Without such control, there is nothing which could justify extending the
liability to a person other than the one who committed the tort. As this Court explained in Cangco v.
Manila Railroad Co.:25

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is
competent for the legislature to elect and our Legislature has so elected to limit such liability to
cases in which the person upon whom such an obligation is imposed is morally culpable or, on the
contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral
culpability, so as to include responsibility for the negligence of those persons whose acts or omissions
are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited
control over them. The legislature which adopted our Civil Code has elected to limit extra-contractual
liability with certain well-defined exceptions to cases in which moral culpability can be directly
imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise
due care in one's own acts, or in having failed to exercise due care in the selection and control of one's
agent or servants, or in the control of persons who, by reasons of their status, occupy a position of
dependency with respect to the person made liable for their conduct.26 (emphasis supplied)

It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by
preponderant evidence. The existence of control or supervision cannot be presumed and CAI is under no
obligation to prove its denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v.
Apostol,28 that:
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment
relationship. The defendant is under no obligation to prove the negative averment. This Court said:

"It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff,
and that if he fails satisfactorily to show the facts upon which he bases his claim, the defendant is under
no obligation to prove his exceptions. This [rule] is in harmony with the provisions of Section 297 of the
Code of Civil Procedure holding that each party must prove his own affirmative allegations,
etc."29 (citations omitted)

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travels employees
or that CAI was equally at fault, no liability can be imposed on CAI for Magers supposed
misrepresentation.

III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are
not entitled to a refund. Magers statement cannot be considered a causal fraud that would justify the
annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the
money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting
parties was obtained through fraud, the contract is considered voidable and may be annulled within four
(4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged
under Article 1398 of the same Code to restore to each other the things subject matter of the contract,
including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernandos consent to the
subject contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent
that their demand for a refund is tantamount to seeking for an annulment of the subject contracts on
the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether Magers
alleged misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency,
whether fraud attended the execution of a contract is factual in nature and this Court, as discussed
above, may scrutinize the records if the findings of the CA are contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante),
not merely the incidental (dolo incidente), inducement to the making of the contract.30 InSamson v.
Court of Appeals,31 causal fraud was defined as "a deception employed by one party prior to or
simultaneous to the contract in order to secure the consent of the other."32

Also, fraud must be serious and its existence must be established by clear and convincing evidence. As
ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not
adequate:
Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which without them, he would not have agreed to.

Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have
been employed by both contracting parties.

To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full,
clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must be serious.
The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error;
that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each
case should be considered, taking into account the personal conditions of the victim."34

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has
not been satisfactorily established as causal in nature to warrant the annulment of the subject contracts.
In fact, Spouses Viloria failed to prove by clear and convincing evidence that Magers statement was
fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats at
Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with Mager on July 21, 1997;
(b) Mager knew about this; and (c) that she purposely informed them otherwise.

This Court finds the only proof of Magers alleged fraud, which is Fernandos testimony that an Amtrak
had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed
out and as Fernando admitted, it was possible that during the intervening period of three (3) weeks
from the time Fernando purchased the subject tickets to the time he talked to said Amtrak employee,
other passengers may have cancelled their bookings and reservations with Amtrak, making it possible
for Amtrak to accommodate them. Indeed, the existence of fraud cannot be proved by mere
speculations and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of
Court, it is presumed that "a person is innocent of crime or wrong" and that "private transactions have
been fair and regular."35 Spouses Viloria failed to overcome this presumption.

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject
contracts.

Even assuming that Magers representation is causal fraud, the subject contracts have been impliedly
ratified when Spouses Viloria decided to exercise their right to use the subject tickets for the purchase
of new ones. Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a
voidable contract."

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should execute an act which necessarily implies an
intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing
approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom.36

Simultaneous with their demand for a refund on the ground of Fernandos vitiated consent, Spouses
Viloria likewise asked for a refund based on CAIs supposed bad faith in reneging on its undertaking to
replace the subject tickets with a round trip ticket from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on
contractual breach. Resolution, the action referred to in Article 1191, is based on the defendants breach
of faith, a violation of the reciprocity between the parties37 and in Solar Harvest, Inc. v. Davao
Corrugated Carton Corporation,38 this Court ruled that a claim for a reimbursement in view of the other
partys failure to comply with his obligations under the contract is one for rescission or resolution.

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2)
inconsistent remedies. In resolution, all the elements to make the contract valid are present; in
annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In
resolution, the defect is in the consummation stage of the contract when the parties are in the process
of performing their respective obligations; in annulment, the defect is already present at the time of the
negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission
under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts, forfeiting
their right to demand their annulment. A party cannot rely on the contract and claim rights or
obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined
from taking inconsistent positions.39

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

Considering that the subject contracts are not annullable on the ground of vitiated consent, the next
question is: "Do Spouses Viloria have the right to rescind the contract on the ground of CAIs supposed
breach of its undertaking to issue new tickets upon surrender of the subject tickets?"

Article 1191, as presently worded, states:

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 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 fulfillment, if
the latter should become impossible.

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.

According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused
to apply the value of Lourdes ticket for Fernandos purchase of a round trip ticket to Los Angeles and in
requiring him to pay an amount higher than the price fixed by other airline companies.

In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of payment
toward the purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket,
for tickets purchased prior to October 30, 1997)."

Clearly, there is nothing in the above-quoted section of CAIs letter from which the restriction on the
non-transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter
supports the position of Spouses Viloria, that each of them can use the ticket under their name for the
purchase of new tickets whether for themselves or for some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject
tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed
that he cannot use the ticket in Lourdes name as payment.

Contrary to CAIs claim, that the subject tickets are non-transferable cannot be implied from a plain
reading of the provision printed on the subject tickets stating that "[t]o the extent not in conflict with
the foregoing carriage and other services performed by each carrier are subject to: (a) provisions
contained in this ticket, x x x (iii) carriers conditions of carriage and related regulations which are made
part hereof (and are available on application at the offices of carrier) x x x." As a common carrier whose
business is imbued with public interest, the exercise of extraordinary diligence requires CAI to inform
Spouses Viloria, or all of its passengers for that matter, of all the terms and conditions governing their
contract of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of carriage
to impute knowledge on its passengers of and demand compliance with a certain condition or
undertaking that is not clearly stipulated. Since the prohibition on transferability is not written on the
face of the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply
the value of Lourdes ticket as payment for Fernandos purchase of a new ticket.

CAIs refusal to accept Lourdes ticket for the purchase of a new ticket for Fernando is only a casual
breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The
general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only
for such substantial and fundamental violations as would defeat the very object of the parties in making
the agreement.40 Whether a breach is substantial is largely determined by the attendant
circumstances.41

While CAIs refusal to allow Fernando to use the value of Lourdes ticket as payment for the purchase of
a new ticket is unjustified as the non-transferability of the subject tickets was not clearly stipulated, it
cannot, however be considered substantial. The endorsability of the subject tickets is not an essential
part of the underlying contracts and CAIs failure to comply is not essential to its fulfillment of its
undertaking to issue new tickets upon Spouses Vilorias surrender of the subject tickets. This Court takes
note of CAIs willingness to perform its principal obligation and this is to apply the price of the ticket in
Fernandos name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise
willing to accept the ticket in Lourdes name as full or partial payment as the case may be for the
purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAIs willingness
to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its
erroneous insistence that Lourdes ticket is non-transferable.

Moreover, Spouses Vilorias demand for rescission cannot prosper as CAI cannot be solely faulted for
the fact that their agreement failed to consummate and no new ticket was issued to Fernando. Spouses
Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles should be
priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and
the amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had obliged itself to
issue to them tickets for any flight anywhere in the world upon their surrender of the subject tickets. In
its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be used as a form of
payment toward the purchase of another Continental ticket"42 and there is nothing in it suggesting that
CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the
surrender of the subject tickets will be considered as full payment for any ticket that the petitioners
intend to buy regardless of actual price and destination. The CA was correct in holding that it is CAIs
right and exclusive prerogative to fix the prices for its services and it may not be compelled to observe
and maintain the prices of other airline companies.43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does
not preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an
amount it deems proper and which does not provide Spouses Viloria an excuse not to pay such price,
albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied that
Spouses Viloria had the concomitant obligation to pay whatever is not covered by the value of the
subject tickets whether or not the subject tickets are transferable or not.1avvphi1

There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged
with a higher rate. The only evidence the petitioners presented to prove that the price of a round trip
ticket between Manila and Los Angeles at that time was only $856.00 is a newspaper advertisement for
another airline company, which is inadmissible for being "hearsay evidence, twice removed."
Newspaper clippings are hearsay if they were offered for the purpose of proving the truth of the matter
alleged. As ruled in Feria v. Court of Appeals,:44

[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only
inadmissible but without any probative value at all whether objected to or not, unless offered for a
purpose other than proving the truth of the matter asserted. In this case, the news article is admissible
only as evidence that such publication does exist with the tenor of the news therein stated.45 (citations
omitted)
The records of this case demonstrate that both parties were equally in default; hence, none of them can
seek judicial redress for the cancellation or resolution of the subject contracts and they are therefore
bound to their respective obligations thereunder. As the 1st sentence of Article 1192 provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first
violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.
(emphasis supplied)

Therefore, CAIs liability for damages for its refusal to accept Lourdes ticket for the purchase of
Fernandos round trip ticket is offset by Spouses Vilorias liability for their refusal to pay the amount,
which is not covered by the subject tickets. Moreover, the contract between them remains, hence, CAI is
duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the
subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of
the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus:

Since both parties were in default in the performance of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated,
they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE
rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the
liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. x x x.47

Another consideration that militates against the propriety of holding CAI liable for moral damages is the
absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code
requires evidence of bad faith and fraud and moral damages are generally not recoverable in culpa
contractual except when bad faith had been proven.48 The award of exemplary damages is likewise not
warranted. Apart from the requirement that the defendant acted in a wanton, oppressive and
malevolent manner, the claimant must prove his entitlement to moral damages.49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice
G.R. No. 149801 June 26, 2008

SPOUSES RENATO and FLORINDA DELA CRUZ, petitioners,

vs.
SPOUSES GIL and LEONILA SEGOVIA, respondents.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
April 17, 2001 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 64487, as reiterated in its
Resolution2 of September 4, 2001, affirming the decision of the Regional Trial Court (RTC) of Manila,
Branch 44 in its Civil Case No. 96-77509, an action for Nullity of Contract/Agreement with Damages
thereat commenced by spouses Renato and Florinda dela Cruz (petitioners) against respondent spouses
Gil and Leonila Segovia.

The facts, as culled from the records, are as follows.

Sometime in July 1985, petitioner Florinda dela Cruz (Florinda) wanted to purchase two (2) parcels of
land located at Paltok Street, Sta. Mesa, Manila, Lot 503 with an apartment unit erected thereon and Lot
505 with a residential house. The two lots were being sold together for P180,000.00. Inasmuch as
Florinda had onlyP144,000.00 at hand, she asked her sister, respondent Leonila Segovia (Leonila), to
contribute P36,000.00 to complete the purchase price. The sisters agreed that Lot 503 and the
apartment unit thereat would belong to Leonila upon full payment of its purchase price of P80,000.00,
while Lot 505 with a residential house would belong to Florinda. The properties were then registered in
the name of petitioner Renato dela Cruz married to Florinda. The parties, however, verbally agreed that
Leonila and her family would stay at Lot 505 until she had fully paid for Lot 503.

Desiring to reduce the verbal agreement into writing, the parties executed and signed a handwritten
covenant entitled Note of Agreement3 dated April 28, 1990, which read:

Ano mang oras o panahon maaring ilipat kay Mo/Gil Segovia [respondent] ang pag-aari ng sasakyan at
bahay kung mababayaran nila ang P18,000 at P34,000 na balance sa Apt. na walang ano mang condition,
interest at ano mang hangad hanggang year 1999.

Ang halagang P18,000 ay may interest na 2% hanggang sa ito ay mabayaran kay Flor dela Cruz
[petitioner]. Ang halagang P34,000 ay walang interest at ito ay babayaran up to 1999. Ang upa sa apt. ay
cocolectahin ni Flor kapalit sa residential house.

Ang ano mang mga gastos sa papeles ay sasagutin ni Mo/Gil Segovia [respondent] kung ililipat sa
pangalan niya ang sasakyan na Pinoy Fierra-Van NEX 741. Ang pagbili sa lupa at bahay 503 Paltok ay
ganoon din. (underscoring supplied)
Sometime in 1991, Linda Duval, a sister of Florinda and Leonila, arrived from the United States to attend
their mothers funeral. Linda noticed the strained relations between her two siblings. When she inquired
about the status of her sisters agreement regarding Lot 503, Leonila informed Linda that the agreement
was yet to be reduced into a formal contract. Linda offered to prepare a contract between Florinda and
Leonila who acceded to the offer. Thus, on September 9, 1991, Florinda and Leonila signed an
Agreement4 embodying the detailed scheme of payment for the lot covered by the sisters agreement,
to wit:

We, Gil and Leonila Segovia, husband and wife, of legal age, residing at 505 A. Paltok Street, Sta. Mesa,
Manila, jointly agrees to pay Florinda dela Cruz the sum of P34,000.00 pesos Philippine currency in the
following terms and conditions:

1. All previous contract or agreement is superseded by this existing contract.

2. Payment of the said amount will be payable in installment basis; in a monthly fashion respectively
with no specific amount of payment within the period of ten (10) years; effectively after the contract is
signed by both parties. P314.81 per month or P 3,1777.77 (sic) per year. And by the year 1999 will
be P34,000.00.

3. The borrowers (Sps. Segovia) agree to put their real property located at 505 B Paltok St., Sta. Mesa,
Mla., with TCT # 177862- Registry of deeds (public document) as guarantees for the above loan, which
has a monthly rent of P1,200.00 and will be collected by the Lender (Florinda) as part of the agreement
of the loan.

4. As part of the agreement, the borrowers will live in the Lender's house, located at 505 Paltok St. in
exchange for her property rents.

5. The lender also agrees that the borrowers manage the collection of rents around the house and
endorse said rents to the owner who is the Lender. Lender gives her full consent to the borrowers to
sub-rent whatever rooms she chooses inside her premises.

6. If payment was not made after ten (10) years, the Lender will take ownership of the property
described above.

7. If payment is made on or before the due date of the agreement, the Lender shall immediately take
care of all the necessary action with regards to impediment, attachment, encumbrances to the property.

xxx

After the Note of Agreement of April 28, 1990 and Agreement of September 9, 1991, Leonila continued
paying the balance she owed Florinda. Particularly, she paid the amount of P10,000.00 in September
1990 and P7,555.44 on May 16, 1995. Finally, in October 1995, Leonila attempted to pay the remaining
balance of P26,444.56 in full satisfaction of her obligation but Florinda refused to accept the same on
the ground that, the ten-year period for the payment of the balance, reckoned from July 1985, the
alleged date of the verbal agreement between them, had already expired. Thereafter Florinda
demanded that Leonila and her family vacate the house at 505 Paltok Street, which prompted
respondents to consign the P26,444.56 in court.5

On March 8, 1996, petitioners filed with the RTC of Manila, Branch 44, a complaint for Nullity of
Contract/Agreement with Damages on the ground that the Agreement executed on September 9, 1991
did not contain the true intention of the parties because Florindas consent thereto was vitiated by
mistake. Allegedly, Florinda did not know that the agreement provided that the ten-year period for
payment of the balance commenced from September 1991 and not from July 1985 which was her true
intention.

On May 5, 1999, the RTC rendered a decision dismissing the complaint for Nullity of
Contract/Agreement with Damages and declaring the subject Agreement valid and subsisting. The
decisions dispositive portion reads:

WHEREFORE, in view of the foregoing considerations and a thorough examination of the evidence, and
the pleadings together with the supporting documents, this Court finds the Agreement valid and
subsisting thus, the complaint filed by plaintiffs on March 8, 1996 is hereby ordered dismissed for lack
of merit.

The defendants are hereby ordered to pay the amount of P26,000.00 which is the remaining balance to
complete the purchase price of the 503 Paltok Street, Sta. Mesa, Manila property to the plaintiffs
afterwhich the latter and all the persons claiming under them, to surrender the ownership of 503 Paltok
Street, Sta. Mesa, Manila, vacate and to surrender possession thereof.

The plaintiffs are hereby ordered to pay defendants attorneys fees in the amount of P50,000.00, and to
pay the costs.

The counterclaim is denied.

SO ORDERED.6

In arriving at its decision, the RTC explained:

Granting arguendo, that Florinda dela Cruzs allegation that she has not read the Agreement is true,
signing a contract without fully knowing the stipulations does not vitiate consent. Prudence dictates that
Florinda dela Cruz who presented the agreement for signature should acquaint herself first with the
"fine prints" of a contract before stamping her approval thereto. As it is, the fact remains that Florinda
dela Cruz signed the agreement voluntarily on September 9, 1991 binding themselves that the balance
of P34,000.00 be paid in installments within ten (10) years upon signing the agreement or until 1999.
Indeed, the evidence will show that Florinda dela Cruz voluntarily entered into the Agreement and
participated in the preparation thereof and after it has been prepared, the same was read to and by the
parties themselves including Florinda dela Cruz and later voluntarily affixed her signature. Renato dela
Cruz was also present at the time of the signing of the Agreement and presented a copy thereof.
A further reading of the complaint in paragraph 7 thereof, it is clear from the allegations that the
Agreement is a valid existing contract only it did not express the intention of the parties, which may be a
ground for reformation of contract only under Article 1359 of the Civil Code of the Philippines which
provides that "when, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement, by reason of mistake,
fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the instrument
to the end that such true intention may be expressed."

xxx

Thus, the four year period to file the action for annulment, assuming there were indeed mistakes
therein which vitiated plaintiffs *petitioners+ consent commenced to run on September 9, 1991. The
action had already prescribed or lapsed and plaintiffs [petitioners] could no longer ask for the
annulment of the agreement.

As to the contention that the subject agreement had no force and effect on account of the absence of
the signature of Florindas husband, petitioner Renato dela Cruz (Renato), the RTC ruled to the contrary,
thus:

Indeed, Renato dela Cruz did not sign the Agreement, however, he was present at the time the
Agreement was signed by the parties and their witnesses, and the same was presented to him for his
signature. In fact, attempts were even made to procure his signature, but plaintiff wife Florinda dela
Cruz insisted that her signature already carries that of her husband Renato dela Cruz. The parties never
insisted that Renato dela Cruz sign the Agreement as the wife has spoken. It is further observed that by
his actuations Renato dela Cruz has agreed and has given his conformity to the agreement. He also did
not object to the execution of the same at the time it was signed by his wife Florinda dela Cruz on
September 9, 1991, even he was present and he was shown and furnished a copy of the said agreement.

xxx

It must be pointed out that plaintiff Florinda dela Cruz always consult her husband, Renato dela Cruz on
all matters respecting their transactions (pp. 42-43, tsn, Sept. 13, 1996; p. 25, tsn, Aug. 15, 1997).

So that the claim of Florinda dela Cruz that she has never informed her husband involving a very
substantial property registered in his name, for ten years that it had allegedly been in effect and that she
has been regularly collecting defendants staggered installment payments for the said property for a
number of years lacks basis.

More, Renatos claim that he was never aware of the agreement between the parties is doomed, since
he was present at the time of the purchase of the property where he witnessed Leonila Segovia
contributed their hard earned savings in the amount of P36,000.00 to complete their share to the
purchase price ofP180,000.00 of the properties in question, and who reminded defendants that the
subject property will ultimately be theirs upon completion of their amortizations.
Finally, the RTC ruled that the action for annulment had already lapsed when the Complaint was filed on
March 8, 1996.

The action for annulment shall be brought within four (4) years from the time of discovery of the
mistake (Art. 1391, New Civil Code of the Philippines).

On the other hand, the defendants *respondents+ evidence that after the preparation by Linda Duval
on September 9, 1991, the Agreement was read to and by the parties, shown and signed by the parties
and furnished each a copy of the agreement. Therefore, it could not be said that plaintiffs [petitioners]
were not aware of the terms and conditions of the Agreement and did not discover the alleged mistakes
contained therein on September 9, 1991.

More, plaintiffs [petitioners] likewise never raise any objection nor declare that there were mistakes in
the agreement. It was only on March 8, 1996 that the present action for annulment was filed.

Their motion for reconsideration having been denied, petitioners filed with the RTC a Notice of
Appeal.7Respondents too filed a Notice of Partial Appeal8 questioning the dismissal of their counter-
claim for damages. Accordingly, the records of the case were elevated to the CA, where both appeals
were docketed as CA-G.R. CV No. 64487.

The CA affirmed the findings of the RTC in its decision,9 promulgated on April 17, 2001. In so ruling, the
CA also declared that, while the expiry date of the payment period was an important stipulation, it could
not be considered as the substance of the contract nor the primary motivation for which the parties
entered into the agreement. The substance of the Agreement was the sale of the property at 503 Paltok
Street. The "mistake" that petitioners point to pertains to their interpretation of the contract, which is
not a ground to annul the same. The CA found that the stipulations of the written agreement, signed on
September 9, 1991, clearly intended to give the respondents ten (10) years from 1991 within which to
effect payment of the balance of the consideration for the sale of the 503 property. In view of the
explicit terms of the said written agreement, the verbal agreement of July 1985 was already of no
moment.

The motion for reconsideration of petitioners was denied by the CA in the resolution dated September
4, 2001.

Aggrieved by the foregoing CA decision, petitioners elevated the case to this Court raising the following
assignment of errors:

I.

THE COURT OF APPEALS WITH DUE RESPECT SERIOUSLY ERRED IN HOLDING THAT THE AGREEMENT IS
VALID AND SUBSISTING AND ORDERING THE PETITIONERS TO SURRENDER OWNERSHIP OF THE SUBJECT
PROPERTY TO THE RESPONDENTS.

II.
THE COURT OF APPEALS WITH DUE RESPECT SERIOUSLY ERRED IN HOLDING THAT PETITIONER RENATO
DELA CRUZ BY HIS ACTUATIONS HAD AGREED AND HAD GIVEN HIS CONFORMITY TO THE AGREEMENT.

We deny the petition.

We agree with the two courts below when they declared that the four (4)-year period for filing an action
for annulment of the September 9, 1991 Agreement, on ground of vitiated consent, had already lapsed
when the complaint subject of the present controversy was filed on March 8, 1996.

This is in accordance with Article 1391 of the Civil Code, which pertinently reads:

Art. 1391. The action for annulment shall be brought within four years.

This period shall begin:

xxx

In case of mistake or fraud, from the time of the discovery of the same.

xxx.

The complaint for Nullity of Contract/ Agreement with Damages was filed on March 7, 1996, while the
agreement subject thereof was entered into on September 9, 1991. The Agreement was read to the
parties before they affixed their signatures thereon. Petitioners were thereafter furnished a copy of the
subject Agreement. Petitioners are presumed to have discovered the alleged mistake on September 9,
1991. Hence, the action for annulment which was filed four years and six months from the time of the
discovery of the mistake had already prescribed. Evidently, the Agreement could no longer be set aside.

We also agree with the ruling that the absence of Renatos signature in the September 9, 1991
Agreement bears little significance to its validity. Article 124 of the Family Code relied upon by
petitioners provides that the administration of the conjugal partnership is now a joint undertaking of the
husband and the wife. In the event that one spouse is incapacitated or otherwise unable to participate
in the administration of the conjugal partnership, the other spouse may assume sole powers of
administration. However, the power of administration does not include the power to dispose or
encumber property belonging to the conjugal partnership. In all instances, the present law specifically
requires the written consent of the other spouse, or authority of the court for the disposition or
encumbrance of conjugal partnership property without which, the disposition or encumbrance shall be
void.

The foregoing provision finds no application in this case because the transaction between Florinda and
Leonila in reality did not involve any disposition of property belonging to any of the sisters conjugal
assets. It may be recalled that the agreement was for the acquisition of two lots which were being sold
together for P180,000.00. Florinda who had only P144,000.00 asked Leonila to contribute P36,000.00 to
complete the purchase price of said lots. With money pooled together, the sisters agreed that Lot 503
be valued at P80,000.00 and Lot 505 valued at P100,000.00. The P36,000.00 contribution of Leonila shall
be applied to the 503 property which upon full payment of the remaining balance of P44,000.00
advanced by Florinda shall belong to Leonila. On the other hand, of Florindas P144,000.00
contribution, P 100,000.00 shall be considered as full payment for the purchase of the 505 property and
the P44,000.00 which was the balance of the purchase price of Lot 503, as loan to Leonila. To secure
payment of the loan, Lot 503 was provisionally registered in the name of petitioners. Hence Lot 503 was
at the outset not intended to be part of the conjugal asset of the petitioners but only as a security for
the payment of the P44,000.00 due from respondents.

Moreover, while Florindas husband did not affix his signature to the above-mentioned Agreement, we
find no ground to disturb the uniform findings of the trial court and appellate court that Renato, by his
actuations, agreed and gave his conformity to the Agreement. As found by the courts below, Renatos
consent to the Agreement was drawn from the fact that he was present at the time it was signed by the
sisters and their witnesses; he had knowledge of the Agreement as it was presented to him for his
signature, although he did not sign the same because his wife Florinda insisted that her signature
already carried that of her husband; Renato witnessed the fact that Leonila contributed her hard earned
savings in the amount of P36,000.00 to complete their share in the purchase price of the properties in
question in the total amount of P180,000.00. The aforesaid factual findings of the courts below are
beyond review at this stage.10

WHEREFORE, the petition is DENIED and the assailed decision and resolution of the Court of Appeals
areAFFIRMED.

Costs against the petitioners.

SO ORDERED.

G.R. No. L-32116 April 2l, 1981

RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners,

vs.
THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

DE CASTRO, * J.:

This is a petition for review by way of certiorari of the decision 1 of the Court of Appeals in CA-G.R. No.
39760-R entitled "Maxima Castro, plaintiff-appellee, versus Severino Valencia, et al., defendants; Rural
Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes, defendants-appellants," which affirmed in
toto the decision of the Court of First Instance of Manila in favor of plaintiff- appellee, the herein private
respondent Maxima Castro.
On December 7, 1959, respondent Maxima Castro, accompanied by Severino Valencia, went to the Rural
Bank of Caloocan to apply for an industrial loan. It was Severino Valencia who arranged everything
about the loan with the bank and who supplied to the latter the personal data required for Castro's loan
application. On December 11, 1959, after the bank approved the loan for the amount of P3,000.00,
Castro, accompanied by the Valencia spouses, signed a promissory note corresponding to her loan in
favor of the bank.

On the same day, December 11, 1959, the Valencia spouses obtained from the bank an equal amount of
loan for P3,000.00. They signed a promissory note (Exhibit "2") corresponding to their loan in favor of
the bank and had Castro affixed thereon her signature as co-maker.

The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house and lot of 150
square meters, covered by Transfer Certificate of Title No. 7419 of the Office of the Register of Deeds of
Manila.

On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff Basilio Magsambol, sent a
notice of sheriff's sale addressed to Castro, announcing that her property covered by T.C.T. No. 7419
would be sold at public auction on March 10, 1961 to satisfy the obligation covering the two promissory
notes plus interest and attorney's fees.

Upon request by Castro and the Valencias and with conformity of the bank, the auction sale that was
scheduled for March 10, 1961 was postponed for April 10, 1961. But when April 10, 1961 was
subsequently declared a special holiday, the sheriff of Manila sold the property covered by T.C.T. No.
7419 at a public auction sale that was held on April 11, 1961, which was the next succeeding business
day following the special holiday.

Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on February
13, 1961, when she learned for the first time that the mortgage contract (Exhibit "6") which was an
encumbrance on her property was for P6.000.00 and not for P3,000.00 and that she was made to sign as
co-maker of the promissory note (Exhibit "2") without her being informed of this.

On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against petitioners Bank and
Desiderio, the Spouses Valencia, Basilio Magsambol and Arsenio Reyes as defendants in Civil Case No.
46698 before the Court of First Instance of Manila upon the charge, amongst others, that thru mistake
on her part or fraud on the part of Valencias she was induced to sign as co-maker of a promissory note
(Exhibit "2") and to constitute a mortgage on her house and lot to secure the questioned note. At the
time of filing her complaint, respondent Castro deposited the amount of P3,383.00 with the court a
quo in full payment of her personal loan plus interest.

In her amended complaint, Castro prayed, amongst other, for the annulment as far as she is concerned
of the promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; for the
discharge of her personal obligation with the bank by reason of a deposit of P3,383.00 with the court a
quo upon the filing of her complaint; for the annulment of the foreclosure sale of her property covered
by T.C.T. No. 7419 in favor of Arsenio Reyes; and for the award in her favor of attorney's fees, damages
and cost.

In their answers, petitioners interposed counterclaims and prayed for the dismissal of said complaint,
with damages, attorney's fees and costs. 2

The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by
respondent Court of Appeals are as follows:

Spawning the present litigation are the facts contained in the following stipulation of facts submitted by
the parties themselves:

1. That the capacity and addresses of all the parties in this case are admitted .

2. That the plaintiff was the registered owner of a residential house and lot located at Nos. 1268-1270
Carola Street, Sampaloc, Manila, containing an area of one hundred fifty (150) square meters, more or
less, covered by T.C.T. No. 7419 of the Office of the Register of Deeds of Manila;

3. That the signatures of the plaintiff appearing on the following documents are genuine:

a) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 7, 1959 in the
amount of P3,000.00 attached as Annex A of this partial stipulation of facts;

b) Promissory Note dated December 11, 1959 signed by the plaintiff in favor of the Rural Bank of
Caloocan for the amount of P3,000.00 as per Annex B of this partial stipulation of facts;

c) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 11, 1959, signed only
by the defendants, Severino Valencia and Catalina Valencia, attached as Annex C, of this partial
stipulation of facts;

d) Promissory note in favor of the Rural Bank of Caloocan, dated December 11, 1959 for the amount of
P3000.00, signed by the spouses Severino Valencia and Catalina Valencia as borrowers, and plaintiff
Maxima Castro, as a co-maker, attached as Annex D of this partial stipulation of facts;

e) Real estate mortgage dated December 11, 1959 executed by plaintiff Maxima Castro, in favor of the
Rural Bank of Caloocan, to secure the obligation of P6,000.00 attached herein as Annex E of this partial
stipulation of facts;

All the parties herein expressly reserved their right to present any evidence they may desire on the
circumstances regarding the execution of the above-mentioned documents.

4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio Magsambol, sent a notice of
sheriff's sale, address to the plaintiff, dated February 13, 1961, announcing that plaintiff's property
covered by TCT No. 7419 of the Register of Deeds of the City of Manila, would be sold at public auction
on March 10, 1961 to satisfy the total obligation of P5,728.50, plus interest, attorney's fees, etc., as
evidenced by the Notice of Sheriff's Sale and Notice of Extrajudicial Auction Sale of the Mortgaged
property, attached herewith as Annexes F and F-1, respectively, of this stipulation of facts;

5. That upon the request of the plaintiff and defendants-spouses Severino Valencia and Catalina
Valencia, and with the conformity of the Rural Bank of Caloocan, the Sheriff of Manila postponed the
auction sale scheduled for March 10, 1961 for thirty (30) days and the sheriff re-set the auction sale for
April 10, 1961;

6. That April 10, 1961 was declared a special public holiday; (Note: No. 7 is omitted upon agreement of
the parties.)

8. That on April 11, 1961, the Sheriff of Manila, sold at public auction plaintiff's property covered by
T.C.T. No. 7419 and defendant, Arsenio Reyes, was the highest bidder and the corresponding certificate
of sale was issued to him as per Annex G of this partial stipulation of facts;

9. That on April 16, 1962, the defendant Arsenio Reyes, executed an Affidavit of Consolidation of
Ownership, a copy of which is hereto attached as Annex H of this partial stipulation of facts;

10. That on May 9, 1962, the Rural Bank of Caloocan Incorporated executed the final deed of sale in
favor of the defendant, Arsenio Reyes, in the amount of P7,000.00, a copy of which is attached as Annex
I of this partial stipulation of facts;

11. That the Register of Deeds of the City of Manila issued the Transfer Certificate of Title No. 67297 in
favor of the defendant, Arsenio Reyes, in lieu of Transfer Certificate of Title No. 7419 which was in the
name of plaintiff, Maxima Castro, which was cancelled;

12. That after defendant, Arsenio Reyes, had consolidated his title to the property as per T.C.T. No.
67299, plaintiff filed a notice of lis pendens with the Register of Deeds of Manila and the same was
annotated in the back of T.C.T. No. 67299 as per Annex J of this partial stipulation of facts; and

13. That the parties hereby reserved their rights to present additional evidence on matters not covered
by this partial stipulation of facts.

WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of facts be approved and
admitted by this Honorable Court.

As for the evidence presented during the trial, We quote from the decision of the Court of Appeals the
statement thereof, as follows:

In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year old widow who cannot
read and write the English language; that she can speak the Pampango dialect only; that she has only
finished second grade (t.s.n., p. 4, December 11, 1964); that in December 1959, she needed money in
the amount of P3,000.00 to invest in the business of the defendant spouses Valencia, who accompanied
her to the defendant bank for the purpose of securing a loan of P3,000.00; that while at the defendant
bank, an employee handed to her several forms already prepared which she was asked to sign on the
places indicated, with no one explaining to her the nature and contents of the documents; that she did
not even receive a copy thereof; that she was given a check in the amount of P2,882.85 which she
delivered to defendant spouses; that sometime in February 1961, she received a letter from the Acting
Deputy Sheriff of Manila, regarding the extrajudicial foreclosure sale of her property; that it was then
when she learned for the first time that the mortgage indebtedness secured by the mortgage on her
property was P6,000.00 and not P3,000.00; that upon investigation of her lawyer, it was found that the
papers she was made to sign were:

(a) Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B-1 and Exh. 1);

(b) Promissory note dated December 11, 1959 for the said loan of P3,000.00 (Exh- B-2);

(c) Promissory note dated December 11, 1959 for P3,000.00 with the defendants Valencia spouses as
borrowers and appellee as co-maker (Exh. B-4 or Exh. 2).

The auction sale set for March 10, 1961 was postponed co April 10, 1961 upon the request of defendant
spouses Valencia who needed more time within which to pay their loan of P3,000.00 with the defendant
bank; plaintiff claims that when she filed the complaint she deposited with the Clerk of Court the sum of
P3,383.00 in full payment of her loan of P3,000.00 with the defendant bank, plus interest at the rate of
12% per annum up to April 3, 1961 (Exh. D).

As additional evidence for the defendant bank, its manager declared that sometime in December, 1959,
plaintiff was brought to the Office of the Bank by an employee- (t.s.n., p 4, January 27, 1966). She wept,
there to inquire if she could get a loan from the bank. The claims he asked the amount and the purpose
of the loan and the security to he given and plaintiff said she would need P3.000.00 to be invested in a
drugstore in which she was a partner (t.s.n., p. 811. She offered as security for the loan her lot and
house at Carola St., Sampaloc, Manila, which was promptly investigated by the defendant bank's
inspector. Then a few days later, plaintiff came back to the bank with the wife of defendant Valencia A
date was allegedly set for plaintiff and the defendant spouses for the processing of their application, but
on the day fixed, plaintiff came without the defendant spouses. She signed the application and the other
papers pertinent to the loan after she was interviewed by the manager of the defendant. After the
application of plaintiff was made, defendant spouses had their application for a loan also prepared and
signed (see Exh. 13). In his interview of plaintiff and defendant spouses, the manager of the bank was
able to gather that plaintiff was in joint venture with the defendant spouses wherein she agreed to
invest P3,000.00 as additional capital in the laboratory owned by said spouses (t.s.n., pp. 16-17) 3

The Court of Appeals, upon evaluation of the evidence, affirmed in toto the decision of the Court of First
Instance of Manila, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment and:

(1) Declares that the promissory note, Exhibit '2', is invalid as against plaintiff herein;
(2) Declares that the contract of mortgage, Exhibit '6', is null and void, in so far as the amount thereof
exceeds the sum of P3,000.00 representing the principal obligation of plaintiff, plus the interest thereon
at 12% per annum;

(3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged property held on April
11, 1961, as well as all the process and actuations made in pursuance of or in implementation thereto;

(4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of Caloocan, Inc., is only
the amount of P3,000.00, plus the interest thereon at 12% per annum, as of April 3, 1961, and orders
that plaintiff's deposit of P3,383.00 in the Office of the Clerk of Court be applied to the payment thereof;

(5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio Reyes the purchase
price the latter paid for the mortgaged property at the public auction, as well as reimburse him of all the
expenses he has incurred relative to the sale thereof;

(6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay defendant Rural Bank
of Caloocan, Inc. the amount of P3,000.00 plus the corresponding 12% interest thereon per annum from
December 11, 1960 until fully paid; and

Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses Severino D. Valencia and
Catalina Valencia to pay plaintiff, jointly and severally, the sum of P600.00 by way of attorney's fees, as
well as costs.

In view of the conclusion that the court has thus reached, the counterclaims of defendant Rural Bank of
Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes are hereby dismissed, as a corollary

The Court further denies the motion of defendant Arsenio Reyes for an Order requiring Maxima Castro
to deposit rentals filed on November 16, 1963, resolution of which was held in abeyance pending final
determination of the case on the merits, also as a consequence of the conclusion aforesaid. 4

Petitioners Bank and Jose Desiderio moved for the reconsideration 5 of respondent court's decision. The
motion having been denied, 6 they now come before this Court in the instant petition, with the following
Assignment of Errors, to wit:

THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL ANNULMENT OF THE PROMISSORY NOTE,
EXHIBIT 2, AND THE MORTGAGE, EXHIBIT 6, INSOFAR AS THEY AFFECT RESPONDENT MAXIMA CASTRO
VIS-A-VIS PETITIONER BANK DESPITE THE TOTAL ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT
OR COMPETENT PROOF IN THE EVIDENCE OF ANY FRAUD OR OTHER UNLAWFUL CONDUCT COMMITTED
OR PARTICIPATED IN BY PETITIONERS IN PROCURING THE EXECUTION OF SAID CONTRACTS FROM
RESPONDENT CASTRO.

II
THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING PREJUDICIALLY AGAINST
PETITIONERS, AS BASIS FOR THE PARTIAL ANNULMENT OF THE CONTRACTS AFORESAID ITS FINDING OF
FRAUD PERPETRATED BY THE VALENCIA SPOUSES UPON RESPONDENT CASTRO IN UTTER VIOLATION OF
THE RES INTER ALIOS ACTA RULE.

III

THE COURT OF APPEAL ERRED IN NOT HOLDING THAT, UNDER THE FACTS FOUND BY IT, RESPONDENT
CASTRO IS UNDER ESTOPPEL TO IMPUGN THE REGULARITY AND VALIDITY OF HER QUESTIONED
TRANSACTION WITH PETITIONER BANK.

IV

THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN PETITIONERS AND RESPONDENT
CASTRO, THE LATTER SHOULD SUFFER THE CONSEQUENCES OF THE FRAUD PERPETRATED BY THE
VALENCIA SPOUSES, IN AS MUCH AS IT WAS THRU RESPONDENT CASTRO'S NEGLIGENCE OR
ACQUIESCENSE IF NOT ACTUAL CONNIVANCE THAT THE PERPETRATION OF SAID FRAUD WAS MADE
POSSIBLE.

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE DEPOSIT BY RESPONDENT CASTRO
OF P3,383.00 WITH THE COURT BELOW AS A TENDER AND CONSIGNATION OF PAYMENT SUFFICIENT TO
DISCHARGE SAID RESPONDENT FROM HER OBLIGATION WITH PETITIONER BANK.

VI

THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND BINDING UPON RESPONDENT
CASTRO THE HOLDING OF THE SALE ON FORECLOSURE ON THE BUSINESS DAY NEXT FOLLOWING THE
ORIGINALLY SCHEDULED DATE THEREFOR WHICH WAS DECLARED A HOLIDAY WITHOUT NECESSITY OF
FURTHER NOTICE THEREOF.

The issue raised in the first three (3) assignment of errors is whether or not respondent court correctly
affirmed the lower court in declaring the promissory note (Exhibit 2) invalid insofar as they affect
respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6) valid up to the
amount of P3,000.00 only.

Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where she
signed as co-maker with the Valencias as principal borrowers and her acquiescence to the mortgage
contract (Exhibit 6) where she encumbered her property to secure the amount of P6,000.00 was
obtained by fraud perpetrated on her by the Valencias who had abused her confidence, taking
advantage of her old age and ignorance of her financial need. Respondent court added that "the
mandate of fair play decrees that she should be relieved of her obligation under the contract" pursuant
to Articles 24 7 and 1332 8 of the Civil Code.
The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the mortgage
contract (Exhibit 6) was deemed valid up to the amount of P3,000.00 only which was equivalent to her
personal loan to the bank.

Petitioners argued that since the Valencias were solely declared in the decision to be responsible for the
fraud against Castro, in the light of the res inter alios acta rule, a finding of fraud perpetrated by the
spouses against Castro cannot be taken to operate prejudicially against the bank. Petitioners concluded
that respondent court erred in not giving effect to the promissory note (Exhibit 2) insofar as they affect
Castro and the bank and in declaring that the mortgage contract (Exhibit 6) was valid only to the extent
of Castro's personal loan of P3,000.00.

The records of the case reveal that respondent court's findings of fraud against the Valencias is well
supported by evidence. Moreover, the findings of fact by respondent court in the matter is deemed
final. 9 The decision declared the Valencias solely responsible for the defraudation of Castro. Petitioners'
contention that the decision was silent regarding the participation of the bank in the fraud is, therefore,
correct.

We cannot agree with the contention of petitioners that the bank was defrauded by the Valencias. For
one, no claim was made on this in the lower court. For another, petitioners did not submit proof to
support its contention.

At any rate, We observe that while the Valencias defrauded Castro by making her sign the promissory
note (Exhibit 2) and the mortgage contract (Exhibit 6), they also misrepresented to the bank Castro's
personal qualifications in order to secure its consent to the loan. This must be the reason which
prompted the bank to contend that it was defrauded by the Valencias. But to reiterate, We cannot agree
with the contention for reasons above-mentioned. However, if the contention deserves any
consideration at all, it is in indicating the admission of petitioners that the bank committed mistake in
giving its consent to the contracts.

Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the
Valencias both Castro and the bank committed mistake in giving their consents to the contracts. In other
words, substantial mistake vitiated their consents given. For if Castro had been aware of what she
signed and the bank of the true qualifications of the loan applicants, it is evident that they would not
have given their consents to the contracts.

Pursuant to Article 1342 of the Civil Code which provides:

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation
has created substantial mistake and the same is mutual.

We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the mortgage
contract (Exhibit 6) binding on Castro beyond the amount of P3,000.00, for while the contracts may not
be invalidated insofar as they affect the bank and Castro on the ground of fraud because the bank was
not a participant thereto, such may however be invalidated on the ground of substantial mistake
mutually committed by them as a consequence of the fraud and misrepresentation inflicted by the
Valencias. Thus, in the case of Hill vs. Veloso, 10this Court declared that a contract may be annulled on
the ground of vitiated consent if deceit by a third person, even without connivance or complicity with
one of the contracting parties, resulted in mutual error on the part of the parties to the contract.

Petitioners argued that the amended complaint fails to contain even a general averment of fraud or
mistake, and its mention in the prayer is definitely not a substantial compliance with the requirement of
Section 5, Rule 8 of the Rules of Court. The records of the case, however, will show that the amended
complaint contained a particular averment of fraud against the Valencias in full compliance with the
provision of the Rules of Court. Although, the amended complaint made no mention of mistake being
incurred in by the bank and Castro, such mention is not essential in order that the promissory note
(Exhibit 2) may be declared of no binding effect between them and the mortgage (Exhibit 6) valid up to
the amount of P3,000.00 only. The reason is that the mistake they mutually suffered was a mere
consequence of the fraud perpetrated by the Valencias against them. Thus, the fraud particularly
averred in the complaint, having been proven, is deemed sufficient basis for the declaration of the
promissory note (Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage
contract (Exhibit 6) valid only up to the amount of P3,000.00.

The second issue raised in the fourth assignment of errors is who between Castro and the bank should
suffer the consequences of the fraud perpetrated by the Valencias.

In attributing to Castro an consequences of the loss, petitioners argue that it was her negligence or
acquiescence if not her actual connivance that made the fraud possible.

Petitioners' argument utterly disregards the findings of respondent Court of Appeals wherein
petitioners' negligence in the contracts has been aptly demonstrated, to wit:

A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the plaintiff-appellee to
several interviews. If this were true why is it that her age was placed at 61 instead of 70; why was she
described in the application (Exh. B-1-9) as drug manufacturer when in fact she was not; why was it
placed in the application that she has income of P20,000.00 when according to plaintiff-appellee, she his
not even given such kind of information -the true fact being that she was being paid P1.20 per picul of
the sugarcane production in her hacienda and 500 cavans on the palay production. 11

From the foregoing, it is evident that the bank was as much , guilty as Castro was, of negligence in giving
its consent to the contracts. It apparently relied on representations made by the Valencia spouses when
it should have directly obtained the needed data from Castro who was the acknowledged owner of the
property offered as collateral. Moreover, considering Castro's personal circumstances her lack of
education, ignorance and old age she cannot be considered utterly neglectful for having been
defrauded. On the contrary, it is demanded of petitioners to exercise the highest order of care and
prudence in its business dealings with the Valencias considering that it is engaged in a banking business
a business affected with public interest. It should have ascertained Castro's awareness of what she was
signing or made her understand what obligations she was assuming, considering that she was giving
accommodation to, without any consideration from the Valencia spouses.
Petitioners further argue that Castro's act of holding the Valencias as her agent led the bank to believe
that they were authorized to speak and bind her. She cannot now be permitted to deny the authority of
the Valencias to act as her agent for one who clothes another with apparent authority as her agent is
not permitted to deny such authority.

The authority of the Valencias was only to follow-up Castro's loan application with the bank. They were
not authorized to borrow for her. This is apparent from the fact that Castro went to the Bank to sign the
promissory note for her loan of P3,000.00. If her act had been understood by the Bank to be a grant of
an authority to the Valencia to borrow in her behalf, it should have required a special power of attorney
executed by Castro in their favor. Since the bank did not, We can rightly assume that it did not entertain
the notion, that the Valencia spouses were in any manner acting as an agent of Castro.

When the Valencias borrowed from the Bank a personal loan of P3,000.00 evidenced by a promissory
note (Exhibit 2) and mortgaged (Exhibit 6) Castro's property to secure said loan, the Valencias acted for
their own behalf. Considering however that for the loan in which the Valencias appeared as principal
borrowers, it was the property of Castro that was being mortgaged to secure said loan, the Bank should
have exercised due care and prudence by making proper inquiry if Castro's consent to the mortgage was
without any taint or defect. The possibility of her not knowing that she signed the promissory note
(Exhibit 2) as co-maker with the Valencias and that her property was mortgaged to secure the two loans
instead of her own personal loan only, in view of her personal circumstances ignorance, lack of
education and old age should have placed the Bank on prudent inquiry to protect its interest and that
of the public it serves. With the recent occurrence of events that have supposedly affected adversely
our banking system, attributable to laxity in the conduct of bank business by its officials, the need of
extreme caution and prudence by said officials and employees in the discharge of their functions cannot
be over-emphasized.

Question is, likewise, raised as to the propriety of respondent court's decision which declared that
Castro's consignation in court of the amount of P3,383.00 was validly made. It is contended that the
consignation was made without prior offer or tender of payment to the Bank, and it therefore, not valid.
In holding that there is a substantial compliance with the provision of Article 1256 of the Civil Code,
respondent court considered the fact that the Bank was holding Castro liable for the sum of P6,000.00
plus 12% interest per annum, while the amount consigned was only P3,000.00 plus 12% interest; that at
the time of consignation, the Bank had long foreclosed the mortgage extrajudicially and the sale of the
mortgage property had already been scheduled for April 10, 1961 for non-payment of the obligation,
and that despite the fact that the Bank already knew of the deposit made by Castro because the receipt
of the deposit was attached to the record of the case, said Bank had not made any claim of such deposit,
and that therefore, Castro was right in thinking that it was futile and useless for her to make previous
offer and tender of payment directly to the Bank only in the aforesaid amount of P3,000.00 plus 12%
interest. Under the foregoing circumstances, the consignation made by Castro was valid. if not under the
strict provision of the law, under the more liberal considerations of equity.

The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public auction of
the mortgaged property that was held on April 11, 1961.
Petitioners contended that the public auction sale that was held on April 11, 1961 which was the next
business day after the scheduled date of the sale on April 10, 1961, a special public holiday, was
permissible and valid pursuant to the provisions of Section 31 of the Revised Administrative Code which
ordains:

Pretermission of holiday. Where the day, or the last day, for doing any act required or permitted by
law falls on a holiday, the act may be done on the next succeeding business day.

Respondent court ruled that the aforesaid sale is null and void, it not having been carried out in
accordance with Section 9 of Act No. 3135, which provides:

Section 9. Notice shall be given by posting notices of the sale for not less than twenty days in at least
three public places of the municipality or city where the property is situated, and if such property is
worth more than four hundred pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or city.

We agree with respondent court. The pretermission of a holiday applies only "where the day, or the last
day for doing any act required or permitted by law falls on a holiday," or when the last day of a given
period for doing an act falls on a holiday. It does not apply to a day fixed by an office or officer of the
government for an act to be done, as distinguished from a period of time within which an act should be
done, which may be on any day within that specified period. For example, if a party is required by law to
file his answer to a complaint within fifteen (15) days from receipt of the summons and the last day falls
on a holiday, the last day is deemed moved to the next succeeding business day. But, if the court fixes
the trial of a case on a certain day but the said date is subsequently declared a public holiday, the trial
thereof is not automatically transferred to the next succeeding business day. Since April 10, 1961 was
not the day or the last day set by law for the extrajudicial foreclosure sale, nor the last day of a given
period but a date fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next
succeeding business day without the notices of the sale on that day being posted as prescribed in
Section 9, Act No. 3135.

WHEREFORE, finding no reversible error in the judgment under review, We affirm the same in toto. No
pronouncement as to cost.

SO ORDERED.

G.R. No. 126013 February 12, 1997

SPOUSES HEINZRICH THEIS AND BETTY THEIS, petitioners,

vs.
HONORABLE COURT OF APPEALS, HONORABLE ELEUTERIO GUERRERO, ACTING PRESIDING JUDGE,
BRANCH XVIII, REGIONAL TRIAL COURT, TAGAYTAY CITY, CALSONS DEVELOPMENT
CORPORATION,respondents.
HERMOSISIMA, JR., J.:

In the instant petition, we shall have the occasion to apply the concept of mistake in the annulment of
contracts.

Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels of land
covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in the location map), 15516 (parcel
no. 2) and 15684 (parcel no. 3), with the area of 1,000 square meters, 226 square meters and 1,000
square meters, respectively. All three parcels of land are situated along Ligaya Drive, Barangay Francisco,
Tagaytay City. Adjacent to parcel no. 3, which is the lot covered by TCT No. 15684, is a vacant lot
denominated as parcel no. 4.

In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots covered by TCT No.
15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2, respectively, remained idle.

However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands, was
erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while the two idle
lands (parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4 instead (which was
not owned by private respondent) and covered by TCT Nos. 15516 and 15684.

On October 26, 1987, unaware of the mistake by which private respondent appeared to be the owner of
parcel no. 4 as indicated in the erroneous survey, and based on the erroneous information given by the
surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684, private respondent, through its
authorized representative, one Atty. Tarcisio S. Calilung, sold said parcel no. 4 to petitioners.

Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to
petitioners who, on October 28, 1987, immediately registered the same with the Registry of Deeds of
Tagaytay City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were issued.

Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The actual price agreed
upon and paid, however, was P486,000.00. This amount was not immediately paid to private
respondent; rather, it was deposited in escrow in an interest-bearing account in its favor with the United
Coconut Planters Bank in Makati City. The P486,000.00 in escrow was released to, and received by,
private respondent on December 4, 1987.

Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle parcels of
land purchased from private respondent. Instead, petitioners went to Germany.

In the early part of 1990, petitioners returned to the Philippines. When, they went to Tagaytay to look
over the vacant lots and to plan the construction of their house thereon, they discovered that parcel no.
4 was owned by another person. They also discovered that the lots actually sold to them were parcel
nos. 2 and 3 covered by TCT Nos. 15516 and 15684. respectively. Parcel no. 3, however, could not have
been sold to the petitioners by the private respondents as a two-storey house, the construction cost of
which far exceeded the price paid by the petitioners, had already been built thereon even prior to the
execution of the contract between the disputing parties.

Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel no. 3, and
persisted in claiming that it was parcel no. 4 that private respondent sold to them. However, private
respondent could not have possibly sold the same to them for it did not own parcel no. 4 in the first
place.

The mistake in the identity of the lots is traceable to the erroneous survey conducted in 1985.

To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT Nos. 15515 and
15516, respectively, as these two were precisely the two vacant lots which private respondent owned
and intended to sell when it entered into the transaction with petitioners. Petitioners adamantly
rejected the good faith offer. They refused to yield to reason and insisted on taking parcel no. 3, covered
by TCT No. 155864 and upon which a two-storey house stands, in addition to parcel no. 2, covered by
TCT No. 15516, on the ground that these TCTs have already been cancelled and new ones issued in their
name.

Such refusal of petitioners prompted private respondent to make another offer, this time, the return of
an amount double the price paid by petitioners. Petitioners still refused and stubbornly insisted in their
stand.

Private respondent was then compelled to file an action for annulment of deed of sale and
reconveyance of the properties subject thereof 1 in the Regional Trial Court. 2

The trial court rendered judgment in favor of private respondent. Identifying the core issue in the
instant controversy to be the voidability of the contract of sale between petitioners and private
respondent on the ground of mistake, the trial court annulled said contract of sale after finding that
there was indeed a mistake in the identification of the parcels of land intended to be the subject matter
of said sale. The trial court ratiocinated:

Meeting head-on the issue of alleged mistake in the object of the same, defendants in their answer
averred that they relied on the technical descriptions of TCT Nos. 15516 and 15684 appearing in the
deed of sale.
...

A resolution of the conflicting claims of the parties to the instant controversy calls for an inquiry on their
real intent relative to the identity of the parcels which plaintiff intended to sell to defendants and which
the latter in turn, intended to buy from the former. For, the Court cannot ignore the dictates of logic and
common sense which, ordinarily, could not push a person to sell to another, a property which the
former does not own in the first place, for fear of adverse consequences. The vendee, following the
same reasoning, would not buy a thing unless he is totally certain that the seller is the real owner of the
thing offered for sale. It is equally true that when one sells or buys a real property, he either sells or buys
the property as he sees it, in its actual setting and by its physical metes and bounds, and not be the
mere lot number assigned to the same property in the certificate of title or in any document. And, when
a buyer of real property decides to purchase from his seller, he is ordinarily bound by prudence to
ascertain the true nature, identity or character of the property that he intends to buy and ascertain the
title of his vendor before he parts with his money. It is quite obvious that the foregoing precepts and
precautions were observed by the parties in the case at bar as there is no question at all that he sale in
question was consummated through the initiative of Mrs. Gloria Contreras and then Vice-Mayor
Benjamin Erni . . . both brokers of the sale who, after a chance meeting with defendants at the Taal Vista
Lodge Hotel prior to the sale of plaintiffs parcels, brought defendants to the vicinity where plaintiffs
three (3) adjacent parcels of land are located and pointed to defendants the two (2) vacant parcels right
beside plaintiffs house. It is also undisputed that when defendants intimated to the brokers their desire
to buy the vacant lots pointed to them when they visited the same place, they were brought to plaintiffs
representative, Tarcisio S. Calilung, at the latter's office in Makati where the parties discussed the terms
of the sale.

The Court notes further from the records that defendants' desire to buy vacant lots from plaintiff is not
only confirmed by the testimony of Gloria Contreras and the ocular inspection conducted by the court
but by defendant Betty Theis herself when the latter testified as follows:

"COURT:

Q. Why, what was the lot that you intended to buy?

A. The right side of the house, Your Honor." (TSN of November 8, 1991, page 19)

Similarly, in answer to a question propounded to the same defendant by their counsel, she stated that

"ATTY. ROSALES:

Q. In other words, the titles delivered to you were not the titles covering the right side of the house?

A No, sir." (Ibid., page 20)

It is relevant to mention that when the defendants attempted to take possession of the parcels of land
they bought from the plaintiff on which they intended to construct their house after their return from a
foreign sojourn, they admittedly wanted to take that vacant area, which as herein shown, turns out to
be a property not owned by plaintiff. From this act of the defendants, a clear meaning is shown.
Defendants themselves, knew right from the beginning that what they intended to buy was that vacant
lot, not the lot where plaintiffs house stands, covered by TCT No. 15684 which was wrongly mentioned
as one of the objects of the sale. . . .

The fact that the Deed of Sale subsequently executed by plaintiff and the defendants on October 27,
1987 covers the parcel of land where plaintiffs two- storey house was constructed will clearly reflect a
situation that is totally different from what defendants had intended to buy from the plaintiff viz-a-viz
[sic] the latter's intention to sell its two (2) vacant lots to defendants. Notwithstanding defendants' claim
that it was not possible for plaintiffs representative not to be familiar with its properties, the acts and
circumstances established in this case would clearly show, and this Court is convinced, that the inclusion
of the parcel where plaintiffs house is constructed is solely attributable to a mistake in the object of the
sale between the parties. This mistake, obviously, was made, on the part of plaintiffs representative
when the latter mistook the vacant lot situated on the right side of plaintiffs house as its vacant parcels
of land when its vacant lots are actually situated on the left side of the same house. Indeed, such
mistake on plaintiffs part appears to be tragic as it turned out later that the vacant lot on the right side
of plaintiffs house did not belong to plaintiff. Worse, is the fact that what was conveyed to defendants
under the deed of sale was the parcel where plaintiff s house already stood at the time of the sale. This,
definitely, is not what the parties intended.

. . . Going by the facts established by defendants' evidence, it is clear that defendants did not intend to
buy the parcel of land where plaintiffs house stood as defendant Betty Theis declared in her testimony
that they wanted to buy the parcel at the right side of plaintiffs house where she and her husband would
construct their house (TSN of June 4 1991, page 56). Neither can this Court accept the hypothesis that
plaintiff intended to sell that parcel where its house was already constructed for if this was its true
intention. it would not sell its two (2) lots at the price of P486,000.00 which is way below the costs of its
construction of P1,500,000.00.

The law itself explicitly recognizes that consent of the parties is one of the essential elements to the
validity of the contract and where consent is given through mistake, the validity of the contractual
relations between the parties is legally impaired.

As earlier stated, the facts obtaining in the case at bar undoubtedly show that when defendants bought
the properties of plaintiff, they intended to buy the vacant lots owned by the latter. As the sale that was
finally consummated by the parties had covered the parcel where plaintiffs house was constructed even
before the sale took place, this Court can safely assume that the deed of sale executed by the parties did
not truly express their true intention. In other words, the mistake or error on the subject of the sale in
question appears to be substantial as the object of the same transaction is different from that intended
by the parties. This fiasco could have been cured and the pain and travails of this litigation avoided,had
parties agreed to a reformation of the deed of sale. But. as shown by the sequence of events occurring
after the sale was consummated. and the mistake was discovered. the defendants refused, insisting that
they wanted the vacant lots on the right side of plaintiffs house. which was impossible the vacant lots on
the right side for plaintiff to do, as said vacant lots were not of its own dominion. 3 [Emphasis ours]

Aggrieved by the decision of the trial court, petitioners sought its

reversal 4 from respondent Court of Appeals 5. Respondent court, however, did not find the appeal
meritorious and accordingly affirmed 6 the trial court decision. Ruled the respondent appellate court:

There is no doubt that when defendants-appellants attempted to take physical possession of Parcel No.
4 in May, 1990, they were prevented by the true owner thereof from taking possession of said land. To
clear the matter, plaintiff-appellee hired a new surveyor who revealed in his survey that Parcel No. 4 is
not included in plaintiff-appellee's Transfer Certificates of Title from which said plaintiff-appellee
mistakenly offered defendants-appellants said Parcel No. 4. Realizing its mistake, plaintiff- appellee
offered defendants-appellants Parcels Nos. 1 and 2 under the same Transfer Certificates of Title or the
reimbursement of the purchase price in double amount. But defendants-appellants insisted this time to
acquire Parcel No. 3 wherein plaintiff-appellee had already a house, and was not the object of the sale.

Said Parcel No. 3 cannot be the object of the sale between the parties as plaintiff-appellee's house
already stands in the said area even before defendants-appellants had chosen Parcel No. 4 which was
described to be on the right side of said plaintiff-appellee's house in Parcel No. 3. There is no dispute
that defendants-appellants wanted to buy Parcel No. 4 as testified to by defendant-appellant Petty
Theis, herself (p. 19, tsn, Nov. 8, 1991), which lot turned out to be outside of the Transfer Certificates of
Title of plaintiff-appellee. Defendants-appellants cannot now insist on Parcel No. 3 as the same was not
the object of the sale between the parties.

Clearly, therefore. there was honest mistake on the part of Plaintiff- appellee in the sale of Parcel No. 4
to defendants-appellants which plaintiff- appellee tried to remedy by offering defendants-appellant
instead his Parcels Nos. 1 or 2, or reimbursement of the purchase price in double amount. 7[Emphasis
ours]

We find that respondent court correctly affirmed the findings and conclusions of the trial court in
annulling the deed of sale as the former are supported by evidence and the latter are in accordance with
existing law and jurisprudence.

Art. 1390 of the New Civil Code provides:

Art. 1390. The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:

(1) . . .

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.

xxx xxx xxx

In the case at bar, the private respondent obviously committed an honest mistake in selling parcel no. 4.
As correctly noted by the Court of Appeals, it is quite impossible for said private respondent to sell the
lot in question as the same is not owned by it. The good faith of the private respondent is evident in the
fact that when the mistake was discovered, it immediately offered two other vacant lots to the
petitioners or to reimburse them with twice the amount paid. That petitioners refused either option left
the private respondent with no other choice but to file an action for the annulment of the deed of sale
on the ground of mistake. As enunciated in the case of Mariano vs. Court of Appeals: 8

A contract may be annulled where the consent of one of the contracting parties was procured by
mistake, fraud, intimidation, violence, or undue influence.
Art. 1331 of the New Civil Code provides for the situations whereby mistake may invalidate consent. It
states:

Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both
parties to enter into the contract.

Tolentino 9 explains that the concept of error in this article must include both ignorance, which is the
absence of knowledge with respect to a thing, and mistake properly speaking, which is a wrong
conception about said thing, or a belief in the existence of some circumstance, fact, or event, which in
reality does not exist. In both cases, there is a lack of full and correct knowledge about the thing. The
mistake committed by the private respondent in selling parcel no. 4 to the petitioners falls within the
second type. Verily, such mistake invalidated its consent and as such, annulment of the deed of sale is
proper.

The petitioners cannot be justified in their insistence that parcel no. 3, upon which private respondent
constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of construction in
1985 for the said house (P1,500,000.00) far exceeds the amount paid by the petitioners to the private
respondent (P486,000.00). Moreover, the trial court, in questioning private respondent's witness, Atty.
Tarciso Calilung (who is also its authorized representative) clarified that parcel no. 4, the lot mistakenly
sold, was a vacant lot: 10

COURT: What property did you point to them?

A. I pointed to parcel No. 4, as appearing in the sketch.

COURT: Parcel No. 4 is a vacant lot?

A. Yes, your Honor.

COURT: So, there was no house on that lot?

A. There was no house. There were pineapple crops existing on the property.

COURT: So, you are telling the Court that the intended lot is vacant lot or Parcel 4?

A. Yes, your Honor.

Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to accept the
offer of the private respondent to give them two (2) other vacant lots in exchange, as well as their
insistence on parcel no. 3, which is a house and lot, is manifestly unreasonable. As held by this Court in
the case of Security Bank and Trust Company v. Court of Appeals 11:
Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual
construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of the
private respondent. Such unjust enrichment, as previously discussed, is not allowed by law.

WHEREFORE, the petition is hereby DISMISSED and the decision of the Court Appeals in CA-G.R. 47000
dated May 31, 1996 AFFIRMED. Costs against the petitioner.

SO ORDERED.

Padilla, Belosillo, Vitug and Kapunan, JJ., concur.

Case Digest on MWSS vs. CA (297 SCRA 287)

July 27, 2010

MWSS vs. CA [297 SCRA 287 (Oct 7 1998)]

Acts of Corporate Officer: Effects of Ratification by Board

Facts; MWSS leased 128 hectares of its land to CHGCCI for 25 years with a stipulation allowing the latter
to exercise a right of first refusal should the subject property be made open for sale. The terms and
conditions of CHGCCIs purchase was nonetheless subject to presidential approval.
Then Pres. Marcos directed MWSS to negotiate the cancellation of this lease agreement between MWSS
and CHGCCI. However, MWSS general manager, Ilustre, informed CHGCCI that the property was up for
sale, and that as per their contract, CHGCCI had the preferential right to buy said property. Hence, the
property was purchased, and Pres. Marcos later on approved this sale. Then, BoT of MWSS also
approved the sale by passing a resolution. CHGCCI sold the land to Ayala.
10 years later, MWSS filed an action against CHGCCI and Ayala in RTC praying for the declaration of
nullity of the MWSS-CHGCCI sales agreement. RTC dismissed the petition. CA affirmed. Hence, this
petition for certiorari with SC. MWSS holds that Ilustre was never given the authority by the BoT to
enter into the initial agreement, and therefore, the sale of the property was null and void.

Issue: Whether or not the sale was valid.

Held: Yes. Assuming that Ilustre was not given the ample authority to enter into the agreement, this
infirmity was cured by ratification. So settled is the precept that ratification can be made by the
corporate board either expressly or impliedly. Implied ratification may take various forms like silence
or acquiescence, by acts showing approval or adoption of the contract, or by acceptance and retention
of benefits flowing therefrom. Both modes of ratification have been made in this case. There was
express ratification made by the BoT of MWSS when it passed a resolution approving the sale of the
subject property to CHGCCI, authorizing Ilustre to sign for and in behalf of MWSS the contract papers
relative thereto. Implied ratification by silence or acquiescence is revealed from the acts of MWSS in
sending 3 demand letters for the payment of the purchase price, accepting P25M as down payment, and
accepting a letter of credit for the balance. Furthermore, MWSS did not return any of these amounts
covering the purchase price at any point in time. This is indicative of MWSS acceptance and retention
of benefits flowing from the sales transactions which is another form of implied ratification.

G.R. No. 139982 November 21, 2002

JULIAN FRANCISCO (Substituted by his Heirs, namely: CARLOS ALTEA FRANCISCO;

the heirs of late ARCADIO FRANCISCO, namely: CONCHITA SALANGSANG-FRANCISCO (surviving
spouse),
and his children namely: TEODULO S. FRANCISCO, EMILIANO S. FRANCISCO, MARIA THERESA S.
FRANCISCO,
PAULINA S. FRANCISCO, THOMAS S. FRANCISCO;
PEDRO ALTEA FRANCISCO; CARINA FRANCISCO-ALCANTARA; EFREN ALTEA FRANCISCO; DOMINGA LEA
FRANCISCO-REGONDON;
BENEDICTO ALTEA FRANCISCO and ANTONIO ALTEA FRANCISCO), petitioner,
vs.
PASTOR HERRERA, respondent.

DECISION

QUISUMBING, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals, dated August 30, 1999,
in CA-G.R. CV No. 47869, which affirmed in toto the judgment2 of the Regional Trial Court (RTC) of
Antipolo City, Branch 73, in Civil Case No. 92-2267. The appellate court sustained the trial courts ruling
which: (a) declared null and void the deeds of sale of the properties covered by Tax Declaration Nos. 01-
00495 and 01-00497; and (b) directed petitioner to return the subject properties to respondent who, in
turn, must refund to petitioner the purchase price of P1,750,000.

The facts, as found by the trial court and affirmed by the Court of Appeals, are as follows:

Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting of 500
sq. m. and another consisting of 451 sq. m., covered by Tax Declaration (TD) Nos. 01-00495 and 01-
00497, respectively. Both were located at Barangay San Andres, Cainta, Rizal.3

On January 3, 1991, petitioner bought from said landowner the first parcel, covered by TD No. 01-00495,
for the price of P1,000,000, paid in installments from November 30, 1990 to August 10, 1991.

On March 12, 1991, petitioner bought the second parcel covered by TD No. 01-00497, for P750,000.

Contending that the contract price for the two parcels of land was grossly inadequate, the children of
Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera, tried to
negotiate with petitioner to increase the purchase price. When petitioner refused, herein respondent
then filed a complaint for annulment of sale, with the RTC of Antipolo City, docketed as Civil Case No.
92-2267. In his complaint, respondent claimed ownership over the second parcel, which is the lot
covered by TD No. 01-00497, allegedly by virtue of a sale in his favor since 1973. He likewise claimed
that the first parcel, the lot covered by TD No. 01-00495, was subject to the co-ownership of the
surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering that she died intestate on April
2, 1990, before the alleged sale to petitioner. Finally, respondent also alleged that the sale of the two
lots was null and void on the ground that at the time of sale, Eligio, Sr. was already incapacitated to give
consent to a contract because he was already afflicted with senile dementia, characterized by
deteriorating mental and physical condition including loss of memory.

In his answer, petitioner as defendant below alleged that respondent was estopped from assailing the
sale of the lots. Petitioner contended that respondent had effectively ratified both contracts of sales, by
receiving the consideration offered in each transaction.

On November 14, 1994, the Regional Trial Court handed down its decision, the dispositive portion of
which reads:

WHEREFORE, in view of all the foregoing, this court hereby orders that:

1. The deeds of sale of the properties covered by Tax Dec. Nos. 01-00495 and 01-00497 are declared null
and void;

2. The defendant is to return the lots in question including all improvements thereon to the plaintiff and
the plaintiff is ordered to simultaneously return to the defendant the purchase price of the lots sold
totalling toP750,000.00 for lot covered by TD 01-00497 and P1,000,000.00 covered by TD 01-00495;

3. The court also orders the defendant to pay the cost of the suit.

<>4. The counter-claim of the defendant is denied for lack of merit.

SO ORDERED.4

Petitioner then elevated the matter to the Court of Appeals in CA-G.R. CV No. 47869. On August 30,
1999, however, the appellate court affirmed the decision of the Regional Trial Court, thus:

WHEREFORE, premises considered, the decision appealed from is hereby AFFIRMED in toto. Costs
against defendant-appellant.

SO ORDERED.5

Hence, this petition for review anchored on the following grounds:

I. THE COURT OF APPEALS COMPLETELY IGNORED THE BASIC DIFFERENCE BETWEEN A VOID AND A
MERELY VOIDABLE CONTRACT THUS MISSING THE ESSENTIAL SIGNIFICANCE OF THE ESTABLISHED FACT
OF RATIFICATION BY THE RESPONDENT WHICH EXTINGUISHED WHATEVER BASIS RESPONDENT MAY
HAVE HAD IN HAVING THE CONTRACT AT BENCH ANNULLED.

II. THE DECISION OF THE COURT OF APPEALS ON "SENILE DEMENTIA":

A. DISREGARDED THE FACTUAL BACKGROUND OF THE CASE;

B. WAS CONTRARY TO ESTABLISHED JURISPRUDENCE; AND

C. WAS PURELY CONJECTURAL, THE CONJECTURE BEING ERRONEOUS.

III. THE COURT OF APPEALS WAS IN GROSS ERROR AND IN FACT VIOLATED PETITIONERS RIGHT TO DUE
PROCESS WHEN IT RULED THAT THE CONSIDERATION FOR THE QUESTIONED CONTRACTS WAS GROSSLY
INADEQUATE.6

The resolution of this case hinges on one pivotal issue: Are the assailed contracts of sale void or merely
voidable and hence capable of being ratified?

Petitioner contends that the Court of Appeals erred when it ignored the basic distinction between void
and voidable contracts. He argues that the contracts of sale in the instant case, following Article 13907 of
the Civil Code are merely voidable and not void ab initio. Hence, said contracts can be ratified. Petitioner
argues that while it is true that a demented person cannot give consent to a contract pursuant to Article
1327,8 nonetheless the dementia affecting one of the parties will not make the contract void per se but
merely voidable. Hence, when respondent accepted the purchase price on behalf of his father who was
allegedly suffering from senile dementia, respondent effectively ratified the contracts. The ratified
contracts then become valid and enforceable as between the parties.

Respondent counters that his act of receiving the purchase price does not imply ratification on his part.
He only received the installment payments on his senile fathers behalf, since the latter could no longer
account for the previous payments. His act was thus meant merely as a safety measure to prevent the
money from going into the wrong hands. Respondent also maintains that the sales of the two properties
were null and void. First, with respect to the lot covered by TD No. 01-00497, Eligio, Sr. could no longer
sell the same because it had been previously sold to respondent in 1973. As to lot covered by TD No. 01-
00495, respondent contends that it is co-owned by Eligio, Sr. and his children, as heirs of Eligios wife. As
such, Eligio, Sr. could not sell said lot without the consent of his co-owners.

We note that both the trial court and the Court of Appeals found that Eligio, Sr. was already suffering
from senile dementia at the time he sold the lots in question. In other words, he was already mentally
incapacitated when he entered into the contracts of sale. Settled is the rule that findings of fact of the
trial court, when affirmed by the appellate court, are binding and conclusive upon the Supreme Court.9

Coming now to the pivotal issue in this controversy. A void or inexistent contract is one which has no
force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be
validated either by the passage of time or by ratification. There are two types of void contracts: (1) those
where one of the essential requisites of a valid contract as provided for by Article 131810 of the Civil
Code is totally wanting; and (2) those declared to be so under Article 140911 of the Civil Code. By
contrast, a voidable or annullable contract is one in which the essential requisites for validity under
Article 1318 are present, but vitiated by want of capacity, error, violence, intimidation, undue influence,
or deceit.
Article 1318 of the Civil Code states that no contract exists unless there is a concurrence of consent of
the parties, object certain as subject matter, and cause of the obligation established. Article 1327
provides that insane or demented persons cannot give consent to a contract. But, if an insane or
demented person does enter into a contract, the legal effect is that the contract is voidable or
annullable as specifically provided in Article 1390.12

In the present case, it was established that the vendor Eligio, Sr. entered into an agreement with
petitioner, but that the formers capacity to consent was vitiated by senile dementia. Hence, we must
rule that the assailed contracts are not void or inexistent per se; rather, these are contracts that are
valid and binding unless annulled through a proper action filed in court seasonably.

An annullable contract may be rendered perfectly valid by ratification, which can be express or implied.
Implied ratification may take the form of accepting and retaining the benefits of a contract.13 This is
what happened in this case. Respondents contention that he merely received payments on behalf of his
father merely to avoid their misuse and that he did not intend to concur with the contracts is
unconvincing. If he was not agreeable with the contracts, he could have prevented petitioner from
delivering the payments, or if this was impossible, he could have immediately instituted the action for
reconveyance and have the payments consigned with the court. None of these happened. As found by
the trial court and the Court of Appeals, upon learning of the sale, respondent negotiated for the
increase of the purchase price while receiving the installment payments. It was only when respondent
failed to convince petitioner to increase the price that the former instituted the complaint for
reconveyance of the properties. Clearly, respondent was agreeable to the contracts, only he wanted to
get more. Further, there is no showing that respondent returned the payments or made an offer to do
so. This bolsters the view that indeed there was ratification. One cannot negotiate for an increase in the
price in one breath and in the same breath contend that the contract of sale is void.

Nor can we find for respondents argument that the contracts were void as Eligio, Sr., could not sell the
lots in question as one of the properties had already been sold to him, while the other was the subject
of a co-ownership among the heirs of the deceased wife of Eligio, Sr. Note that it was found by both the
trial court and the Court of Appeals that Eligio, Sr., was the "declared owner" of said lots. This finding is
conclusive on us. As declared owner of said parcels of land, it follows that Eligio, Sr., had the right to
transfer the ownership thereof under the principle of jus disponendi.

In sum, the appellate court erred in sustaining the judgment of the trial court that the deeds of sale of
the two lots in question were null and void.

WHEREFORE, the instant petition is GRANTED. The decision dated August 30, 1999 of the Court of
Appeals in CA-G.R. CV No. 47869, affirming the decision of the Regional Trial Court in Civil Case No. 92-
2267 is REVERSED. The two contracts of sale covering lots under TD No. 01-00495 and No. 01-00497 are
hereby declared VALID. Costs against respondent.

SO ORDERED.
G.R. No. 173215 May 21, 2009

CEBU WINLAND DEVELOPMENT CORPORATION, Petitioner,

vs.
ONG SIAO HUA, Respondent.

DECISION

PUNO, CJ.:

Before us is a Petition for Review1 filed under Rule 45 of the Rules of Court assailing the Decision2 dated
February 14, 2006 of the Court of Appeals and its Resolution3 dated June 2, 2006 denying petitioners
motion for reconsideration of the said decision.

The facts are undisputed.

Petitioner, Cebu Winland Development Corporation, is the owner and developer of a condominium
project called the Cebu Winland Tower Condominium located in Juana Osmea Extension, Cebu City.

Respondent, Ong Siao Hua, is a buyer of two condominium units and four parking slots from petitioner.

Sometime before January 6, 1995 while the Cebu Winland Tower Condominium was under construction,
petitioner offered to sell to respondent condominium units at promotional prices. As an added
incentive, petitioner offered a 3% discount provided 30% of the purchase price is paid as down payment
and the balance paid in 24 equal monthly installments.

On January 6, 1995, respondent accepted the offer of petitioner and bought two condominium units
designated as Unit Nos. 2405 and 2406, as well as four parking slots designated as slots 91, 99, 101 and
103 (subject properties).

The area per condominium unit as indicated in petitioners price list is 155 square meters and the price
per square meter is P22,378.95. The price for the parking slot is P240,000 each. Respondent, therefore,
paidP2,298,655.08 as down payment and issued 24 postdated checks in the amount of P223,430.70 per
check for the balance of the purchase price in the total amount of P5,362,385.19 computed as follows:4

155 sq.m./unit x 2 units x P22,378.95/sq.m. P6,937,474.50

4 parking slots at P240,000/slot 960,000.00

Sub-total P 7,897,474.50

Less: 3% discount ( 236,924.23)

 Net purchase price P 7,660,550.27

30% down payment ( 2,298,165.08)

Balance at P223,430.70 per month for 24 months P 5,362,385.19

The parties did not execute any written document setting forth the said transaction.

On October 10, 1996, possession of the subject properties was turned over to respondent.5

After the purchase price was fully paid with the last check dated January 31, 1997, respondent
requested petitioner for the condominium certificates of title evidencing ownership of the units.
Petitioner then sent to respondent, for the latters signature, documents denominated as Deeds of
Absolute Sale for the two condominium units.

Upon examination of the deed of absolute sale of Unit No. 2405 and the identical document for Unit No.
2406, respondent was distressed to find that the stated floor area is only 127 square meters contrary to
the area indicated in the price list which was 155 square meters. Respondent caused a verification
survey of the said condominium units and discovered that the actual area is only 110 square meters per
unit. Respondent demanded from petitioner to refund the amount of P2,014,105.50 representing excess
payments for the difference in the area, computed as follows:6

155 sq.m.-110 = 45 x 2 units = 90 sq.m. x P22,378.95 = P2,014,105.50

Petitioner refused to refund the said amount to respondent. Consequently, respondent filed a
Complaint7 on August 7, 1998 in the Regional Office of the Housing and Land Use Regulatory Board
(HLURB) in Cebu City, praying for the refund of P2,014,105.50 plus interest, moral damages and
attorneys fees, including the suspension of petitioners license to sell. The case was docketed as HLURB
Case No. REM-0220-080798.

On December 6, 1999, the Housing and Land Use Arbiter (the Arbiter) rendered a Decision8 dismissing
the complaint. The Arbiter found petitioner not guilty of misrepresentation. Considering further that the
subject properties have been delivered on October 10, 1996 and respondent filed his complaint only on
August 7, 1998, the Arbiter further ruled that respondents action had already prescribed pursuant to
Article 1543,9 in relation to Articles 1539 and 1542,10 of the Civil Code.1avvphi1 The dispositive portion
of the said decision reads:
WHEREFORE, Premises Considered, judgment is hereby rendered DISMISSING this Complaint, and
ordering the parties to do the following, to wit:

1. For the Complainant to SIGN the two (2) Deed[s] of Absolute Sale which this Board finds to be in order
within 30 days from finality of this decision; and

2. For the Respondent to DELIVER the corresponding condominium certificate of title for the two units
namely units 2405 and 2406 free from all liens and encumbrances.

Consequently, the counterclaim is likewise dismissed for it finds no evidence that Complainant acted in
bad faith in filing this complaint.

Cost against the parties.

SO ORDERED.11

Aggrieved, respondent filed a Petition for Review of said decision with the Board of Commissioners of
the HLURB (the Board). In the course of its proceedings, the Board ordered that an ocular inspection of
Unit Nos. 2405 and 2406 be conducted by an independent engineer. The Board further ordered that
there should be two measurements of the areas in controversy, one based on the master deed and
another based on the internal surface of the perimeter wall. After the ocular inspection, the
independent geodetic engineer found the following measurements:

Unit 2405- Based on internal face of perimeter wall = 109 sq. m. Based on master deed = 115 sq. m.

Unit 2406- Based on internal face of perimeter wall = 110 sq. m.

Based on master deed = 116 sq. m.12

Thereafter, the Board rendered its Decision13 dated June 8, 2004 affirming the Arbiters finding that
respondents action had already prescribed. However, the Board found that there was a mistake
regarding the object of the sale constituting a ground for rescission based on Articles 1330 and 133114 of
the Civil Code. Hence, the Board modified the decision of the Arbiter as follows:

Wherefore[,] the decision of the [O]ffice below is hereby modified with the following additional
directive:

In the alternative, and at the option of the complainant, the contract is rescinded and the respondent is
directed to refund to (sic) P7,660,550[.]27 while complainant is directed to turn over possession of the
units 2405, 2406 and the four parking lots to the respondent.

SO ORDERED.15

Not satisfied with the decision of the Board, petitioner filed an appeal to the Office of the President
arguing that the Board erred in granting relief to respondent considering that the latters action had
already prescribed. On March 11, 2005, the Office of the President rendered a Decision16 finding that
respondents action had already prescribed pursuant to Article 1543 of the Civil Code. The dispositive
portion of said decision reads as follows:

WHEREFORE, premises considered, the Decision dated June 8, 2004 of the HLURB is hereby MODIFIED
and the Decision dated December 6, 1999 of the Housing and Land Use Arbiter is hereby REINSTATED.

SO ORDERED.17

Respondent filed a Motion for Reconsideration but the same was denied by the Office of the President
in a Resolution18 dated June 20, 2005. Hence, respondent filed a Petition for Review before the Court of
Appeals.

On February 14, 2006, the Court of Appeals rendered the assailed Decision finding that respondents
action has not prescribed. The dispositive portion of the Decision reads:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us GRANTING the
petition filed in this case, REVERSING and SETTING ASIDE the assailed Decision and Resolution of the
Office of the President dated March 11, 2005 and June 20, 2005, respectively, and reinstating the
Decision promulgated by the Board of Commissioners of the HLURB on June 8, 2004.

SO ORDERED.19

Petitioners Motion for Reconsideration20 of the assailed decision having been denied in the Resolution
dated June 2, 2006, petitioner is now before us, in this petition for review raising the following grounds:

I.

The Court of Appeals Erred in Holding That in A Contract of Sale Ownership Is Not Transferred by
Delivery[.]

II.

The Court of Appeals Erred in Holding That Respondents Action Has Not Prescribed.

III.

The Court of Appeals Erred And Exceeded Its Jurisdiction When It Found Petitioner Guilty Of
Misrepresentation As The Decision Of The HLURB Board of Commissioners On The Same Matter Is Final
With Respect To Respondent Who Did Not Appeal Said Decision That Petitioner Did Not Commit
Misrepresentation.21

The issue before us is whether respondents action has prescribed pursuant to Article 1543, in relation
to Articles 1539 and 1542 of the Civil Code, to wit:

ARTICLE 1539. The obligation to deliver the thing sold includes that of placing in the control of the
vendee all that is mentioned in the contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a
unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the contract; but, should this be not possible, the vendee
may choose between a proportional reduction of the price and the rescission of the contract, provided
that, in the latter case, the lack in the area be not less than one-tenth of that stated.

The same shall be done, even when the area is the same, if any part of the immovable is not of the
quality specified in the contract.

The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the
thing sold exceeds one-tenth of the price agreed upon.

Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area or
inferior quality, he may rescind the sale. (1469a) [Emphasis supplied]

ARTICLE 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a
unit of measure or number, there shall be no increase or decrease of the price, although there be a
greater or lesser area or number than that stated in the contract.

The same rule shall be applied when two or more immovables are sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or
number should be designated in the contract, the vendor shall be bound to deliver all that is included
within said boundaries, even when it exceeds the area or number specified in the contract; and, should
he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the
area or number, unless the contract is rescinded because the vendee does not accede to the failure to
deliver what has been stipulated. (1471) [Emphasis supplied]

ARTICLE 1543. The actions arising from Articles 1539 and 1542 shall prescribe in six months, counted
from the day of delivery. (1472a) [Emphasis supplied]

Petitioner argues that it delivered possession of the subject properties to respondent on October 10,
1996, hence, respondents action filed on August 7, 1998 has already prescribed.

Respondent, on the one hand, contends that his action has not prescribed because the prescriptive
period has not begun to run as the same must be reckoned from the execution of the deeds of sale
which has not yet been done.

The resolution of the issue at bar necessitates a scrutiny of the concept of "delivery" in the context of
the Law on Sales or as used in Article 1543 of the Civil Code. Under the Civil Code, the vendor is bound
to transfer the ownership of and deliver the thing which is the object of the sale. The pertinent
provisions of the Civil Code on the obligation of the vendor to deliver the object of the sale provide:

ARTICLE 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. (1461a)
ARTICLE 1496. The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him 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. (n)

ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee. (1462a)

ARTICLE 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.

xxxx

Under the Civil Code, ownership does not pass by mere stipulation but only by delivery.22 Manresa
explains, "the delivery of the thing . . . signifies that title has passed from the seller to the
buyer."23 According to Tolentino, the purpose of delivery is not only for the enjoyment of the thing but
also a mode of acquiring dominion and determines the transmission of ownership, the birth of the real
right. The delivery under any of the forms provided by Articles 1497 to 1505 of the Civil Code signifies
that the transmission of ownership from vendor to vendee has taken place.24

Article 1497 above contemplates what is known as real or actual delivery, when the thing sold is placed
in the control and possession of the vendee. Article 1498, on the one hand, refers to symbolic delivery
by the execution of a public instrument. It should be noted, however, that Article 1498 does not say that
the execution of the deed provides a conclusive presumption of the delivery of possession. It confines
itself to providing that the execution thereof is equivalent to delivery, which means that the
presumption therein can be rebutted by means of clear and convincing evidence. Thus, the presumptive
delivery by the execution of a public instrument can be negated by the failure of the vendee to take
actual possession of the land sold.25

In Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,26 the concept of "delivery" was explained
as follows:

Delivery has been described as a composite act, a thing in which both parties must join and the minds of
both parties concur. It is an act by which one party parts with the title to and the possession of the
property, and the other acquires the right to and the possession of the same. In its natural sense,
delivery means something in addition to the delivery of property or title; it means transfer of
possession. In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery
contemplate "the absolute giving up of the control and custody of the property on the part of the
vendor, and the assumption of the same by the vendee." (Emphasis supplied)

In light of the foregoing, "delivery" as used in the Law on Sales refers to the concurrent transfer of two
things: (1) possession and (2) ownership. This is the rationale behind the jurisprudential doctrine that
presumptive delivery via execution of a public instrument is negated by the reality that the vendee
actually failed to obtain material possession of the land subject of the sale.27 In the same vein, if the
vendee is placed in actual possession of the property, but by agreement of the parties ownership of the
same is retained by the vendor until the vendee has fully paid the price, the mere transfer of the
possession of the property subject of the sale is not the "delivery" contemplated in the Law on Sales or
as used in Article 1543 of the Civil Code.

In the case at bar, it appears that respondent was already placed in possession of the subject properties.
However, it is crystal clear that the deeds of absolute sale were still to be executed by the parties upon
payment of the last installment. This fact shows that ownership of the said properties was withheld by
petitioner. Following case law, it is evident that the parties did not intend to immediately transfer
ownership of the subject properties until full payment and the execution of the deeds of absolute
sale.28 Consequently, there is no "delivery" to speak of in this case since what was transferred was
possession only and not ownership of the subject properties.

We, therefore, hold that the transfer of possession of the subject properties on October 10, 1996 to
respondent cannot be considered as "delivery" within the purview of Article 1543 of the Civil Code. It
follows that since there has been no transfer of ownership of the subject properties since the deeds of
absolute sale have not yet been executed by the parties, the action filed by respondent has not
prescribed.

The next issue is whether the sale in the case at bar is one made with a statement of its area or at the
rate of a certain price for a unit of measure and not for a lump sum. Article 1539 provides that "If the
sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of
measure or number, the vendor shall be obliged to deliver to the vendeeall that may have been stated
in the contract; but, should this be not possible, the vendee may choose between a proportional
reduction of the price and the rescission of the contract." Article 1542, on the one hand, provides that
"In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or decrease of the price, although there be a greater or
lesser area or number than that stated in the contract."

The distinction between Article 1539 and Article 1542 was explained by Manresa29 as follows:

. . . If the sale was made for a price per unit of measure or number, the consideration of the contract
with respect to the vendee, is the number of such units, or, if you wish, the thing purchased as
determined by the stipulated number of units. But if, on the other hand, the sale was made for a lump
sum, the consideration of the contract is the object sold, independently of its number or measure, the
thing as determined by the stipulated boundaries, which has been called in law a determinate object.

This difference in consideration between the two cases implies a distinct regulation of the obligation to
deliver the object, because, for an acquittance delivery must be made in accordance with the agreement
of the parties, and the performance of the agreement must show the confirmation, in fact, of the
consideration which induces each of the parties to enter into the contract.

In Rudolf Lietz, Inc. v. Court of Appeals,30 we held:

Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit area. In a unit price
contract, the statement of area of immovable is not conclusive and the price may be reduced or
increased depending on the area actually delivered. If the vendor delivers less than the area agreed
upon, the vendee may oblige the vendor to deliver all that may be stated in the contract or demand for
the proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers more
than the area stated in the contract, the vendee has the option to accept only the amount agreed upon
or to accept the whole area, provided he pays for the additional area at the contract rate.

In some instances, a sale of an immovable may be made for a lump sum and not at a rate per unit. The
parties agree on a stated purchase price for an immovable the area of which may be declared based on
an estimate or where both the area and boundaries are stated.

In the case where the area of the immovable is stated in the contract based on an estimate, the actual
area delivered may not measure up exactly with the area stated in the contract. According to Article
1542 of the Civil Code, in the sale of real estate, made for a lump sum and not at the rate of a certain
sum for a unit of measure or number, there shall be no increase or decrease of the price although there
be a greater or lesser area or number than that stated in the contract. However, the discrepancy must
not be substantial. A vendee of land, when sold in gross or with the description "more or less" with
reference to its area, does not thereby ipso facto take all risk of quantity in the land. The use of "more or
less" or similar words in designating quantity covers only a reasonable excess or deficiency.

Where both the area and the boundaries of the immovable are declared, the area covered within the
boundaries of the immovable prevails over the stated area. In cases of conflict between areas and
boundaries, it is the latter which should prevail. What really defines a piece of ground is not the area,
calculated with more or less certainty, mentioned in its description, but the boundaries therein laid
down, as enclosing the land and indicating its limits. In a contract of sale of land in a mass, it is well
established that the specific boundaries stated in the contract must control over any statement with
respect to the area contained within its boundaries. It is not of vital consequence that a deed or contract
of sale of land should disclose the area with mathematical accuracy. It is sufficient if its extent is
objectively indicated with sufficient precision to enable one to identify it. An error as to the superficial
area is immaterial. Thus, the obligation of the vendor is to deliver everything within the boundaries,
inasmuch as it is the entirety thereof that distinguishes the determinate object.

In the case at bar, it is undisputed by the parties that the purchase price of the subject properties was
computed based on the price list prepared by petitioner, or P22,378.95 per square meter. Clearly, the
parties agreed on a sale at a rate of a certain price per unit of measure and not one for a lump sum.
Hence, it is Article 1539 and not Article 1542 which is the applicable law. Accordingly, respondent is
entitled to the relief afforded to him under Article 1539, that is, either a proportional reduction of the
price or the rescission of the contract, at his option. Respondent chose the former remedy since he
prayed in his Complaint for the refund of the amount ofP2,014,105.50 representing the proportional
reduction of the price paid to petitioner.
In its decision, the Court of Appeals held that the action filed by respondent has not prescribed and
reinstated the decision of the Board. It is an error to reinstate the decision of the Board. The Board, in its
decision, held that there was a mistake regarding the object of the sale constituting a ground for
rescission based on Articles 1330 and 1331 of the Civil Code. It then granted the relief of rescission at
the option of respondent. Articles 1330 and 1331 of the Civil Code provide:

ARTICLE 1330. A contract where consent is given through mistake, violence, intimidation, undue
influence, or fraud is voidable. (1265a)1avvphi1

ARTICLE 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both
parties to enter into the contract.

We find that these articles are inapplicable to the case at bar. In order that mistake may invalidate
consent and constitute a ground for annulment of contract based on Article 1331, the mistake must be
material as to go to the essence of the contract; that without such mistake, the agreement would not
have been made.31 The effect of error must be determined largely by its influence upon the party. If the
party would have entered into the contract even if he had knowledge of the true fact, then the error
does not vitiate consent.32

In the case at bar, the relief sought by respondent was for a refund and he continued to occupy the
subject properties after he found out that the same were smaller in area. All these show that
respondent did not consider the error in size significant enough to vitiate the contract. Hence, the Court
of Appeals erred in affirming the Boards decision to grant rescission based on Articles 1330 and 1331 of
the Civil Code.

IN VIEW WHEREOF, the petition is DENIED. The decision of the Court of Appeals is AFFIRMED but with
the MODIFICATION that the decision of the HLURB is not reinstated. Petitioner is ordered to refund the
amount of Two Million Fourteen Thousand One Hundred Five Pesos and Fifty Centavos (P2,014,105.50)
to respondent with legal interest of six percent (6%) per annum from August 7, 1998, the date of judicial
demand. A twelve percent (12%) interest per annum, in lieu of six percent (6%), shall be imposed on
such amount from the date of promulgation of this decision until the payment thereof. Costs against
petitioner.

SO ORDERED.