G.R. No.
161407 June 5, 2009 Upon the signing of the agreement, [petitioners] gave
JOAQUIN VILLEGAS and EMMA M. VILLEGAS, Petitioners,
vs.
RURAL BANK OF TANJAY, INC., Respondent.
DECISION
NACHURA, J.:
This petition for review on certiorari under Rule 45 of the
Rules of Court assails the Court of Appeals (CA) Decision 1 in
CA-G.R. CV No. 40613 which affirmed with modification the
Regional Trial Court (RTC) Decision in Civil Case No. 9570.2
The facts, as summarized by the CA, follow.
Sometime in June, 1982, [petitioners], spouses Joaquin and
Emma Villegas, obtained an agricultural loan of P350,000.00
from [respondent] Rural Bank of Tanjay, Inc. The loan was
secured by a real estate mortgage on [petitioners] residential
house and 5,229 sq.m. lot situated in Barrio Bantayan,
Dumaguete City and covered by TCT No. 12389.
For failure of [petitioners] to pay the loan upon maturity, the
mortgage was extrajudicially foreclosed. At the foreclosure
sale, [respondent], being the highest bidder, purchased the
foreclosed properties for P367,596.16. Thereafter, the Sheriff
executed in favor of [respondent] a certificate of sale, which
was subsequently registered with the Registry of Deeds of
Dumaguete City.
[Petitioners] failed to redeem the properties within the one-
year redemption period.
In May, 1987, [respondent] and [petitioner] Joaquin Villegas,
through his attorney-in-fact[,] Marilen Victoriano, entered into
an agreement denominated as "Promise to Sell," whereby
[respondent] promised to sell to [petitioners] the foreclosed
properties for a total price of P713,312.72, payable within a
period of five (5) years. The agreement reads in part:
PROMISE TO SELL
xxxx
WITNESSETH:
xxxx
2) That for and in consideration of SEVEN HUNDRED THIRTEEN
THOUSAND AND THREE HUNDRED TWELVE & 72/100 PESOS
(P713,312.72), the VENDOR do hereby promise to sell,
transfer, and convey unto the VENDEE, their heirs, successors
and assigns, all its rights, interests and participations over the
above parcel of land with all the improvements thereon and a
residential house.
3) That upon signing of this Promise To Sell, the VENDEE shall
agree to make payment of P250,000.00 (Philippine Currency)
and the balance of P463,312.72 payable in equal yearly
installments plus interest based on the prevailing rate
counting from the date of signing this Promise to Sell for a
period of five (5) years.
xxxx
5) Provided further, that in case of a delay in any yearly
installment for a period of ninety (90) days, this sale will
become null and void and no further effect or validity; and
provided further, that payments made shall be reimbursed
(returned) to the VENDEE less interest on the account plus
additional 15% liquidated damages and charges.
[respondent] the sum of P250,000.00 as down payment.
[Petitioners], however, failed to pay the first yearly
installment, prompting [respondent] to consolidate its
ownership over the properties. Accordingly, TCT No. 12389
was cancelled and a new one, TCT No. 19042, (Exh. 14) was
issued in [respondents] name on November 8, 1989.
Thereafter, [respondent] took possession of the properties.
Hence, the action by [petitioners for declaration of nullity of
loan and mortgage contracts, recovery of possession of real
property, accounting and damages and, in the alternative,
repurchase of real estate] commenced on January 15, 1990.
In resisting the complaint, [respondent] averred that
[petitioners] have absolutely no cause of action against it, and
that the complaint was filed only to force it to allow
[petitioners] to reacquire the foreclosed properties under
conditions unilaterally favorable to them.
xxxx
After trial on the merits, the [RTC] rendered a Decision
dismissing the complaint, disposing as follows:
"In the light of the foregoing, it is considered opinion of this
Court, that [petitioners] failed to prove by preponderance of
evidence their case and therefore the herein complaint is
ordered dismissed. [Petitioners] are ordered to pay
[respondent] the sum of P3,000.00 as attorneys fees and to
pay costs without pronouncement as to counterclaim.
SO ORDERED."3
On appeal by both parties, the CA affirmed with modification
the RTCs ruling, thus:
WHEREFORE, the appealed Decision is hereby MODIFIED by
(a) ORDERING [respondent] to reimburse [petitioners] their
down payment of P250,000.00 and (b) DELETING the award of
attorneys fees to [respondent].
SO ORDERED.4
Hence, this appeal by certiorari raising the following issues:
(1) The Court of Appeals erred in not holding that the loan and
mortgage contracts are null and void ab initio for being
against public policy;
(2) The Court of Appeals erred in not holding that, by reason
of the fact that the loan and mortgage contracts are null and
void ab initio for being against public policy, the doctrine of
estoppel does not apply in this case;
(3) The Court of Appeals erred in not finding that the
addendum on the promissory notes containing an escalation
clause is null and void ab initio for not being signed by
petitioner Emma M. Villegas, wife of petitioner Joaquin
Villegas, there being a showing that the companion real estate
mortgage involves conjugal property. x x x.
(4) The Court of Appeals erred in not finding that the
addendum on the promissory notes containing an escalation
clause is null and void ab initio for being so worded that the
implementation thereof would deprive petitioners due process
guaranteed by [the] constitution, the petitioners not having
been notified beforehand of said implementation.5
Notwithstanding petitioners formulation of the issues, the
core issue for our resolution is whether petitioners may
recover possession of the mortgaged properties.
The petition deserves scant consideration and ought to have
been dismissed outright. Petitioners are precluded from
seeking a declaration of nullity of the loan and mortgage
1
contracts; they are likewise barred from recovering possession
of the subject property.lavvphil
Petitioners insist on the nullity of the loan and mortgage
contracts. Unabashedly, petitioners admit that the loan (and
mortgage) contracts were made to appear as several sugar
crop loans not exceeding P50,000.00 each even if they were
not just so the respondent rural bank could grant and
approve the same pursuant to Republic Act (R.A.) No. 720, the
Rural Banks Act. Petitioners boldly enumerate the following
circumstances that show that these loans were obtained in
clear contravention of R.A. No. 720:
(a) The petitioners never planted sugar cane on any parcel of
agricultural land;
(b) The mortgaged real estate is residential, with a house,
located in the heart of Dumaguete City, with an area of only
one-half (1/2) hectare;
(c) Petitioners never planted any sugar cane on this one-half
(1/2) hectare parcel of land;
(d) Petitioners were never required to execute any chattel
mortgage on standing crops;
(e) To make it appear that the petitioners were entitled to
avail themselves of loan benefits under Republic Act No. 720,
Rural Banks Act, respondent made them sign promissory
notes for P350,000.00 in split amounts not
exceeding P50,000.00 each.6
In short, petitioners aver that the sugar crop loans were
merely simulated contracts and, therefore, without any force
and effect.
Articles 1345 and 1346 of the Civil Code are the applicable
laws, and they unmistakably provide:
Art. 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal
their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is
void. A relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the
parties to their real agreement.
Given the factual antecedents of this case, it is obvious that
the sugar crop loans were relatively simulated contracts and
that both parties intended to be bound thereby. There are two
juridical acts involved in relative simulation the ostensible
act and the hidden act.7 The ostensible act is the contract that
the parties pretend to have executed while the hidden act is
the true agreement between the parties.8 To determine the
enforceability of the actual agreement between the parties,
we must discern whether the concealed or hidden act is lawful
and the essential requisites of a valid contract are present.
In this case, the juridical act which binds the parties are the
loan and mortgage contracts, i.e., petitioners procurement of
a loan from respondent. Although these loan and mortgage
contracts were concealed and made to appear as sugar crop
loans to make them fall within the purview of the Rural Banks
Act, all the essential requisites of a contract 9 were present.
However, the purpose thereof is illicit, intended to circumvent
the Rural Banks Act requirement in the procurement of
loans.10 Consequently, while the parties intended to be bound
thereby, the agreement is void and inexistent under Article
140911 of the Civil Code.
In arguing that the loan and mortgage contracts are null and
void, petitioners would impute all fault therefor to respondent.
Yet, petitioners averments evince an obvious knowledge and
voluntariness on their part to enter into the simulated
contracts. We find that fault for the nullity of the contract does
not lie at respondents feet alone, but at petitioners as well.
Accordingly, neither party can maintain an action against the
other, as provided in Article 1412 of the Civil Code:
Art. 1412. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the following
rules shall be observed:
(1) When the fault is on the part of both contracting parties,
neither may recover what he has given by virtue of the
contract, or demand the performance of the others
undertaking;
(2) When only one of the contracting parties is at fault, he
cannot recover what he has given by reason of the contract,
or ask for the fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he
has given without any obligation to comply with his promise.
Petitioners did not come to court with clean hands. They
admit that they never planted sugarcane on any property,
much less on the mortgaged property. Yet, they eagerly
accepted the proceeds of the simulated sugar crop loans.
Petitioners readily participated in the ploy to circumvent the
Rural Banks Act and offered no objection when their original
loan of P350,000.00 was divided into small separate loans not
exceeding P50,000.00 each. Clearly, both petitioners and
respondent are in pari delicto, and neither should be accorded
affirmative relief as against the other.
In Tala Realty Services Corp. v. Banco Filipino Savings and
Mortgage Bank,12 we held that when the parties are in pari
delicto, neither will obtain relief from the court, thus:
The Bank should not be allowed to dispute the sale of its lands
to Tala nor should Tala be allowed to further collect rent from
the Bank. The clean hands doctrine will not allow the creation
or the use of a juridical relation such as a trust to subvert,
directly or indirectly, the law. Neither the bank nor Tala came
to court with clean hands; neither will obtain relief from the
court as one who seeks equity and justice must come to court
with clean hands. By not allowing Tala to collect from the Bank
rent for the period during which the latter was arbitrarily
closed, both Tala and the Bank will be left where they are,
each paying the price for its deception.13
Petitioners stubbornly insist that respondent cannot invoke
the pari delicto doctrine, ostensibly because of our obiter in
Enrique T. Yuchengco, Inc., et al. v. Velayo.14
In Yuchengco, appellant sold 70% of the subscribed and
outstanding capital stock of a Philippine corporation, duly
licensed as a tourist operator, to appellees without the
required prior notice and approval of the Department of
Tourism (DOT). Consequently, the DOT cancelled the
corporations Local Tour Operators License. In turn, appellees
asked for a rescission of the sale and demanded the return of
the purchase price.
We specifically ruled therein that the pari delicto doctrine is
not applicable, because:
The obligation to secure prior Department of Tourism approval
devolved upon the defendant (herein appellant) for it was he
as the owner vendor who had the duty to give clear title to
the properties he was conveying. It was he alone who was
charged with knowing about rules attendant to a sale of the
assets or shares of his tourist-oriented organization. He should
have known that under said rules and regulations, on pain of
2
nullity, shares of stock in his company could not be
transferred without prior approval from the Department of
Tourism. The failure to secure this approval is attributable to
him alone.15
Thus, we declared that even assuming both parties were
guilty of the violation, it does not always follow that both
parties, being in pari delicto, should be left where they are.
We recognized as an exception a situation when courts must
interfere and grant relief to one of the parties because public
policy requires their intervention, even if it will result in a
benefit derived by a plaintiff who is in equal guilt with
defendant.16
In stark contrast to Yuchengco, the factual milieu of the
present case does not compel us to grant relief to a party who
is in pari delicto. The public policy requiring rural banks to
give preference to bona fide small farmers in the grant of
loans will not be served if a party, such as petitioners, who
had equal participation and equal guilt in the circumvention of
the Rural Banks Act, will be allowed to recover the subject
property.
The following circumstances reveal the utter poverty of
petitioners arguments and militate against their bid to
recover the subject property:
1. As previously adverted to, petitioners readily and
voluntarily accepted the proceeds of the loan, divided into
small loans, without question.
2. After failing to redeem the mortgaged subject property,
thereby allowing respondent to consolidate title
thereto,17 petitioners then entered into a Promise to Sell and
made a down payment of P250,000.00.
3. Failing anew to comply with the terms of the Promise to Sell
and pay the first yearly installment, only then did petitioners
invoke the nullity of the loan and mortgage contracts.
In all, petitioners explicitly recognized respondents ownership
over the subject property and merely resorted to the void
contract argument after they had failed to reacquire the
property and a new title thereto in respondents name was
issued.
We are not unmindful of the fact that the Promise to Sell
ultimately allows petitioners to recover the subject property
which they were estopped from recovering under the void
loan and mortgage contracts. However, the Promise to Sell,
although it involves the same parties and subject matter, is a
separate and independent contract from that of the void loan
and mortgage contracts.
To reiterate, under the void loan and mortgage contracts, the
parties, being in pari delicto, cannot recover what they each
has given by virtue of the contract.18 Neither can the parties
demand performance of the contract. No remedy or
affirmative relief can be afforded the parties because of their
presumptive knowledge that the transaction was tainted with
illegality.19 The courts will not aid either party to an illegal
agreement and will instead leave the parties where they find
them.20
thereof. In fact, the Promise to Sell makes no reference
whatsoever to petitioners previous ownership of the subject
property and to the void loan and mortgage contracts.21 On
the whole, the Promise to Sell, an independent contract, did
not purport to ratify the void loan and mortgage
contracts.lawphi1
By its very terms, the Promise to Sell simply intended to
alienate to petitioners the subject property according to the
terms and conditions contained therein. Article 1370 of the
Civil Code reads:
Art. 1370. If the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of
the parties, the latter shall prevail over the former.
Thus, the terms and conditions of the Promise to Sell are
controlling.
Paragraph 5 of the Promise to Sell provides:
5) Provided further, that in case of a delay in any yearly
installment for a period of ninety (90) days, this sale will
become null and void [without] further effect or validity; and
provided further, that payments made shall be reimbursed
(returned to the VENDEE less interest on the account plus
additional 15% liquidated damages and charges.22
As stipulated in the Promise to Sell, petitioners are entitled to
reimbursement of the P250,000.00 down payment. We agree
with the CAs holding on this score:
We note, however, that there is no basis for the imposition of
interest and additional 15% liquidated damages and charges
on the amount to be thus reimbursed. The "Promise to Sell" is
separate and distinct from the loan and mortgage contracts
earlier executed by the parties. Obviously, after the
foreclosure, there is no more loan or account to speak of to
justify the said imposition.23
Finally, contrary to petitioners contention, the CA, in denying
petitioners appeal, did not commit an error; it did not ratify a
void contract because void contracts cannot be ratified. The
CA simply refused to grant the specific relief of recovering the
subject property prayed for by petitioners. Nonetheless, it
ordered respondent to reimburse petitioners for their down
payment of P250,000.00 and disallowed respondents claim
for actual, moral and exemplary damages and attorneys fees.
WHEREFORE, premises considered, the petition is hereby
DENIED. The Decision of the Court of Appeals in CA-G.R. CV
No. 40613 is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice

Consequently, the parties having no cause of action against

the other based on a void contract, and possession and
ownership of the subject property being ultimately vested in
respondent, the latter can enter into a separate and distinct
contract for its alienation. Petitioners recognized respondents
ownership of the subject property by entering into a Promise
to Sell, which expressly designates respondent as the vendor
and petitioners as the vendees. At this point, petitioners,
originally co-owners and mortgagors of the subject property,
unequivocally acquiesced to their new status as buyers

3
G.R. No. 169055 February 22, 2012
SPOUSES JOSE and MILAGROS VILLACERAN and FAR
EAST BANK & TRUST COMPANY, Petitioners,
vs.
JOSEPHINE DE GUZMAN, Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari assailing the
November 26, 2004 Decision1 and June 29, 2005
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
71831. The CA had affirmed with modification the Decision 3 of
the Regional Trial Court (RTC), Branch 24, of Echague, Isabela,
in Civil Case No. 24-0495 entitled "Josephine De Guzman vs.
Spouses Jose and Milagros Villaceran, et al."
The antecedent facts follow:
Josephine De Guzman filed a Complaint4 with the RTC of
Echague, Isabela against the spouses Jose and Milagros
Villaceran and Far East Bank & Trust Company (FEBTC),
Santiago City Branch, for declaration of nullity of sale,
reconveyance, redemption of mortgage and damages with
preliminary injunction. The complaint was later amended to
include annulment of foreclosure and Sheriffs Certificate of
Sale.
In her Amended Complaint,5 De Guzman alleged that she is
the registered owner of a parcel of land covered by Transfer
Certificate of Title (TCT) No. T-236168,6 located in Echague,
Isabela, having an area of 971 square meters and described
as Lot 8412-B of the Subdivision Plan Psd-93948. On April 17,
1995, she mortgaged the lot to the Philippine National Bank
(PNB) of Santiago City to secure a loan of P600,000. In order
to secure a bigger loan to finance a business venture, De
Guzman asked Milagros Villaceran to obtain an additional loan
on her behalf. She executed a Special Power of Attorney in
favor of Milagros. Considering De Guzmans unsatisfactory
loan record with the PNB, Milagros suggested that the title of
the property be transferred to her and Jose Villaceran and
they would obtain a bigger loan as they have a credit line of
up to P5,000,000 with the bank.
On June 19, 1996, De Guzman executed a simulated Deed of
Absolute Sale7 in favor of the spouses Villaceran. On the same
day, they went to the PNB and paid the amount
of P721,891.67 using the money of the spouses Villaceran.
The spouses Villaceran registered the Deed of Sale and
secured TCT No. T-2574168 in their names. Thereafter, they
mortgaged the property with FEBTC Santiago City to secure a
loan of P1,485,000. However, the spouses Villaceran
concealed the loan release from De Guzman. Later, when De
Guzman learned of the loan release, she asked for the loan
proceeds less the amount advanced by the spouses Villaceran
to pay the PNB loan. However, the spouses Villaceran refused
to give the money stating that they are already the registered
owners of the property and that they would reconvey the
property to De Guzman once she returns the P721,891.67
they paid to PNB.9
De Guzman offered to pay P350,000 provided that the
spouses Villaceran would execute a deed of reconveyance of
the property. In view of the simulated character of their
transaction, the spouses Villaceran executed a Deed of
Absolute Sale10 dated September 6, 1996 in favor of De
Guzman. They also promised to pay their mortgage debt with
FEBTC to avoid exposing the property to possible foreclosure
and auction sale. However, the spouses Villaceran failed to
settle the loan and subsequently the property was
extrajudicially foreclosed. A Sheriffs Certificate of Sale was
issued in favor of FEBTC for the amount of P3,594,000. De
Guzman asserted that the spouses Villaceran should be
compelled to redeem their mortgage so as not to prejudice
her as the real owner of the property.11
On the other hand, the spouses Villaceran and FEBTC, in their
Amended Answer,12 averred that in 1996 De Guzman was
introduced to Milagros by a certain Digna Maranan. Not long
afterwards, De Guzman requested Milagros to help her
relative who had a loan obligation with the PNB in the amount
of P300,000. As a consideration for the accommodation, De
Guzman would convey her property located at Maligaya,
Echague, Isabela which was then being held in trust by her
cousin, Raul Sison. Because of this agreement, Milagros paid
De Guzmans obligation with the PNB in the amount
of P300,000.
When Milagros asked for the title of the lot, De Guzman
explained that her cousin would not part with the property
unless he is reimbursed the amount of P200,000 representing
the amount he spent tilling the land. Milagros advanced the
amount of P200,000 but De Guzmans cousin still refused to
reconvey the property. In order for De Guzman to settle her
obligation, she offered to sell her house and lot in Echague,
Isabela. At first, Milagros signified her non-interest in acquiring
the same because she knew that it was mortgaged with the
PNB Santiago for P600,000. De Guzman proposed that they
will just secure a bigger loan from another bank using her
house and lot as security. The additional amount will be used
in settling De Guzmans obligation with PNB. Later, De
Guzman proposed that she borrow an additional amount from
Milagros which she will use to settle her loan with PNB. To this
request, Milagros acceded. Hence, they went to the PNB and
paid in full De Guzmans outstanding obligation with PNB
which already reached P880,000.13
Since De Guzmans total obligation already
reached P1,380,000, the spouses Villaceran requested her to
execute a deed of absolute sale over the subject property in
their favor. Thus, the Deed of Absolute Sale is supported by a
valuable consideration, and the spouses Villaceran became
the lawful owners of the property as evidenced by TCT No.
257416 issued by the Office of the Register of Deeds of
Isabela. Later, they mortgaged the property to FEBTC
for P1,485,000.
The spouses Villaceran denied having executed a deed of
conveyance in favor of De Guzman relative to the subject
property and asserted that the signatures appearing on the
September 6, 1996 Deed of Sale, which purported to sell the
subject property back to De Guzman, are not genuine but
mere forgeries.14
After due proceedings, the trial court rendered its decision on
September 27, 2000.
The RTC ruled that the Deed of Sale dated June 19, 1996
executed by De Guzman in favor of the spouses Villaceran
covering the property located in Echague, Isabela was valid
and binding on the parties. The RTC ruled that the said
contract was a relatively simulated contract, simulated only as
to the purchase price, but nonetheless binding upon the
parties insofar as their true agreement is concerned. The RTC
ruled that De Guzman executed the Deed of Absolute Sale
dated June 19, 1996 so that the spouses Villaceran may use
the property located in Echague, Isabela as collateral for a
loan in view of De Guzmans need for additional capital to
finance her business venture. The true consideration for the
sale, according to the RTC, was the P300,000 the spouses
Villaceran gave to De Guzman plus the P721,891.67 they paid
to PNB in order that the title to the subject property may be
released and used to secure a bigger loan in another bank.
4
The RTC also found that although the spouses Villaceran had
already mortgaged the subject property with FEBTC and the
title was already in the possession of FEBTC -- which facts
were known to De Guzman who even knew that the loan
proceeds amounting to P1,485,000 had been released -- the
spouses Villaceran were nonetheless still able to convince De
Guzman that they could still reconvey the subject property to
her if she pays the amount they had paid to PNB. The RTC
found that the Deed of Sale dated September 6, 1996 was
actually signed by the spouses Villaceran although De
Guzman was able to pay only P350,000, which amount was
stated in said deed of sale as the purchase price. The RTC
additionally said that the spouses Villaceran deceived De
Guzman when the spouses Villaceran mortgaged the subject
property with the understanding that the proceeds would go
to De Guzman less the amounts the spouses had paid to PNB.
Hence, according to the RTC, the spouses Villaceran should
return to De Guzman (1) the P350,000 which she paid to them
in consideration of the September 6, 1996 Deed of Sale, which
sale did not materialize because the title was in the
possession of FEBTC; and (2) the amount of P763,108.33
which is the net proceeds of the loan after deducting
the P721,891.67 that the spouses paid to PNB. Thus, the
decretal portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered as follows:
a) declaring the Deed of Sale, dated June 1996 (Exhibit "B") as
valid and binding;
b) ordering defendants Villaceran to pay to plaintiff the
amount of P763,108.33 and P350,000.00 or the total amount
of P1,113,108.33 plus the legal rate of interest starting from
the date of the filing of this case;
c) declaring the Extrajudicial Foreclosure and the Certificate of
Sale as valid;
d) ordering defendants Villaceran to pay attorneys fees in the
amount of P20,000.00 and to pay the costs of suit.
SO ORDERED.15
Aggrieved, the spouses Villaceran appealed to the CA arguing
that the trial court erred in declaring the June 19, 1996 Deed
of Sale as a simulated contract and ordering them to pay De
Guzman P1,113,108.33 plus legal rate of interest and
attorneys fees.16
On November 26, 2004, the CA rendered its Decision, the
dispositive portion of which reads as follows:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from
is hereby AFFIRMED with MODIFICATION, to read as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. Declaring the Deed of Sale dated June 16, 1996 (Exh.
"B") and September 6, 1996, as not reflective of the true
intention of the parties, as the same were merely executed for
the purpose of the loan accommodation in favor of the
plaintiff-appellee by the defendants-appellants;
2. Ordering defendants-appellants Villaceran to pay plaintiff-
appellee the difference between the FEBTC loan
of P1,485,000.00 less P721,891.67 (used to redeem
the PNB loan), plus legal interest thereon starting from the
date of the filing of this case;
3. Declaring the extrajudicial foreclosure and certificate of
sale in favor of FEBTC, as valid; and
4. For the appellants to pay the costs of the suit.
SO ORDERED.17
The CA ruled that the RTC was correct in declaring that there
was relative simulation of contract because the deeds of sale
did not reflect the true intention of the parties. It found that
the evidence established that the documents were executed
for the purpose of an agency to secure a higher loan whereby
the spouses Villaceran only accommodated De Guzman.
However, the CA did not find any evidence to prove that De
Guzman actually parted away with the P350,000 as
consideration of the reconveyance of the property. Thus, it
held the trial court erred in ordering the spouses Villaceran to
return the P350,000 to De Guzman.
Furthermore, the CA observed that the spouses Villaceran
were the ones who redeemed the property from the mortgage
with PNB by paying P721,891.67 so that De Guzmans title
could be released. Once registered in their name, the spouses
Villaceran mortgaged the property with FEBTC
for P1,485,000. With the loan proceeds of P1,485,000, there
was no need for the spouses Villaceran to demand for the
return of the P721,891.67 they paid in releasing the PNB loan
before the property is reconveyed to De Guzman. All they had
to do was to deduct the amount of P721,891.67 from
the P1,485,000 FEBTC loan proceeds. Hence, the CA ruled that
only the balance of the P1,485,000 loan proceeds from FEBTC
minus the P721,891.67 used to redeem the PNB loan should
be paid by the spouses Villaceran to De Guzman. The CA also
deleted the grant of attorneys fees for lack of factual, legal or
equitable justification.
On December 22, 2004, the spouses Villaceran filed a motion
for reconsideration of the foregoing decision. Said motion,
however, was denied for lack of merit by the CA in its
Resolution dated June 29, 2005. Hence, this appeal.
In their petition for review on certiorari, the spouses Villaceran
allege that:
1. THE RESPONDENT COURT OF APPEALS ERRED AND
GRAVELY ABUSED ITS DISCRETION IN DECLARING THE DEED
OF SALE DATED JUNE 19, 1996 AS SIMULATED AND THAT THE
SAME WAS MERELY EXECUTED FOR THE PURPOSE OF THE
LOAN ACCOMODATION OF PETITIONERS VILLACERAN IN FAVOR
OF THE RESPONDENT DE GUZMAN INSTEAD OF DECLARING
SAID DEED AS A VALID DEED OF ABSOLUTE SALE, THE
CONTENTS OF WHICH ARE CLEARLY REFLECTIVE OF THEIR
TRUE INTENTION TO ENTER INTO A CONTRACT OF SALE AND
NOT OTHERWISE, IN DIRECT CONTRAVENTION OF THE RULES
ON EVIDENCE AND OF THE ADMISSIONS OF THE PARTIES AND
THE HONORABLE COURTS RULINGS OR JURISPRUDENCE ON
THE MATTER; AND
2. THE RESPONDENT COURT OF APPEALS ERRED AND
GRAVELY ABUSED ITS DISCRETION IN ORDERING PETITIONERS
VILLACERAN TO PAY RESPONDENT DE GUZMAN THE
DIFFERENCE BETWEEN THE FAR EAST BANK AND TRUST
COMPANY (FEBTC) LOAN OF PHP1,485,000.00 LESS
P721,891.67 (USED TO PAY THE PHILIPPINE NATIONAL BANK
[PNB] LOAN) PLUS LEGAL INTEREST THEREON AND TO PAY
THE COSTS OF SUIT.18
Essentially, the issue for our resolution is whether the CA
erred in ruling that the Deed of Sale dated June 19, 1996 is a
simulated contract and not a true sale of the subject property.
Petitioners contend that the previous loans they extended to
De Guzman in the amounts of P300,000, P600,000
and P200,000 should have been considered by the CA. When
added to the P721,891.67 used to settle the PNB loan, De
Guzmans total loan obtained from them would amount
to P1,821,891.67. Thus, it would clearly show that the Deed of
Sale dated June 19, 1996, being supported by a valuable
consideration, is not a simulated contract.
5
We do not agree.
Article 134519 of the Civil Code provides that the simulation of
a contract may either be absolute or relative. In absolute
simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it.
The main characteristic of an absolute simulation is that the
apparent contract is not really desired or intended to produce
legal effect or in any way alter the juridical situation of the
parties.20 As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other
what they may have given under the contract. However, if the
parties state a false cause in the contract to conceal their real
agreement, the contract is only relatively simulated and the
parties are still bound by their real agreement. Hence, where
the essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract,
the agreement is absolutely binding and enforceable between
the parties and their successors in interest. 21
cogent reasons dictate otherwise. This is because the trial
court is in a better position to examine the real evidence, as
well as to observe the demeanor of the witnesses while
testifying in the case.24 In sum, the Court finds that there
exists no reason to disturb the findings of the CA.
WHEREFORE, the petition for review on certiorari is DENIED.
The Decision dated November 26, 2004 and Resolution dated
June 29, 2005 of the Court of Appeals in CA-G.R. CV No. 71831
are AFFIRMED.
With costs against the petitioners.
SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice

The primary consideration in determining the true nature of a

contract is the intention of the parties. If the words of a
contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined
not only from the express terms of their agreement, but also
from the contemporaneous and subsequent acts of the
parties.22 In the case at bar, there is a relative simulation of
contract as the Deed of Absolute Sale dated June 19, 1996
executed by De Guzman in favor of petitioners did not reflect
the true intention of the parties.

It is worthy to note that both the RTC and the CA found that
the evidence established that the aforesaid document of sale
was executed only to enable petitioners to use the property as
collateral for a bigger loan, by way of accommodating De
Guzman. Thus, the parties have agreed to transfer title over
the property in the name of petitioners who had a good credit
line with the bank. The CA found it inconceivable for De
Guzman to sell the property for P75,000 as stated in the June
19, 1996 Deed of Sale when petitioners were able to
mortgage the property with FEBTC for P1,485,000. Another
indication of the lack of intention to sell the property is when a
few months later, on September 6, 1996, the same property,
this time already registered in the name of petitioners, was
reconveyed to De Guzman allegedly for P350,000.

As regards petitioners assertion that De Guzmans previous

loans should have been considered to prove that there was an
actual sale, the Court finds the same to be without merit.
Petitioners failed to present any evidence to prove that they
indeed extended loans to De Guzman in the amounts
of P300,000, P600,000 and P200,000. We note that petitioners
tried to explain that on account of their close friendship and
trust, they did not ask for any promissory note, receipts or
documents to evidence the loan. But in view of the substantial
amounts of the loans, they should have been duly covered by
receipts or any document evidencing the transaction.
Consequently, no error was committed by the CA in holding
that the June 19, 1996 Deed of Absolute Sale was a simulated
contract.

The issue of the genuineness of a deed of sale is essentially a

question of fact.1wphi1 It is settled that this Court is not
duty-bound to analyze and weigh again the evidence
considered in the proceedings below. This is especially true
where the trial courts factual findings are adopted and
affirmed by the CA as in the present case. Factual findings of
the trial court, affirmed by the CA, are final and conclusive
and may not be reviewed on appeal.23

The Court has time and again ruled that conclusions and
findings of fact of the trial court are entitled to great weight
and should not be disturbed on appeal, unless strong and

6
G.R. No. 188417 September 24, 2012
MILAGROS DE BELEN VDA. DE CABALU, MELITON
CABALU, SPS. ANGELA CABALU and RODOLFO
TALAVERA, and PATRICIO ABUS, Petitioners,
vs.
SPS. RENATO DOLORES TABU and LAXAMANA,
Municipal Trial Court in Cities, Tarlac City, Branch
II, Respondents.
DECISION
MENDOZA, J.:
This is a "Petition for Review on Certiorari (under Rule 45)" of
the Rules of Court assailing the June 16, 2009 Decision 1 of the
Court of Appeals (CA) in CA-GR. CV No. 81469 entitled
"Milagros De Belen Vda de Cabalu v. Renato Tabu."
The Facts
The property subject of the controversy is a 9,000 square
meter lot situated in Mariwalo, Tarlac, which was a portion of a
property registered in the name of the late Faustina Maslum
(Faustina) under Transfer Certificate of Title (TCT) No. 16776
with a total area of 140,211 square meters.2
On December 8, 1941, Faustina died without any children. She
left a holographic will, dated July 27, 1939, assigning and
distributing her property to her nephews and nieces. The said
holographic will, however, was not probated. One of the heirs
was the father of Domingo Laxamana (Domingo), Benjamin
Laxamana, who died in 1960. On March 5, 1975, Domingo
allegedly executed a Deed of Sale of Undivided Parcel of Land
disposing of his 9,000 square meter share of the land to
Laureano Cabalu.3
On August 1, 1994, to give effect to the holographic will, the
forced and legitimate heirs of Faustina executed a Deed of
Extra-Judicial Succession with Partition. The said deed
imparted 9,000 square meters of the land covered by TCT No.
16776 to Domingo. Thereafter, on December 14, 1995,
Domingo sold 4,500 square meters of the 9,000 square
meters to his nephew, Eleazar Tabamo. The document was
captioned Deed of Sale of a Portion of Land. On May 7, 1996,
the remaining 4,500 square meters of Domingos share in the
partition was registered under his name under TCT No.
281353.4
On August 4, 1996, Domingo passed away.
On October 8, 1996, two months after his death, Domingo
purportedly executed a Deed of Absolute Sale of TCT No.
281353 in favor of respondent Renato Tabu (Tabu). The
resultant transfer of title was registered as TCT No. 286484.
Subsequently, Tabu and his wife, Dolores Laxamana
(respondent spouses), subdivided the said lot into two which
resulted into TCT Nos. 291338 and 291339.5
On January 15, 1999, respondent Dolores Laxamana-Tabu,
together with Julieta Tubilan-Laxamana, Teresita Laxamana,
Erlita Laxamana, and Gretel Laxamana, the heirs of Domingo,
filed an unlawful detainer action, docketed as Civil Case No.
7106, against Meliton Cabalu, Patricio Abus, Roger Talavera,
Jesus Villar, Marcos Perez, Arthur Dizon, and all persons
claiming rights under them. The heirs claimed that the
defendants were merely allowed to occupy the subject lot by
their late father, Domingo, but, when asked to vacate the
property, they refused to do so. The case was ruled in favor of
Domingos heirs and a writ of execution was subsequently
issued.6
On February 4, 2002, petitioners Milagros de Belen Vda. De
Cabalu, Meliton Cabalu, Spouses Angela Cabalu and Rodolfo
Talavera, and Patricio Abus (petitioners), filed a case for
Declaration of Nullity of Deed of Absolute Sale, Joint Affidavit
of Nullity of Transfer Certificate of Title Nos. 291338 and
291339, Quieting of Title, Reconveyance, Application for
Restraining Order, Injunction and Damages (Civil Case No.
9290) against respondent spouses before the Regional Trial
Court, Branch 63, Tarlac City (RTC).7
In their complaint, petitioners claimed that they were the
lawful owners of the subject property because it was sold to
their father, Laureano Cabalu, by Domingo, through a Deed of
Absolute Sale, dated March 5, 1975. Hence, being the rightful
owners by way of succession, they could not be ejected from
the subject property.8
In their Answer, respondent spouses countered that the deed
of sale from which the petitioners anchored their right over
the 9,000 square meter property was null and void because in
1975, Domingo was not yet the owner of the property, as the
same was still registered in the name of Faustina. Domingo
became the owner of the property only on August 1, 1994, by
virtue of the Deed of Extra-Judicial Succession with Partition
executed by the forced heirs of Faustina. In addition, they
averred that Domingo was of unsound mind having been
confined in a mental institution for a time.9
On September 30, 2003, the RTC dismissed the complaint as it
found the Deed of Absolute Sale, dated March 5, 1975, null
and void for lack of capacity to sell on the part of Domingo.
Likewise, the Deed of Absolute Sale, dated October 8, 1996,
covering the remaining 4,500 square meters of the subject
property was declared ineffective having been executed by
Domingo two months after his death on August 4, 1996. The
fallo of the Decision10reads:
WHEREFORE, in view of the foregoing, the complaint is hereby
DISMISSED, and the decision is hereby rendered by way of:
1. declaring null and void the Deed of Absolute Sale dated
March 5, 1975, executed by Domingo Laxamana in favor of
Laureano Cabalu;
2. declaring null and void the Deed of Absolute Sale dated
October 8, 1996, executed by Domingo Laxamana in favor of
Renato Tabu, and that TCT Nos. 293338 and 291339, both
registered in the name of Renato Tabu, married to Dolores
Laxamana be cancelled;
3. restoring to its former validity, TCT No. 16770 in the name
of Faustina Maslum subject to partition by her lawful heirs.
Costs de oficio.
SO ORDERED.11
Not in conformity, both parties appealed to the CA. Petitioners
contended that the RTC erred in declaring void the Deed of
Absolute Sale, dated March 5, 1975. They claimed that
Domingo owned the property, when it was sold to Laureano
Cabalu, because he inherited it from his father, Benjamin, who
was one of the heirs of Faustina. Being a co-owner of the
property left by Benjamin, Domingo could dispose of the
portion he owned, notwithstanding the will of Faustina not
being probated.
Respondent spouses, on the other hand, asserted that the
Deed of Sale, dated March 5, 1975, was spurious and
simulated as the signature, PTR and the document number of
the Notary Public were different from the latters notarized
documents. They added that the deed was without consent,
Domingo being of unsound mind at the time of its execution.
Further, they claimed that the RTC erred in canceling TCT No.
266583 and insisted that the same should be restored to its
7
validity because Benjamin and Domingo were declared heirs
of Faustina.
On June 16, 2009, the CA rendered its decision and disposed
as follows:
WHEREFORE, in the light of the foregoing, the instant appeal
is partially GRANTED in that the decision of the trial court is
AFFIRMED WITH MODIFICATION that sub-paragraphs 2 & 3 of
the disposition, which reads:
"2. declaring null and void the Deed of Absolute Sale dated
October 8, 1996, executed by Domingo Laxamana in favor of
Renato Tabu, and that TCT Nos. 291338 and 291339, both
registered in the name of Renato Tabu, married to Dolores
Laxamana be cancelled;
3. restoring to its former validity, TCT No. 16776 in the name
of Faustina Maslum subject to partition by her lawful heirs,"
are DELETED.
IT IS SO ORDERED.12
In finding Domingo as one of the heirs of Faustina, the CA
explained as follows:
It appears from the records that Domingo was a son of
Benjamin as apparent in his Marriage Contract and Benjamin
was a nephew of Faustina as stated in the holographic will and
deed of succession with partition. By representation, when
Benjamin died in 1960, Domingo took the place of his father
in succession. In the same vein, the holographic will of
Faustina mentioned Benjamin as one of her heirs to whom
Faustina imparted 9,000 square meters of her property.
Likewise, the signatories to the Deed of Extra-judicial
Succession with Partition, heirs of Faustina, particularly
declared Domingo as their co-heir in the succession and
partition thereto. Furthermore, the parties in this case
admitted that the relationship was not an issue.13
Although the CA found Domingo to be of sound mind at the
time of the sale on March 5, 1975, it sustained the RTCs
declaration of nullity of the sale on the ground that the deed
of sale was simulated.
The CA further held that the RTC erred in canceling TCT No.
266583 in the name of Domingo and in ordering the
restoration of TCT No. 16770, registered in the name of
Faustina, to its former validity, Domingo being an undisputed
heir of Faustina.
Hence, petitioners interpose the present petition before this
Court anchored on the following:
GROUNDS
(A)
THE DEED OF SALE OF UNDIVIDED PARCEL OF LAND
EXECUTED ON MARCH 5, 1975 BY DOMINGO LAXAMANA IN
FAVOR OF LAUREANO CABALU IS VALID BECAUSE IT SHOULD
BE ACCORDED THE PRESUMPTION OF REGULARITY AND
DECLARED VALID FOR ALL PURPOSES AND INTENTS.
(B)
THE SUBPARAGRAPH NO. 2 OF THE DECISION OF THE
REGIONAL TRIAL COURT SHOULD STAY BECAUSE THE
HONORABLE COURT OF APPEALS DID NOT DISCUSS THE ISSUE
AND DID NOT STATE THE LEGAL BASIS WHY SAID PARAGRAPH
SHOULD BE DELETED FROM THE SEPTEMBER 30, 2003
DECISION OF THE REGIONAL TRIAL COURT.14
The core issues to be resolved are 1) whether the Deed of
Sale of Undivided Parcel of Land covering the 9,000 square
meter property executed by Domingo in favor of Laureano
Cabalu on March 5, 1975, is valid; and 2) whether the Deed of
Sale, dated October 8, 1996, covering the 4,500 square meter
portion of the 9,000 square meter property, executed by
Domingo in favor of Renato Tabu, is null and void.
Petitioners contend that the Deed of Absolute Sale executed
by Domingo in favor of Laureano Cabalu on March 5, 1975
should have been declared valid because it enjoyed the
presumption of regularity. According to them, the subject
deed, being a public document, had in its favor the
presumption of regularity, and to contradict the same, there
must be clear, convincing and more than preponderant
evidence, otherwise, the document should be upheld. They
insist that the sale transferred rights of ownership in favor of
the heirs of Laureano Cabalu.
They further argue that the CA, in modifying the decision of
the RTC, should not have deleted the portion declaring null
and void the Deed of Absolute Sale, dated October 8, 1996,
executed by Domingo in favor of Renato Tabu, because at the
time of execution of the said deed of sale, the seller, Domingo
was already dead. Being a void document, the titles
originating from the said instrument were also void and
should be cancelled.
Respondent spouses, in their Comment15 and
Memorandum,16 counter that the issues raised are not
questions of law and call for another calibration of the whole
evidence already passed upon by the RTC and the CA. Yet,
they argue that petitioners reliance on the validity of the
March 5, 1975 Deed of Sale of Undivided Parcel of Land,
based on presumption of regularity, was misplaced because
both the RTC and the CA, in the appreciation of evidence on
record, had found said deed as simulated.
It is well to note that both the RTC and the CA found that the
evidence established that the March 5, 1975 Deed of Sale of
Undivided Parcel of Land executed by Domingo in favor of
Laureano Cabalu was a fictitious and simulated document. As
expounded by the CA, viz:
Nevertheless, since there are discrepancies in the signature of
the notary public, his PTR and the document number on the
lower-most portion of the document, as well as the said deed
of sale being found only after the plaintiffs-appellants were
ejected by the defendants-appellants; that they were
allegedly not aware that the said property was bought by their
father, and that they never questioned the other half of the
property not occupied by them, it is apparent that the sale
dated March 5, 1975 had the earmarks of a simulated deed
written all over it. The lower court did not err in pronouncing
that it be declared null and void.17
Petitioners, in support of their claim of validity of the said
document of deed, again invoke the legal presumption of
regularity. To reiterate, the RTC and later the CA had ruled that
the sale, dated March 5, 1975, had the earmarks of a
simulated deed, hence, the presumption was already
rebutted. Verily and as aptly noted by the respondent
spouses, such presumption of regularity cannot prevail over
the facts proven and already established in the records of this
case.
Even on the assumption that the March 5, 1975 deed was not
simulated, still the sale cannot be deemed valid because, at
that time, Domingo was not yet the owner of the property.
There is no dispute that the original and registered owner of
the subject property covered by TCT No. 16776, from which
the subject 9,000 square meter lot came from, was Faustina,
who during her lifetime had executed a will, dated July 27,
1939. In the said will, the name of Benjamin, father of
Domingo, appeared as one of the heirs. Thus, and as correctly
8
found by the RTC, even if Benjamin died sometime in 1960, TCT No. 286484 as well as the derivative titles TCT Nos.
Domingo in 1975 could not yet validly dispose of the whole or 291338 and 291339, both registered in the name of Renato
even a portion thereof for the reason that he was not the sole Tabu, married to Dolores Laxamana, are hereby declared null
heir of Benjamin, as his mother only died sometime in 1980. and void and cancelled.

Besides, under Article 1347 of the Civil Code, "No contract 3. TCT No. 281353 in the name of Domingo Laxamana is
may be entered into upon future inheritance except in cases hereby ordered restored subject to the partition by his lawful
expressly authorized by law." Paragraph 2 of Article 1347, heirs.
characterizes a contract entered into upon future inheritance
as void. The law applies when the following requisites concur: SO ORDERED.
(1) the succession has not yet been opened; (2) the object of
JOSE CATRAL MENDOZA
the contract forms part of the inheritance; and (3) the
Associate Justice
promissor has, with respect to the object, an expectancy of a
right which is purely hereditary in nature.18

In this case, at the time the deed was executed, Faustinas will
was not yet probated; the object of the contract, the 9,000
square meter property, still formed part of the inheritance of
his father from the estate of Faustina; and Domingo had a
mere inchoate hereditary right therein.1wphi1

Domingo became the owner of the said property only on

August 1, 1994, the time of execution of the Deed of
Extrajudicial Succession with Partition by the heirs of Faustina,
when the 9,000 square meter lot was adjudicated to him.

The CA, therefore, did not err in declaring the March 5, 1975
Deed of Sale null and void.

Domingos status as an heir of Faustina by right of

representation being undisputed, the RTC should have
maintained the validity of TCT No. 266583 covering the 9,000
square meter subject property. As correctly concluded by the
CA, this served as the inheritance of Domingo from Faustina.

Regarding the deed of sale covering the remaining 4,500

square meters of the subject property executed in favor of
Renato Tabu, it is evidently null and void. The document itself,
the Deed of Absolute Sale, dated October 8, 1996, readily
shows that it was executed on August 4, 1996 more than two
months after the death of Domingo. Contracting parties must
be juristic entities at the time of the consummation of the
contract. Stated otherwise, to form a valid and legal
agreement it is necessary that there be a party capable of
contracting and a party capable of being contracted with.
Hence, if any one party to a supposed contract was already
dead at the time of its execution, such contract is
undoubtedly simulated and false and, therefore, null and void
by reason of its having been made after the death of the party
who appears as one of the contracting parties therein. The
death of a person terminates contractual capacity. 19

The contract being null and void, the sale to Renato Tabu
produced no legal effects and transmitted no rights
whatsoever. Consequently, TCT No. 286484 issued to Tabu by
virtue of the October 8, 1996 Deed of Sale, as well as its
derivative titles, TCT Nos. 291338 and 291339, both
registered in the name of Rena to Tabu, married to Dolores
Laxamana, are likewise void.

The CA erred in deleting that portion in the RTC decision

declaring the Deed of Absolute Sale, dated October 8, 1996,
null and void and canceling TCT Nos. 291338 and 291339.

WHEREFORE, the petition is partially GRANTED. The decretal

portion of the June 16, 2009 Decision of the Court of Appeals
is hereby MODIFIED to read as follows:

1. The Deed of Absolute Sale, dated March 5, 1975, executed

by Domingo Laxamana in favor of Laureano Cabalu, is hereby
declared as null and void.

2. The Deed of Absolute Sale, dated October 8, 1996,

executed by Domingo Laxamana in favor of Renato Tabu, and

9
G.R. No. 183774 November 14, 2012
PHILIPPINE BANKING CORPORATION, Petitioner,
vs.
ARTURO DY, BERNARDO DY, JOSE DELGADO AND
CIPRIANA DELGADO, Respondents.
DECISION
PERLAS-BERNABE, J.:
This Petition for Review on Certiorari assails the January 30,
2008 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No.
51672, which set aside the October 5, 1994 Decision 2 of the
Regional Trial Court of Cebu City, Branch 22 (RTC) and
directed the Register of Deeds of Cebu City to cancel Transfer
Certificate of Title (TCT) Nos. 517683 and 519014 in the names
of respondents Arturo Dy and Bernardo Dy (Dys) and to issue
the corresponding TCTs in the name of respondent Cipriana
Delgado (Cipriana).
The Factual Antecedents
Cipriana was the registered owner of a 58,129-square meter
(sq.m.) lot, denominated as Lot No. 6966, situated in Barrio
Tongkil, Minglanilla, Cebu, covered by TCT No. 18568. She and
her husband, respondent Jose Delgado (Jose), entered into an
agreement with a certain Cecilia Tan (buyer) for the sale of
the said property for a consideration of P10.00/sq.m. It was
agreed that the buyer shall make partial payments from time
to time and pay the balance when Cipriana and Jose (Sps.
Delgado) are ready to execute the deed of sale and transfer
the title to her.
At the time of sale, the buyer was already occupying a portion
of the property where she operates a noodle (bihon) factory
while the rest was occupied by tenants which Sps. Delgado
undertook to clear prior to full payment. After paying the total
sum of P147,000.00 and being then ready to pay the balance,
the buyer demanded the execution of the deed, which was
refused. Eventually, the buyer learned of the sale of the
property to the Dys and its subsequent mortgage to petitioner
Philippine Banking Corporation (Philbank), prompting the filing
of the Complaint5 for annulment of certificate of title, specific
performance and/or reconveyance with damages against Sps.
Delgado, the Dys and Philbank.
In their Answer, Sps. Delgado, while admitting receipt of the
partial payments made by the buyer, claimed that there was
no perfected sale because the latter was not willing to pay
their asking price of P17.00/sq.m. They also interposed a
cross-claim against the Dys averring that the deeds of
absolute sale in their favor dated June 28, 19826 and June 30,
19827 covering Lot No. 6966 and the adjoining Lot No. 4100-A
(on which Sps. Delgado's house stands), were fictitious and
merely intended to enable them (the Dys) to use the said
properties as collateral for their loan application with Philbank
and thereafter, pay the true consideration of P17.00/sq.m. for
Lot No. 6966. However, after receiving the loan proceeds, the
Dys reneged on their agreement, prompting Sps. Delgado to
cause the annotation of an adverse claim on the Dys' titles
and to inform Philbank of the simulation of the sale. Sps.
Delgado, thus, prayed for the dismissal of the complaint, with
a counterclaim for damages and a cross-claim against the Dys
for the payment of the balance of the purchase price plus
damages.
For their part, the Dys denied knowledge of the alleged
transaction between cross-claimants Sps. Delgado and buyer.
They claimed to have validly acquired the subject property
from Sps. Delgado and paid the full consideration therefor as
the latter even withdrew their adverse claim and never
demanded for the payment of any unpaid balance.
On the other hand, Philbank filed its Answer8 asserting that it
is an innocent mortgagee for value without notice of the
defect in the title of the Dys. It filed a cross-claim against Sps.
Delgado and the Dys for all the damages that may be
adjudged against it in the event they are declared seller and
purchaser in bad faith, respectively.
In answer to the cross-claim, Sps. Delgado insisted that
Philbank was not a mortgagee in good faith for having granted
the loan and accepted the mortgage despite knowledge of the
simulation of the sale to the Dys and for failure to verify the
nature of the buyers physical possession of a portion of Lot
No. 6966. They thereby prayed for the cancellation of the
mortgage in Philbank's favor.
Subsequently, Sps. Delgado amended their cross-claim
against the Dys to include a prayer for the nullification of the
deeds of absolute sale in the latter's favor and the
corresponding certificates of title, and for the consequent
reinstatement of Ciprianas title.9
The complaints against the Dys and Philbank were
subsequently withdrawn. On the other hand, both the buyer
and Sps. Delgado never presented any evidence in support of
their respective claims. Hence, the RTC limited itself to the
resolution of the claims of Sps. Delgado, Philbank and the Dys
against one another.
The RTC Ruling
In the Decision10 dated October 5, 1994, the RTC dismissed
the cross-claims of Sps. Delgado against the Dys and
Philbank. It noted that other than Sps. Delgado's bare
allegation of the Dys' supposed non-payment of the full
consideration for Lot Nos. 6966 and 4100-A, they failed to
adduce competent evidence to support their claim. On the
other hand, the Dys presented a cash voucher11 dated April 6,
1983 duly signed by Sps. Delgado acknowledging receipt of
the total consideration for the two lots.
The RTC also observed that Sps. Delgado notified Philbank of
the purported simulation of the sale to the Dys only after the
execution of the loan and mortgage documents and the
release of the loan proceeds to the latter, negating their claim
of bad faith. Moreover, they subsequently notified the bank of
the Dys' full payment for the two lots mortgaged to it.
The CA Ruling
However, on appeal, the CA set aside12 the RTC's decision and
ordered the cancellation of the Dys' certificates of title and
the reinstatement of Cipriana's title. It ruled that there were
no perfected contracts of sale between Sps. Delgado and the
Dys in view of the latter's admission that the deeds of sale
were purposely executed to facilitate the latter's loan
application with Philbank and that the prices indicated therein
were not the true consideration. Being merely simulated, the
contracts of sale were, thus, null and void, rendering the
subsequent mortgage of the lots likewise void.
The CA also declared Philbank not to be a mortgagee in good
faith for its failure to ascertain how the Dys acquired the
properties and to exercise greater care when it conducted an
ocular inspection thereof. It thereby canceled the mortgage
over the two lots.
The Petition
In the present petition, Philbank insists that it is a mortgagee
in good faith. It further contends that Sps. Delgado are
estopped from denying the validity of the mortgage
constituted over the two lots since they participated in
inducing Philbank to grant a loan to the Dys.
10
On the other hand, Sps. Delgado maintain that Philbank was
not an innocent mortgagee for value for failure to exercise
due diligence in transacting with the Dys and may not invoke
the equitable doctrine of estoppel to conceal its own lack of
diligence.
For his part, Arturo Dy filed a Petition-in-Intervention 13 arguing
that while the deeds of absolute sale over the two properties
were admittedly simulated, the simulation was only a relative
one involving a false statement of the price. Hence, the
parties are still bound by their true agreement. The same was
opposed/objected to by both Philbank14 and Sps. Delgado15 as
improper, considering that the CA judgment had long become
final and executory as to the Dys who neither moved for
reconsideration nor appealed the CA Decision.
The Ruling of the Court
The petition is meritorious.
At the outset, the Court takes note of the fact that the CA
Decision nullifying the questioned contracts of sale between
Sps. Delgado and the Dys had become final and executory.
Accordingly, the Petition-in-Intervention filed by Arturo Dy,
which seeks to maintain the subject contracts' validity, can no
longer be entertained. The cancellation of the Dys' certificates
of title over the disputed properties and the issuance of new
TCTs in favor of Cipriana must therefore be upheld.
However, Philbank's mortgage rights over the subject
properties shall be maintained. While it is settled that a
simulated deed of sale is null and void and therefore, does not
convey any right that could ripen into a valid title, 16it has been
equally ruled that, for reasons of public policy,17 the
subsequent nullification of title to a property is not a ground
to annul the contractual right which may have been derived
by a purchaser, mortgagee or other transferee who acted in
good faith.18
The ascertainment of good faith or lack of it, and the
determination of whether due diligence and prudence were
exercised or not, are questions of fact19 which are generally
improper in a petition for review on certiorari under Rule 45 of
the Rules of Court (Rules) where only questions of law may be
raised. A recognized exception to the rule is when there are
conflicting findings of fact by the CA and the RTC, 20 as in this
case.
Primarily, it bears noting that the doctrine of "mortgagee in
good faith" is based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title are not
required to go beyond what appears on the face of the title.
This is in deference to the public interest in upholding the
indefeasibility of a certificate of title as evidence of lawful
ownership of the land or of any encumbrance thereon. 21 In the
case of banks and other financial institutions, however,
greater care and due diligence are required since they are
imbued with public interest, failing which renders the
mortgagees in bad faith. Thus, before approving a loan
application, it is a standard operating practice for these
institutions to conduct an ocular inspection of the property
offered for mortgage and to verify the genuineness of the title
to determine the real owner(s) thereof.22 The apparent
purpose of an ocular inspection is to protect the "true owner"
of the property as well as innocent third parties with a right,
interest or claim thereon from a usurper who may have
acquired a fraudulent certificate of title thereto.23
Delgado were parties to the simulated sale in favor of the Dys
which was intended to mislead Philbank into granting the loan
application. Thus, no amount of diligence in the conduct of the
ocular inspection could have led to the discovery of the
complicity between the ostensible mortgagors (the Dys) and
the true owners (Sps. Delgado).1wphi1 In fine, Philbank can
hardly be deemed negligent under the premises since the
ultimate cause of the mortgagors' (the Dys') defective title
was the simulated sale to which Sps. Delgado were privies.
Indeed, a finding of negligence must always be contextualized
in line with the attendant circumstances of a particular case.
As aptly held in Philippine National Bank v. Heirs of Estanislao
Militar,25 "the diligence with which the law requires the
individual or a corporation at all times to govern a particular
conduct varies with the nature of the situation in which one is
placed, and the importance of the act which is to be
performed."26 Thus, without diminishing the time-honored
principle that nothing short of extraordinary diligence is
required of banks whose business is impressed with public
interest, Philbank's inconsequential oversight should not and
cannot serve as a bastion for fraud and deceit.
To be sure, fraud comprises "anything calculated to deceive,
including all acts, omissions, and concealment involving a
breach of legal duty or equitable duty, trust, or confidence
justly reposed, resulting in damage to another, or by which an
undue and unconscientious advantage is taken of
another."27 In this light, the Dys' and Sps. Delgado's deliberate
simulation of the sale intended to obtain loan proceeds from
and to prejudice Philbank clearly constitutes fraudulent
conduct. As such, Sps. Delgado cannot now be allowed to
deny the validity of the mortgage executed by the Dys in
favor of Philbank as to hold otherwise would effectively
sanction their blatant bad faith to Philbank's detriment.
Accordingly, in the interest of public policy, fair dealing, good
faith and justice, the Court accords Philbank the rights of a
mortgagee in good faith whose lien to the securities posted
must be respected and protected. In this regard, Philbank is
entitled to have its mortgage carried over or annotated on the
titles of Cipriana Delgado over the said properties.
WHERFORE, the assailed January 30, 2008 Decision of the
Court of Appeals in CA-G.R. CV No. 51672 is hereby AFFIRMED
with MODIFICATION upholding the mortgage rights of
petitioner Philippine Banking Corporation over the subject
properties.
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice

In this case, while Philbank failed to exercise greater care in

conducting the ocular inspection of the properties offered for
mortgage,24 its omission did not prejudice any innocent third
parties. In particular, the buyer did not pursue her cause and
abandoned her claim on the property. On the other hand, Sps.

11
G.R. No. 175483, October 14, 2015
VALENTINA S. CLEMENTE, Petitioner, v. THE COURT OF
APPEALS, ANNIE SHOTWELL JALANDOON, ET
AL., Respondents.
DECISION
JARDELEZA, J.:
This is a Petition for Review on Certiorari1 under Rule 45 of the
Revised Rules of Court filed by Valentina S. Clemente
("petitioner") from the Decision2 of August 23, 2005 and the
Resolution3 dated November 15, 2006 of the Court of Appeals
(CA) Eighth Division in CA-G.R. CV No. 70918.
Petitioner assails the Decision of the CA which ruled that two
(2) deeds of absolute sale executed between petitioner and
Adela de Guzman Shotwell ("Adela"), her grandmother, are
void and inexistent for being simulated and lacking
consideration. The CA affirmed the Decision of the Regional
Trial Court (RTC) of Quezon City, Branch 89, but deleted the
holding of the latter that an implied trust existed.
The Facts
Adela owned three (3) adjoining parcels of land in Scout Ojeda
Street, Diliman, Quezon City, subdivided as Lots 32, 34 and
35-B (the "Properties"). Among the improvements on the
Properties was Adela's house (also referred to as the "big
house"). During her lifetime, Adela allowed her children,
namely, Annie Shotwell Jalandoon, Carlos G. Shotwell ("Carlos
Sr."), Anselmo G. Shotwell and Corazon S. Basset, and her
grandchildren,4 the use and possession of the Properties and
its improvements.5
Sometime in 1985 and 1987, Adela simulated the transfer of
Lots 32 and Lot 34 to her two grandsons from Carlos Sr.,
namely, Carlos V. Shotwell, Jr. ("Carlos Jr.") and Dennis V.
Shotwell.6 As a consequence, Transfer Certificate of Title (TCT)
No. 338708/PR 9421 was issued over Lot 32 under the name
of Carlos Jr., while TCT No. 366256/PR 9422 was issued over
Lot 34 under the name of Dennis.7 On the other hand, Lot 35-
B remained with Adela and was covered by TCT No. 374531. It
is undisputed that the transfers were never intended to vest
title to Carlos Jr. and Dennis who both will return the lots to
Adela when requested.8
On April 18, 1989, prior to Adela and petitioner's departure for
the United States, Adela requested Carlos Jr. and Dennis to
execute a deed of reconveyance9 over Lots 32 and 34. The
deed of reconveyance was executed on the same day and was
registered with the Registry of Deeds on April 24, 1989.10
On April 25, 1989, Adela executed a deed of absolute
sale11 over Lots 32 and 34, and their improvements, in favor
of petitioner, bearing on its face the price of P250,000.00. On
the same day, Adela also executed a special power of
attorney12 (SPA) in favor of petitioner. Petitioner's authority
under the SPA included the power to administer, take charge
and manage, for Adela's benefit, the Properties and all her
other real and personal properties in the Philippines.13 The
deed of absolute sale and the SPA were notarized on the same
day by Atty. Dionilo D. Marfil in Quezon City.14
On April 29, 1989, Adela and petitioner left for the United
States.15 When petitioner returned to the Philippines, she
registered the sale over Lots 32 and 34 with the Registry of
Deeds on September 25, 1989. TCT No. 19811 and TCT No.
19809 were then issued in the name of petitioner over Lots 32
and 34, respectively.16
On January 14, 1990, Adela died in the United States and was
succeeded by her four children.17
Soon thereafter, petitioner sought to eject Annie and Carlos
Sr., who were then staying on the Properties. Only then did
Annie and Carlos Sr. learn of the transfer of titles to petitioner.
Thus, on July 9, 1990, Annie, Carlos Sr. and Anselmo,
represented by Annie, ("private respondents") filed a
complaint for reconveyance of property18 against petitioner
before Branch 89 of the RTC of Quezon City. It was docketed
as Civil Case No. Q-90-6035 and titled "Annie S. Jalandoon, et
al. v. Valentino. Clemente"19
In the course of the trial, private respondents discovered that
Adela and petitioner executed another deed of absolute
sale20 over Lot 35-B on April 25, 1989 (collectively with the
deed of absolute sale over Lots 32 and 34, "Deeds of Absolute
Sale"), bearing on its face the price of F60,000.00.21 This was
notarized on the same date by one Orancio Generoso in
Manila, but it was registered with the Registry of Deeds only
on October 5, 1990.22 Thus, private respondents amended
their complaint to include Lot 35-B.23
In their amended complaint, private respondents sought
nullification of the Deeds of Absolute Sale. They alleged that
Adela only wanted to help petitioner travel to the United
States, by making it appear that petitioner has ownership of
the Properties. They further alleged that similar to the
previous simulated transfers to Carlos Jr. and Dennis,
petitioner also undertook and warranted to execute a deed of
reconveyance in favor of the deceased over the Properties, if
and when Adela should demand the same. They finally alleged
that no consideration was given by petitioner to Adela in
exchange for the simulated conveyances.24
On October 3, 1997, Carlos Sr. died and was substituted only
by Dennis.25 In an order dated June 18, 1999, the case was
dismissed with respect to Annie after she manifested her
intention to withdraw as a party-plaintiff.26 Anselmo Shotwell
also died without any compulsory heir on September 7, 2000.
On February 26, 2001, the trial court promulgated a
Decision27 in favor of private respondents. Its decretal portion
reads:cralawlawlibrary
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Declaring null and void the Deeds of Absolute Sale
both dated April 25, 1989 between the late Adela De
Guzman Shotwell and the
defendant;ChanRoblesVirtualawlibrary
2. Ordering the cancellation of Transfer Certificates of
Title Nos. 19809, 19811 and 26558, all of the
Registry of Deeds of Quezon City and in the name of
defendant Valentina Clemente; and
3. Ordering the defendant to execute a Deed of
Reconveyance in favor of the estate of the late Adela
de Guzman Shotwell over the three (3) subject lots,
respectively covered by Transfer Certificates of Title
Nos. 19809, 19811 and 26558 of the Registry of
Deeds of Quezon City;
With costs against defendant.
SO ORDERED.28chanrobleslaw
On appeal, the CA affirmed with modification the Decision.
The CA ruled that the Deeds of Absolute Sale were simulated.
It also ruled that the conveyances of the Properties to
12
petitioner were made without consideration and with no
intention to have legal effect.29
The CA agreed with the trial court that the contemporaneous
and subsequent acts of petitioner and her grandmother are
enough to render the conveyances null and void on the
ground of being simulated.30The CA found that Adela retained
and continued to exercise dominion over the Properties even
after she executed the conveyances to petitioner.31 By
contrast, petitioner did not exercise control over the
properties because she continued to honor the decisions of
Adela. The CA also affirmed the court a quo's finding that the
conveyances were not supported by any consideration. 32
Petitioner filed a Motion for Reconsideration33 dated
September 12, 2005 but this was denied by the CA in its
Resolution34 dated November 15, 2006.
Hence, this petition. The petition raises the principal issue of
whether or not the CA erred in affirming the decision of the
trial court, that the Deeds of Absolute Sale between petitioner
and her late grandmother over the Properties are simulated
and without consideration, and hence, void and inexistent. 35
Ruling of the Court
We deny the petition.
In a Petition for Review on Certiorari
under Rule 45, only questions of law
may be entertained.
Whether or not the CA erred in affirming the decision of the
RTC that the Deeds of Absolute Sale between petitioner and
her late grandmother are simulated and without
consideration, and hence, void and inexistent, is a question of
fact which is not within the province of a petition for review
on certiorari under Rule 45 of the Revised Rules of Court.
Section 1, Rule 45 of the Revised Rules of Court states that
the petition filed shall raise only questions of law, which must
be distinctly set forth. We have explained the difference
between a question of fact and a question of law, to
wit:cralawlawlibrary
A question of law arises when there is doubt as to what the
law is on a certain state of facts, while there is a question of
fact when the doubt arises as to the truth or falsity of the
alleged facts. For a question to be one of law, the same must
not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear
that the issue invites a review of the evidence presented, the
question posed is one of fact.36chanrobleslaw
Most of the issues raised by petitioner are questions of fact
that invite a review of the evidence presented by the parties
below. We have repeatedly ruled that the issue on the
genuineness of a deed of sale is essentially a question of
fact.37 We are not a trier of facts and do not normally
undertake the re-examination of the evidence presented by
the contending parties during the trial of the case. 38 This is
especially true where the trial court's factual findings are
adopted and affirmed by the CA as in the present
case.39 Factual findings of the trial court affirmed by the CA
are final and conclusive and may not be reviewed on
appeal.40 While it is true that there are recognized
exceptions41 to the general rule that only questions of law
may be entertained in a Rule 45 petition, we find that there is
none obtaining in this case.
Nevertheless, and to erase any doubt on the correctness of
the assailed ruling, we examined the records below and have
arrived at the same conclusion. Petitioner has not been able
to show that the lower courts committed error in appreciating
the evidence of record.
The Deeds of Absolute Sale between
petitioner and the late Adela Shotwell
are null and void for lack of consent
and consideration.
While the Deeds of Absolute Sale appear to be valid on their
face, the courts are not completely precluded to consider
evidence aliunde in determining the real intent of the parties.
This is especially true when the validity of the contracts was
put in issue by one of the parties in his pleadings.42 Here,
private respondents assail the validity of the Deeds of
Absolute Sale by alleging that they were simulated and lacked
consideration.
A. Simulated contract
The Civil Code defines a contract as a meeting of minds
between two persons whereby one binds himself, with respect
to the other, to give something or to render some
service.43 Article 1318 provides that there is no contract
unless the following requisites concur:cralawlawlibrary
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
and
(3) Cause of the obligation which is
established.chanrobleslaw
All these elements must be present to constitute a valid
contract; the absence of one renders the contract void. As one
of the essential elements, consent when wanting makes the
contract non-existent. Consent is manifested by the meeting
of the offer and the acceptance of the thing and the cause,
which are to constitute the contract.44 A contract of sale is
perfected at the moment there is a meeting of the minds
upon the thing that is the object of the contract, and upon the
price.45
Here, there was no valid contract of sale between petitioner
and Adela because their consent was absent. The contract of
sale was a mere simulation.
Simulation takes place when the parties do not really want the
contract they have executed to produce the legal effects
expressed by its wordings.46 Article 1345 of the Civil Code
provides that the simulation of a contract may either be
absolute or relative. The former takes place when the parties
do not intend to be bound at all; the latter, when the parties
conceal their true agreement. The case of Heirs of Policronio
M. Ureta, Sr. v. Heirs of Liberate M. Ureta 47 is instructive on the
matter of absolute simulation of
contracts, viz:cralawlawlibrary
In absolute simulation, there is a colorable contract but it
has no substance as the parties have no intention to be
bound by it. The main characteristic of an absolute simulation
is that the apparent contract is not really desired or intended
to produce legal effect or in any way alter the juridical
situation of the parties. As a result, an absolutely
simulated or fictitious contract is void, and the parties
may recover from each other what they may have given
under the contract...48 (Emphasis supplied)chanrobleslaw
13

In short, in absolute simulation there appears to be a valid
contract but there is actually none because the element of
consent is lacking.49 This is so because the parties do not
actually intend to be bound by the terms of the contract.
In determining the true nature of a contract, the primary test
is the intention of the parties. If the words of a contract
appear to contravene the evident intention of the parties, the
latter shall prevail. Such intention is determined not only from
the express terms of their agreement, but also from the
contemporaneous and subsequent acts of the parties. 50 This is
especially true in a claim of absolute simulation where a
colorable contract is executed.
In ruling that the Deeds of Absolute Sale were absolutely
simulated, the lower courts considered the totality of the
prior, contemporaneous and subsequent acts of the parties.
The following circumstances led the RTC and the CA to
conclude that the Deeds of Absolute Sale are simulated, and
that the transfers were never intended to affect the juridical
relation of the parties:chanRoblesvirtualLawlibrary
a) There was no indication that Adela intended to alienate her
properties in favor of petitioner. In fact, the letter of Adela to
Dennis dated April 18, 198951 reveals that she has reserved
the ownership of the Properties in favor of Dennis.
b) Adela continued exercising acts of dominion and control
over the properties, even after the execution of the Deeds of
Absolute Sale, and though she lived abroad for a time. In
Adela's letter dated August 25, 198952 to a certain Candy, she
advised the latter to stay in the big house. Also, in petitioner's
letter to her cousin Dennis dated July 3, 1989, 53 she admitted
that Adela continued to be in charge of the Properties; that
she has no "say" when it comes to the Properties; that she
does not intend to claim exclusive ownership of Lot 35-B; and
that she is aware that the ownership and control of the
Properties are intended to be consolidated in Dennis.
c) The SPA executed on the same day as the Deeds of
Absolute Sale appointing petitioner as administratrix of
Adela's properties, including the Properties, is repugnant to
petitioner's claim that the ownership of the same had been
transferred to her.
d) The previous sales of the Properties to Dennis and Carlos,
Jr. were simulated. This history, coupled with Adela's
treatment of petitioner, and the surrounding circumstances of
the sales, strongly show that Adela only granted petitioner the
same favor she had granted to Dennis and Carlos Jr.
The April 18, 1989 letter to Dennis convincingly shows Adela's
intention to give him the Properties. Part of the letter reads:
"Dennis, the two lot [sic] 32-34 at your said lower house will
be at name yours [sic] plus the 35 part of Cora or
Teens [sic] house are all under your name"54 Petitioner claims
this letter was not properly identified and is thus, hearsay
evidence. The records, however, show that the letter was
admitted by the trial court in its Order dated February 24,
1993.55 While it is true that the letter is dated prior (or six
days before to be exact) to the execution of the Deeds of
Absolute Sale and is not conclusive that Adela did not change
her mind, we find that the language of the letter is more
consistent with the other pieces of evidence that show Adela
never intended to relinquish ownership of the Properties to
petitioner. In this regard, we see no compelling reason to
depart from the findings of the trial court as there appears no
grave abuse of discretion in its admission and consideration of
the letter.
Petitioner's letter to her cousin Dennis dated July 3, 1989 also
sufficiently establishes that Adela retained control over the
Properties, even after the execution of the Deeds of Absolute
Sale. Petitioner herself admitted that she was only following
the orders of Adela, and that she has no claim over the
Properties. We quote in verbatim the relevant part of the
letter:cralawlawlibrary
...Now, before I left going back here in Mla. Mommy Dela ask
me to read your letter about the big house and lot, and I
explained it to her. Now Mommy and Mommy Dela wants that
the house is for everyone who will need to stay, well that is
what they say. Alam mo naman, I have no "say" esp.
when it comes with properties & you know that.
Now kung ano gusto nila that goes. Now, to be honest
Mommy was surprise [sic] bakit daw kailangan mawalan ng
karapatan sa bahay eh Nanay daw nila iyon at tayo apo
lang, Eh wala akong masasabi dyan, to be truthful to
you, I only get the orders... Tapos, sinisingil pa ako ng
P1,000 --para sa gate napinapagawa nya sa lot 35-B, eh hindi
na lang ako kiimibo pero nagdamdam ako, imagine minsan na
lang sya nakagawa ng bien sa akin at wala sa intention ko na
suluhin ang 35-B, ganyan pa sya... Now tungkol sa iyo, alam
ko meron ka rin lupa tapos yung bahay na malaki ikaw
rin ang titira at magmamahala sa lahat. Anyway, itong
bahay ko sa iyo rin, alam mo naman na I'm just making the
kids grow a little older then we have to home in the
states...56 (Emphasis supplied)
chanrobleslaw
Moreover, Adela's letter to petitioner's cousin Candy dated
August 25, 1989 shows Adela's retention of dominion over the
Properties even after the sales. In the letter, Adela even
requested her granddaughter Candy to stay in the house rent
and expense free.57 Petitioner claims that Candy and the
house referred to in the letter were not identified. Records
show, however, that petitioner has testified she has a cousin
named Candy Shotwell who stayed at the "big house" since
February 1989.58
Clearly, the submission of petitioner to the orders of Adela
does not only show that the latter retained dominion over the
Properties, but also that petitioner did not exercise acts of
ownership over it. If at all, her actions only affirm the
conclusion that she was merely an administratrix of the
Properties by virtue of the SPA.
On the SPA, petitioner claims the lower courts erred in holding
that it is inconsistent with her claim of ownership. Petitioner
claims that she has sufficiently explained that the SPA is not
for the administration of the Properties, but for the
reconstitution of their titles.
We agree with the lower courts that the execution of an SPA
for the administration of the Properties, on the same day the
Deeds of Absolute Sale were executed, is antithetical to the
relinquishment of ownership. The SPA shows that it is so
worded as to leave no doubt that Adela is appointing
petitioner as the administratrix of her properties in Scout
Ojeda. Had the SPA been intended only to facilitate the
processing of the reconstitution of the titles, there would have
been no need to confer other powers of administration, such
as the collection of debts, filing of suit, etc., to petitioner. 59 In
any case, the explanation given by petitioner that the SPA was
executed so as only to facilitate the reconstitution of the titles
of the Properties is not inconsistent with the idea of her being
the administratrix of the Properties. On the other hand, the
idea of assigning her as administratrix is not only inconsistent,
but also repugnant, to the intention of selling and
relinquishing ownership of the Properties.
Petitioner next questions the lower courts' findings that the
14
Deeds of Absolute Sale are simulated because the previous
transfers to Adela's other grandchildren were also simulated.
It may be true that, taken by itself, the fact that Adela had
previously feigned the transfer of ownership of Lots 32 and 34
to her other grandchildren would not automatically mean that
the subject Deeds of Absolute Sale are likewise void. The
lower courts, however, did not rely solely on this fact, but
considered it with the rest of the evidence, the totality of
which reveals that Adela's intention was merely to feign the
transfer to petitioner.
The fact that unlike in the case of Dennis and Carlos, Jr., she
was not asked by Adela to execute a deed of reconveyance, is
of no moment. There was a considerable lapse of time from
the moment of the transfer to Dennis and Carlos, Jr. of Lots 32
and 34 in 1985 and in 1987, respectively, and until the
execution of the deed of reconveyance in 1989. Here, the
alleged Deeds of Absolute Sale were executed in April 1989.
Adela died in January 1990 in the United States. Given the
short period of time between the alleged execution of the
Deeds of Absolute Sale and the sudden demise of Adela, the
fact that petitioner was not asked to execute a deed of
reconveyance is understandable. This is because there was no
chance at all to do so. Thus, the fact that she did not execute
a deed of reconveyance does not help her case.
We affirm the conclusion reached by the RTC and the CA that
the evidence presented below prove that Adela did not intend
to alienate the Properties in favor of petitioner, and that the
transfers were merely a sham to accommodate petitioner in
her travel abroad.
Petitioner claims that we should consider that there is only
one heir of the late Adela who is contesting the sale, and that
out of the many transactions involving the decedent's other
properties, the sale to petitioner is the only one being
questioned. We are not convinced that these are material to
the resolution of the case. As aptly passed upon by the CA in
its assailed Resolution:cralawlawlibrary
In a contest for the declaration of nullity of an instrument for
being simulated, the number of contestants is not
determinative of the propriety of the cause. Any person who
is prejudiced by a simulated contract may set up its
inexistence. In this instant case, it does not matter if the
contest is made by one, some or all of the heirs.
Neither would the existence of other contracts which remain
unquestioned deter an action for the nullity of an instrument.
A contract is rendered meaningful and forceful by the
intention of the parties relative thereto, and such intention
can only be relevant to that particular contract which is
produced or, as in this case, to that which is not produced.
That the deed of sale in [petitioner's] favor has been held to
be simulated is not indicative of the simulation of any other
contract executed by the deceased Adela de Guzman Shotwell
during her lifetime.60chanrobleslaw
To this we add that other alleged transactions made by Adela
cannot be used as evidence to prove the validity of the
conveyances to petitioner. For one, we are not aware of any of
these transactions or whether there are indeed other
transactions. More importantly, the validity of these
transactions does not prove directly or indirectly the validity
of the conveyances in question.
B. No consideration for the sale
We also find no compelling reason to depart from the court a
quo's finding that Adela never received the consideration
stipulated in the simulated Deeds of Absolute Sale.
Although on their face, the Deeds of Absolute Sale appear to
be supported by valuable consideration, the RTC and the CA
found that there was no money involved in the sale. The
consideration in the Deeds of Absolute Sale was
superimposed on the spaces therein, bearing a font type
different from that used in the rest of the document.61 The
lower courts also found that the duplicate originals of the
Deeds of Absolute Sale bear a different entry with regard to
the price.62
Article 1471 of the Civil Code provides that "if the price is
simulated, the sale is void." Where a deed of sale states that
the purchase price has been paid but in fact has never been
paid, the deed of sale is null and void for lack of
consideration.63 Thus, although the contracts state that the
purchase price of P250,000.00 and P60,000.00 were paid by
petitioner to Adela for the Properties, the evidence shows that
the contrary is true, because no money changed hands. Apart
from her testimony, petitioner did not present proof that she
paid for the Properties.
There is no implied trust.
We also affirm the CA's deletion of the pronouncement of the
trial court as to the existence of an implied trust. The trial
court found that a resulting trust, a form of implied trust
based on Article 145364 of the Civil Code, was created
between Adela and petitioner.
Resulting trusts65 arise from the nature or circumstances of
the consideration involved in a transaction whereby one
person becomes invested with legal title but is obligated in
equity to hold his title for the benefit of another.66 It is founded
on the equitable doctrine that valuable consideration and
not legal title is determinative of equitable title or interest and
is always presumed to have been contemplated by the
parties.67 Since the intent is not expressed in the instrument
or deed of conveyance, it is to be found in the nature of the
parties' transaction.68 Resulting trusts are thus describable as
intention-enforcing trusts.69 An example of a resulting trust is
Article 1453 of the Civil Code.
We, however, agree with the CA that no implied trust can be
generated by the simulated transfers because being fictitious
or simulated, the transfers were null and void ab initio from
the very beginning and thus vested no rights whatsoever in
favor of petitioner. That which is inexistent cannot give life to
anything at all.70
Article 1453 contemplates that legal titles were validly vested
in petitioner. Considering, however, that the sales lack not
only the element of consent for being absolutely simulated,
but also the element of consideration, these transactions are
void and inexistent and produce no effect. Being null and void
from the beginning, no transfer of title, both legal and
beneficial, was ever effected to petitioner.
In any case, regardless of the presence of an implied trust,
this will not affect the disposition of the case. As void
contracts do not produce any effect, the result will be the
same in that the Properties will be reeonveyed to the estate of
the late Adela de Guzman Shotwell.
WHEREFORE, the petition is DENIED.,
SO ORDERED.chanroblesvirtuallawlibrary
15
G.R. No. 196083, November 11, 2015
MILAGROS C. REYES, Petitioner, v. FELIX P.
ASUNCION, Respondent.
DECISION
PERALTA, J.:
For this Court's consideration is the Petition for Review
on Certiorari1 under Rule 45 of the Rules of Court, dated April
25, 2011 of petitioner Milagros C. Reyes seeking the reversal
of the Decision2 of the Court of Appeals (CA) dated July 9,
2010 which affirmed the Decision3 of the Regional Trial Court
(RTC), Branch 66, Capas, Tarlac, dated January 17, 2007
dismissing the Complaint4 of petitioner against respondent
Felix P. Asuncion for the declaration of nullity of a contract or
deed.
The facts follow.
Petitioner claimed that since the early 80s, she and her late
husband were the owners, with the right to occupy and
possess a parcel of land (subject land), which is also a
sugarcane plantation, with an area of more or less 3.5
hectares located at Patling, Capas, Tarlac and forms part of a
U.S. Military Reservation. Sometime in 1986, petitioner hired
respondent as a caretaker of the subject land. In 1997, the
Bases Conversion and Development Authority (BCDA)
launched a resettlement program for the victims of the Mt.
Pinatubo eruption and began to look for possible resettlement
sites in Tarlac and the subject lot was among those
considered.
Thereafter, according to petitioner, in order to prevent the
BCDA from converting her property into a resettlement site,
she and respondent executed a contract, antedated on June
15, 1993, transferring her rights over the subject land to the
respondent. The contract reads as
follows:chanRoblesvirtualLawlibrary
PAGLILIPAT [NG] KARAPATAN SA LUPA
Para sa Kinauukulan[:]
Ako po [ay] si [G]inang Milagros C. Reyes, widow[,] [F]ilipino, a
sugar [p]lanter of Central Azucarera de Tarlac, San Miguel [,]
Tarlac [and] residing at San Rafael[,] Tarlac.
Akin[g] pinatutunayan sa kasulatan[g] ito na nabili ko ang
karapatan o [r]ights ni [GJinoong Reymundo Dailig, nakatira sa
Patling[,] Capas[,] Tarlac. Ang loti ay may sukat na tatlong
ektarya at kalahati [sic] (3 1/2 hec). [A]t itoy [sic] ay kusang
loob naming mag-asawa, si Jesus C. Reyes[,] na ipagkaloob
ang nasabing lupa kay [G]inoong Felix Asuncion [unreadable
portion]. Sa loob ng sampung taon naminfg] pagsasama[,]
nakita namin na naging matapat siya sa kanyang obligations
bilang taga pamahala [sic] ng aming tubuhan at sa mga
[k]ontratista at higit sa lahat ay marunong siya makisama sa
aming kasama siya [ay] mapagkakatiwalaan lalo na sa pera.
Dahil sa [sic] naging matapat siya sa amin bilang Palsunero,
napagkasunduan namin na kami ang bahala sa finances, sa
kasunduan na kami ang magpapakabyaw ng tubo sa pangalan
ko, hanggang gusto ko. Sa ilalim nito ay nakapinna ang aking
pangalan.
Sgd.
Sgd.
Felix P. Asuncion Milagros C.
Reyes
Tenant
Planter
Sgd.
Witness
Barangay [C]aptain
Bon Vistair5
cralawlawlibrary
Petitioner claimed to have remained the absolute owner and
possessor of the subject land and presently occupies the
same as a sugarcane plantation and even mills the sugarcane
harvested at the Central Azucarera de Tarlac for her own
benefit. She also stated that the respondent continued
working for her but the latter's employment was severed
when petitioner discovered that respondent sold the former's
pigs and cows.
On January 6, 2000, respondent filed a Complaint for Estafa
against petitioner before the Office of the Prosecutor in Tarlac
City, Tarlac alleging that petitioner failed and/or refused to
give respondent his share of the total harvests on the subject
land for the years 1993-1999, using their contract as basis.
However, the said complaint was dismissed for lack of
probable cause.
Thereafter, petitioner filed a Complaint dated October 21,
2001 against respondent before the RTC of Capas, Tarlac for
the declaration of nullity of the subject contract.
The RTC, on January 17, 2007, rendered a Decision in favor of
the respondent. It ruled that there is no legal basis to nullify
the contract. The dispositive portion of the decision
states:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, finding no legal basis to
nullify the contract denominated as Paglilipat [nang]
Karapatan set Lipa, the complaint is dismissed and
the Paglilipat [nang] Karapatan set Lupa is declared legal and
binding.
No pronouncement as to cost. SO ORDERED. 6cralawlawlibrary
Undeterred, petitioner appealed the case to the CA, and on
July 9, 2010, the latter dismissed the appeal,
thus:chanRoblesvirtualLawlibrary
FOR THESE REASONS, We DISMISS the appeal for lack of
merit, the assailed Decision dated January 17, 2007 of the
Regional Trial Court is AFFIRMED.
SO ORDERED.7
After the CA denied8 petitioner's motion for reconsideration,
the latter filed the present petition.
Petitioner assigned the following
errors:chanRoblesvirtualLawlibrary
I
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT THE SUBJECT CONTRACT IS VALID EVEN IF IT
DOES NOT REFLECT THE TRUE INTENT OF THE PARTIES.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT THE DONATION OF THE SUBJECT LAND IS VALID
EVEN IF NOT MADE AND ACCEPTED IN A PUBLIC DOCUMENT.
16
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT THE PETITIONER MAY TRANSFER THE SUBJECT
LAND TO THE RESPONDENT EVEN WITHOUT THE CONSENT OF
THE HEIRS OF HER LATE
HUSBAND.9ChanRoblesVirtualawlibrary
cralawlawlibrary
Thereafter, respondent filed his Comment10 dated March 31,
2014 and petitioner filed her Reply11 dated June 7, 2014.
This Court finds no merit in the petition.
It is petitioner's contention that the subject contract is purely
simulated, since it purports a transfer of rights over the
subject land in favor of the respondent. However, when
petitioner executed the contract, it was never her intention to
transfer her rights over the subject land as the primordial
consideration was to prevent the BCDA from taking over the
property. She also asserts that she and the respondent agreed
to make the said false appearance in the contract. However,
the RTC and the CA found no other evidence to support the
said allegations and the self-serving averments of the
petitioner. This Court is in agreement with the RTC and the CA
as to the insufficiency of evidence to prove that there was
indeed a simulation of contract.
The Civil Code provides:chanRoblesvirtualLawlibrary
Art. 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal
their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is
void. A relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the
parties to their real agreement.cralawlawlibrary
Valerio v. Refresca12 is instructive on the matter of simulation
of contracts:chanRoblesvirtualLawlibrary
x x x In absolute simulation, there is a colorable contract but it
has no substance as the parties have no intention to be bound
by it. The main characteristic of an absolute simulation is that
the apparent contract is not really desired or intended to
produce legal effect or in any way alter the juridical situation
of the parties. As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other
what they may have given under the contract. However, if the
parties state a false cause in the contract to conceal their real
agreement, the contract is relatively simulated and the parties
are still bound by their real agreement. Hence, where the
essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract,
the agreement is absolutely binding and enforceable between
the parties and their successors-in-interest.cralawlawlibrary
Lacking, therefore, in an absolutely simulated contract is
consent which is essential to a valid and enforceable
contract.13 Thus, where a person, in order to place his
property beyond the reach of his creditors, simulates a
transfer of it to another, he does not really intend to divest
himself of his title and control of the property; hence, the
deed of transfer is but a sham.14
The primary consideration in determining the true nature of a
contract is the intention of the parties. If the words of a
contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined
not only from the express terms of their agreement, but also
from the contemporaneous and subsequent acts of the
parties.15
The burden of proving the alleged simulation of a contract
falls on those who impugn its regularity and validity. A failure
to discharge this duty will result in the upholding of the
contract. The primary consideration in determining whether a
contract is simulated is the intention of the parties as
manifested by the express terms of the agreement itself, as
well as the contemporaneous and subsequent actions of the
parties. The most striking index of simulation is not the filial
relationship between the purported seller and buyer, but the
complete absence of any attempt in any manner on the part
of the latter to assert rights of dominion over the disputed
property.16
The finding of the CA is correct when it ruled that petitioner
failed to present evidence to prove that respondent acted in
bad faith or fraud in procuring her signature or that he
violated their real intention, if any, in executing it,
thus:chanRoblesvirtualLawlibrary
So far, appellant's averments evince an obvious knowledge
and voluntariness on her part to enter into the alleged
simulated contract. Without the slightest doubt, appellant, as
plaintiff in the court below, utterly foiled to adduce any
evidence of appellee's bad faith or fraud in procuring her
signature to the contract or that he violated their real
intention, if any, in executing it. It must be stressed that the
determination of whether one acted in bad faith is evidentiary
in nature. Indeed, the unbroken jurisprudence is that "[b]ad
faith [or fraud] under the law cannot be presumed; it must be
established by clear and convincing evidence. The allegation
of simulation of contract as well as lack of consent and/or
vitiated consent remains to be proven. As it stands, We
perceive that the contract by its very terms and conditions, on
June 15, 1993, appellant simply intended to transfer the
subject land to appellee. It is a cardinal rule that if the terms
of a contract are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its stipulation
shall control.17cralawlawlibrary
Petitioner insists that the subject contract is in the nature of a
simple donation, and even assuming arguendo that the same
was meant to be a remuneratory donation, it is still invalid
because the donation was not notarized.
Donation is an act of liberality whereby a person gratuitously
disposes of a thing or a right in favor of another who accepts
it.18 Once perfected, a donation is final; its revocation or
rescission cannot be effected, absent any legal ground
therefor.19 A donation may, in fact, comprehend the entire
property of the donor.20 At any rate, the law provides that
donors should reserve, in full ownership or in usufruct,
sufficient means for their own support and that of all their
relatives who, at the time of the acceptance of the donation,
are by law entitled to be supported by them. 21
The subject contract in this case is seemingly a remuneratory
donation as all the elements for such are present. The CA
explained:chanRoblesvirtualLawlibrary
A painstaking review of the contract reveals that it is a
remuneratory donation. First, appellant expressed in the
contract that "sa loob ng sampling taon namin[g]
pagsasama[,] nakita namin na naging matapat siya sa
kanyang obligations bilang taga pamahala [sic] ng aming
17
tubuhan at sa mga [k]ontratista at higit sa lahat ay marunong
siya makisama sa aming mga kasama at siya [ay]
mapagkakatiwalaan lalo na sa pera. Clearly, she gave the
subject land to appellee to remunerate his ten (10) years of
faithful service to her. More importantly, appellant stated that
"napagkasunduan namin na kami ang bahala sa finances, sa
kasunduan na kami ang magpapakabyaw ng tubo sa pangalan
ko, hanggang gusto ko. This is a profit sharing agreement
where appellant finances the planting, harvesting and milling
of sugarcane on the subject land donated to appellee under
appellant's name. Unmistakably, it is a charge or burden on
the donation.22cralawlawlibrary

However, as pointed out by the CA, the contract, as well as

the evidence presented during the trial, are silent as to the
value of the burden, hence, instead of the law on donations,
the rules on contract should govern the subject contract
because the donation is onerous as the burden is imposed
upon the donee of a thing with an undetermined value.
Furthermore, the CA is also right in ruling that it is not
necessary that the contract be in a public instrument if it
involves immovable property, properly citing Pada-Kilario v.
Court of Appeals23 which states that the requirement of Article
1358 of the Civil Code that acts which have for their object
the creation, transmission, modification or extinguishment of
real rights over immovable property, must appear in a public
document, is only for convenience, non-compliance with
which does not affect the validity or enforceability of the acts
of the parties as among themselves.

Finally, petitioner argues that she has raised the issue of her
co-ownership of the subject land with her late husband at the
very outset of the case, thus, in view of that co-ownership,
petitioner cannot alienate the subject land without the
consent of the heirs of her late husband. However, as aptly
observed by the CA, the petitioner did not raise the issue of
co-ownership during the trial, thus, she cannot now assail the
validity of the contract using such ground for the first time on
appeal. It is also worth noting that petitioner has not, in her
appeal to the CA, as well as in her petition with this Court,
mentioned the specific heirs affected or prejudiced by the
subject contract.

WHEREFORE, the Petition for Review on Certiorari under Rule

45 of the Rules of Court, dated April 25, 2011 of petitioner
Milagros C. Reyes is DENIED for lack merit, and the Decision
of the Court of Appeals, dated July 9, 2010, is AFFIRMED in
toto.

SO ORDERED.chanroblesvirtuallawlibrary

18
G.R. No. 196083, November 11, 2015
MILAGROS C. REYES, Petitioner, v. FELIX P.
ASUNCION, Respondent.
DECISION
PERALTA, J.:
For this Court's consideration is the Petition for Review
on Certiorari1 under Rule 45 of the Rules of Court, dated April
25, 2011 of petitioner Milagros C. Reyes seeking the reversal
of the Decision2 of the Court of Appeals (CA) dated July 9,
2010 which affirmed the Decision3 of the Regional Trial Court
(RTC), Branch 66, Capas, Tarlac, dated January 17, 2007
dismissing the Complaint4 of petitioner against respondent
Felix P. Asuncion for the declaration of nullity of a contract or
deed.
The facts follow.
Petitioner claimed that since the early 80s, she and her late
husband were the owners, with the right to occupy and
possess a parcel of land (subject land), which is also a
sugarcane plantation, with an area of more or less 3.5
hectares located at Patling, Capas, Tarlac and forms part of a
U.S. Military Reservation. Sometime in 1986, petitioner hired
respondent as a caretaker of the subject land. In 1997, the
Bases Conversion and Development Authority (BCDA)
launched a resettlement program for the victims of the Mt.
Pinatubo eruption and began to look for possible resettlement
sites in Tarlac and the subject lot was among those
considered.
Thereafter, according to petitioner, in order to prevent the
BCDA from converting her property into a resettlement site,
she and respondent executed a contract, antedated on June
15, 1993, transferring her rights over the subject land to the
respondent. The contract reads as
follows:chanRoblesvirtualLawlibrary
PAGLILIPAT [NG] KARAPATAN SA LUPA
Para sa Kinauukulan[:]
Ako po [ay] si [G]inang Milagros C. Reyes, widow[,] [F]ilipino, a
sugar [p]lanter of Central Azucarera de Tarlac, San Miguel [,]
Tarlac [and] residing at San Rafael[,] Tarlac.
Akin[g] pinatutunayan sa kasulatan[g] ito na nabili ko ang
karapatan o [r]ights ni [GJinoong Reymundo Dailig, nakatira sa
Patling[,] Capas[,] Tarlac. Ang loti ay may sukat na tatlong
ektarya at kalahati [sic] (3 1/2 hec). [A]t itoy [sic] ay kusang
loob naming mag-asawa, si Jesus C. Reyes[,] na ipagkaloob
ang nasabing lupa kay [G]inoong Felix Asuncion [unreadable
portion]. Sa loob ng sampung taon naminfg] pagsasama[,]
nakita namin na naging matapat siya sa kanyang obligations
bilang taga pamahala [sic] ng aming tubuhan at sa mga
[k]ontratista at higit sa lahat ay marunong siya makisama sa
aming kasama siya [ay] mapagkakatiwalaan lalo na sa pera.
Dahil sa [sic] naging matapat siya sa amin bilang Palsunero,
napagkasunduan namin na kami ang bahala sa finances, sa
kasunduan na kami ang magpapakabyaw ng tubo sa pangalan
ko, hanggang gusto ko. Sa ilalim nito ay nakapinna ang aking
pangalan.
Sgd.
Sgd.
Felix P. Asuncion Milagros C.
Reyes
Tenant
Planter
Sgd.
Witness
Barangay [C]aptain
Bon Vistair5
cralawlawlibrary
Petitioner claimed to have remained the absolute owner and
possessor of the subject land and presently occupies the
same as a sugarcane plantation and even mills the sugarcane
harvested at the Central Azucarera de Tarlac for her own
benefit. She also stated that the respondent continued
working for her but the latter's employment was severed
when petitioner discovered that respondent sold the former's
pigs and cows.
On January 6, 2000, respondent filed a Complaint for Estafa
against petitioner before the Office of the Prosecutor in Tarlac
City, Tarlac alleging that petitioner failed and/or refused to
give respondent his share of the total harvests on the subject
land for the years 1993-1999, using their contract as basis.
However, the said complaint was dismissed for lack of
probable cause.
Thereafter, petitioner filed a Complaint dated October 21,
2001 against respondent before the RTC of Capas, Tarlac for
the declaration of nullity of the subject contract.
The RTC, on January 17, 2007, rendered a Decision in favor of
the respondent. It ruled that there is no legal basis to nullify
the contract. The dispositive portion of the decision
states:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, finding no legal basis to
nullify the contract denominated as Paglilipat [nang]
Karapatan set Lipa, the complaint is dismissed and
the Paglilipat [nang] Karapatan set Lupa is declared legal and
binding.
No pronouncement as to cost. SO ORDERED. 6cralawlawlibrary
Undeterred, petitioner appealed the case to the CA, and on
July 9, 2010, the latter dismissed the appeal,
thus:chanRoblesvirtualLawlibrary
FOR THESE REASONS, We DISMISS the appeal for lack of
merit, the assailed Decision dated January 17, 2007 of the
Regional Trial Court is AFFIRMED.
SO ORDERED.7
After the CA denied8 petitioner's motion for reconsideration,
the latter filed the present petition.
Petitioner assigned the following
errors:chanRoblesvirtualLawlibrary
I
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT THE SUBJECT CONTRACT IS VALID EVEN IF IT
DOES NOT REFLECT THE TRUE INTENT OF THE PARTIES.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT THE DONATION OF THE SUBJECT LAND IS VALID
EVEN IF NOT MADE AND ACCEPTED IN A PUBLIC DOCUMENT.
19
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
RULING THAT THE PETITIONER MAY TRANSFER THE SUBJECT
LAND TO THE RESPONDENT EVEN WITHOUT THE CONSENT OF
THE HEIRS OF HER LATE
HUSBAND.9ChanRoblesVirtualawlibrary
cralawlawlibrary
Thereafter, respondent filed his Comment10 dated March 31,
2014 and petitioner filed her Reply11 dated June 7, 2014.
This Court finds no merit in the petition.
It is petitioner's contention that the subject contract is purely
simulated, since it purports a transfer of rights over the
subject land in favor of the respondent. However, when
petitioner executed the contract, it was never her intention to
transfer her rights over the subject land as the primordial
consideration was to prevent the BCDA from taking over the
property. She also asserts that she and the respondent agreed
to make the said false appearance in the contract. However,
the RTC and the CA found no other evidence to support the
said allegations and the self-serving averments of the
petitioner. This Court is in agreement with the RTC and the CA
as to the insufficiency of evidence to prove that there was
indeed a simulation of contract.
The Civil Code provides:chanRoblesvirtualLawlibrary
Art. 1345. Simulation of a contract may be absolute or
relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal
their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is
void. A relative simulation, when it does not prejudice a third
person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the
parties to their real agreement.cralawlawlibrary
Valerio v. Refresca12 is instructive on the matter of simulation
of contracts:chanRoblesvirtualLawlibrary
x x x In absolute simulation, there is a colorable contract but it
has no substance as the parties have no intention to be bound
by it. The main characteristic of an absolute simulation is that
the apparent contract is not really desired or intended to
produce legal effect or in any way alter the juridical situation
of the parties. As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other
what they may have given under the contract. However, if the
parties state a false cause in the contract to conceal their real
agreement, the contract is relatively simulated and the parties
are still bound by their real agreement. Hence, where the
essential requisites of a contract are present and the
simulation refers only to the content or terms of the contract,
the agreement is absolutely binding and enforceable between
the parties and their successors-in-interest.cralawlawlibrary
Lacking, therefore, in an absolutely simulated contract is
consent which is essential to a valid and enforceable
contract.13 Thus, where a person, in order to place his
property beyond the reach of his creditors, simulates a
transfer of it to another, he does not really intend to divest
himself of his title and control of the property; hence, the
deed of transfer is but a sham.14
The primary consideration in determining the true nature of a
contract is the intention of the parties. If the words of a
contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined
not only from the express terms of their agreement, but also
from the contemporaneous and subsequent acts of the
parties.15
The burden of proving the alleged simulation of a contract
falls on those who impugn its regularity and validity. A failure
to discharge this duty will result in the upholding of the
contract. The primary consideration in determining whether a
contract is simulated is the intention of the parties as
manifested by the express terms of the agreement itself, as
well as the contemporaneous and subsequent actions of the
parties. The most striking index of simulation is not the filial
relationship between the purported seller and buyer, but the
complete absence of any attempt in any manner on the part
of the latter to assert rights of dominion over the disputed
property.16
The finding of the CA is correct when it ruled that petitioner
failed to present evidence to prove that respondent acted in
bad faith or fraud in procuring her signature or that he
violated their real intention, if any, in executing it,
thus:chanRoblesvirtualLawlibrary
So far, appellant's averments evince an obvious knowledge
and voluntariness on her part to enter into the alleged
simulated contract. Without the slightest doubt, appellant, as
plaintiff in the court below, utterly foiled to adduce any
evidence of appellee's bad faith or fraud in procuring her
signature to the contract or that he violated their real
intention, if any, in executing it. It must be stressed that the
determination of whether one acted in bad faith is evidentiary
in nature. Indeed, the unbroken jurisprudence is that "[b]ad
faith [or fraud] under the law cannot be presumed; it must be
established by clear and convincing evidence. The allegation
of simulation of contract as well as lack of consent and/or
vitiated consent remains to be proven. As it stands, We
perceive that the contract by its very terms and conditions, on
June 15, 1993, appellant simply intended to transfer the
subject land to appellee. It is a cardinal rule that if the terms
of a contract are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its stipulation
shall control.17cralawlawlibrary
Petitioner insists that the subject contract is in the nature of a
simple donation, and even assuming arguendo that the same
was meant to be a remuneratory donation, it is still invalid
because the donation was not notarized.
Donation is an act of liberality whereby a person gratuitously
disposes of a thing or a right in favor of another who accepts
it.18 Once perfected, a donation is final; its revocation or
rescission cannot be effected, absent any legal ground
therefor.19 A donation may, in fact, comprehend the entire
property of the donor.20 At any rate, the law provides that
donors should reserve, in full ownership or in usufruct,
sufficient means for their own support and that of all their
relatives who, at the time of the acceptance of the donation,
are by law entitled to be supported by them. 21
The subject contract in this case is seemingly a remuneratory
donation as all the elements for such are present. The CA
explained:chanRoblesvirtualLawlibrary
A painstaking review of the contract reveals that it is a
remuneratory donation. First, appellant expressed in the
contract that "sa loob ng sampling taon namin[g]
pagsasama[,] nakita namin na naging matapat siya sa
kanyang obligations bilang taga pamahala [sic] ng aming
20
tubuhan at sa mga [k]ontratista at higit sa lahat ay marunong
siya makisama sa aming mga kasama at siya [ay]
mapagkakatiwalaan lalo na sa pera. Clearly, she gave the
subject land to appellee to remunerate his ten (10) years of
faithful service to her. More importantly, appellant stated that
"napagkasunduan namin na kami ang bahala sa finances, sa
kasunduan na kami ang magpapakabyaw ng tubo sa pangalan
ko, hanggang gusto ko. This is a profit sharing agreement
where appellant finances the planting, harvesting and milling
of sugarcane on the subject land donated to appellee under
appellant's name. Unmistakably, it is a charge or burden on
the donation.22cralawlawlibrary

However, as pointed out by the CA, the contract, as well as

the evidence presented during the trial, are silent as to the
value of the burden, hence, instead of the law on donations,
the rules on contract should govern the subject contract
because the donation is onerous as the burden is imposed
upon the donee of a thing with an undetermined value.
Furthermore, the CA is also right in ruling that it is not
necessary that the contract be in a public instrument if it
involves immovable property, properly citing Pada-Kilario v.
Court of Appeals23 which states that the requirement of Article
1358 of the Civil Code that acts which have for their object
the creation, transmission, modification or extinguishment of
real rights over immovable property, must appear in a public
document, is only for convenience, non-compliance with
which does not affect the validity or enforceability of the acts
of the parties as among themselves.

Finally, petitioner argues that she has raised the issue of her
co-ownership of the subject land with her late husband at the
very outset of the case, thus, in view of that co-ownership,
petitioner cannot alienate the subject land without the
consent of the heirs of her late husband. However, as aptly
observed by the CA, the petitioner did not raise the issue of
co-ownership during the trial, thus, she cannot now assail the
validity of the contract using such ground for the first time on
appeal. It is also worth noting that petitioner has not, in her
appeal to the CA, as well as in her petition with this Court,
mentioned the specific heirs affected or prejudiced by the
subject contract.

WHEREFORE, the Petition for Review on Certiorari under Rule

45 of the Rules of Court, dated April 25, 2011 of petitioner
Milagros C. Reyes is DENIED for lack merit, and the Decision
of the Court of Appeals, dated July 9, 2010, is AFFIRMED in
toto.

SO ORDERED.chanroblesvirtuallawlibrary

21
G.R. No. 123547 May 21, 2001
REV. FR. DANTE MARTINEZ, petitioner,
vs.
HONORABLE COURT OF APPEALS, HONORABLE JUDGE
JOHNSON BALLUTAY, PRESIDING JUDGE, BRANCH 25,
REGIONAL TRIAL COURT OF CABANA TUAN CITY,
HONORABLE JUDGE ADRIANO TUAZON, JR., PRESIDING
JUDGE, BRANCH 28, REGIONAL TRIAL COURT OF
CABANATUAN CITY, SPOUSES REYNALDO VENERACION
and SUSAN VENERACION, SPOUSES MAXIMO HIPOLITO
and MANUELA DE LA PAZ and GODOFREDO DE LA
PAZ, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision, dated
7, 1995, and resolution, dated January 31, 1996, of the Court
of Appeals, which affirmed the decisions of the Regional Trial
Court, Branches 251 and 28,2Cabanatuan City, finding private
respondents spouses Reynaldo and Susan Veneracion owners
of the land in dispute, subject to petitioner's rights as a
builder in good faith.
The facts are as follows:
Sometime in February 1981, private respondents Godofredo
De la Paz and his sister Manuela De la Paz, married to Maximo
Hipolito, entered into an oral contract with petitioner Rev. Fr.
Dante Martinez, then Assistant parish priest of Cabanatuan
City, for the sale of Lot No. 1337-A-3 at the Villa Fe Subdivision
in Cabanatuan City for the sum of P15,000.00. The lot is
located along Maharlika Road near the Municipal Hall of
Cabanatuan City. At the time of the sale, the lot was still
registered in the name of Claudia De la Paz, mother of private
respondents, although the latter had already sold it to private
respondent Manuela de la Paz by virtue of a Deed of Absolute
Sale dated May 26, 1976 (Exh. N/Exh. 2-Veneracion). 3 Private
respondent Manuela subsequently registered the sale in her
name on October 22, 1981 and was issued TCT No. T-40496
(Exh. 9).4 When the land was offered for sale to petitioner,
private respondents De la Paz were accompanied by their
mother, since petitioner dealt ' with the De la Fazes as a
family and not individually. He was assured by them that the
lot belonged to Manuela De la Paz. It was agreed that
petitioner would give a downpayment of P3,000.00 to private
respondents De la Paz and that the balance would be payable
by installment. After giving the P3,000.00 downpayment,
petitioner started the construction of a house on the lot after
securing a building permit from the City Engineer's Office on
April 23, 1981, with the written consent of the then registered
owner, Claudia de la Paz (Exh. B/Exh, 1).5 Petitioner likewise
began paying the real estate taxes on said property (Exh. D,
D-l, D-2).6 Construction on the house was completed on
October 6, 1981 (Exh. V).7 Since then, petitioner and his
family have maintained their residence there.8
On January 31, 1983, petitioner completed payment of the lot
for which private respondents De la Paz executed two
documents. The first document (Exh. A) read:
1-31-83
Ang halaga ng Lupa sa Villa Fe Subdivision na ipinagbili kay Fr.
Dante Martinez ay P15,000.00 na pinangangako namin na
ibibigay ang Deed of Sale sa ika-25 ng Febrero 1983.
[SGD.] METRING HIPOLITO
[SGD.] JOSE GODOFREDO DE LA PAZ9
The second writing (Exh. O) read:
Cabanatuan City
March 19, 1986
TO WHOM IT MAY CONCERN:
This is to certify that Freddie dela Paz has agreed to sign
tomorrow (March 20) the affidavit of sale of lot located at Villa
Fe Subdivision sold to Fr. Dante Martinez.
[Sgd.] Freddie dela Paz
FREDDIE DELA PAZ10
However, private respondents De la Paz never delivered the
Deed of Sale they promised to petitioner.
In the meantime, in a Deed of. Absolute Sale with Right to
Repurchase dated October 28, 1981 (Exh. 10), 11private
respondents De la Paz sold three lots with right to repurchase
the same within one year to private respondents spouses
Reynaldo and Susan Veneracion for the sum of P150,000.00.
One of the lots sold was the lot previously sold to petitioner. 12
Reynaldo Veneracion had been a resident of Cabanatuan City
since birth. He used to pass along Maharlika Highway in going
to the Municipal Hall or in going to and from Manila. Two of the
lots subject of the sale were located along Maharlika Highway,
one of which was the lot sold earlier by the De la Pazes to
petitioner. The third lot (hereinafter referred to as the
Melencio lot) was occupied by private respondents De la Paz.
Private respondents Veneracion never took actual possession
of any of these lots during the period of redemption, but all
titles to the lots were given to him.13
Before the expiration of the one year period, private
respondent Godofredo De la Paz informed private respondent
Reynaldo Veneracion that he was selling the three lots to
another person for P200,000.00. Indeed, private respondent
Veneracion received a call from a Mr. Tecson verifying if he
had the titles to the properties, as private respondents De la
Paz were offering to sell the two lots along Maharlika Highway
to him (Mr. Tecson) for P180,000.00 The offer included the lot
purchased by petitioner in February, 1981. Private respondent
Veneracion offered to purchase the same two lots from the De
la razes for the same amount, The offer was accepted by
private respondents De la Paz. Accordingly, on June 2, 1983, a
Deed of Absolute Sale was executed over the two lots (Exh.
I/Exh. 5-Veneracion).14 Sometime in January, 1984, private
respondent Reynaldo Veneracion asked a certain Renato
Reyes, petitioner's neighbor, who the owner of the building
erected on the subject lot was. Reyes told him that it was
Feliza Martinez, petitioner's mother, who was in possession of
the property. Reynaldo Veneracion told private respondent
Godofredo about the matter and was assured that Godofredo
would talk to Feliza. Based on that assurance, private
respondents Veneracion registered the lots with the Register
of Deeds of Cabanatuan on March 5, 1984. The lot in dispute
was registered under TCT No. T-44612 (Exh. L/Exh. 4-
Veneracion).15
Petitioner discovered that the lot he was occupying with his
family had been sold to the spouses Veneracion after
receiving a letter, (Exh. P/Exh. 6-Veneracion) from private
respondent Reynaldo Veneracion on March 19, 1986, claiming
ownership of the land and demanding that they vacate the
property and remove their improvements thereon.16 Petitioner,
in turn, demanded through counsel the execution of the deed
of sale from private respondents De la Paz and informed
Reynaldo Veneracion that he was the owner of the property as
he had previously purchased the same from private
respondents De la Paz.17
The matter was then referred to the Katarungang
Pambarangay of San Juan, Cabanatuan City for conciliation,
but the parties failed to reach an agreement (Exh. M/Exh.
22
13).18 As a consequence, on May 12, 1986, private respondent
Reynaldo Veneracion brought an action for ejectment in the
Municipal Trial Court, Branch III, Cabanatuan City against
petitioner and his mother (Exh. 14).19
On the other hand, on June 10, 1986, petitioner caused a
notice of lis pendens to be recorded on TCT No. T-44612 with
the Register of Deeds of Cabanatuan City (Exh. U).20
During the pre-trial conference, the parties agreed to have the
case decided under the Rules on Summary Procedure and
defined the issues as follows:
1. Whether of not defendant (now petitioner) may be judicially
ejected.
2. Whether or not the main issue in this case is ownership.
3. Whether or not damages may be awarded.21
On January 29, 1987, the trial court rendered its decision,
pertinent portions of which are quoted as follows:
With the foregoing findings of the Court, defendants
[petitioner Rev. Fr. Dante Martinez and his mother] are the
rightful possessors and in good faith and in concept of owner,
thus cannot be ejected from the land in question. Since the
main issue is ownership, the better remedy of the plaintiff
[herein private respondents Veneracion] is Accion Publiciana
in the Regional Trial Court, having jurisdiction to adjudicate on
ownership.
Defendants' counterclaim will not be acted upon it being more
than P20,000.00 is beyond this Court's power to adjudge.
WHEREFORE, judgment is hereby rendered, dismissing
plaintiff's complaint and ordering plaintiff to pay Attorney's
fee of P5,000.00 and cost of suit.
SO ORDERED.22
On March 3, 1987, private respondents Veneracion filed a
notice of appeal with the Regional Trial Court, but failed to pay
the docket fee. On June 6, 1989, or over two years after the
filing of the notice of appeal, petitioner filed a Motion for
Execution of the Judgment, alleging finality of judgment for
failure of private respondents Veneracion to perfect their
appeal and failure to prosecute the appeal for an
unreasonable length of time.
Upon objection of private respondents Veneracion, the trial
court denied on June 28, 1989 the motion for execution and
ordered the records of the case to be forwarded to the
appropriate Regional Trial Court. On July 11, 1989, petitioner
appealed from this order. The appeal of private respondents
Veneracion from the decision of the MTC and the appeal of
petitioner from the order denying petitioner's motion for
execution were forwarded to the Regional Trial Court, Branch
28, Cabanatuan City. The cases were thereafter consolidated
under Civil Case No. 670-AF.
On February 20, 1991, the Regional Trial Court rendered its
decision finding private respondents Veneracion as the true
owners of the lot in dispute by virtue of their prior registration
with the Register of Deeds, subject to petitioner's rights as
builder in good faith, and ordering petitioner and his privies to
Vacate the lot after receipt of the cost of the construction of
the house, as well as to pay the sum of P5,000.00 as
attorney's fees and the costs of the suit. It, however, failed to
rule on petitioner's appeal of the Municipal Trial Court's order
denying their Motion for Execution of Judgment.
Meanwhile, on May 30, 1986, while the ejectment case was
pending before the Municipal Trial Court, petitioner Martinez
filed a complaint for annulment of sale with damages against
the Veneracions and De la Pazes with the Regional Trial Court,
Branch 25, Cabanatuan City. On March 5, 1990, the trial court
rendered its decision finding private respondents Veneracion
owners of the land in dispute, subject to the rights of
petitioner as a builder in good faith, and ordering private
respondents De la Paz to pay petitioner the sum of P50,000.00
as moral damages and P10,000.00 as attorney's fees, and for
private respondents to pay the costs of the suit.
On March 20, 1991, petitioner then filed a petition for review
with the Court of Appeals of the RTC's decision in Civil Case
No. 670-AF (for ejectment). Likewise, on April 2, 1991,
petitioner appealed the trial court's decision in Civil Case No.
44-[AF]-8642-R (for annulment of sale and damages) to the
Court of Appeals. The cases were designated as CA G.R. SP.
No. 24477 and CA G.R. CY No. 27791, respectively, and were
subsequently consolidated. The Court of Appeals affirmed the
trial courts' decisions, without ruling on petitioner's appeal
from the Municipal Trial Court's order denying his Motion for
Execution of Judgment. It declared the Veneracions to be
owners of the lot in dispute as they were the first registrants
in good faith, in accordance with Art. 1544 of the Civil Code.
Petitioner Martinez failed to overcome the presumption of
good faith for the following reasons:
1. when private respondent Veneracion discovered the
construction on the lot, he immediately informed private
respondent Godofredo about it and relied on the latter's
assurance that he will take care of the matter.
2. the sale between petitioner Martinez and private
respondents De la Paz was not notarized, as required by Arts.
1357 and 1358 of the Civil Code, thus it cannot be said that
the private respondents Veneracion had knowledge of the first
sale.23
Petitioner's motion for reconsideration was likewise denied in
a resolution dated January 31, 1996.24 Hence this petition for
review. Petitioner raises the following assignment of errors:
I THE PUBLIC RESPONDENTS HONORABLE COURT OF APPEALS
AND REGIONAL TRIAL COURT JUDGES JOHNSON BALLUTAY
AND ADRIANO TUAZON ERRED IN HOLDING THAT PRIVATE
RESPONDENTS REYNALDO VENERACION AND WIFE ARE
BUYERS AND REGISTRANTS IN GOOD FAITH IN RESOLVING THE
ISSUE OF OWNERSHIP AND POSSESSION OF THE LAND IN
DISPUTE.
II THAT PUBLIC RESPONDENTS ERRED IN NOT RESOLVING AND
DECIDING THE APPLICABILITY OF THE DECISION OF THIS
HONORABLE COURT IN THE CASES OF SALVORO VS. TANEGA,
ET AL., G. R. NO. L 32988 AND IN ARCENAS VS. DEL ROSARIO,
67 PHIL 238, BY TOTALLY IGNORING THE SAID DECISIONS OF
THIS HONORABLE COURT IN THE ASSAILED DECISIONS OF THE
PUBLIC RESPONDENTS.
III THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT
GIVING DUE COURSE TO THE PETITION FOR REVIEW IN CA G.
R. SP. NO. 24477.
IV THAT THE HONORABLE COURT OF APPEALS IN DENYING
PETITIONER'S PETITION FOR REVIEW AFORECITED INEVITABLY
SANCTIONED AND/OR WOULD ALLOW A VIOLATION OF LAW
AND DEPARTURE FROM THE USUAL COURSE OF JUDICIAL
PROCEEDINGS BY PUBLIC RESPONDENT HONORABLE JUDGE
ADRIANO TUAZON WHEN THE LATTER RENDERED A DECISION
IN CIVIL CASE NO. 670-AF [ANNEX "D"] REVERSING THE
DECISION OF THE MUNICIPAL TRIAL COURT JUDGE SENDON
DELIZO IN CIVIL CASE NO. 9523 [ANNEX "C"] AND IN NOT
RESOLVING IN THE SAME CASE THE APPEAL INTERPOSED BY
DEFENDANTS ON THE ORDER OF THE SAME COURT DENYING
THE MOTION FOR EXECUTION.
23
V THAT THE RESOLUTION [ANNEX "B"] (OF THE COURT OF
APPEALS) DENYING PETITIONER'S MOTION FOR
RECONSIDERATION [ANNEX "1"] WITHOUT STATING CLEARLY
THE FACTS AND THE LAW ON WHICH SAID RESOLUTION WAS
BASED, (IS ERRONEOUS).
These assignment of errors raise the following issues:
1. Whether or not private respondents Veneracion are buyers
in good faith of the lot in dispute as to make them the
absolute owners thereof in accordance with Art. 1544 of the
Civil Code on double sale of immovable property.
2. Whether or not payment of the appellate docket fee within
the period to appeal is not necessary for the perfection of the
appeal after a notice of appeal has been filed within such
period.
3. Whether or not the resolution of the Court of Appeals
denying petitioner's motion for reconsideration is contrary to
the constitutional requirement that a denial of a motion for
reconsideration must state the legal reasons on which it is
based.
First. It is apparent from the first and second assignment of
errors that petitioner is assailing the findings of fact and the
appreciation of the evidence made by the trial courts and
later affirmed by the respondent court. While, as a general
rule, only questions of law may be raised in a petition for
review under Rule 45 of the Rules of Court, review may
nevertheless be granted under certain exceptions, namely: (a)
when the conclusion is a finding grounded entirely on
speculation, surmises, or conjectures; (b) when the inference
made is manifestly mistaken, absurd, or impossible; (c) where
there is a grave abuse of discretion; (d) when the judgment is
based on a misapprehension of facts; (e) when the findings of
fact are conflicting; (f) when the Court of Appeals, in making
its findings, went beyond the issue of the case and the same
is contrary to the admissions of both appellant and appellee;
(g) when the findings of the Court of Appeals are contrary to
those of the trial court; (h) when the findings of fact are
conclusions without citation of specific evidence on which
they are based; (I) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not
disputed by the respondents; (j) when the finding of fact of
the Court of Appeals is premised on the supposed absence of
evidence but is contradicted by the evidence on record; and
(k) when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion.25
In this case, the Court of Appeals based its ruling that private
respondents Veneracion are the owners of the disputed lot on
their reliance on private respondent Godofredo De la Paz's
assurance that he would take care of the matter concerning
petitioner's occupancy of the disputed lot as constituting good
faith. This case, however, involves double sale and, on this
matter, Art. 1544 of the Civil Code provides that where
immovable property is the subject of a double sale, ownership
shall be transferred (1) to the person acquiring it who in good
faith first recorded it to the Registry of Property; (2) in default
thereof, to the person who in good faith was first in
possession; and (3) in default thereof, to the person who
presents the oldest title.26 The requirement of the law, where
title to the property is recorded in the Register of Deeds, is
two-fold: acquisition in good faith and recording in good faith.
To be entitled to priority, the second purchaser must not only
prove prior recording of his title but that he acted in good
faith, i.e., without knowledge or notice of a prior sale to
another. The presence of good faith should be ascertained
from the circumstances surrounding the purchase of the
land.27
1. With regard to the first sale to private respondents
Veneracion, private respondent Reynaldo Veneracion testified
that on October 10, 1981, 18 days before the execution of the
first Deed of Sale with Right to Repurchase, he inspected the
premises and found it vacant.28 However, this is belied by the
testimony of Engr. Felix D. Minor, then building inspector of
the Department of Public Works and Highways, that he
conducted on October 6, 1981 an ocular inspection of the lot
in dispute in the performance of his duties as a building
inspector to monitor the progress of the construction of the
building subject of the building permit issued in favor of
petitioner on April 23, 1981, and that he found it 100 %
completed (Exh. V).29 In the absence of contrary evidence, he
is to be presumed to have regularly performed his official
duty.30 Thus, as early as October, 1981, private respondents
Veneracion already knew that there was construction being
made on the property they purchased.
2. The Court of Appeals failed to determine the nature of the
first contract of sale between the private respondents by
considering their contemporaneous and subsequent
acts.31 More specifically, it overlooked the fact that the first
contract of sale between the private respondents shows that
it is in fact an equitable mortgage.
The requisites for considering a contract of sale with a right of
repurchase as an equitable mortgage are (1) that the parties
entered into a contract denominated as a contract of sale and
(2) that their intention was to secure an existing debt by way
of mortgage.32 A contract of sale with right to repurchase
gives rise to the presumption that it is an equitable mortgage
in any of the following cases: (1) when the price of a sale with
a right to repurchase is unusually inadequate; (2) when the
vendor remains in possession as lessee or otherwise; (3)
when, upon or after the expiration of the right to repurchase,
another instrument extending the period of redemption or
granting a new period is executed; (4) when the purchaser
retains for himself a part of the purchase price; (5) when the
vendor binds himself to pay the taxes on the thing sold; (6) in
any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other
obligation.33 In case of doubt, a contract purporting to be a
sale with right to repurchase shall be construed as an
equitable mortgage.34
In this case, the following circumstances indicate that the
private respondents intended the transaction to be an
equitable mortgage and not a contract of sale: (1) Private
respondents Veneracion never took actual possession of the
three lots; (2) Private respondents De la Paz remained in
possession of the Melencio lot which was co-owned by them
and where they resided; (3) During the period between the
first sale and the second sale to private respondents
Veneracion, they never made any effort to take possession of
the properties; and (4) when the period of redemption had
expired and private respondents Veneracion were informed by
the De la Pazes that they are offering the lots for sale to
another person for P200,000.00, they never objected. To the
contrary, they offered to purchase the two lots for
P180,000.00 when they found that a certain Mr. Tecson was
prepared to purchase it for the same amount. Thus, it is clear
from these circumstances that both private respondents never
intended the first sale to be a contract of sale, but merely that
of mortgage to secure a debt of P150,000.00.
With regard to the second sale, which is the true contract of
sale between the parties, it should be noted that this Court in
several cases,35 has ruled that a purchaser who is aware of
facts which should put a reasonable man upon his guard
cannot turn a blind eye and later claim that he acted in good
faith. Private respondent Reynaldo himself admitted during
24
the pre-trial conference in the MTC in Civil Case No. 9523 (for Indeed, this Court has ruled that, in appealed cases, the
ejectment) that petitioner was already in possession of the failure to pay the appellate docket fee does not automatically
property in dispute at the time the second Deed of Sale was result in the dismissal of the appeal, the dismissal being
executed on June 1, 1983 and registered on March 4, 1984. discretionary on the part of the appellate court. 46 Thus, private
He, therefore, knew that there were already occupants on the respondents Veneracions' failure to pay the appellate docket
property as early as 1981. The fact that there are persons, fee is not fatal to their appeal.
other than the vendors, in actual possession of the disputed
lot should have put private respondents on inquiry as to the Third. Petitioner contends that the resolution of the Court of
nature of petitioner's right over the property. But he never Appeals denying his motion for reconsideration was rendered
talked to petitioner to verify the nature of his right. He merely in violation of the Constitution because it does not state the
relied on the assurance of private respondent Godofredo De la legal basis thereof.
Paz, who was not even the owner of the lot in question, that
This contention is likewise without merit.
he would take care of the matter. This does not meet the
standard of good faith. Art. VIII, Sec. 14 of the Constitution provides that "No petition
for review or motion for reconsideration of a decision of the
3. The appellate court's reliance on Arts. 1357 and 1358 of the
court shall be refused due course or denied without stating
Civil Code to determine private respondents Veneracion's lack
the basis therefor." This requirement was fully complied with
of knowledge of petitioner's ownership of the disputed lot is
when the Court of Appeals, in denying. reconsideration of its
erroneous.
decision, stated in its resolution that it found no reason to
Art. 135736 and Art. 1358,37 in relation to Art. 1403(2)38 of the change its ruling because petitioner had not raised anything
Civil Code, requires that the sale of real property must be in new.47 Thus, its resolution denying petitioner's motion for
writing for it to be enforceable. It need not be notarized. If the reconsideration states:
sale has not been put in writing, either of the contracting
For resolution is the Motion for Reconsideration of Our
parties can compel the other to observe such
Decision filed by the petitioners.
requirement.39 This is what petitioner did when he repeatedly
demanded that a Deed of Absolute Sale be executed in his Evidently, the motion poses nothing new. The points and
favor by private respondents De la Paz. There is nothing in the arguments raised by the movants have been considered and
above provisions which require that a contract of sale of realty passed upon in the Decision sought to be reconsidered. Thus,
must be executed in a public document. In any event, it has We find no reason to disturb the same.
been shown that private respondents Veneracion had
knowledge of facts which would put them on inquiry as to the WHEREFORE, the motion is hereby DENIED.
nature of petitioner's occupancy of the disputed lot.
SO ORDERED.48
Second. Petitioner contends that the MTC in Civil Case No.
9523 (for ejectment) erred in denying petitioner's Motion for Attorney's. fees should be awarded as petitioner was
Execution of the Judgment, which the latter filed on June 6, compelled to litigate to protect his interest due to private
1989, two years after private respondents Veneracion filed a respondents' act or omission.49
notice of appeal with the MTC on March 3, 1987 without
paying the appellate docket fee. He avers that the trial court's WHEREFORE, the decision of the Court of Appeals is
denial of his motion is contrary to this Court's ruling in the REVERSED and a new one is RENDERED:
cases of Republic v. Director of
(1) declaring as null and void the deed of sale executed by
Lands,40 and Aranas v. Endona41 in which it was held that
private respondents Godofredo and Manuela De la Paz in favor
where the appellate docket fee is not paid in full within the
of private respondents spouses Reynaldo and Susan
reglementary period, the decision of the MTC becomes final
Veneracion;
and unappealable as the payment of docket fee is not only a
mandatory but also a jurisdictional requirement. (2) ordering private respondents Godofredo and Manuela De
la Paz to execute a deed of absolute sale in favor of petitioner
Petitioner's contention has no merit. The case
Rev. Fr. Dante Martinez;
of Republic v. Director of Lands deals with the requirement for
appeals from the Courts of First Instance, the Social Security (3) ordering private respondents Godofredo and Manuela De
Commission, and the Court of Agrarian Relations to the Court la Paz to reimburse private respondents spouses Veneracion
of Appeals. The case of Aranas v. Endona, on the other hand, the amount the latter may have paid to the former;
was decided under the 1964 Rules of Court and prior to the
enactment of the Judiciary Reorganization Act of 1981 (B. P. (4) ordering the Register of Deeds of Cabanatuan City to
Blg. 129) and the issuance of its Interim Rules and Guidelines cancel TCT No. T-44612 and issue a new one in the name of
by this Court on January 11, 1983. Hence, these cases are not petitioner Rev. Fr. Dante Martinez; and
applicable to the matter at issue.1wphi1.nt
(5) ordering private respondents to pay petitioner jointly and
On the other hand, in Santos v. Court of Appeals,42 it was held severally the sum of P20,000.00 as attorney's fees and to pay
that although an appeal fee is required to be paid in case of the costs of the suit.
an appeal taken from the municipal trial court to the regional
trial court, it is not a prerequisite for the perfection of an SO ORDERED.1wphi1.nt
appeal under 2043 and 2344 of the Interim Rules and
Guidelines issued by this Court on January 11, 1983
implementing the Judiciary Reorganization Act of 1981 (B.P.
Blg. 129). Under these sections, there are only two
requirements for the perfection of an appeal, to wit: (a) the
filing of a notice of appeal within the reglementary period; and
(b) the expiration of the last day to appeal by any party. Even
in the procedure for appeal to the regional trial
courts,45 nothing is mentioned about the payment of appellate
docket fees.

25
G.R. No. 162333 December 23, 2008
BIENVENIDO C. TEOCO and JUAN C. TEOCO,
JR., petitioners,
vs.
METROPOLITAN BANK AND TRUST
COMPANY, respondent.
DECISION
REYES, R.T., J.:
REAL creditors are rarely unwilling to receive their debts from
any hand which will pay them.1 Ang tunay na may pautang
ay bihirang tumanggi sa kabayaran mula kaninuman.
This is a petition for review on certiorari seeking the reversal
of the Decision2 of the Court of Appeals (CA) in CA-G.R. CV No.
58891 dated February 20, 2004 which annulled and set aside
the decision of the Regional Trial Court (RTC) of Catbalogan,
Samar on July 22, 1997 in Cadastral Record No. 1378. The RTC
originally dismissed the petition for writ of possession filed by
respondent Metropolitan Bank and Trust Company
(Metrobank) on the ground that intervenors and present
petitioners, the brothers Bienvenido Teoco and Juan Teoco, Jr.
(the brothers Teoco), have redeemed the subject property. The
CA reversed this dismissal and ordered the issuance of a writ
of possession in favor of respondent Metrobank.
Culled from the records, the facts are as follows:
Lydia T. Co, married to Ramon Co, was the registered owner of
two parcels of land situated in Poblacion, Municipality of
Catbalogan, Province of Samar under Transfer Certificate of
Title (TCT) Nos. T-6220 and T-6910.3Ramon Co mortgaged the
said parcels of land to Metrobank for a sum of P200,000.00.
On February 14, 1991, the properties were sold to Metrobank
in an extrajudicial foreclosure sale under Act No. 3135. One
year after the registration of the Certificates of Sale, the titles
to the properties were consolidated in the name of Metrobank
for failure of Ramon Co to redeem the same within the one
year period provided for by law. TCT Nos. T-6220 and T-6910
were cancelled and TCT Nos. T-8482 and T-8493 were issued
in the name of Metrobank.
On November 29, 1993, Metrobank filed a petition for the
issuance of a writ of possession against Ramon Co and Lydia
Co (the spouses Co). However, since the spouses Co were no
longer residing in the Philippines at the time the petition was
filed, the trial court ordered Metrobank, on January 12, 1994
and again on January 26, 1994 to effect summons by
publication against the spouses Co.
On May 17, 1994, the brothers Teoco filed an answer-in-
intervention alleging that they are the successors-in-interest
of the spouses Co, and that they had duly and validly
redeemed the subject properties within the reglementary
period provided by law. The brothers Teoco thus prayed for the
dismissal of Metrobanks petition for a writ of possession, and
for the nullification of the TCTs issued in the name of
Metrobank. The brothers Teoco further prayed for the issuance
in their name of new certificates of title.
Metrobank, in its reply, alleged that the amount deposited by
the brothers Teoco as redemption price was not sufficient, not
being in accordance with Section 78 of the General Banking
Act. Metrobank also said the assignment of the right of
redemption by the spouses Co in favor of the brothers Teoco
was not properly executed, as it lacks the necessary
authentication from the Philippine Embassy.
On February 24, 1995, the trial court was informed that the
brothers Teoco had deposited the amount of P356,297.57 to
the clerk of court of the RTC in Catbalogan, Samar. The trial
court ordered Metrobank to disclose whether it is allowing the
brothers Teoco to redeem the subject properties. Metrobank
refused to accept the amount deposited by the brothers
Teoco, alleging that they are obligated to pay the spouses
Cos subsequent obligations to Metrobank as well. The
brothers Teoco claimed that they are not bound to pay all the
obligations of the spouses Co, but only the value of the
property sold during the public auction.
On February 26, 1997, the trial court reiterated its earlier
order directing Metrobank to effect summons by publication to
the spouses Co. Metrobank complied with said order by
submitting documents showing that it caused the publication
of summons against the spouses Co. The brothers Teoco
challenged this summons by publication, arguing that the
newspaper where the summons by publication was published,
the Samar Reporter, was not a newspaper of general
circulation in the Philippines. The brothers Teoco furthermore
argued that Metrobank did not present witnesses to identify
the documents to prove summons by publication.
RTC Disposition
On July 22, 1997, the RTC rendered its decision in favor of the
brothers Teoco, to wit:
WHEREFORE, judgment is hereby rendered dismissing the
petition for a writ of possession under Section 7 of Act 3135 it
appearing that intervenor Atty. Juan C. Teoco, Jr. and his
brother Atty. Bienvenido C. Teoco have legally and effectively
redeemed Lot 61 and 67 of Psd-66654, Catbalogan, Cadastre,
from the petitioner Metropolitan Bank and Trust Company.
Accordingly, Metrobank may now withdraw the aforesaid
redemption money of P356,297.57 deposited by Juan C.
Teoco, Jr., on February 10, 1992 with the clerk of court and it is
ordered that the Transfer Certificate of Title Nos. T-8492 and T-
8493 of Metropolitan Bank and Trust Company be and are
cancelled and in their place new transfer certificates of title
be issued in favor of Intervenors Attys. Bienvenido C. Teoco
and Juan C. Teoco, Jr., of legal age, married, and residents of
Calbiga, Samar, Philippines, upon payment of the prescribed
fees therefore. No pronouncement as to costs.4
According to the RTC, the case filed by Metrobank should be
dismissed since intervenor Juan C. Teoco, Jr., by his tender
of P356,297.57 to Metrobank on February 10, 1992, within the
reglementary period of redemption of the foreclosed property,
had legally and effectively redeemed the subject properties
from Metrobank. This redemption amount is a fair and
reasonable price and is in keeping with the letter and spirit of
Section 78 of the General Banking Act because Metrobank
purchased the mortgaged properties from the sheriff of the
same court for only P316,916.29. In debunking the argument
that the amount tendered was insufficient, the RTC held:
It is contended for Metrobank that the redemption money
deposited by Juan C. Teoco, Jr., is insufficient and ineffective
because the spouses Ramon Co and Lydia T. Co owe it the
total amount of P6,856,125 excluding interest and other
charges and the mortgage contract executed by them in favor
of Metrobank in 1985 and 1986 (Exh. A and B) are not only
security for payment of their obligation in the amount
of P200,000 but also for those obligations that may have been
previously and later extended to the Co couple including
interest and other charges as appears in the accounts, books
and records of the bank.
Metrobank cites the case of Mojica v. Court of Appeals, 201
SCRA 517 (1991) where the Supreme Court held that
mortgages given to secure future advancements are valid and
legal contracts; that the amounts named as consideration in
26
said contract do not limit the amount for which the mortgage
may stand as security; that a mortgage given to secure the
advancements is a continuing security and is not discharged
by repayment of the amount named in the mortgage until the
full amount of the advancements are paid. In the opinion of
this court, it is not fair and just to apply this rule to the case at
bar. There is no evidence offered by Metrobank that these
other obligations of Ramon Co and his wife were not secured
by real estate mortgages of other lands. If the other
indebtedness of the Co couple to Metrobank are secured by a
mortgage on their other lands or properties the obligation can
be enforced by foreclosure which the court assumes
Metrobank has already done. There is no proof that Metrobank
asked for a deficiency judgment for these unpaid loans.
The Supreme Court in the Mojica case was dealing with the
rights of the mortgagee under a mortgage from an owner of
the land. It determined the security covered by the mortgage
the intention of the parties and the equities of the case. What
was held in that case was hedged about so as to limit the
decision to the particular facts. It must be apparent that the
Mojica ruling cannot be construed to give countenance or
approval to the theory that in all cases without exception
mortgages given to secure past and future advancements are
valid and legal contracts.
In construing a contract between the bank and a borrower
such a construction as would be more favorable to the
borrower should be adopted since the alleged past and future
indebtedness of Ramon Co to the bank was not described and
specified therein and that the addendum was made because
the mortgage given therefore were not sufficient or that these
past and future advancements were unsecured. That being
the case the mortgage contracts, Exh. A and B should be
interpreted against Metrobank which drew said contracts. A
written contract should, in case of doubt, be interpreted
against the party who has drawn the contract (6 R.C.L. 854;
H.E. Heackock Co. vs. Macondray & Co., 42 Phil. 205). Here,
the mortgage contracts are in printed form prepared by
Metrobank and therefore ambiguities therein should be
construed against the party causing it (Yatco vs. El Hogar
Filipino, 67 Phil. 610; Hodges vs. Tazaro, CA, 57 O.G. 6970).5
The RTC added that there is another reason for dismissing
Metrobanks petition: the RTC failed to acquire jurisdiction
over the spouses Co. The RTC noted that Metrobank published
its petition for writ of possession, but did not publish the writ
of summons issued by said court on February 16, 1994.
According to the RTC:
A petition for a writ of possession of foreclosed property is in
reality a possession suit. That Metrobank prayed for a writ of
possession in an independent special proceeding does not
alter the nature of the case as a possessory suit (Cabrera v.
Sinoy, L.-12648, 23 November 1959).
The defendant or owner of the property foreclosed by the
petitioner should be summoned to answer the petition.
Accordingly, the publication made by the petitioner is fatally
flawed and defective and on that basis alone this court
acquired no jurisdiction over the person of respondents
Ramon Co and his wife (Mapa vs. Court of Appeals, G.R. No.
79394, October 2, 1992; Lopez vs. Philippine National Bank, L-
34223, December 10, 1982).6
Metrobank appealed to the CA. In its appeal, Metrobank
claimed that the RTC erred in finding that the publication
made by it is fatally flawed, and that the brothers Teoco had
effectively redeemed the properties in question.
CA Disposition
On February 20, 2004, the CA decided the appeal in favor of
Metrobank, with the following disposition:
WHEREFORE, the appeal is hereby GRANTED. The assailed
Decision dated July 22, 1997 rendered by the Regional Trial
Court of Catbalogan, Samar Branch 29 in Cadastral Record No.
1378 is hereby ANNULLED and SET ASIDE. Accordingly, let a
writ of possession in favor of petitioner-appellant
METROPOLITAN BANK AND TRUST COMPANY be issued over
the properties and improvements covered by Transfer
Certificates of Title Nos. T-8492 and T-8493 of the Registry of
Deeds of Western Samar.
SO ORDERED.7
As regards the question of jurisdiction, the CA ruled that since
the parcels of land in question were already registered in the
name of Metrobank at the time the petition was filed, and
since the certificates of title of the spouses Co were already
cancelled, there is no more need to issue summons to the
spouses Co. The CA noted that the best proof of ownership of
the parcel of land is a certificate of title. 8
The CA also held that the issue of the validity of summons to
the spouses Co is unimportant considering that the properties
in question were mortgaged to Metrobank and were
subsequently sold to the same bank after the spouses Co
failed to satisfy the principal obligation. Hence, the applicable
law is Act No. 3135,9 as amended by Act No. 4118. Section 7
of said Act No. 3135 states that a petition for the issuance of a
writ of possession filed by the purchaser of a property in an
extrajudicial foreclosure sale may be done ex parte. It is the
ministerial duty of the trial court to grant such writ of
possession. No discretion is left to the trial court. Any question
regarding the cancellation of the writ, or with respect to the
validity and regularity of the public sale should be determined
in a subsequent proceeding as outlined in Section 9 of Act No.
3135.10
Further, the CA held that the brothers Teoco were not able to
effectively redeem the subject properties, because the
amount tendered was insufficient, and the brothers Teoco
have not sufficiently shown that the spouses Cos right of
redemption was properly transferred to them.
Issues
In this Rule 45 petition, the brothers Teoco impute to the CA
the following errors:
I THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS ERROR OF JUDGMENT IN HOLDING THAT
PETITIONERS FAILED TO REDEEM THE SUBJECT PROPERTIES
WITHIN THE REGLEMENTARY PERIOD OF ONE YEAR AND THAT
THE REDEMPTION PRICE TENDERED IS INSUFFICIENT.
II THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS ERROR OF JUDGMENT IN HOLDING PETITIONERS TO
PAY NOT ONLY THE P200,000 PRINCIPAL OBLIGATION BUT
ALSO THAT PREVIOUSLY EXTENDED, WHETHER DIRECT OR
INDIRECT, PRINCIPAL OR SECONDARY AS APPEARS IN THE
ACCOUNTS, BOOKS AND RECORDS.
III THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE PETITIONERS HAVE NOT SUFFICIENTLY
SHOW(N) THAT THE RIGHT OF REDEMPTION WAS PROPERLY
TRANSFERRED TO THEM.
IV THE HONORABLE COURT OF APPEALS ERRED IN
REVERSING THE DECISION OF THE REGIONAL TRIAL COURT,
BRANCH 29, AND GRANTING THE WRIT OF POSSESSION TO
THE RESPONDENT.11(Underscoring supplied)
Our Ruling
27
Sufficiency of Amount Tendered
We find that neither petitioners, the brothers Teoco, nor
respondent, Metrobank, were able to present sufficient
evidence to prove whether the additional loans granted to the
spouses Co by Metrobank were covered by the mortgage
agreement between them. The brothers Teoco failed to
present any evidence of the supposed trust receipt agreement
between Metrobank and the spouses Co, or an evidence of the
supposed payment by the spouses Co of the other loans
extended by Metrobank. Metrobank, on the other hand,
merely relied on the stipulation on the mortgage deed that
the mortgage was intended to secure "the payment of the
same (P200,000.00 loan) and those that may hereafter be
obtained."12 However, there was no mention whatsoever of
the mortgage agreement in the succeeding loans entered into
by the spouses Co.
While we agree with Metrobank that mortgages intended to
secure future advancements are valid and legal
contracts,13 entering into such mortgage contracts does not
necessarily put within its coverage all loan agreements that
may be subsequently entered into by the parties. If Metrobank
wishes to apply the mortgage contract in order to satisfy loan
obligations not stated on the face of such contract, Metrobank
should prove by a preponderance of evidence that such
subsequent obligations are secured by said mortgage contract
and not by any other form of security.
In order to prevent any injustice to, or unjust enrichment of,
any of the parties, this Court holds that the fairest resolution
is to allow the brothers Teoco to redeem the foreclosed
properties based on the amount for which it was foreclosed
(P255,441.14 plus interest). This is subject, however, to the
right of Metrobank to foreclose the same property anew in
order to satisfy the succeeding loans entered into by the
spouses Co, if they were, indeed, covered by the mortgage
contract. The right of Metrobank to foreclose the mortgage
would not be hampered by the transfer of the properties to
the brothers Teoco as a result of this decision, since Article
2127 of the Civil Code provides:
Art. 2127. The mortgage extends to the natural accessions, to
the improvements, growing fruits, and the rents or income not
yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing to the proprietor
from the insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations,
amplifications and limitations established by law, whether the
estate remains in the possession of the mortgagor, or it
passes into the hands of a third person. (Emphasis supplied)
Further, Article 2129 of the Civil Code provides:
Art. 2129. The creditor may claim from a third person in
possession of the mortgaged property, the payment of the
part of the credit secured by the property which said third
person possesses, in the terms and with the formalities which
the law establishes.
The mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be to
the fulfillment of the obligation for whose security it was
constituted. Otherwise stated, a mortgage creates a real right
which is enforceable against the whole world. Hence, even if
the mortgage property is sold or its possession transferred to
another, the property remains subject to the fulfillment of the
obligation for whose security it was constituted.14
Thus, the redemption by the brothers Teoco shall be without
prejudice to the subsequent foreclosure of same properties by
Metrobank in order to satisfy other obligations covered by the
Real Estate Mortgage.
Transfer of Right of Redemption
The CA held that the brothers Teoco have not sufficiently
shown that the spouses Cos right of redemption was properly
transferred to them. The assignment of the right of
redemption only stated that the spouses Co are transferring
the right of redemption to their parents, brothers, and sisters,
but did not specifically include the brothers Teoco, who are
just brothers-in-law of Ramon Co. Furthermore, the spouses
Co no longer reside in the Philippines, and the assignment of
the right of redemption was not properly executed and/or
authenticated.
The alleged transfer of the right of redemption is couched in
the following language:
KNOW ALL MEN BY THESE PRESENTS:
That we, RAMON CO and LYDIA CO, of legal ages, for and in
consideration of preserving the continuous ownership and
possession of family owned properties, by these presents,
hereby cede, transfer and convey in favor of my parents,
brothers and sisters, the right to redeem the properties
under TCT Nos. T-6910 and T-6220, located in Patag district,
Catbalogan, Samar, sold by public auction sale on February
14, 1991 to the Metropolitan Bank and Trust Company.
Furthermore, we waived whatever rights we may have over
the properties in favor of the successor-in-interest including
that of transferring the title to whoever may redeem the
aforesaid properties.
IN WITNESS WHEREOF, we have hereunto affixed our
signatures this 10th day of January, 1992 at Vancouver,
Canada.15
The brothers Teoco may be brothers-in-law only of Ramon Co,
but they are also the brothers of Lydia Teoco Co, who is
actually the registered owner of the properties covered by TCT
Nos. T-6910 and T-6220. Clearly, the brothers Teoco are two of
the persons referred to in the above transfer of the right of
redemption executed by the spouses Co.
Anent the CA observation that the assignment of the right of
redemption was not properly executed and/or
authenticated, Lopez v. Court of Appeals16 is instructive.
In Lopez, this Court ruled that a special power of attorney
executed in a foreign country is generally not admissible in
evidence as a public document in our courts. The Court there
held:
Is the special power of attorney relied upon by Mrs. Ty a public
document? We find that it is. It has been notarized by a notary
public or by a competent public official with all the solemnities
required by law of a public document. When executed and
acknowledged in the Philippines, such a public document or a
certified true copy thereof is admissible in evidence. Its due
execution and authentication need not be proven unlike a
private writing.
Section 25, Rule 132 of the Rules of Court provides
Sec. 25. Proof of public or official record. An official record or
an entry therein, when admissible for any purpose, may be
evidenced by an official publication thereof or by a copy
attested by the officer having the legal custody of the record,
or by his deputy, and accompanied, if the record is not kept in
the Philippines, with a certificate that such officer has the
custody. If the office in which the record is kept is in a foreign
country, the certificate may be made by a secretary of
embassy or legation consul general, consul, vice consul, or
consular agent or by any officer in the foreign service of the
Philippines stationed in the foreign country in which the record
is kept, and authenticated by the seal of his office.
28
From the foregoing provision, when the special power of
attorney is executed and acknowledged before a notary public
or other competent official in a foreign country, it cannot be
admitted in evidence unless it is certified as such in
accordance with the foregoing provision of the rules by a
secretary of embassy or legation, consul general, consul, vice
consul, or consular agent or by any officer in the foreign
service of the Philippines stationed in the foreign country in
which the record is kept of said public document and
authenticated by the seal of his office. A city judge-notary who
notarized the document, as in this case, cannot issue such
certification.17
Verily, the assignment of right of redemption is not admissible
in evidence as a public document in our courts. However, this
does not necessarily mean that such document has no
probative value.
There are generally three reasons for the necessity of the
presentation of public documents. First, public documents are
prima facie evidence of the facts stated in them, as provided
for in Section 23, Rule 132 of the Rules of Court:
SEC. 23. Public documents as evidence. Documents
consisting of entries in public records made in the
performance of a duty by a public officer are prima
facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the
fact which gave rise to their execution and of the date of the
latter. (Underscoring supplied)
Second, the presentation of a public document dispenses with
the need to prove a documents due execution and
authenticity, which is required under Section 20, Rule 132 of
the Rules of Court for the admissibility of private documents
offered as authentic:
SEC. 20. Proof of private document. Before any private
document offered as authentic is received in evidence, its due
execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
Any other private document need only be identified as that
which it is claimed to be. (Underscoring supplied)
In the presentation of public documents as evidence, on the
other hand, due execution and authenticity are already
presumed:
SEC. 23. Public documents are evidence. Documents
consisting of entries in public records made in the
performance of a duty by a public officer are prima facie
evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of
the fact which gave rise to their execution and of the date of
the latter. (Underscoring supplied)
SEC. 30. Proof of notarial documents. Every instrument duly
acknowledged or proved and certified as provided by law,
may be presented in evidence without further proof, the
certificate of acknowledgment being prima facie evidence of
the execution of the instrument or document involved.
(Underscoring supplied)
Third, the law may require that certain transactions appear in
public instruments, such as Articles 1358 and 1625 of the Civil
Code, which respectively provide:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights
over immovable property; sales of real property or of an
interest therein governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an act
appearing in a public document.
All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one. But
sales of goods, chattels or things in action are governed by
Articles 1403, No. 2, and 1405.
Art. 1625. An assignment of a credit, right or action shall
produce no effect as against third person, unless it appears in
a public instrument, or the instrument is recorded in the
Registry of Property in case the assignment involves real
property. (Underscoring supplied)
Would the exercise by the brothers Teoco of the right to
redeem the properties in question be precluded by the fact
that the assignment of right of redemption was not contained
in a public document? We rule in the negative.
Metrobank never challenged either the content, the due
execution, or the genuineness of the assignment of the right
of redemption. Consequently, Metrobank is deemed to have
admitted the same. Having impliedly admitted the content of
the assignment of the right of redemption, there is no
necessity for a prima facie evidence of the facts there stated.
In the same manner, since Metrobank has impliedly admitted
the due execution and genuineness of the assignment of the
right of redemption, a private document evidencing the same
is admissible in evidence.18
True it is that the Civil Code requires certain transactions to
appear in public documents. However, the necessity of a
public document for contracts which transmit or extinguish
real rights over immovable property, as mandated by Article
1358 of the Civil Code, is only for convenience; it is not
essential for validity or enforceability.19 Thus, in Cenido v.
Apacionado,20 this Court ruled that the only effect of
noncompliance with the provisions of Article 1358 of the Civil
Code is that a party to such a contract embodied in a private
document may be compelled to execute a public document:
Article 1358 does not require the accomplishment of the acts
or contracts in a public instrument in order to validate the act
or contract but only to insure its efficacy, so that after the
existence of said contract has been admitted, the party bound
may be compelled to execute the proper document. This is
clear from Article 1357, viz.:
"Art. 1357. If the law requires a document or other special
form, as in the acts and contracts enumerated in the following
article (Article 1358), the contracting parties may compel
each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with
the action upon the contract."21
On the other hand, Article 1625 of the Civil Code provides that
"[a]n assignment of a credit, right or action shall produce no
effect as against third person, unless it appears in a public
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property."
29
In Co v. Philippine National Bank,22 the Court interpreted the be without prejudice to the subsequent foreclosure of same
phrase "effect as against a third person" to be damage or properties by Metropolitan Bank and Trust Company to satisfy
prejudice to such third person, thus: other loans covered by the Real Estate Mortgage. SO
ORDERED.
x x x In Lichauco vs. Olegario, et al., 43 Phil. 540, this Court
held that "whether or not x x x an execution debtor was
legally authorized to sell his right of redemption, is a question
already decided by this Court in the affirmative in numerous
decisions on the precepts of Sections 463 and 464 and other
sections related thereto, of the Code of Civil Procedure." (The
mentioned provisions are carried over in Rule 39 of the
Revised Rules of Court.) That the transfers or conveyances in
question were not registered is of miniscule significance, there
being no showing that PNB was damaged or could be
damaged by such omission. When CITADEL made its tender on
May 5, 1976, PNB did not question the personality of CITADEL
at all. It is now too late and purely technical to raise such
innocuous failure to comply with Article 1625 of the Civil
Code.23

In Ansaldo v. Court of Appeals,24 the Court held:

In its Decision, the First Division of the Appellate Tribunal,

speaking through the Presiding Justice at the time, Hon.
Magno S. Gatmaitan, held as regards Arnaldos contentions,
that

xxxx

2) there was no need that the assignment be in a public

document this being required only "to produce x x x effect as
against third persons" (Article 1625, Civil Code), i.e., "to
adversely affect 3rd persons," i.e., "a 3rd person with a right
against original creditor, for example, an original creditor of
creditor, against whom surely such an assignment by his
debtor (creditor in the credit assigned) would be prejudicial,
because he, creditor of assigning creditor, would thus be
deprived of an attachable asset of his debtor x x x;

xxxx

Except for the question of the claimed lack of authority on the

part of TFCs president to execute the assignment of credit in
favor of PCIB improperly raised for the first time on appeal, as
observed by the Court of Appeals the issues raised by
Ansaldo were set up by him in, and after analysis and
assessment rejected by, both the Trial Court and the Appellate
Tribunal. This court sees no error whatever in the appreciation
of the facts by either Court or their application of the relevant
law and jurisprudence to those facts, inclusive of the question
posed anew by Ansaldo relative to the alleged absence of
authority on the part of TFCs president to assign the
corporations credit to PCIB.25

In the case at bar, Metrobank would not be prejudiced by the

assignment by the spouses Co of their right of redemption in
favor of the brothers Teoco. As conceded by Metrobank, the
assignees, the brothers Teoco, would merely step into the
shoes of the assignors, the spouses Co. The brothers Teoco
would have to comply with all the requirements imposed by
law on the spouses Co. Metrobank would not lose any security
for the satisfaction of any loan obtained from it by the
spouses Co. In fact, the assignment would even prove to be
beneficial to Metrobank, as it can foreclose on the subject
properties anew, provided it proves that the subsequent loans
entered into by the spouses Co are covered by the mortgage
contract.

WHEREFORE, the decision of the Court of Appeals is SET

ASIDE. The decision of the Regional Trial Court in Catbalogan,
Samar is REINSTATED with the following MODIFICATION:
the redemption by Bienvenido C. Teoco and Juan C. Teoco, Jr.
of the properties covered by TCT Nos. T-6910 and T-6220 shall

30
G.R. No. 214057, October 19, 2015
FLORENTINA BAUTISTA-SPILLE REPRESENTED BY HER
ATTORNEY-IN-FACT, MANUEL B. FLORES,
JR., Petitioner, v. NICORP MANAGEMENT AND
DEVELOPMENT CORPORATION, BENJAMIN G. BAUTISTA
AND INTERNATIONAL EXCHAN BANK, Respondents.
DECISION
MENDOZA, J.:
Before the Court is a petition for review on certiorari under
Rule 45 of the Rules of Court assailing the March 19, 2014
Decision1 and the August 18, 2014 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 97682, which reversed and set
Regional Trial Court, Branch aside the May 24, 2010
Decision3 of the Regional Trial Court, Branch 90, Dasmarias,
Cavite (RTC), in Civil Case No. 0321-04, declaring a contract to
sell null and void.
The Facts:
Petitioner Florentina Bautista-Spille (petitioner) is the
registered owner of a parcel of land covered by Transfer
Certificate of Title (TCT) No. T-197, located in Imus City,
Cavite, with an area of more or less 33,052 square meters
(subject property).
On June 20, 1996, petitioner and her spouse, Harold E. Spille,
executed a document denominated as General Power of
Attorney4 in favor of her brother, respondent Benjamin
Bautista (Benjamin), authorizing the latter to administer all
her businesses and properties in the Philippines. The said
document was notarized before the Consulate General of the
Philippines, New York, United States of America.
On August 13, 2004, Benjamin and NICORP Management and
Development Corporation (NICORP) entered into a contract to
sell5 which pertained to the parcel of land covered by TCT No.
T-197 for the agreed amount of P15,000,000.00. In the said
contract, NICORP agreed to give a down payment equivalent
to 20% of the purchase price and pay the remaining balance
in eight (8) months. It was also agreed that upon receipt of
the down payment, the TCT of the subject property would be
deposited with the International Exchange Bank (IE Bank) and
placed in escrow. It would only be released upon full payment
of the agreed amount. Furthermore, Benjamin was required to
submit a special power of attorney (SPA) covering the sale
transaction, otherwise, the payment of the balance would be
suspended and a penalty of P150,000.00 every month would
be imposed.
Pursuant thereto, an Escrow Agreement,6 dated October 13,
2004, was executed designating IE Bank as the Escrow Agent,
obliging the latter to hold and take custody of TCT No. T-197,
and to release the said title to NICORP upon full payment of
the subject property.
On October 14, 2004, NICORP issued a check in the amount
of P2,250,000.00, representing the down payment of the
subject property.7 Thereafter, the TCT was deposited with IE
Bank and placed in escrow.
When petitioner discovered the sale, her lawyer immediately
sent demand letters8 to NICORP and Benjamin, both dated
October 27, 2004, and to IE pank, dated October 28, 2004,
informing them that she was opposing the sale of the subject
property and that Benjamin was not clothed with authority to
enter into a contract to sell and demanding the return of the
owner's copy of the certificate of title to her true and lawful
attorney-in-fact, Manujel B. Flores, Jr. (Flores). NICORP,
Benjamin and IE Bank, however, failed and refused to return
the title of the subject property.
Consequently, petitioner filed a complaint9 before the RTC
against Benjamin, NICORP and IE Bank for declaration of
nullity of the contract to sell, pjunction, recovery of possession
and damages with prayer for the issuance of a temporary
restraining order and/or preliminary injunction because
NICORP was starting the development of the subject property
into a residential subdivision and was planning to sell the lots
to prospective buyers. Petitioner denied receiving the down
payment for the subject property.
The RTC granted the writ of preliminary injunction in its
Order,10 dated January 24, 2005, enjoining NICORP and all
persons acting on its behalf from making or introducing
improvements, subdividing and selling any subdivided lot of
the subject property.
In its Answer,11 NICORP asked for the dismissal of the case for
lack of a cause of action and averred that Benjamin was
empowered to enter into a contract to sell by virtue of the
general power of attorney; that the said authority was valid
and subsisting as there was no specific instrument that
specifically revoked his authority; that assuming Bautista
exceeded his authority when he executed the contract to sell,
the agreement was still valid and enforceable as the agency
was already "coupled with interest" because of the partial
payment in the amount of P3,000,000.00; and that the
contract could not just be revoked without NICORP being
reimbursed of its down payment and the costs for the initial
development it had incurred in developing the subject
property into a residential subdivision.
For its part, IE Bank denied any liability and alleged that
petitioner had no cause of action against it. IE Bank asserted
that, at the time of its constitution as an escrow agent,
Benjamin possessed the necessary authority from petitioner;
that because the contract to sell remained valid, it was duty-
bound to observe its duties and obligations under the Escrow
Agreement; and that in the absence of any order from the
court, it was proper for the bank not to comply with
petitioner's demand for the surrender of the certificate of
title.12
Benjamin, on the other hand, did not file any responsive
pleading. Hence, he was declared in default in the RTC
Order,13 dated August 25, 2005.
On May 24, 2010, the RTC rendered its judgment, declaring
the contract to sell null and void.14 It explained that the
general power of authority only pertained to acts of
administration over petitioner's businesses and properties in
the Philippines and did not include authority to sell the subject
property. It pointed out that NICORP was well aware of
Benjamin's lack of authority to sell the subject property as
gleaned from the contract to sell which required the latter to
procure the SPA from petitioner and even imposed a penalty
of P150,000.00 per month if he would be delayed in securing
the SPA. The dispositive portion of the RTC decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendants,
declaring the Contract to Sell, dated October 13, 2004
between the defendant Bautista and NICORP to be null and
void, and the writ of preliminary injunction is now made
permanent, and further ordering the defendants NICORP and
International Exchange Bank as follows -
(a) To return to the plaintiff the peaceful possession of the
subject property covered by Transfer Certificate of Title No.
31
 T-197 of the Register of Deeds of the Province of Cavite;
(b) To return to the plaintiff the Original Owner's Duplicate of
Title No. T-197 of the Register of Deeds of the Province of
Cavite;
(c) To pay to the plaintiff the amount of Php250,000.00 by way
of attorney's fees; and
(d) The Costs of suit.
SO ORDERED.15
Aggrieved, NICORP appealed before the CA.
In the assailed decision, the CA reversed the RTC decision,
explaining that the general power of attorney executed by
petitioner in favor of Benjamin authorized the latter not only
to perform acts of administration over her properties but also
to perform acts of dominion which included, among others,
the power to dispose the subject property.
Petitioner filed a motion for reconsideration, but it was denied
in the assailed CA Resolution, dated August 18, 2014.
Hence, this petition anchored on the following
GROUNDS
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ERROR IN HOLDING THAT THE GENERAL POWER
OF ATTORNEY EXECUTED BY PETITIONER AUTHORIZED
BENJAMIN BAUTISTA TO ENTER INTO THE CONTRACT TO
SELL WITH RESPONDENT IN CONTRAVENTION OF THE
ESTABLISHED PRONOUNCEMENT OF THE SUPREME
COURT IN THE CASE OF LILLIAN N. MERCADO ET AL. VS.
ALLIED BANKING CORPORATION (G.R. NO. 171460, 24
JULY 2007.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ERROR IN APPLYING THE CASE OF ESTATE OF
LINO OLAGUER VS. ONGJOCO (G.R. NO. 173312, 26
AUGUST 2008) TO THE INSTANT CASE CONSIDERING
THAT THE ESTABLISHED FACTS HEREIN ARE NOT IN ALL
FOURS WITH THE FACTS SURROUNDING THE DECISION
IN THE OLAGUER VS. ONGJOCO CASE.
THE HONORABLE COURT OF APPEALS ERRED IN
DISREGARDING (I) RESPONDENT'S JUDICIAL ADMISSION
AS TO BENJAMIN BAUTISTA'S LACK OF AUTHORITY TO
ENTER INTO A CONTRACT TO SELL THE SUBJECT
PROPERTY, AND (II) RESPONDENT'S KNOWLEDGE OF
THE INSUFFICIENCY OF THE GENERAL POWER OF
ATTORNEY, INDICATING BAD FAITH OF THE
RESPONDENT.
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE TRIAL COURT ERRED IN DECLARING
THE CONTRACT TO SELL NULL AND VOID.16
Petitioner argues that the general power of attorney did not
clothe Benjamin with the authority to enter into a contract to
sell the subject property. She contends that the general power
of attorney pertained to the power to buy, sell, negotiate and
contract over the business and personal property but did not
specifically authorize the sale of the subject property.
Petitioner asserts that the CA erred when it disregarded the
stipulation made by NICORP during the pre-trial proceedings
as stated in the pre-trial order that Benjamin "acted beyond
the scope of his authority when he failed to inform plaintiff
personally as to his dealing or negotiation with NICORP and
when he signed the Contract to Sell xxx." 17 According to
petitioner, such an admission was an indication that NICORP
did not consider the general power of authority as an SPA
which would have authorized Benjamin to enter into the
contract to sell.
NICORP counters that the general power of attorney
sufficiently conferred authority on Benjamin to enter into the
contract to sell. It asserts that the written authority, while
denominated as a general power of attorney, expressly
authorized him to sell the subject property. NICORP insists
that it was a buyer in good faith and was never negligent in
ascertaining the extent of his authority to sell the property. It
explains that though the general power of attorney sufficiently
clothed Bautista with authority to sell the subject property, it
nonetheless required him to submit the SPA in order to comply
with the requirements of the Register of Deeds and the
Bureau of Internal Revenue.
The issue for resolution is whether or not Benjamin was
authorized to sell the subject property.
The Court's Ruling
The Court finds the petition meritorious.
In petitions for review on certiorari under Rule 45 of the Rules
of Civil Procedure, only questions of law may be raised by the
parties and passed upon by this Court. It is not a function of
this Court to analyze and weigh the evidence presented by
the parties all over again.18 This rule, however, has several
well-recognized exceptions, such as when the factual findings
of the CA and the trial court are conflicting or contradictory.19
The well-established rule is when a sale of a parcel of land or
any interest therein is through an agent, the authority of the
latter shall be in writing, otherwise the sale shall be void.
Articles 1874 and 1878 of the Civil Code explicitly provide:
Art. 1874. When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall be
in writing; otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the
following cases:chanRoblesvirtualLawlibrary
(1) x xx
(5) To enter into any contract by which the ownership
of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
xxx. [Emphasis Supplied]
From the foregoing, it is clear that an SPA in the conveyance
of real rights over immovable property is
necessary.20 In Cosmic Lumber Corporation v. Court of
Appeals,21 the Court enunciated,
When the sale of a piece of land or any interest thereon is
through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. Thus, the authority
of an agent to execute a contract for the sale of real estate
must be conferred in writing and must give him specific
authority, either to conduct the general business of the
principal or to execute a binding contract containing terms
and conditions which are in the contract he did execute. A
32
special power of attorney is necessary to enter into
any contract by which the ownership of an immovable
is transmitted or acquired either gratuitously or for a
valuable consideration. The express mandate required by
law to enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or
that includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an agent
to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the
language so used conveys such power, no such
construction shall be given the document.22
[Emphases Supplied]
To reiterate, such authority must be conferred in writing and
must express the powers of the agent in clear and
unmistakable language in order for the principal to confer the
right upon an agent to sell the real property. 23 It is a general
rule that a power of attorney must be strictly construed, and
courts will not infer or presume broad powers from deeds
which do not sufficiently include property or subject under
which the agent is to deal.24 Thus, when the authority is
couched in general terms, without mentioning any specific
power to sell or mortgage or to do other specific acts of strict
dominion, then only acts of administration are deemed
conferred.25cralawred
In the case at bench, the only evidence adduced by NICORP to
prove Benjamin's authority to sell petitioner's property was
the document denominated as General Power of Attorney,
dated June 20, 1996. The pertinent portions of the said
document reads:
KNOW ALL MEN BY THESE
PRESENTS:chanRoblesvirtualLawlibrary
THAT I/WE FLORENTINA B. SPILLE, of legal age, single/married
to HAROLD E. SPILLE and residents of x x x do hereby appoint,
name and constitute BENJAMIN G. BAUTISTA resident(s) of x x
x to be my/our true and lawful attorney(s), to administer and
conduct all my/our affairs and for that purpose in my/our
name(s) and on my/our behalf, to do and execute any or all of
the following acts, deeds and things to wit:
1. To exercise administration, general control and
supervision over my/our business and property in the
Philippines, and to act as my/our general
representative(s) and agent(s) with full authority to
buy, sell, negotiate and contract for me/us and
my/our behalf;ChanRoblesVirtualawlibrary
2. To ask, demand, sue for, recover and receive all sums
of money, debts, dues, goods, wares, merchandise,
chattels, effects and thing of whatsoever nature or
description, which now or hereafter shall be or
become due, owing, payable or belonging to me/us in
or by any right, title, ways or means howsoever, and
upon receipt thereof or any part thereof, to make,
sign, execute and deliver such receipts, releases or
other discharges;ChanRoblesVirtualawlibrary
xxx26
Doubtless, there was no perfected contract to sell between
petitioner and NICORP. Nowhere in the General Power of
Attorney was Benjamin granted, expressly or impliedly, any
power to sell the subject property or a portion thereof. The
authority expressed in the General Power of Attorney was
couched in very broad terms covering petitioner's businesses
and properties. Time and again, this Court has stressed that
the power of administration does not include acts of
disposition, which are acts of strict ownership. As such, an
authority to dispose cannot proceed from an authority to
administer, and vice versa, for the two powers may only be
exercised by an agent by following the provisions on agency
of the Civil Code.27
In the same vein, NICORP cannot be considered a purchaser in
good faith. The well-settled rule is that a person dealing with
an assumed agent is bound to ascertain not only the fact of
agency but also the nature and extent of the agent's
authority.28 The law requires a higher degree of prudence from
one who buys from a person who is not the registered owner.
He is expected to examine all factual circumstances
necessary for him to determine if there are any flaws in the
title of the transferor, or in his capacity to transfer the
land.29 In ascertaining good faith, or the lack of it, which is a
question of intention, courts are necessarily controlled by the
evidence as to the conduct and outward acts by which alone
the inward motive may, with safety, be determined. Good
faith, or want of it, is not a visible, tangible fact that can be
seen or touched, but rather a state or condition of mind which
can only be judged by actual or fancied token or signs. 30
Here, the Court agrees with the RTC that NICORP was fully
aware that Benjamin was not properly authorized to enter into
any transaction regarding the sale of petitioner's property. In
fact, in the contract to sell, NICORP required Benjamin to
secure the SPA from petitioner within ninety (90) days from
the execution of the contract and even imposed a substantial
amount of penalty in the amount of P150,000.00 a month in
case of non-compliance plus suspension of payment of the
balance of the contract price.
Petitioner's explanation that it obliged Benjamin to secure the
SPA in order to comply with the requirements of the Register
of Deeds and the Bureau of Internal Revenue is bereft of
merit. NICORP is a real estate company which is familiar with
the intricacies of the realty business. Moreover, there was no
evidence that petitioner ratified Benjamin's act of selling the
subject property. On the contrary, immediately after the
execution of the contract to sell, petitioner wrote NICORP, IE
Bank and Benjamin to inform them of her opposition to the
sale of the subject property and of his lack of authority to sell
it and demand the return of the certificate of title. Clearly,
NICORP was negligent in its dealings with Bautista.
In sum, the Court agrees with the findings and conclusion of
the RTC. The consent of petitioner in the contract to sell was
not obtained, hence, not enforceable. Furthermore, because
NICORP is considered a builder in bad faith, it has no right to
be refunded the value of whatever improvements it
introduced on the subject
property.31chanroblesvirtuallawlibrary
WHEREFORE, the petition is GRANTED. The March 19, 2014
Decision and the August 18, 2014 Resolution of the Court of
Appeals in CA-G.R. CV No. 97682 are REVERSED and SET
ASIDE. The May 24, 2010 Decision of the Regional Trial Court,
Branch 90, Dasmarias, Cavite, is REINSTATED.
SO ORDERED.
33
G.R. No. 128991 April 12, 2000
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and
CHARITO PORMIDA, petitioners,
vs.
HONORABLE MATEO M. LEANDA, in his capacity as
Presiding Judge of RTC, Tacloban City, Branch 8, and
LEYTE GULF TRADERS, INC., respondents.
KAPUNAN, J.:
Reformation. of an instrument is that remedy in equity by
means of which a written instrument is made or construed so
as to express or conform to the real intention of the parties
when some error or mistake has been committed. 1 It is
predicated on the equitable maxim that equity treats as done
that which ought to be done. 2 The rationale of the doctrine is
that it would be unjust and unequitable to allow the
enforcement of a written instrument which does not reflect or
disclose the real meeting of the minds of the
parties. 3 However, an action for reformation must be brought
within the period prescribed by law, otherwise, it will be
barred by the mere lapse of time. The issue in this case is
whether or not the complaint for reformation filed by
respondent Leyte Gulf Traders, Inc. has prescribed and in the
negative, whether or not it is entitled to the remedy of
reformation sought.
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein
referred to as respondent corporation) filed a complaint for
reformation of instrument, specific performance, annulment of
conditional sale and damages with prayer for writ of injunction
against petitioners Yolanda Rosello-Bentir and the spouses
Samuel and Charito Pormida. The case was docketed as Civil
Case No. 92-05-88 and raffled to Judge Pedro S. Espina, RTC,
Tacloban City, Branch 7. Respondent corporation alleged that
it entered into a contract of lease of a parcel of land with
petitioner Bentir for a period of twenty (20) years starting May
5, 1968. According to respondent corporation, the lease was
extended for another four (4) years or until May 31, 1992. On
May 5, 1989, petitioner Bentir sold the leased premises to
petitioner spouses Samuel Pormada and Charito Pormada.
Respondent corporation questioned the sale alleging that it
had a right of first refusal. Rebuffed, it filed Civil Case No. 92-
05-88 seeking the reformation of the expired contract of lease
on the ground that its lawyer inadvertently omitted to
incorporate in the contract of lease executed in 1968, the
verbal agreement or understanding between the parties that
in the event petitioner Bentir leases or sells the lot after the
expiration of the lease, respondent corporation has the right
to equal the highest offer.
In due time, petitioners filed their answer alleging that the
inadvertence of the lawyer who prepared the lease contract is
not a ground for reformation. They further contended that
respondent corporation is guilty of laches for not bringing the
case for reformation of the lease contract within the
prescriptive period of ten (10) years from its execution.
Respondent corporation then filed its reply and on November
18, 1992, filed a motion to admit amended complaint. Said
motion was granted by the lower court. 4
Thereafter, petitioners filed a motion to dismiss reiterating
that the complaint should be dismissed on the ground of
prescription.
On December 15, 1995, the trial court through Judge Pedro S.
Espina issued an order dismissing the complaint premised on
its finding that the action for reformation had already
prescribed. The order reads:
ORDER
Resolved here is the defendants' MOTION TO DISMISS
PLAINTIFF'S complaint on ground of prescription of action.
It is claimed by plaintiff that he and defendant Bentir entered
into a contract of lease of a parcel of land on May 5, 1968 for
a period of 20 years (and renewed for an additional 4 years
thereafter) with the verbal agreement that in case the lessor
decides to sell the property after the lease, she shall give the
plaintiff the right to equal the offers of other prospective
buyers. It was claimed that the lessor violated this tight of
first refusal of the plaintiff when she sureptitiously (sic) sold
the land to co-defendant Pormida on May 5, 1989 under a
Deed of Conditional Sale. Plaintiffs right was further violated
when after discovery of the final sale, plaintiff ordered to
equal the price of co-defendant Pormida was refused and
again defendant Bentir surreptitiously executed a final deed of
sale in favor of co-defendant Pormida in December 11, 1991.
The defendant Bentir denies that she bound herself to give
the plaintiff the right of first refusal in case she sells the
property. But assuming for the sake of argument that such
right of first refusal was made, it is now contended that
plaintiffs cause of action to reform the contract to reflect such
right of first refusal, has already prescribed after 10 years,
counted from May 5, 1988 when the contract of lease
incepted. Counsel for defendant cited Conde vs. Malaga, L-
9405 July 31, 1956 and Ramos vs. Court of Appeals, 180 SCRA
635, where the Supreme Court held that the prescriptive
period for reformation of a written contract is ten (10) years
under Article 1144 of the Civil Code.
This Court sustains the position of the defendants that this
action for reformation of contract has prescribed and hereby
orders the dismissal of the case.
5
SO ORDERED.
On December 29, 1995, respondent corporation filed a motion
for reconsideration of the order dismissing the complaint.
On January 11, 1996, respondent corporation filed an
urgent ex-parte motion for issuance of an order directing the
petitioners, or their representatives or agents to refrain from
taking possession of the land in question.
Considering that Judge Pedro S. Espina, to whom the case was
raffled for resolution, was assigned to the RTC, Malolos,
Bulacan, Branch 19, Judge Roberto A. Navidad was designated
in his place.
On March 28, 1996, upon motion of herein petitioners, Judge
Navidad inhibited himself from hearing the case.
Consequently, the case was re-raffled and assigned to RTC,
Tacloban City, Branch 8, presided by herein respondent judge
Mateo M. Leanda.
On May 10, 1996, respondent judge issued an order reversing
the order of dismissal on the grounds that the action for
reformation had not yet prescribed and the dismissal was
"premature and precipitate", denying respondent corporation
of its right to procedural due process. The order reads:
ORDER
Stated briefly, the principal objectives of the twin motions
submitted by the plaintiffs, for resolution are:
(1) for the reconsideration of the Order of 15 December 1995
of the Court (RTC, Br. 7), dismissing this case, on the sole
ground of prescription of one (1) of the five (5) causes of
action of plaintiff in its complaint for "reformation" of a
contract of lease; and,
34
(2) for issuance by this Court of an Order prohibiting the
defendants and their privies-in-interest, from taking
possession of the leased premises, until a final court order
issues for their exercise of dominical or possessory right
thereto.
The records of this case reveal that co-defendant BENTER
(Yolanda) and plaintiff Leyte Gulf Traders Incorporation,
represented by Chairman Benito Ang, entered into a contract
of lease of a parcel of land, denominated as Lot No. 878-D,
located at Sagkahan District, Tacloban City, on 05 May 1968,
for a period of twenty (20) years, (later renewed for an
additional two (2) years). Included in said covenant of lease is
the verbal understanding and agreement between the
contracting parties, that when the defendant (as lessor) will
sell the subject property, the plaintiff as (lessee) has the "right
of first refusal", that is, the right to equal the offer of any
other prospective third-party buyer. This agreement (sic) is
made apparent by paragraph 4 of the lease agreement
stating:
4. IMPROVEMENT. The lessee shall have the right to erect on
the leased premises any building or structure that it may
desire without the consent or approval of the Lessor . . .
provided that any improvements existing at the termination of
the lease shall remain as the property of the Lessor without
right to reimbursement to the Lessee of the cost or value
thereof.
That the foregoing provision has been included in the lease
agreement if only to convince the defendant-lessor that
plaintiff desired a priority right to acquire the property (ibid)
by purchase, upon expiration of the effectivity of the deed of
lease.
In the course of the interplay of several procedural moves of
the parties herein, the defendants filed their motion to admit
their amended answer to plaintiff's amended complaint.
Correspondingly, the plaintiff filed its opposition to said
motion. The former court branch admitted the amended
answer, to which order of admission, the plaintiff seasonably
filed its motion for reconsideration. But, before the said
motion for reconsideration was acted upon by the court, the
latter issued an Order on 15 December 1995, DISMISSING this
case on the lone ground of prescription of the cause of action
of plaintiff's complaint on "reformation" of the lease contract,
without anymore considering the remaining cause of
action, viz.: (a) on Specific Performance; (b) an Annulment of
Sale and Title; (c) on Issuance of a Writ of Injunction, and (d)
on Damages.
With due respect to the judicial opinion of the Honorable
Presiding Judge of Branch 7 of this Court, the undersigned, to
whom this case was raffled to after the inhibition of Judge
Roberto Navidad, as acting magistrate of Branch 7, feels not
necessary any more to discuss at length that even the cause
of action for "reformation" has not, as yet, prescribed.
To the mind of this Court, the dismissal order adverted to
above, was obviously premature and precipitate, thus
resulting denial upon the right of plaintiff that procedural due
process. The other remaining four (4) causes of action of the
complaint must have been deliberated upon before that court
acted hastily in dismissing this case.
WHEREFORE, in the interest of substantial justice, the Order of
the court, (Branch 7, RTC) dismissing this case, is hereby
ordered RECONSIDERED and SET ASIDE.
Let, therefore, the motion of plaintiff to reconsider the Order
admitting the amended answer and the Motion to Dismiss this
case (ibid), be set for hearing on May 24, 1996, at 8:30 o'clock
in the morning. Service of notices must be effected upon
parties and counsel as early as possible before said scheduled
date.
Concomitantly, the defendants and their privies-in-interest or
agents, are hereby STERNLY WARNED not to enter, in the
meantime, the litigated premises, before a final court order
issues granting them dominical as well as possessory right
thereto.
To the motion or petition for contempt, filed by plaintiff, thru
Atty. Bartolome C. Lawsin, the defendants may, if they so
desire, file their answer or rejoinder thereto, before the said
petition will be set for hearing. The latter are given ten (10)
days to do so, from the date of their receipt of a copy of this
Order.
6
SO ORDERED.
On June 10, 1996, respondent judge issued an order for status
quo ante, enjoining petitioners to desist from occupying the
property. 7
Aggrieved, petitioners herein filed a petition for certiorari to
the Court of Appeals seeking the annulment of the order of
respondent court with prayer for issuance of a writ of
preliminary injunction and temporary restraining order to
restrain respondent judge from further hearing the case and
to direct respondent corporation to desist from further
possessing the litigated premises and to turn over possession
to petitioners.
On January 17, 1997, the Court of Appeals, after finding no
error in the questioned order nor grave abuse of discretion on
the part of the trial court that would amount to lack, or in
excess of jurisdiction, denied the petition and affirmed the
questioned order. 8 A reconsideration of said decision was,
likewise, denied on April 16, 1997. 9
Thus, the instant petition for review based on the following
assigned errors, viz:
6:01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN
ACTION FOR REFORMATION IS PROPER AND JUSTIFIED UNDER
THE CIRCUMSTANCES OF THE PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ACTION FOR REFORMATION HAS NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN
OPTION TO BUY IN A CONTRACT OF LEASE IS REVIVED FROM
THE IMPLIED RENEWAL OF SUCH LEASE; AND,
6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT
A STATUS QUO ANTE ORDER IS NOT AN INJUNCTIVE RELIEF
THAT SHOULD COMPLY WITH THE PROVISIONS OF RULE 58 OF
THE RULES OF COURT. 10
The petition has merit.
The core issue that merits our consideration is whether the
complaint for reformation of instrument has
prescribed.1awp++i1
The remedy of reformation of an instrument is grounded on
the principle of equity where, in order to express the true
intention of the contracting parties, an instrument already
executed is allowed by law to be reformed. The right of
reformation is necessarily an invasion or limitation of the parol
evidence rule since, when a writing is reformed, the result is
that an oral agreement is by court decree made legally
effective. 11 Consequently, the courts, as the agencies
authorized by law to exercise the power to reform an
instrument, must necessarily exercise that power sparingly
and with great caution and zealous care. Moreover, the
35
remedy, being an extraordinary one, must be subject to We no longer find it necessary to discuss the other issues
limitations as may be provided by law. Our law and raised considering that the same are predicated upon our
jurisprudence set such limitations, among which is laches. A affirmative resolution on the issue of the prescription of the
suit for reformation of an instrument may be barred by lapse action for reformation.
of time. The prescriptive period for actions based upon a
written contract and for reformation of an instrument is ten WHEREFORE, the petition is hereby GRANTED. The Decision of
(10) years under Article 1144 of the Civil Code. 12 Prescription the Court of Appeals dated January 17, 1997 is REVERSED and
is intended to suppress stale and fraudulent claims arising SET ASIDE. The Order of the Regional Trial Court of Tacloban
from transactions like the one at bar which facts had become City, Branch 7, dated December 15, 1995 dismissing the
so obscure from the lapse of time or defective memory. 13 In action for reformation is REINSTATED.1wphi1.nt
the case at bar, respondent corporation had ten (10) years
SO ORDERED.
from 1968, the time when the contract of lease was executed,
to file an action for reformation. Sadly, it did so only on May
15, 1992 or twenty-four (24) years after the cause of action
accrued, hence, its cause of action has become stale, hence,
time-barred.

In holding that the action for reformation has not prescribed,

the Court of Appeals upheld the ruling of the Regional Trial
Court that the 10-year prescriptive period should be reckoned
not from the execution of the contract of lease in 1968, but
from the date of the alleged 4-year extension of the lease
contract after it expired in 1988. Consequently, when the
action for reformation of instrument was filed in 1992 it was
within ten (10) years from the extended period of the lease.
Private respondent theorized, and the Court of Appeals
agreed, that the extended period of lease was an "implied
new lease" within the contemplation of Article 1670 of the
Civil Code, 14under which provision, the other terms of the
original contract were deemed revived in the implied new
lease.

We do not agree. First, if, according to respondent corporation,

there was an agreement between the parties to extend the
lease contract for four (4) years after the original contract
expired in 1988, then Art. 1670 would not apply as this
provision speaks of an implied new lease (tacita
reconduccion) where at the end of the contract, the lessee
continues to enjoy the thing leased "with the acquiescence of
the lessor", so that the duration of the lease is "not for the
period of the original contract, but for the time established in
Article 1682 and 1687." In other words, if the extended period
of lease was expressly agreed upon by the parties, then the
term should be exactly what the parties stipulated, not more,
not less. Second, even if the supposed 4-year extended lease
be considered as an implied new lease under Art. 1670, "the
other terms of the original contract" contemplated in said
provision are only those terms which are germane to the
lessee's right of continued enjoyment of the property
leased. 15 The prescriptive period of ten (10) years provided
for in Art. 1144 16 applies by operation of law, not by the will
of the parties. Therefore, the right of action for reformation
accrued from the date of execution of the contract of lease in
1968.

Even if we were to assume for the sake of argument that the

instant action for reformation is not time-barred, respondent
corporation's action will still not prosper. Under Section 1, Rule
64 of the New Rules of Court, 17 an action for the reformation
of an instrument is instituted as a special civil action for
declaratory relief. Since the purpose of an action for
declaratory relief is to secure an authoritative statement of
the rights and obligations of the parties for their guidance in
the enforcement thereof, or compliance therewith, and not to
settle issues arising from an alleged breach thereof, it may be
entertained only before the breach or violation of the law or
contract to which it refers. 18 Here, respondent corporation
brought the present action for reformation after an alleged
breach or violation of the contract was already committed by
petitioner Bentir. Consequently, the remedy of reformation no
longer lies.

36
G.R. No. 158901 March 9, 2004
PROCESO QUIROS and LEONARDA VILLEGAS, petitioners,
vs.
MARCELO ARJONA, TERESITA BALARBAR, JOSEPHINE
ARJONA, and CONCHITA ARJONA, respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review is the decision of the Court
of Appeals in an action for the execution/enforcement of
amicable settlement between petitioners Proceso Quiros and
Leonarda Villegas and respondent Marcelo Arjona. Appellate
court reversed the decision of the Regional Trial Court of
Dagupan City-Branch 44 and reinstated the decision of the
Municipal Trial Court of San Fabian-San Jacinto, Pangasinan.
On December 19, 1996, petitioners Proceso Quiros and
Leonarda Villegas filed with the office of the barangay captain
of Labney, San Jacinto, Pangasinan, a complaint for recovery
of ownership and possession of a parcel of land located at
Labney, San Jacinto, Pangasinan. Petitioners sought to recover
from their uncle Marcelo Arjona, one of the respondents
herein, their lawful share of the inheritance from their late
grandmother Rosa Arjona Quiros alias Doza, the same to be
segregated from the following parcels of land:
a) A parcel of land (Lot 1, plan Psu-189983, L.R. Case No. D-
614, LRC Record No. N- 22630), situated in the Barrio of
Labney, Torud, Municipality of San Jacinto, Province of
Pangasinan x x x Containing an area of Forty Four Thousand
Five Hundred and Twenty (44,520) square meters, more or
less, covered by Tax Decl. No. 607;
b) A parcel of Unirrig. riceland situated at Brgy. Labney, San
Jacinto, San Jacinto, Pangasinan with an area of 6450 sq.
meters, more or less declared under Tax Decl. No. 2066 of the
land records of San Jacinto, Pangasinan assessed at P2390.00
x x x;
c) A parcel of Unirrig. riceland situated at Brgy. Labney, San
Jacinto, Pangasinan with an area of 6450 sq. meters, more or
less, declared under Tax Declaration No. 2047 of the land
records of San Jacinto, Pangasinan assessed at P1700.00 x x x
d) A parcel of Unirrig. riceland situated at Brgy. Labney, San
Jacinto, Pangasinan assessed at P5610.00 x x x;
e) A parcel of Cogon land situated at Brgy. Labney, San
Jacinto, Pangasinan, with an area of 14133 sq. meters, more
or less declared under Tax Declaration No. 14 of the land
records of San Jacinto, Pangasinan assessed at P2830.00 x x
x.1
On January 5, 1997, an amicable settlement was reached
between the parties. By reason thereof, respondent Arjona
executed a document denominated as "PAKNAAN"
("Agreement", in Pangasinan dialect), which reads:
AGREEMENT
I, MARCELO ARJONA, of legal age, resident of Barangay
Sapang, Buho, Palayan City, Nueva Ecija, have a land
consisting of more or less one (1) hectare which I gave to
Proceso Quiros and Leonarda Villegas, this land was inherited
by Doza that is why I am giving the said land to them for it is
in my name, I am affixing my signature on this document for
this is our agreement besides there are witnesses on the
5th day (Sunday) of January 1997.
Signed in the presence of:
(Sgd) Avelino N. De la Masa, Jr.
(Sgd) Marcelo Arjona
Witnesses:
1) (Sgd.) Teresita Balarbar
2) (Sgd.) Josephine Arjona
3) (Sgd.) Conchita Arjona
On the same date, another "PAKNAAN" was executed by Jose
Banda, as follows:
AGREEMENT
I, JOSE BANDA, married to Cecilia L. Banda, of legal age, and
resident of Sitio Torrod, Barangay Labney, San Jacinto,
Pangasinan. There is a land in which they entrusted to me and
the same land is situated in Sitio Torrod, Brgy. Labney, San
Jacinto, Pangasinan, land of Arjona family.
I am cultivating/tilling this land but if ever Leonarda Villegas
and Proceso Quiros would like to get this land, I will voluntarily
surrender it to them.
In order to attest to the veracity and truthfulness of this
agreement, I affixed (sic) my signature voluntarily below this
document this 5th day (Sunday) of January 1997.
(Sgd.) Jose Banda
Signed in the presence of:
(Sgd) Avelino N. de la Masa, Sr.
Barangay Captain
Brgy. Labney, San Jacinto
Pangasinan
Witnesses:
1) Irene Banda
(sgd.)
2) Jose (illegible) x x x
Petitioners filed a complaint with the Municipal Circuit Trial
Court with prayer for the issuance of a writ of execution of the
compromise agreement which was denied because the
subject property cannot be determined with certainty.
The Regional Trial Court reversed the decision of the municipal
court on appeal and ordered the issuance of the writ of
execution.
Respondents appealed to the Court of Appeals, which
reversed the decision of the Regional Trial Court and
reinstated the decision of the Municipal Circuit Trial Court.2
Hence, this petition on the following errors:
I
THE PAKNAAN BEING A FINAL AND EXECUTORY JUDGMENT
UNDER THE LAW IS AN IMMUTABLE JUDGMENT CAN NOT BE
ALTERED, MODIFIED OR CHANGED BY THE COURT INCLUDING
THE HIGHEST COURT; and
II
THE SECOND PAKNAAN ALLEGEDLY EXECUTED IN
CONJUNCTION WITH THE FIRST PAKNAAN WAS NEVER
ADDUCED AS EVIDENCE BY EITHER OF THE PARTIES, SO IT IS
ERROR OF JURISDICTION TO CONSIDER THE SAME IN THE
DECISION MAKING.
37
The pivotal issue is the validity and enforceability of the
amicable settlement between the parties and corollary to this,
whether a writ of execution may issue on the basis thereof.
In support of their stance, petitioners rely on Section 416 of
the Local Government Code which provides that an amicable
settlement shall have the force and effect of a final judgment
upon the expiration of 10 days from the date thereof, unless
repudiated or nullified by the proper court. They argue that
since no such repudiation or action to nullify has been
initiated, the municipal court has no discretion but to execute
the agreement which has become final and executory.
Petitioners likewise contend that despite the failure of the
Paknaan to describe with certainty the object of the contract,
the evidence will show that after the execution of the
agreement, respondent Marcelo Arjona accompanied them to
the actual site of the properties at Sitio Torod, Labney, San
Jacinto, Pangasinan and pointed to them the 1 hectare
property referred to in the said agreement.
In their Comment, respondents insist that respondent Arjona
could not have accompanied petitioners to the subject land at
Torrod, Labney because he was physically incapacitated and
there was no motorized vehicle to transport him to the said
place.
The Civil Code contains salutary provisions that encourage
and favor compromises and do not even require judicial
approval. Thus, under Article 2029 of the Civil Code, the
courts must endeavor to persuade the litigants in a civil case
to agree upon some fair compromise. Pursuant to Article 2037
of the Civil Code, a compromise has upon the parties the
effect and authority of res judicata, and this is true even if the
compromise is not judicially approved. Articles 2039 and 2031
thereof also provide for the suspension of pending actions and
mitigation of damages to the losing party who has shown a
sincere desire for a compromise, in keeping with the Codes
policy of encouraging amicable settlements.3
Cognizant of the beneficial effects of amicable settlements,
the Katarungang Pambarangay Law (P.D. 1508) and later the
Local Government Code provide for a mechanism for
conciliation where party-litigants can enter into an agreement
in the barangay level to reduce the deterioration of the quality
of justice due to indiscriminate filing of court cases. Thus,
under Section 416 of the said Code, an amicable settlement
shall have the force and effect of a final judgment of the court
upon the expiration of 10 days from the date thereof, unless
repudiation of the settlement has been made or a petition to
nullify the award has been filed before the proper court
Petitioners submit that since the amicable settlement had not
been repudiated or impugned before the court within the 10-
day prescriptive period in accordance with Section 416 of the
Local Government Code, the enforcement of the same must
be done as a matter of course and a writ of execution must
accordingly be issued by the court.
Generally, the rule is that where no repudiation was made
during the 10-day period, the amicable settlement attains the
status of finality and it becomes the ministerial duty of the
court to implement and enforce it. However, such rule is not
inflexible for it admits of certain exceptions. In Santos v. Judge
Isidro,4 the Court observed that special and exceptional
circumstances, the imperatives of substantial justice, or facts
that may have transpired after the finality of judgment which
would render its execution unjust, may warrant the
suspension of execution of a decision that has become final
and executory. In the case at bar, the ends of justice would be
frustrated if a writ of execution is issued considering the
uncertainty of the object of the agreement. To do so would
open the possibility of error and future litigations.
The Paknaan executed by respondent Marcelo Arjona purports
to convey a parcel of land consisting of more or less 1 hectare
to petitioners Quiros and Villegas. Another Paknaan, prepared
on the same date, and executed by one Jose Banda who
signified his intention to vacate the parcel of land he was
tilling located at Torrod, Brgy. Labney, San Jacinto, Pangasinan,
for and in behalf of the Arjona family. On ocular inspection
however, the municipal trial court found that the land referred
to in the second Paknaan was different from the land being
occupied by petitioners. Hence, no writ of execution could be
issued for failure to determine with certainty what parcel of
land respondent intended to convey.
In denying the issuance of the writ of execution, the appellate
court ruled that the contract is null and void for its failure to
describe with certainty the object thereof. While we agree that
no writ of execution may issue, we take exception to the
appellate courts reason for its denial.
Since an amicable settlement, which partakes of the nature of
a contract, is subject to the same legal provisions providing
for the validity, enforcement, rescission or annulment of
ordinary contracts, there is a need to ascertain whether the
Paknaan in question has sufficiently complied with the
requisites of validity in accordance with Article 1318 of the
Civil Code.5
There is no question that there was meeting of the minds
between the contracting parties. In executing the Paknaan,
the respondent undertook to convey 1 hectare of land to
petitioners who accepted. It appears that while the Paknaan
was prepared and signed by respondent Arjona, petitioners
acceded to the terms thereof by not disputing its contents and
are in fact now seeking its enforcement. The object is a 1-
hectare parcel of land representing petitioners inheritance
from their deceased grandmother. The cause of the contract is
the delivery of petitioners share in the inheritance. The
inability of the municipal court to identify the exact location of
the inherited property did not negate the principal object of
the contract. This is an error occasioned by the failure of the
parties to describe the subject property, which is correctible
by reformation and does not indicate the absence of the
principal object as to render the contract void. It cannot be
disputed that the object is determinable as to its kind, i.e.1
hectare of land as inheritance, and can be determined without
need of a new contract or agreement.6Clearly, the Paknaan
has all the earmarks of a valid contract.
Although both parties agreed to transfer one-hectare real
property, they failed to include in the written document a
sufficient description of the property to convey. This error is
not one for nullification of the instrument but only for
reformation.
Article 1359 of the Civil Code provides:
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.
If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment of
the contract.
Reformation is a remedy in equity whereby a written
instrument is made or construed so as to express or conform
to the real intention of the parties where some error or
mistake has been committed.7 In granting reformation, the
remedy in equity is not making a new contract for the parties,
38
but establishing and perpetuating the real contract between
the parties which, under the technical rules of law, could not
be enforced but for such reformation.

In order that an action for reformation of instrument as

provided in Article 1359 of the Civil Code may prosper, the
following requisites must concur: (1) there must have been a
meeting of the minds of the parties to the contract; (2) the
instrument does not express the true intention of the parties;
and (3) the failure of the instrument to express the true
intention of the parties is due to mistake, fraud, inequitable
conduct or accident.8

When the terms of an agreement have been reduced to

writing, it is considered as containing all the terms agreed
upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than
the contents of the written agreement, except when it fails to
express the true intent and agreement of the parties thereto,
in which case, one of the parties may bring an action for the
reformation of the instrument to the end that such true
intention may be expressed.9

Both parties acknowledge that petitioners are entitled to their

inheritance, hence, the remedy of nullification, which
invalidates the Paknaan, would prejudice petitioners and
deprive them of their just share of the inheritance.
Respondent can not, as an afterthought, be allowed to renege
on his legal obligation to transfer the property to its rightful
heirs. A refusal to reform the Paknaan under such
circumstances would have the effect of penalizing one party
for negligent conduct, and at the same time permitting the
other party to escape the consequences of his negligence and
profit thereby. No person shall be unjustly enriched at the
expense of another.

WHEREFORE, in view of the foregoing, the petition is DENIED.

The Decision dated March 21, 2003 of the Court of Appeals,
which reversed the decision of the Regional Trial Court and
reinstated the decision of the Municipal Trial Court, is
AFFIRMED. This is without prejudice to the filing by either
party of an action for reformation of the Paknaan executed on
January 5, 1997.

SO ORDERED.

39
G.R. No. 174240 March 20, 2013
SPOUSES LEHNER and LUDY MARTIRES, Petitioners,
vs. MENELIA CHUA, Respondent.
Before the Court is a petition for review on certiorari under
Rule 45 of the Rules of Court seeking to reverse and set aside
the Amended Decision,1 as well as the Resolutions2 of the
Court of Appeals (CA), dated September 30, 2005, July 5,
2006 and August 28, 2006, respectively, in CA-G.R. CV No.
76388. The assailed Decision of the CA reversed and set aside
its earlier Decision, dated April 30, 2004, in favor of
petitioners. The July 5, 2006 Resolution denied petitioners'
Motion for Reconsideration, while the August 28, 2006
Resolution denied petitioners' Second Motion for
Reconsideration.
The factual and procedural antecedents of the case are as
follows:
Subject of the instant controversy are twenty-four memorial
lots located at the Holy Cross Memorial Park in Barangay
Bagbag, Novaliches, Quezon City. The property, more
particularly described as "Lot: 24 lots, Block 213, Section:
Plaza of Heritage-Reg.," is covered by Transfer Certificate of
Title (TCT) No. 342914. Respondent, together with her mother,
Florencia R. Calagos, own the disputed property. Their co-
ownership is evidenced by a Deed of Sale and Certificate of
Perpetual Care, denominated as Contract No. 31760, which
was executed on June 4, 1992.3
On December 18, 1995, respondent borrowed from petitioner
spouses the amount of P150,000.00. The loan was secured by
a real estate mortgage over the abovementioned property.
Respondent committed to pay a monthly interest of 8% and
an additional 10% monthly interest in case of default. 4
Respondent failed to fully settle her obligation.
Subsequently, without foreclosure of the mortgage, ownership
of the subject lots were transferred in the name of petitioners
via a Deed of Transfer.5
On June 23, 1997, respondent filed with the Regional Trial
Court (RTC) of Quezon City a Complaint against petitioners,
Manila Memorial Park Inc., the company which owns the Holy
Cross Memorial Park, and the Register of Deeds of Quezon
City, praying for the annulment of the contract of mortgage
between her and petitioners on the ground that the interest
rates imposed are unjust and exorbitant. Respondent also
sought accounting to determine her liability under the law.
She likewise prayed that the Register of Deeds of Quezon City
and Manila Memorial Park, Inc. be directed to reconvey the
disputed property to her.6
On November 20, 1998, respondent moved for the
amendment of her complaint to include the allegation that
she later discovered that ownership of the subject lots was
transferred in the name of petitioners by virtue of a forged
Deed of Transfer and Affidavit of Warranty. Respondent prayed
that the Deed of Transfer and Affidavit of Warranty be
annulled.7 In their Manifestation dated January 25, 1999,
petitioners did not oppose respondent's motion.8 Trial ensued.
After trial, the RTC of Quezon City rendered a Decision in favor
of petitioners, the dispositive portion of which reads, thus:
Wherefore, premises considered, judgment is hereby rendered
against Menelia R. Chua and in favor of the Sps. Lehner
Martires and Ludy Martires; and Manila Memorial Park
Cemetery, Inc. as follows:
1. The Complaint is denied and dismissed for lack of merit;
2. The counterclaims are granted as follows:
a. Menelia R. Chua is ordered to pay the Sps. Martires the
amount of P100,000.00 as moral damages; the amount
of P50,000.00 as exemplary damages; and the amount
of P30,000.00 as reasonable attorneys fees plus costs of suit.
b. Menelia R. Chua is ordered to pay Manila Memorial Park
Cemetery, Inc. the amount of P30,000.00 as reasonable
attorney's fees plus costs of suit.
SO ORDERED.9
On appeal, the CA affirmed, with modification, the judgment
of the RTC, disposing as follows:
WHEREFORE, premises considered, the instant appeal is
hereby DENIED for lack of merit, and the decision of the trial
court dated 03 August 2002 is hereby AFFIRMED with
MODIFICATION as to the amount of moral and exemplary
damages, and attorney's fees. Plaintiff-appellant Menelia R.
Chua is hereby ordered to pay the defendant-appellees
Spouses Martires the amount of P30,000.00 as moral
damages; P20,000.00 as exemplary damages; and attorney's
fees of P10,000.00 plus costs of suit.
Insofar as defendant-appellee Manila Memorial Park
Cemetery, Inc. is concerned, the attorney's fees awarded is
reduced to P10,000.00 plus costs of suit. SO ORDERED.10
The CA ruled that respondent voluntarily entered into a
contract of loan and that the execution of the Deed of Transfer
is sufficient evidence of petitioners' acquisition of ownership
of the subject property.
Respondent filed a Motion for Reconsideration.11 Petitioners
opposed it.12
On September 30, 2005, the CA promulgated its assailed
Amended Decision with the following dispositive portion:
WHEREFORE, the Court grants the movant's Motion for
Reconsideration.
Accordingly, the decision of this Court dated April 30, 2004 in
CA-G.R. CV No. 76388, which had affirmed the judgment of
the Regional Trial Court of Quezon City, Branch 221, in Civil
Case No. Q-97-31408, is REVERSED and SET ASIDE, and it is
hereby declared that:
(1) The assailed decision dated August 3, 2002 of the Regional
Trial Court of Quezon City Branch 221 in Civil Case No. Q-97-
31408 is hereby Reversed with the following MODIFICATIONS,
to wit:
(1) The Deed of Transfer dated July 3, 1996, as well as the
Affidavit of Warranty, are hereby declared void ab initio;
(2) The loan of P150,000.00 is hereby subject to an interest of
12% per annum.
(3) The Manila Memorial Park Cemetery, Inc. and the Register
of Deeds of Quezon City [are] hereby directed to cancel the
registration or annotation of ownership of the spouses
Martires on Lot: 24 lots, Block 213, Section: Plaza Heritage
Regular, Holy Cross Memorial Park, being a portion of Transfer
Certificate of Title No. 342914 issued by the Register of Deeds
of Quezon City, and revert registration of ownership over the
same in the name of appellant Menelia R. Chua, and Florencia
R. Calagos.
(4) The movant, Menelia R. Chua, is hereby ordered to pay the
spouses Martires the amount of P150,000.00 plus interest of
12% per annum computed from December 18, 1995 up to the
time of full payment thereof and, after deducting payments
40
made in the total amount of P80,000.00, the same shall be
paid within ninety (90) days from the finality of this decision.
In case of failure to pay the aforesaid amount and the accrued
interests from the period hereinstated, the property shall be
sold at public auction to satisfy the mortgage debt and costs,
and if there is an excess, the same is to be given to the owner.
No costs. SO ORDERED.13
The CA reconsidered its findings and concluded that the Deed
of Transfer which, on its face, transfers ownership of the
subject property to petitioners, is, in fact, an equitable
mortgage. The CA held that the true intention of respondent
was merely to provide security for her loan and not to transfer
ownership of the property to petitioners. The CA so ruled on
the basis of its findings that: (1) the consideration, amounting
to P150,000.00, for the alleged Deed of Transfer is unusually
inadequate, considering that the subject property consists of
24 memorial lots; (2) the Deed of Transfer was executed by
reason of the same loan extended by petitioners to
respondent; (3) the Deed of Transfer is incomplete and
defective; and (4) the lots subject of the Deed of Transfer are
one and the same property used to secure
respondent's P150,000.00 loan from petitioners.
Petitioners filed a Motion for Reconsideration,14 but the CA
denied it in its Resolution dated July 5, 2006.
On July 26, 2006, petitioners filed a Second Motion for
Reconsideration,15 but again, the CA denied it via its
Resolution dated August 28, 2006.
Hence, the present petition based on the following grounds:
A. THE COURT OF APPEALS PATENTLY ERRED IN NOT
UPHOLDING THE DEED OF TRANSFER EXECUTED BY THE
RESPONDENT IN FAVOR OF THE PETITIONERS BY RULING THAT:
1. The Deed of Transfer executed by respondent in favor of
petitioners over the subject property was not entered in the
Notarial Book of Atty. Francisco Talampas and reported in the
Notarial Section of the Regional Trial Court of Makati City.
2. The Deed of Transfer was not duly notarized by Atty.
Francisco Talampas inasmuch as there was no convincing
proof that respondent appeared before Notary Public Atty.
Talampas.
B. THE COURT OF APPEALS PATENTLY ERRED IN RULING THAT
THE DEED OF TRANSFER EXECUTED BETWEEN THE
RESPONDENT AND THE PETITIONERS CONSTITUTED AN
EQUITABLE MORTGAGE CONSIDERING THAT:
1. Said issue was not raised in any pleading in the appellate
and trial courts.1wphi1
2. Respondent herself admitted that a separate mortgage was
executed to secure the loan.16
The petition lacks merit.
At the outset, the instant petition should be denied for being
filed out of time. Petitioners admit in the instant petition that:
(1) on July 18, 2006, they received a copy of the July 5, 2006
Resolution of the CA which denied their Motion for
Reconsideration of the assailed Amended Decision; (2) on July
26, 2006, they filed a Motion to Admit Second Motion for
Reconsideration attaching thereto the said Second Motion for
Reconsideration; (3) on September 5, 2006, they received a
copy of the August 28, 2006 Resolution of the CA which
denied their Motion to Admit as well as their Second Motion
for Reconsideration; and (4) they filed the instant petition on
October 20, 2006.
Section 2, Rule 45 of the Rules of Court provides that a
petition for review on certiorari under the said Rule "shall be
filed within fifteen (15) days from notice of the judgment or
final order or resolution appealed from or of the denial of the
petitioner's motion for new trial or reconsideration filed in due
time after notice of the judgment." Relative thereto, Section 2,
Rule 52 of the same Rules provides that "no second motion for
reconsideration of a judgment or final resolution by the same
party shall be entertained." Based on the abovementioned
dates, the start f the 15-day period for the filing of this
petition should have been reckoned from July 18, 2006, the
time of petitioners' receipt of the CA Resolution denying their
Motion for Reconsideration, and not on September 5, 2006,
the date when they received the CA Resolution denying their
Second Motion for Reconsideration. Thus, petitioners should
have filed the instant petition not later than August 2, 2006. It
is wrong for petitioners to reckon the 15-day period for the
filing of the instant petition from the date when they received
the copy of the CA Resolution denying their Second Motion for
Reconsideration. Since a second motion for reconsideration is
not allowed, then unavoidably, its filing did not toll the
running of the period to file an appeal by
certiorari.17 Petitioners made a critical mistake in waiting for
the CA to resolve their second motion for reconsideration
before pursuing an appeal.
Perfection of an appeal within the reglementary period is not
only mandatory but also jurisdictional.18 For this reason,
petitioners' failure to file this petition within the 15-day period
rendered the assailed Amended CA Decision and Resolutions
final and executory, thus, depriving this Court of jurisdiction to
entertain an appeal therefrom.19On this ground alone, the
instant petition should be dismissed.
In any case, even granting, arguendo, that the present
petition is timely filed, the Court finds no cogent reason to
depart from the findings and conclusions of the CA in its
disputed Amended Decision.
Anent the first assigned error, petitioners are correct in
pointing out that notarized documents carry evidentiary
weight conferred upon them with respect to their due
execution and enjoy the presumption of regularity which may
only be rebutted by evidence so clear, strong and convincing
as to exclude all controversy as to falsity. 20However, the
presumptions that attach to notarized documents can be
affirmed only so long as it is beyond dispute that the
notarization was regular.21 A defective notarization will strip
the document of its public character and reduce it to a private
instrument.22 Consequently, when there is a defect in the
notarization of a document, the clear and convincing
evidentiary standard normally attached to a duly-notarized
document is dispensed with, and the measure to test the
validity of such document is preponderance of evidence. 23
In the present case, the CA has clearly pointed out the
dubious circumstances and irregularities attendant in the
alleged notarization of the subject Deed of Transfer, to wit: (1)
the Certification24 issued by the Clerk of Court of the Notarial
Section of the RTC of Makati City which supposedly attested
that a copy of the subject Deed of Transfer is on file with the
said court, was contradicted by the Certification 25 issued by
the Administrative Officer of the Notarial Section of the same
office as well as by the testimony of the court employee who
prepared the Certification issued by the Clerk of Court, to the
effect that the subject Deed of Transfer cannot, in fact, be
found in their files; (2) respondent's categorical denial that
she executed the subject Deed of Transfer; and (3) the subject
document did not state the date of execution and lacks the
marital consent of respondent's husband.
Indeed, petitioners' heavy reliance on the Certification issued
by the notary public who supposedly notarized the said deed,
41
as well as the Certification issued by the Clerk of Court of the
Notarial Section of the RTC of Makati City, is misplaced for the
following reasons: first, the persons who issued these
Certifications were not presented as witnesses and, as such,
they could not be cross-examined with respect to the
truthfulness of the contents of their Certifications; second, as
mentioned above, these Certifications were contradicted by
the Certification issued by the Administrative Officer of the
Notarial Section of the RTC of Makati City as well as by the
admission, on cross-examination, of the clerk who prepared
the Certification of the Clerk of Court, that their office cannot,
in fact, find a copy of the subject Deed of Transfer in their
files;26 and third, the further admission of the said clerk that
the Certification, which was issued by the clerk of court and
relied upon by petitioners, was not based on documents
existing in their files, but was simply based on the
Certification issued by the notary public who allegedly
notarized the said Deed of Transfer.27
Assuming further that the notarization of the disputed Deed of
Transfer was regular, the Court, nonetheless, is not persuaded
by petitioners' argument that such Deed is a sufficient
evidence of the validity of the agreement between petitioners
and respondent.
While indeed a notarized document enjoys the presumption of
regularity, the fact that a deed is notarized is not a guarantee
of the validity of its contents.28 The presumption is not
absolute and may be rebutted by clear and convincing
evidence to the contrary.29 In the present case, the
presumption cannot be made to apply, because aside from
the regularity of its notarization, the validity of the contents
and execution of the subject Deed of Transfer was challenged
in the proceedings below where its prima facie validity was
subsequently overthrown by the questionable circumstances
attendant in its supposed execution. These circumstances
include: (1) the alleged agreement between the parties that
the ownership of the subject property be simply assigned to
petitioners instead of foreclosure of the contract of mortgage
which was earlier entered into by them; (2) the Deed of
Transfer was executed by reason of the loan extended by
petitioners to respondent, the amount of the latter's
outstanding obligation being the same as the amount of the
consideration for the assignment of ownership over the
subject property; (3) the inadequacy of the consideration; and
(4) the claim of respondent that she had no intention of
transferring ownership of the subject property to petitioners.
Based on the foregoing, the Court finds no cogent reason to
depart from the findings of the CA that the agreement
between petitioners and respondent is, in fact, an equitable
mortgage.
An equitable mortgage has been defined as one which,
although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as security for
a debt, there being no impossibility nor anything contrary to
law in this intent.30
One of the circumstances provided for under Article 1602 of
the Civil Code, where a contract shall be presumed to be an
equitable mortgage, is "where it may be fairly inferred that
the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other
obligation." In the instant case, it has been established that
the intent of both petitioners and respondent is that the
subject property shall serve as security for the latter's
obligation to the former. As correctly pointed out by the CA,
the circumstances surrounding the execution of the disputed
Deed of Transfer would show that the said document was
executed to circumvent the terms of the original agreement
and deprive respondent of her mortgaged property without
the requisite foreclosure.
With respect to the foregoing discussions, it bears to point out
that in Misena v. Rongavilla,31 a case which involves a factual
background similar to the present case, this Court arrived at
the same ruling. In the said case, the respondent mortgaged a
parcel of land to the petitioner as security for the loan which
the former obtained from the latter. Subsequently, ownership
of the property was conveyed to the petitioner via a Deed of
Absolute Sale. Applying Article 1602 of the Civil Code, this
Court ruled in favor of the respondent holding that the
supposed sale of the property was, in fact, an equitable
mortgage as the real intention of the respondent was to
provide security for the loan and not to transfer ownership
over the property.
Since the original transaction between the parties was a
mortgage, the subsequent assignment of ownership of the
subject lots to petitioners without the benefit of foreclosure
proceedings, partakes of the nature of a pactum
commissorium, as provided for under Article 2088 of the Civil
Code.
Pactum commissorium is a stipulation empowering the
creditor to appropriate the thing given as guaranty for the
fulfillment of the obligation in the event the obligor fails to live
up to his undertakings, without further formality, such as
foreclosure proceedings, and a public sale.32
In the instant case, evidence points to the fact that the sale of
the subject property, as proven by the disputed Deed of
Transfer, was simulated to cover up the automatic transfer of
ownership in petitioners' favor. While there was no stipulation
in the mortgage contract which provides for petitioners'
automatic appropriation of the subject mortgaged property in
the event that respondent fails to pay her obligation, the
subsequent acts of the parties and the circumstances
surrounding such acts point to no other conclusion than that
petitioners were empowered to acquire ownership of the
disputed property without need of any foreclosure.
Indeed, the Court agrees with the CA in not giving credence to
petitioners' contention in their Answer filed with the RTC that
respondent offered to transfer ownership of the subject
property in their name as payment for her outstanding
obligation. As this Court has held, all persons in need of
money are liable to enter into contractual relationships
whatever the condition if only to alleviate their financial
burden albeit temporarily.33
Hence, courts are duty-bound to exercise caution in the
interpretation and resolution of contracts lest the lenders
devour the borrowers like vultures do with their prey. 34 Aside
from this aforementioned reason, the Court cannot fathom
why respondent would agree to transfer ownership of the
subject property, whose value is much higher than her
outstanding obligation to petitioners. Considering that the
disputed property was mortgaged to secure the payment of
her obligation, the most logical and practical thing that she
could have done, if she is unable to pay her debt, is to wait for
it to be foreclosed. She stands to lose less of the value of the
subject property if the same is foreclosed, rather than if the
title thereto is directly transferred to petitioners. This is so
because in foreclosure, unlike in the present case where
ownership of the property was assigned to petitioners,
respondent can still claim the balance from the proceeds of
the foreclosure sale, if there be any. In such a case, she could
still recover a portion of the value of the subject property
rather than losing it completely by assigning its ownership to
petitioners.
42
As to the second assigned error, the Court is not persuaded by
petitioners' contention that the issue of whether or not the
subject Deed of Transfer is, in fact, an equitable mortgage was
not raised by the latter either in the RTC or the CA.

It is true that, as a rule, no issue may be raised on appeal

unless it has been brought before the lower tribunal for its
consideration.35 Higher courts are precluded from entertaining
matters neither alleged in the pleadings nor raised during the
proceedings below, but ventilated for the first time only in a
motion for reconsideration or on appeal.36 However, as with
most procedural rules, this maxim is subject to
exceptions.37 In this regard, the Court's ruling in Mendoza v.
Bautista38 is instructive, to wit:

x x x Indeed, our rules recognize the broad discretionary

power of an appellate court to waive the lack of proper
assignment of errors and to consider errors not assigned.
Section 8 of Rule 51 of the Rules of Court provides:

SEC. 8 Questions that may be decided. - No error which does

not affect the jurisdiction over the subject matter or the
validity of the judgment appealed from or the proceedings
therein will be considered, unless stated in the assignment of
errors, or closely related to or dependent on an assigned error
and properly argued in the brief, save as the court may pass
upon plain errors and clerical errors.

Thus, an appellate court is clothed with ample authority to

review rulings even if they are not assigned as errors in the
appeal in these instances: (a) grounds not assigned as errors
but affecting jurisdiction over the subject matter; (b) matters
not assigned as errors on appeal but are evidently plain or
clerical errors within contemplation of law; (c) matters not
assigned as errors on appeal but consideration of which is
necessary in arriving at a just decision and complete
resolution of the case or to serve the interests of justice or to
avoid dispensing piecemeal justice; (d) matters not
specifically assigned as errors on appeal but raised in the trial
court and are matters of record having some bearing on the
issue submitted which the parties failed to raise or which the
lower court ignored; (e) matters not assigned as errors on
appeal but closely related to an error assigned; and (f)
matters not assigned as errors on appeal but upon which the
determination of a question properly assigned, is dependent. 39

In the present case, petitioners must be reminded that one of

the main issues raised by respondent in her appeal with the
CA is the validity and due execution of the Deed of Transfer
which she supposedly executed in petitioners' favor. The Court
agrees with respondent that, under the factual circumstances
obtaining in the instant case, the determination of the validity
of the subject Deed of Transfer would necessarily entail or
involve an examination of the true nature of the said
agreement. In other words, the matter of validity of the
disputed Deed of Transfer and the question of whether the
agreement evidenced by such Deed was, in fact, an equitable
mortgage are issues which are closely related, which can,
thus, be resolved jointly by the CA.

WHEREFORE, the instant petition is DENIED. The assailed

Amended Decision and Resolutions of the Court of Appeals,
dated September 30, 2005, July 5, 2006 and August 28, 2006,
respectively, in CA-G.R. CV No. 76388, are AFFIRMED. SO
ORDERED.

43
G.R. No. 151217 September 8, 2006
SPOUSES CESAR R. ROMULO and NENITA S.
ROMULO, petitioners,
vs.
SPOUSES MOISES P. LAYUG, JR., and FELISARIN
LAYUG, respondents.
DECISION
TINGA, J.:
This is an appeal by certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, assailing the Court of Appeals
Decision1 and Resolution2 in CA-G.R. CV No. 63965. Said
Decision reversed and set aside the Decision3 of the Regional
Trial Court (RTC), Branch 258, Paraaque City, which nullified
the Deed of Absolute Sale and Contract of Lease executed
between herein petitioners and respondents.
The following factual antecedents are matters of record.
On April 11, 1996, petitioners Spouses Cesar and Nenita
Romulo filed a verified Complaint for Cancellation of Title,
Annulment of Deed of Absolute Sale and Contract of Lease
with Damages against respondents Spouses Moises and
Felisarin Layug. The complaint was docketed as Civil Case No.
96-0172 and raffled to Branch 258 of the RTC of Paraaque. 4
Petitioners averred in their complaint that sometime in 1986,
they obtained from respondents a loan in the amount
of P50,000.00 with a monthly interest of 10%, which
subsequently ballooned to P580,292.00. To secure the
payment of the loan, respondents allegedly duped petitioners
into signing a Contract of Lease and a Deed of Absolute Sale
covering petitioners house and lot located at Phase II, BF
Homes, Sucat, Paraaque and covered by Transfer Certificate
of Title (TCT) No. S-71528. The Deed of Absolute Sale
purportedly facilitated the cancellation of petitioners title on
the house and lot and the issuance of TCT No. 20489 in the
name of respondents. Thus, petitioners prayed for the
nullification of the Deed of Absolute Sale, the contract of lease
and TCT No. 20489, and the award of moral and exemplary
damages.5
Respondents denied petitioners allegations. In their
Answer,6 they vouched for the validity of the Deed of Absolute
Sale, particularly as having been voluntarily executed by the
parties for the purpose of extinguishing petitioners
indebtedness to respondents. As consideration of the sale,
respondents allegedly paid the amount of P200,000.00 in
addition to the writing off of petitioners obligation to them.
That they allowed petitioners to occupy the house and lot as
lessees thereof was founded on the trust they reposed on
petitioners, claimed respondents.7
Prior to the filing of Civil Case No. 96-0172, respondent Moises
Layug, Jr. ("Moises") filed Civil Case No. 9422, an action for
ejectment, against petitioners to compel the latter to vacate
the house and lot allegedly sold by petitioners to Moises and
subsequently rented out by him to petitioners. Moises alleged
that petitioners violated the terms of the Contract of Lease
when the latter failed to pay any rental or exercise their
option to repurchase the house and lot and refused to vacate
the property despite demand. The Metropolitan Trial Court
(MeTC), Branch 77, Paraaque dismissed the complaint for
lack of cause of action.8 The RTC, Branch 257, Paraaque,
likewise dismissed Moises appeal based on its finding that the
parties did not intend to enter into a lease agreement. 9 The
Court of Appeals denied Moises petition for review on the
ground of late filing.10 Upon elevation to this Court, Moises
petition for review on certiorari was denied with finality by this
Court.11
On June 21, 1999, the trial court rendered judgment in favor
of petitioners in Civil Case No. 96-0172. The dispositive
portion of the decision reads:
WHEREFORE, the plaintiffs having been able to prove their
claim by preponderance of evidence, judgment is hereby
rendered in their favor and against spouses Moises P. Layug
and Felisarin Layug whereby the Contract of Lease as well as
the Deed of Sale allegedly executed by the herein parties are
hereby declared NULL and VOID and of no force and effect
and the Register of Deeds of the City of Paraaque is hereby
ordered to cancel Transfer Certificate of Title No. 20489
registered in the names of MOISES P. LAYUG married to
FELISARIN LAYUG and to issue a new one in the name of
Spouses Cesar R. Romulo and Nenita S. Romulo, upon the
payment of the required fees by the plaintiffs.
Likewise, defendants Spouses Moises P. Layug and Felisarin
Layug are hereby ordered to pay jointly and severally Spouses
Cesar R. Romulo and Nenita S. Romulo the following, to wit:
1. The amount of P100,000.00 as and by way of moral
damages;
2. The amount of P80,000.00 as exemplary damages;
3. The amount of P50,000.00 as and by way of attorneys
fees; and
4. The costs of suit.
SO ORDERED.12
Respondents elevated the matter to the Court of Appeals,
questioning, among others, the trial courts finding that the
contract between petitioners and respondents was an
equitable mortgage.13 The Court of Appeals reversed and set
aside the RTC Decision, mainly on the ground that petitioners
failed to present sufficient evidence to prove their allegation
that their signatures to the Deed of Absolute Sale were
obtained fraudulently. Their motion for reconsideration
rebuffed,14 petitioners filed the instant petition raising the lone
issue of whether or not the transaction between the parties
constitutes an equitable mortgage.
On this issue, the RTC and the Court of Appeals differ in
opinion. The trial court based its declaration that an equitable
mortgage was intended by the parties on the finding that
petitioners remained in possession of the house and lot even
after the property was supposedly sold to respondents. The
trial court also gave evidentiary weight to the decisions of the
MeTC and RTC dismissing the action for ejectment in Civil
Case No. 9422, where both courts found that petitioners
neither vacated the property nor paid any rental even after
the execution of the Deed of Absolute Sale. The Court of
Appeals disagreed and declared that an absolute sale was
contemplated by the parties based on the express stipulations
in the Deed of Absolute Sale and on the acts of ownership by
respondents subsequent to its execution.
Whether or not the parties intended an equitable mortgage is
a factual issue. As a general rule, factual review is beyond the
province of this Court. One of the exceptions to the rule is
exemplified by the instant case where the factual findings of
the RTC and Court of Appeals are contradictory.
That petitioners obtained loans from respondents between
1985 and 1987, which remained unpaid up to the time of the
execution of the assailed Deed of Absolute Sale, is
established.15 That petitioners signed the assailed instrument
is also not disputed. Indeed, they admitted having signed said
document qualifying, however, that they were forced by
respondents to execute the same for the purpose of securing
their indebtedness to respondents.16 Respondents, on the
44
other hand, insisted that the parties executed the Deed of Court from declaring that the parties intended the transfer of
Absolute Sale as an honest-to-goodness sales transaction. the property from one to the other by way of sale.

Respondents, however, admitted further that in addition to Consistent with the foregoing state of the evidence, Articles
the amount of P200,000.00 stipulated in the Deed of Absolute 1604 and 1602 of the Civil Code come into play. The articles
Sale, the parties agreed to write off petitioners loan as provide that when the parties to a contract of sale actually
consideration of the sale, although this clause was not intended such contract to secure the payment of an
expressed in the instrument.17 From respondents admission, it obligation, it shall be presumed to be an equitable mortgage:
can be gathered that the assailed Deed of Absolute Sale does
not reflect the true arrangement of the parties. Now, is Art. 1602. The contract shall be presumed to be an equitable
petitioners submission that the parties actually agreed to mortgage in any of the following cases:
subject the house and lot as security for their unpaid
1) When the price of a sale with right to repurchase is
obligation supported by the evidence? Did the parties execute
unusually inadequate;
the assailed Deed of Absolute Sale with the intention of
subjecting petitioners house and lot covered by the deed as a 2) When the vendor remains in possession as lessee or
mere security for the payment of their debt? otherwise;
The form of the instrument cannot prevail over the true intent 3) When upon or after the expiration of the right to
of the parties as established by the evidence. We have also repurchase, another instrument extending the period of
decreed that in determining the nature of a contract, courts redemption or granting a new period is executed;
are not bound by the title or name given by the parties. The
decisive factor in evaluating such agreement is the intention 4) When the vendor binds himself to pay the taxes on the
of the parties, as shown not necessarily by the terminology thing sold;
used in the contract but by their conduct, words, actions and
deeds prior to, during and immediately after execution of the 5) When the purchaser retains for himself a part of the
agreement.18 In order to ascertain the intention of the parties, purchase price;
their contemporaneous and subsequent acts should be
considered. Once the intention of the parties has been 6) In any other case where it may be fairly inferred that
ascertained, that element is deemed as an integral part of the the real intention of the parties is that the transaction
contract as though it has been originally expressed in shall secure the payment of a debt or the performance
unequivocal terms.19 As such, documentary and parol of any other obligation. (Emphasis supplied.)
evidence may be submitted and admitted to prove such
Art. 1604. The provisions of Article 1602 shall also apply to a
intention. And, in case of doubt, a contract purporting to be a
contract purporting to be an absolute sale.
sale with right to repurchase shall be construed as an
equitable mortgage.20 For the presumption of equitable mortgage to arise, two
requisites must be satisfied, namely: that the parties entered
Between 1985 and 1987, petitioner Nenita Romulo ("Nenita")
into a contract denominated as a contract of sale and that
obtained from respondent Felisarin Layug ("Felisarin") loans in
their intention was to secure an existing debt by way of
various amounts totaling around P500,000.00. Being close
mortgage. Under Article 1604 of the Civil Code, a contract
friends at that time, Felisarin did not require any written
purporting to be an absolute sale shall be presumed to be an
instrument to secure payment, other than the title to the
equitable mortgage should any of the conditions in Article
house and lot, which Nenita handed to Felisarin sometime in
1602 be present.26 To stress, the existence of any one of the
1988.21 When respondents demanded payment of the loan,
conditions under Article 1602, not a concurrence, or an
petitioners defaulted. Nevertheless, as admitted by Layug,
overwhelming number of such circumstances, suffices to give
despite her repeated demands, she allowed petitioners some
rise to the presumption that the contract is an equitable
more time within which to pay their debts. 22 Felisarin claimed
mortgage.27 It must be emphasized too, however, that there is
that eventually petitioners offered their house and lot as
no conclusive test to determine whether a deed absolute on
payment for their debt because petitioners no longer had any
its face is really a simple loan accommodation secured by a
money.23 However, even after the execution of the assailed
mortgage. In fact, it is often a question difficult to resolve and
Deed of Absolute Sale, respondents continued to grant
is frequently made to depend on the surrounding
petitioners loan accommodations as evidenced by the three
circumstances of each case. When in doubt, courts are
promissory notes executed by petitioner Cesar Romulo.24
generally inclined to construe a transaction purporting to be a
Respondents continuing to lend money to petitioners does sale as an equitable mortgage, which involves a lesser
not make sense if the intention of the parties was really to transmission of rights and interests over the property in
extinguish petitioners outstanding obligation. The logical and controversy.28
inevitable conclusion is that respondents deemed it wise to
The Court has not hesitated to declare a purported contract of
formalize a security instrument on petitioners house and lot
sale as an equitable mortgage even when only one of the
by executing the Deed of Absolute Sale after realizing that
enumerated circumstances under Article 1602 is proved.29 In
petitioners could no longer fully satisfy their obligation to
the case at bar, petitioners remained in possession of the
respondents. At that time, as petitioners were hard-pressed to
house and lot even after the execution of the Deed of
come up with funds to pay their loan, they were hardly in a
Absolute Sale. Moreover, they remained in possession of the
position to bargain. The preponderance of evidence shows
property for more than the reasonable time that would
that they signed knowing that said documents did not express
suggest that petitioners were mere lessees thereof. For one, it
their real intention, and if they did so notwithstanding this, it
took respondents more than five years from the time of the
was due to the urgent necessity of obtaining funds.
execution of the Deed of Absolute Sale and the Contract of
"Necessitous men are not, truly speaking, free men; but to
Lease to file the action for ejectment. Within this period,
answer a present emergency will submit to any terms that the
petitioners neither paid any rental nor exercised the option to
crafty may impose upon them." 25 The circumstances
buy purportedly the leased property from respondents.
surrounding the execution of the Deed of Absolute Sale,
Incidentally, in the decisions of the MeTC and the RTC in the
particularly the fact that respondents continued to extend
separate action for ejectment, both lower courts observed
some loans to petitioners after its execution, precludes the
that when petitioners were made to sign a blank document,

45
which turned out to be a Contract of Lease of their house and
lot, they were of the belief that the blank document would
serve only as guaranty for the payment of their obligation to
respondents.
The claim that petitioners possession of the house and lot
was by sheer tolerance of respondents is specious.
Respondents could not explain why they allowed petitioners
more than five years to look for another place to transfer.
These circumstances only support the conclusion that the
parties never really intended to transfer title to the property.
Under paragraph 2 of Article 1602, where the purported
vendor remains in possession of the property subject of the
sale and it can be inferred that the true intention of the
parties was to secure an existing debt, the transaction shall
be deemed an equitable mortgage.
However, petitioners are not completely without fault. Had
they exercised ordinary diligence in their affairs, petitioners
could have avoided executing documents in blank.
Respondents wrongful act, although the proximate cause of
the injury suffered by petitioners, was mitigated by
petitioners own contributory negligence. Hence, the award of
moral and exemplary damages must be reduced to one-half of
the amounts awarded by the trial court.32
WHEREFORE, the petition is GRANTED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV 63965 are
REVERSED and SET ASIDE and the Decision of the Regional
Trial Court, Branch 258, Paraaque City in Civil Case No. 96-
0172 is REINSTATED with a MODIFICATION that the award of
moral and exemplary damages is REDUCED to P50,000.00
and P40,000.00, respectively. Costs against respondents.

Under paragraph 1 of Article 1602, where the purchase price SO ORDERED.

is inadequate, a contract of sale is also presumed to be an
equitable mortgage. Based on respondents evidence,
petitioners property was valued at P700,000.00 but the
assailed Deed of Absolute Sale stated a consideration of
only P200,000.00. Contrary to the appellate courts
declaration that the inadequacy of the purchase price is not
sufficient to set aside the sale, the Court finds the same as
clearly indicative of the parties intention to make the
property only a collateral security of petitioners debt. The
Court is not convinced that petitioners would allow the sale of
their residential property for even less than half of its market
value.

The appellate court ruled that petitioners failed to rebut the

presumption of the genuineness and due execution of the
questioned Deed of Absolute Sale. Based on the examination
of the assailed instrument and the Contract of Lease and the
testimonies of the parties, the Court cannot sustain
respondents claim that petitioners offered to sell their house
and lot in satisfaction of their indebtedness. As observed by
the trial court, the Contract of Lease appears to have been
signed sometime in November 1988 or before the execution
of the Deed of Sale. Respondents were unable to explain why
they had leased the property to petitioners before its
supposed purchase by respondents. Furthermore, the records
disclose that it was only after the institution of the ejectment
case did petitioners learn about the cancellation of their title
to the property although under the assailed Deed of Absolute
Sale, petitioners were obliged to bear the expenses of its
execution and registration. These circumstances lend
credence to petitioners claim of the surreptitious manner by
which respondents made them sign certain documents
without completely disclosing the real import thereof.

The Supreme Court is clothed with ample authority to review

matters, even if they are not assigned as errors on appeal, if it
finds that their consideration is necessary in arriving at a just
decision of the case.30 Though petitioners did not raise in issue
the appellate courts reversal of the award of damages in their
favor, the Court has the discretion to pass upon this matter
and determine whether or not there is sufficient justification
for the award of damages.

The trial court described respondents acts as "malevolent,"

necessitating the award for moral and exemplary damages.
An award of moral damages would require certain conditions
to be met, to wit: (1) first, there must be an injury, whether
physical, mental or psychological, clearly sustained by the
claimant; (2) second, there must be a culpable act or omission
factually established; (3) third, the wrongful act or omission of
the defendant is the proximate cause of the injury sustained
by the claimant; and (4) fourth, the award of damages is
predicated on any of the cases stated in Article 2219.31

46
G.R. No. 117009 October 11, 1995
SECURITY BANK & TRUST COMPANY and ROSITO C.
MANHIT, petitioners,
vs.
COURT OF APPEALS and YSMAEL C.
FERRER, respondents.
PADILLA, J.:
In this petition for review under Rule 45 of the Rules of Court,
petitioners seek a review and reversal of the decision * of
respondent Court of Appeals in CA-G.R. CV No. 40450, entitled
"Ysmael C. Ferrer v. Security Bank and Trust Company, et. al."
dated 31 August 1994, which affirmed the decision ** of the
Regional Trial Court, Branch 63, Makati in Civil Case No.
42712, a complaint for breach of contract with damages.
Private respondent Ysmael C. Ferrer was contracted by herein
petitioners Security Bank and Trust Company (SBTC) and
Rosito C. Manhit to construct the building of SBTC in Davao
City for the price of P1,760,000.00. The contract dated 4
February 1980 provided that Ferrer would finish the
construction in two hundred (200) working days. Respondent
Ferrer was able to complete the construction of the building
on 15 August 1980 (within the contracted period) but he was
compelled by a drastic increase in the cost of construction
materials to incur expenses of about P300,000.00 on top of
the original cost. The additional expenses were made known
to petitioner SBTC thru its Vice-President Fely Sebastian and
Supervising Architect Rudy de la Rama as early as March
1980. Respondent Ferrer made timely demands for payment
of the increased cost. Said demands were supported by
receipts, invoices, payrolls and other documents proving the
additional expenses.
In March 1981, SBTC thru Assistant Vice-President Susan
Guanio and a representative of an architectural firm consulted
by SBTC, verified Ferrer's claims for additional cost. A
recommendation was then made to settle Ferrer's claim but
only for P200,000.00. SBTC, instead of paying the
recommended additional amount, denied ever authorizing
payment of any amount beyond the original contract price.
SBTC likewise denied any liability for the additional cost based
on Article IX of the building contract which states:
If at any time prior to the completion of the work to be
performed hereunder, increase in prices of construction
materials and/or labor shall supervene through no fault on the
part of the contractor whatsoever or any act of the
government and its instrumentalities which directly or
indirectly affects the increase of the cost of the project,
OWNER shall equitably make the appropriate adjustment on
mutual agreement of both parties.
Ysmael C. Ferrer then filed a complaint for breach of contract
with damages. The trial court ruled for Ferrer and ordered
defendants SBTC and Rosito C. Manhit to pay:
a) P259,417.23 for the increase in price of labor and materials
plus 12% interest thereon per annum from 15 August 1980
until fully paid;
b) P24,000.00 as actual damages;
c) P20,000.00 as moral damages;
d) P20,000.00 as exemplary damages;
e) attorney's fees equivalent to 25% of the principal amount
due; and
f) costs of suit.
On appeal, the Court of Appeals affirmed the trial court
decision.
In the present petition for review, petitioners assign the
following errors to the appellate court:
. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY
PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS
CLAIM AGAINST THE DEFENDANTS-APPELLANTS.
. . . IN INTERPRETING AN OTHERWISE CLEAR AND
UNAMBIGUOUS PROVISION OF THE CONSTRUCTION
CONTRACT.
. . . IN DISREGARDING THE EXPRESS PROVISION OF THE
CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED
DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF
NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT. 1
Petitioners argue that under the aforequoted Article IX of the
building contract, any increase in the price of labor and/or
materials resulting in an increase in construction cost above
the stipulated contract price will not automatically make
petitioners liable to pay for such increased cost, as any
payment above the stipulated contract price has been made
subject to the condition that the "appropriate adjustment" will
be made "upon mutual agreement of both parties". It is
contended that since there was no mutual agreement
between the parties, petitioners' obligation to pay amounts
above the original contract price never materialized.
Respondent Ysmael C. Ferrer, through counsel, on the other
hand, opposed the arguments raised by petitioners. It is of
note however that the pleadings filed with this Court by
counsel for Ferrer hardly refute the arguments raised by
petitioners, as the contents of said pleadings are mostly
quoted portions of the decision of the Court of Appeals, devoid
of adequate discussion of the merits of respondent's case. The
Court, to be sure, expects more diligence and legal know-how
from lawyers than what has been exhibited by counsel for
respondent in the present case. Under these circumstances,
the Court had to review the entire records of this case to
evaluate the merits of the issues raised by the contending
parties.
Article 22 of the Civil Code which embodies the maxim, Nemo
ex alterius incommodo debet lecupletari (no man ought to be
made rich out of another's injury) states:
Art. 22. Every person who through an act of performance by
another, or any other means, acquires or comes into
possession of something at the expense of the latter without
just or legal ground, shall return the same to him.
The above-quoted article is part of the chapter of the Civil
Code on Human Relations, the provisions of which were
formulated as "basic principles to be observed for the rightful
relationship between human beings and for the stability of the
social order, . . . designed to indicate certain norms that
spring from the fountain of good conscience, . . . guides for
human conduct [that] should run as golden threads through
society to the end that law may approach its supreme ideal
which is the sway and dominance of justice." 2
In the present case, petitioners' arguments to support
absence of liability for the cost of construction beyond the
original contract price are not persuasive.
Under the previously quoted Article IX of the construction
contract, petitioners would make the appropriate adjustment
to the contract price in case the cost of the project increases
through no fault of the contractor (private respondent).
47
Private respondent informed petitioners of the drastic increase
in construction cost as early as March 1980.

Petitioners in turn had the increased cost evaluated and

audited. When private respondent demanded payment of
P259,417.23, petitioner bank's Vice-President Rosito C. Manhit
and the bank's architectural consultant were directed by the
bank to verify and compute private respondent's claims of
increased cost. A recommendation was then made to settle
private respondent's claim for P200,000.00. Despite this
recommendation and several demands from private
respondent, SBTC failed to make payment. It denied
authorizing anyone to make a settlement of private
respondent's claim and likewise denied any liability,
contending that the absence of a mutual agreement made
private respondent's demand premature and baseless.

Petitioners' arguments are specious.

It is not denied that private respondent incurred additional

expenses in constructing petitioner bank's building due to a
drastic and unexpected increase in construction cost. In fact,
petitioner bank admitted liability for increased cost when a
recommendation was made to settle private respondent's
claim for P200,000.00. Private respondent's claim for the
increased amount was adequately proven during the trial by
receipts, invoices and other supporting documents.

Under Article 1182 of the Civil Code, a conditional obligation

shall be void if its fulfillment depends upon the sole will of the
debtor. In the present case, the mutual agreement, the
absence of which petitioner bank relies upon to support its
non-liability for the increased construction cost, is in effect a
condition dependent on petitioner bank's sole will, since
private respondent would naturally and logically give consent
to such an agreement which would allow him recovery of the
increased cost.

Further, it cannot be denied that petitioner bank derived

benefits when private respondent completed the construction
even at an increased cost.

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 private respondent. Such unjust enrichment, as
previously discussed, is not allowed by law.

Finally, with respect to the award of attorney's fees to

respondent, the Court has previously held that, "even with the
presence of an agreement between the parties, the court may
nevertheless reduce attorney's fees though fixed in the
contract when the amount thereof appears to be
unconscionable or unreasonable." 3 As previously noted, the
diligence and legal know-how exhibited by counsel for private
respondent hardly justify an award of 25% of the principal
amount due, which would be at least P60,000.00. Besides, the
issues in this case are far from complex and intricate. The
award of attorney's fees is thus reduced to P10,000.00.

WHEREFORE, with the above modification in respect of the

amount of attorney's fees, the appealed decision of the Court
of Appeals in CA G.R. CV No. 40450 is AFFIRMED.

SO ORDERED.

48
G.R. No. 171937, November 25, 2013
CERILA J. CALANASAN, REPRESENTED BY TEODORA J.
CALANASAN AS ATTORNEYIN
FACT, Petitioner, v. SPOUSES VIRGILIO DOLORITO AND
EVELYN C. DOLORITO, Respondents.
DECISION
BRION, J.:
Through a petition for review on certiorari,1 filed under Rule 45
of the Rules of Court, petitioner Cerila J. Calanasan seeks the
reversal of the decision2 dated September 29, 2005, and the
resolution3 dated March 8, 2006 of the Court of
Appeals (CA) in CAG.R. CV No. 84031.
THE FACTS
The petitioner, Cerila J. Calanasan (Cerila), took care of her
orphan niece, respondent Evelyn C. Dolorito, since the latter
was a child. In 1982, when Evelyn was already married to
respondent Virgilio Dolorito, the petitioner donated to Evelyn
a parcel of land which had earlier been mortgaged for
P15,000.00. The donation was conditional: Evelyn must
redeem the land and the petitioner was entitled to possess
and enjoy the property as long as she lived. Evelyn signified
her acceptance of the donation and its terms in the same
deed. Soon thereafter, Evelyn redeemed the property, had
the title of the land transferred to her name, and granted the
petitioner usufructuary rights over the donated land.
On August 15, 2002, the petitioner, assisted by her sister
Teodora J. Calanasan, complained with the Regional Trial Court
(RTC) that Evelyn had committed acts of ingratitude against
her. She prayed that her donation in favor of her niece be
revoked; in their answer, the respondents denied the
commission of any act of ingratitude.
The petitioner died while the case was pending with the RTC.
Her sisters, Teodora and Dolores J. Calanasan, substituted for
her.
After the petitioner had rested her case, the respondents filed
a demurrer to evidence. According to them, the petitioner
failed to prove that it was Evelyn who committed acts of
ingratitude against the petitioner; thus, Article 7654 of the
New Civil Code found no application in the case.
THE RTCS RULING
In its September 3, 2004 order,5 the RTC granted the
demurrer to evidence and dismissed the
complaint. Article 765 of the New Civil Code did not apply
because the ungrateful acts were committed against Teodora,
the donors sister, and not against the donor, the petitioner.
Equally important, the perpetrator of the ungrateful acts was
not Evelyn, but her husband Virgilio.
THE CAS RULING
The petitioner challenged the RTCs ruling before the CA.
In its September 29, 2005 decision,6the CA affirmed the
RTC ruling but on a different legal ground. The CA,
after legal analysis, found that the donation was inter
vivos and onerous. Therefore, the deed of donation must be
treated as an ordinary contract and Article 765 of the New
Civil Code finds no relevance.
On March 8, 2006, the CA rejected the petitioners motion for
reconsideration.
THE PARTIES ARGUMENTS
The petitioner filed the present petition for review
on certiorari with this Court to challenge the CA rulings. The
petitioner insists that Evelyn committed acts of ingratitude
against her. She argues that, if the donation was indeed
onerous and was subject to the rules of contracts, then
greater reason exists to revoke it. According to the petitioner,
Evelyn violated all the terms of the contract, especially the
provision enjoining the latter from acquiring ownership over
the property during the lifetime of the donor.
The respondents, for their part, point out that the petitioner
raises factual issues that a petition under Rule 45 of the Rules
of Court does not allow. Furthermore, the petitioner misleads
the Court in claiming that the deed of donation prohibited
Evelyn from acquiring ownership of the land. In fact, the deed
of donation confined the donation to only two conditions: 1)
redemption of the mortgage; and 2) the petitioners usufruct
over the land as long as she lived. The respondents complied
with these conditions. The respondents likewise remind the
Court that issues not advanced before the lower courts should
not be entertained the objective that Teodora is now trying
to accomplish. Finally, the respondents applaud the CA in
finding that the donation, being inter vivos and onerous, is
irrevocable under Article 765 of the New Civil Code.
THE COURTS RULING
We resolve to deny the petition for lack of merit.
The petitioner may not raise factual issues;
arguments not raised before the lower courts
may not be introduced on appeal.
Teodora insists that Evelyn perpetrated ungrateful acts
against the petitioner. Moreover, the donation never
materialized because Evelyn violated a suspensive condition
of the donation when she had the property title transferred to
her name during the petitioners lifetime.
As correctly raised by the respondents, these allegations are
factual issues which are not proper for the present action.
The Court is not a trier of facts.7 The Court cannot re
examine, review or reevaluate the evidence and the factual
review made by the lower courts.8 In the absence of
compelling reasons, the Court will not deviate from the rule
that factual findings of the lower tribunals are final and
binding on this Court.
It has not escaped the Courts attention that this is the only
time the petitioner raised the arguments that donation never
materialized because the donee violated a condition of the
donation when she had the title of the property transferred to
her name. The petitioner never raised this issue before the
lower courts. It cant be emphasized enough that the Court
will not revisit the evidence presented below as well as any
evidence introduced for the first time on appeal. 9 Aside from
being a factual issue that is not proper for the present action,
the Court dismisses this new argument for being procedurally
infirm and violative of due process. As we have held in the
past: points of law, theories, issues and arguments not
brought to the attention of the trial court will not be and ought
not to be considered by a reviewing court, as these cannot be
raised for the first time on appeal. Basic consideration of due
process impels this rule.10
49
Rules of contract govern the
onerous portion of donation; rules of
donation only apply to the excess, if any.

We now come to the appreciation of the legal incidents of the

donation visvis the alleged ungrateful acts.

In Republic of the Phils. v. Silim,11 we classified donations

according to purpose. A pure/simple donation is the truest
form of donation as it is based on pure gratuity. The
remuneratory/compensatory type has for its purpose the
rewarding of the donee for past services, which services do
not amount to a demandable debt. A conditional/modal
donation, on the other hand, is a consideration for future
services; it also occurs where the donor imposes certain
conditions, limitations or charges upon the donee, whose
value is inferior to the donation given. Lastly, an onerous
donation imposes upon the donee a reciprocal obligation; this
is made for a valuable consideration whose cost is equal to or
more than the thing donated.12

In De Luna v. Judge Abrigo,13 we recognized the distinct, albeit

old, characterization of onerous donations when we declared:
Under the old Civil Code, it is a settled rule that donations
with an onerous cause are governed not by the law on
donations but by the rules on contracts, as held in the cases
of Carlos v. Ramil, L6736, September 5, 1911, 20 Phil.
183, Manalo vs. de Mesa, L9449, February 12, 1915, 29 Phil.
495.14 In the same case, we emphasized the retention of the
treatment of onerous types of donation, thus: The same rules
apply under the New Civil Code as provided in Article 733
thereof which provides:

Article 733. Donations with an onerous cause shall be

governed by the rules on contracts, and remuneratory
donations by the provisions of the present Title as regards
that portion which exceeds the value of the burden
imposed.15

We agree with the CA that since the donation imposed on the

donee the burden of redeeming the property for P15,000.00,
the donation was onerous. As an endowment for a valuable
consideration, it partakes of the nature of an ordinary
contract; hence, the rules of contract will govern and Article
765 of the New Civil Code finds no application with respect to
the onerous portion of the donation.

Insofar as the value of the land exceeds the redemption price

paid for by the donee, a donation exists, and the legal
provisions on donation apply. Nevertheless, despite the
applicability of the provisions on donation to the gratuitous
portion, the petitioner may not dissolve the donation. She has
no factual and legal basis for its revocation, as aptly
established by the RTC. First, the ungrateful acts were
committed not by the donee; it was her husband who
committed them. Second, the ungrateful acts were
perpetrated not against the donor; it was the petitioners
sister who received the alleged ill treatments. These twin
considerations place the case out of the purview of Article 765
of the New Civil Code.

WHEREFORE, premises considered, the Court DENIES the

petition for review on certiorari. The decision dated
September 29, 2005, and the resolution dated March 8, 2006,
of the Court of Appeals in CAG.R. CV No. 84031 are
hereby AFFIRMED. Costs against Cerila J. Calanasan,
represented by Teodora J. Calanasan as AttorneyinFact.

SO ORDERED.

50
G.R. No. 195872 March 12, 2014
FORTUNE MEDICARE, INC., Petitioner,
vs.
DAVID ROBERT U. AMORIN, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of the
Rules of Court, which challenges the Decision2dated
September 27, 2010 and Resolution3 dated February 24, 2011
of the Court of Appeals (CA) in CA-G.R. CV No. 87255.
The Facts
David Robert U. Amorin (Amorin) was a cardholder/member of
Fortune Medicare, Inc. (Fortune Care), a corporation engaged
in providing health maintenance services to its members. The
terms of Amorin's medical coverage were provided in a
Corporate Health Program Contract4 (Health Care Contract)
which was executed on January 6, 2000 by Fortune Care and
the House of Representatives, where Amorin was a permanent
employee.
While on vacation in Honolulu, Hawaii, United States of
America (U.S.A.) in May 1999, Amorin underwent an
emergency surgery, specifically appendectomy, at the St.
Francis Medical Center, causing him to incur professional and
hospitalization expenses of US$7,242.35 and US$1,777.79,
respectively. He attempted to recover from Fortune Care the
full amount thereof upon his return to Manila, but the
company merely approved a reimbursement of P12,151.36,
an amount that was based on the average cost of
appendectomy, net of medicare deduction, if the procedure
were performed in an accredited hospital in Metro
Manila.5 Amorin received under protest the approved amount,
but asked for its adjustment to cover the total amount of
professional fees which he had paid, and eighty percent (80%)
of the approved standard charges based on "American
standard", considering that the emergency procedure
occurred in the U.S.A. To support his claim, Amorin cited
Section 3, Article V on Benefits and Coverages of the Health
Care Contract, to wit:
A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as
an in-patient or out-patient, the member shall be entitled to
full coverage under the benefits provisions of the Contract at
any FortuneCare accredited hospitals subject only to the
pertinent provision of Article VII (Exclusions/Limitations)
hereof. For emergency care attended by non affiliated
physician (MSU), the member shall be reimbursed 80% of the
professional fee which should have been paid, had the
member been treated by an affiliated physician. The
availment of emergency care from an unaffiliated physician
shall not invalidate or diminish any claim if it shall be shown
to have been reasonably impossible to obtain such emergency
care from an affiliated physician.
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall
reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited
hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the
emergency confinement occurs in a foreign territory, Fortune
Care will be obligated to reimburse or pay eighty (80%)
percent of the approved standard charges which shall cover
the hospitalization costs and professional fees. x x x6
Still, Fortune Care denied Amorins request, prompting the
latter to file a complaint7 for breach of contract with damages
with the Regional Trial Court (RTC) of Makati City.
For its part, Fortune Care argued that the Health Care
Contract did not cover hospitalization costs and professional
fees incurred in foreign countries, as the contracts operation
was confined to Philippine territory.8Further, it argued that its
liability to Amorin was extinguished upon the latters
acceptance from the company of the amount of P12,151.36.
The RTC Ruling
On May 8, 2006, the RTC of Makati, Branch 66 rendered its
Decision9 dismissing Amorins complaint. Citing Section 3,
Article V of the Health Care Contract, the RTC explained:
Taking the contract as a whole, the Court is convinced that the
parties intended to use the Philippine standard as basis.
Section 3 of the Corporate Health Care Program Contract
provides that:
xxxx
On the basis of the clause providing for reimbursement
equivalent to 80% of the professional fee which should have
been paid, had the member been treated by an affiliated
physician, the Court concludes that the basis for
reimbursement shall be Philippine rates. That provision, taken
with Article V of the health program contract, which identifies
affiliated hospitals as only those accredited clinics, hospitals
and medical centers located "nationwide" only point to the
Philippine standard as basis for reimbursement.
The clause providing for reimbursement in case of emergency
operation in a foreign territory equivalent to 80% of the
approved standard charges which shall cover hospitalization
costs and professional fees, can only be reasonably construed
in connection with the preceding clause on professional fees
to give meaning to a somewhat vague clause. A particular
clause should not be studied as a detached and isolated
expression, but the whole and every part of the contract must
be considered in fixing the meaning of its parts. 10
In the absence of evidence to the contrary, the trial court
considered the amount of P12,151.36 already paid by Fortune
Care to Amorin as equivalent to 80% of the hospitalization
and professional fees payable to the latter had he been
treated in an affiliated hospital.11
Dissatisfied, Amorin appealed the RTC decision to the CA.
The CA Ruling
On September 27, 2010, the CA rendered its
Decision12 granting the appeal. Thus, the dispositive portion of
its decision reads:
WHEREFORE, all the foregoing premises considered, the
instant appeal is hereby GRANTED. The May 8, 2006 assailed
Decision of the Regional Trial Court (RTC) of Makati City,
Branch 66 is hereby REVERSED and SET ASIDE, and a new one
entered ordering Fortune Medicare, Inc. to reimburse [Amorin]
80% of the total amount of the actual hospitalization
expenses of $7,242.35 and professional fee of $1,777.79 paid
by him to St. Francis Medical Center pursuant to Section 3,
Article V of the Corporate Health Care Program Contract, or
their peso equivalent at the time the amounts became due,
less the [P]12,151.36 already paid by Fortunecare.
SO ORDERED.13
In so ruling, the appellate court pointed out that, first, health
care agreements such as the subject Health Care Contract,
51
being like insurance contracts, must be liberally construed in
favor of the subscriber. In case its provisions are doubtful or
reasonably susceptible of two interpretations, the construction
conferring coverage is to be adopted and exclusionary clauses
of doubtful import should be strictly construed against the
provider.14Second, the CA explained that there was nothing
under Article V of the Health Care Contract which provided
that the Philippine standard should be used even in the event
of an emergency confinement in a foreign territory. 15
Fortune Cares motion for reconsideration was denied in a
Resolution16 dated February 24, 2011. Hence, the filing of the
present petition for review on certiorari.
The Present Petition
Fortune Care cites the following grounds to support its
petition:
I. The CA gravely erred in concluding that the phrase
"approved standard charges" is subject to interpretation, and
that it did not automatically mean "Philippine Standard"; and
II. The CA gravely erred in denying Fortune Cares motion for
reconsideration, which in effect affirmed its decision that the
American Standard Cost shall be applied in the payment of
medical and hospitalization expenses and professional fees
incurred by the respondent.17
The Courts Ruling
The petition is bereft of merit.
The Court finds no cogent reason to disturb the CAs finding
that Fortune Cares liability to Amorin under the subject
Health Care Contract should be based on the expenses for
hospital and professional fees which he actually incurred, and
should not be limited by the amount that he would have
incurred had his emergency treatment been performed in an
accredited hospital in the Philippines.
We emphasize that for purposes of determining the liability of
a health care provider to its members, jurisprudence holds
that a health care agreement is in the nature of non-life
insurance, which is primarily a contract of indemnity. Once the
member incurs hospital, medical or any other expense arising
from sickness, injury or other stipulated contingent, the health
care provider must pay for the same to the extent agreed
upon under the contract.18
To aid in the interpretation of health care agreements, the
Court laid down the following guidelines in Philamcare Health
Systems v. CA19:
When the terms of insurance contract contain limitations on
liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation.
Being a contract of adhesion, the terms of an insurance
contract are to be construed strictly against the party which
prepared the contract the insurer. By reason of the exclusive
control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be
strictly interpreted against the insurer and liberally in favor of
the insured, especially to avoid forfeiture. This is equally
applicable to Health Care Agreements. The phraseology used
in medical or hospital service contracts, such as the one at
bar, must be liberally construed in favor of the subscriber, and
if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly
construed against the provider.20 (Citations omitted and
emphasis ours)
Consistent with the foregoing, we reiterated in Blue Cross
Health Care, Inc. v. Spouses Olivares21:
In Philamcare Health Systems, Inc. v. CA, we ruled that a
health care agreement is in the nature of a non-life insurance.
It is an established rule in insurance contracts that when their
terms contain limitations on liability, they should be construed
strictly against the insurer. These are contracts of adhesion
the terms of which must be interpreted and enforced
stringently against the insurer which prepared the contract.
This doctrine is equally applicable to health care agreements.
xxxx
x x x [L]imitations of liability on the part of the insurer or
health care provider must be construed in such a way as to
preclude it from evading its obligations. Accordingly, they
should be scrutinized by the courts with "extreme jealousy"
and "care" and with a "jaundiced eye." x x x.22 (Citations
omitted and emphasis supplied)
In the instant case, the extent of Fortune Cares liability to
Amorin under the attendant circumstances was governed by
Section 3(B), Article V of the subject Health Care Contract,
considering that the appendectomy which the member had to
undergo qualified as an emergency care, but the treatment
was performed at St. Francis Medical Center in Honolulu,
Hawaii, U.S.A., a non-accredited hospital. We restate the
pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall
reimburse the total hospitalization cost including the
professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited
hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the
emergency confinement occurs in foreign territory, Fortune
Care will be obligated to reimburse or pay eighty (80%)
percent of the approved standard charges which shall cover
the hospitalization costs and professional fees. x x
x23 (Emphasis supplied)
The point of dispute now concerns the proper interpretation of
the phrase "approved standard charges", which shall be the
base for the allowable 80% benefit. The trial court ruled that
the phrase should be interpreted in light of the provisions of
Section 3(A), i.e., to the extent that may be allowed for
treatments performed by accredited physicians in accredited
hospitals. As the appellate court however held, this must be
interpreted in its literal sense, guided by the rule that any
ambiguity shall be strictly construed against Fortune Care,
and liberally in favor of Amorin.
The Court agrees with the CA. As may be gleaned from the
Health Care Contract, the parties thereto contemplated the
possibility of emergency care in a foreign country. As the
contract recognized Fortune Cares liability for emergency
treatments even in foreign territories, it expressly limited its
liability only insofar as the percentage of hospitalization and
professional fees that must be paid or reimbursed was
concerned, pegged at a mere 80% of the approved standard
charges.
The word "standard" as used in the cited stipulation was
vague and ambiguous, as it could be susceptible of different
meanings. Plainly, the term "standard charges" could be read
as referring to the "hospitalization costs and professional fees"
which were specifically cited as compensable even when
incurred in a foreign country. Contrary to Fortune Cares
argument, from nowhere in the Health Care Contract could it
be reasonably deduced that these "standard charges" referred
52
to the "Philippine standard", or that cost which would have
been incurred if the medical services were performed in an
accredited hospital situated in the Philippines. The RTC ruling
that the use of the "Philippine standard" could be inferred
from the provisions of Section 3(A), which covered emergency
care in an accredited hospital, was misplaced. Evidently, the
parties to the Health Care Contract made a clear distinction
between emergency care in an accredited hospital, and that
obtained from a non-accredited hospital.1wphi1 The
limitation on payment based on "Philippine standard" for
services of accredited physicians was expressly made
applicable only in the case of an emergency care in an
accredited hospital.

The proper interpretation of the phrase "standard charges"

could instead be correlated with and reasonably inferred from
the other provisions of Section 3(B), considering that Amorins
case fell under the second case, i.e., emergency care in a non-
accredited hospital. Rather than a determination of Philippine
or American standards, the first part of the provision speaks of
the full reimbursement of "the total hospitalization cost
including the professional fee (based on the total approved
charges) to a member who receives emergency care in a non-
accredited hospital" within the Philippines. Thus, for
emergency care in non-accredited hospitals, this cited clause
declared the standard in the determination of the amount to
be paid, without any reference to and regardless of the
amounts that would have been payable if the treatment was
done by an affiliated physician or in an affiliated hospital. For
treatments in foreign territories, the only qualification was
only as to the percentage, or 80% of that payable for
treatments performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly

limited Fortune Care's liability to costs that are applicable in
the Philippines, the amount payable by Fortune Care should
not be limited to the cost of treatment in the Philippines, as to
do so would result in the clear disadvantage of its member. If,
as Fortune Care argued, the premium and other charges in the
Health Care Contract were merely computed on assumption
and risk under Philippine cost and, that the American cost
standard or any foreign country's cost was never considered,
such limitations should have been distinctly specified and
clearly reflected in the extent of coverage which the company
voluntarily assumed. This was what Fortune Care found
appropriate when in its new health care agreement with the
House of Representatives, particularly in their 2006
agreement, the provision on emergency care in non-
accredited hospitals was modified to read as follows:

However, if the emergency confinement occurs in a foreign

territory, Fortunecare will be obligated to reimburse or pay
one hundred (100%) percent under approved Philippine
Standard covered charges for hospitalization costs and
professional fees but not to exceed maximum allowable
coverage, payable in pesos at prevailing currency exchange
rate at the time of availment in said territory where he/she is
confined. x x x24

Settled is the rule that ambiguities in a contract are

interpreted against the party that caused the ambiguity. "Any
ambiguity in a contract whose terms are susceptible of
different interpretations must be read against the party who
drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated

September 27, 2010 and Resolution dated February 24, 2011
of the Court of Appeals in CA-G.R. CV No. 87255 are
AFFIRMED.

SO ORDERED.

BIENVENIDO L. REYES

53
G.R. No. 184076, October 21, 2015
ST. RAPHAEL MONTESSORI SCHOOL, INC.,
REPRESENTED BY TERESITA G.
BADIOLA, Petitioner, v.BANK OF THE PHILIPPINE
ISLANDS, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court seeking the reversal of the Decision 1 dated
April 25, 2008 and Resolution dated July 16,
2008,2 respectively, of the Court of Appeals (CA) in CA-G.R. SP
No. 101507.
The facts are as follows:
Spouses Rolando and Josefina Andaya (Sps. Andaya) are the
President and Vice-President, respectively, of St. Raphael
Montessori, Inc. (St. Raphael). From 1994 to 1998, the
Spouses Andaya obtained a loan for themselves and on behalf
of St. Raphael, from the Far East Bank and Trust company,
now Bank of Philippine Islands (BPI). As security for the loan,
they executed real estate mortgages3 over a parcel of land
covered by Transfer Certificate of Title (TCT) No. T-
45006.4 They, however, defaulted on their obligation and thus,
BPI extrajudicially foreclosed the mortgaged property.
A Certificate of Sale5 was then issued and annotated at the
back of TCT No. 45006. When the mortgagors failed to redeem
the subject property, BPI executed an Affidavit of
Consolidation6 and TCT No. T-1757407was issued in its name.
On March 15, 2005, upon petition by BPI, the court a quo
issued a Writ of Possession8 ordering the sheriff to place the
subject property and all its improvements thereon, in
possession of the same.
The Spouses Andaya asked for deferment of the
implementation of the writ of possession and executed for
themselves and on behalf of St. Raphael an Undertaking
wherein they: (i) acknowledged BPI's ownership of the
property; (ii) promised to vacate the premises and remove all
movables from the same on or before September 23, 2005;
(iii) promised to voluntarily and peacefully surrender the
property in favor of the rightful owner BPI without the
necessity of any demand on or before September 23, 2005;
and (iv) pledged not to take advantage of the accommodation
extended to them to secure any remedy from the courts. 9 BPI,
thus, deferred the implementation of the writ to September
23, 2005 and upon the lapse thereof even extended for
another 60 days or until November 23, 2005 the
implementation of the writ.
The Spouses Andaya, however, failed to vacate the subject
property. Despite BPI's reminder of their commitment to
surrender possession of the property without further need of
demand, the Spouses Andaya refused to turn over its
possession. They claimed that BPI no longer had a right to
possess the property because the writ of possession had
already been implemented. St. Raphael further filed a Motion
to Quash Writ of Possession alleging that it was not a party to
the real estate mortgages executed by Spouses Andaya. An
Affidavit of Third-Party Claim10 was also filed wherein Teresita
Badiola, Attorney-in-Fact of St. Raphael claimed that the
latter's building, while standing on the subject property, was
not included in the real estate mortgages. It. further claimed
that the construction of the building was made possible by
virtue of a Lease to Own Agreement that was executed prior
to the execution of the real estate mortgages.
On February 6, 2007, BPI sent a letter to the sheriff of the
court a quo requesting for the implementation of the writ of
possession that was earlier deferred. On April 11, 2007, the
sheriff served a Notice to Vacate on all occupants of the
subject property. On April 19, 2007, BPI was already able to
post security guards in the premises.
St. Raphael then filed a motion to cite in contempt the sheriff
and BPI on the ground that their actions would prejudice the
pending motion to quash. St. Raphael also claimed that the
writ of possession could no longer be enforced since it had
already been implemented in 2005, thus, it seek to be
restored in possession of the premises.
The court a quo issued an Order11 dated June 5, 2007
dismissing the motion to cite in contempt for failing to comply
with Section 4, Rule 71 of the Rules of Court. However, the
court a quo also ordered BPI to withdraw its security guards
from the subject property and instructed the sheriff to restore
to St. Raphael the physical possession thereof. The court a
quo deemed it prudent to maintain the status quo condition of
the subject property prior to the April 19, 2007 incident.
On June 8, 2007, the officers of St. Raphael, with the
assistance of the barangay captain and policemen, attempted
to recover possession of the subject property. However, they
were driven away by BPI's security guards upon failure to
present a final order from the court a quo. St. Raphael,
therefore, filed an Urgent Ex-Parte Motion for Immediate
Implementation of the June 5, 2007 Order.
On June 12, 2007, BPI filed a Partial Motion for
Reconsideration arguing that the court a quo is confined to
resolving the issue in the Motion to Cite in Contempt, that is,
whether or not the implementation of the writ of possession
constitutes a contemptuous act. It argued that under the
circumstances, the court a quo is in no position to determine
the issue of who should be in possession of the subject
property.
On June 13, 2007, the court a quo granted St. Raphael's
Motion for Immediate Implementation of the June 5, 2007
Order and denied BPI's Partial Motion for Reconsideration. It
ruled that a temporary restraining order or writ of preliminary
injunction was not needed to prevent the sheriff and BPI from
implementing the writ of possession because the motion to
quash the writ of possession was still pending resolution. It
also held that St. Raphael was a third-party claimant and that
BPI cannot be placed in possession of the mortgaged property
pending proceedings that assail the issuance of the writ of
possession.
On June 25, 2007, the court a quo appointed a special sheriff
who implemented the status quo order. Consequently, St.
Raphael was placed in possession of the subject property.
Likewise, the court a quo, in an Order12 dated July 30, 2007
granted St. Raphael's Motion to Quash Writ of Possession. The
dispositive portion reads:chanRoblesvirtualLawlibrary
WHEREFORE, the Motion to Quash Writ of Possession filed by
St. Raphael Montessori School, Inc., Third-Party
Claimant/Oppositor dated June 6, 2006 is GRANTED.
2. The writ of possession dated March 15, 2005 implemented
by Sheriff Franconello S. Lintao on April 19, 2007 is null and
void;cralawlawlibrary
3. The order of this court dated December 27, 2004 is
modified to read as follows:chanRoblesvirtualLawlibrary
Let the writ of possession be issued directing, the Deputy
Sheriff of this Court to install the petitioner in actual
54
possession of real properties owned by Sps. Rolando and
Josefina Andaya which have been the subject of the mortgage,
with the exception of the building standing on Lot 1362-D
owned by the third party claimant St. Raphael
Montessori.ChanRoblesVirtualawlibrary
SO ORDERED.13ChanRoblesVirtualawlibrary
Aggrieved, BPI filed a petition for certiorari before the Court of
Appeals alleging grave abuse of discretion amounting to lack
or excess of jurisdiction when it issued the assailed Order
dated July 30, 2007.
On April 25, 2008, in its disputed decision, the Court of
Appeals reversed the court a quo. the dispositive portion of
which reads:chanRoblesvirtualLawlibrary
WHEREFORE, the Order dated July 30, 2007 is REVERSED.
The Motion to Quash Writ of Possession of St. Raphael
Montessori, Inc. is DENIED and the Writ of Possession dated
March 15, 2005 is declared valid and enforceable, thus
entitling the Bank of the Philippine Islands to possession of
the subject property, including the building occupied by St.
Raphael Montessori, Inc.
SO ORDERED.14ChanRoblesVirtualawlibrary
Thus, the instant petition for review on certiorari under Rule
45 of the Rules of Court raising the lone issue of: Whether a
writ of possession that was issued ex-parte as a result
qftheforeelosure of the mortgages executed by the Spouses
Andaya on the subject property can be enforced and utilized
by BPI to oust St. Raphael from the physical possession of its
school buildings built on the same subject property.
We rule in the affirmative.
Jurisprudence is replete with cases holding that the issuance
of a writ of possession to a purchaser in a public auction is a
ministerial function of the court, which cannot be enjoined or
restrained, even by the filing of a civil case for the declaration
of nullity of the foreclosure and consequent auction
sale.15 Once title to the property has been consolidated in the
buyer's name upon failure of the mortgagor to redeem the
property within the one-year redemption period, the writ of
possession becomes a matter of right belonging to the buyer.
Consequently, the buyer can demand possession of the
property at anytime. Its right to possession has then ripened
into the right of a confirmed absolute owner and the issuance
of the writ becomes a ministerial function that does not admit
of the exercise of the court's discretion. The court, acting on
an application for its issuance, should issue the writ as a
matter of course and without any delay.16
The right to the issuance of a writ of possession is outlined in
Sections 6 and 7 of Act 3135, as amended by Act 4118, to
wit:chanRoblesvirtualLawlibrary
Sec. 6. In all cases in which an extrajudicial sale is made x x x,
the debtor, his successors-in-interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien
on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at
any time within the term of one year from and after the date
of the sale; and such redemption shall be governed by the
provisions of sections four hundred and sixty-four to four
hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the
provisions of this Act.
Sec 7. In any sale made under the provisions of this Act, the
purchaser may petition the Court of First Instance of the
province or place where the property or any part thereof is
situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent
to the use of the property for a period of twelve months, to
indemnify the debtor in case it be shown that the sale was
made without violating the mortgage or without complying
with the requirements of this Act. Such petition shall be made
under oath and filed in form of an ex parte motion x x x and
the court shall, upon approval of the bond, order that a writ of
possession issue, addressed to the sheriff of the province in
which the property is situated, who shall execute said order
immediately.ChanRoblesVirtualawlibrary
Upon the lapse of the redemption period, a writ of possession
may be issued in favor of the purchaser in a foreclosure sale,
also upon a proper ex parte motion. No bond is necessary for
its issuance; the mortgagor is now considered to have lost any
interest over the foreclosed property. The purchaser then
becomes the owner of the foreclosed property, and he can
demand possession at any time following the consolidation of
ownership of the property and the issuance of the
corresponding TCT in his/her name. It is at this point that the
right of possession of the purchaser can be considered to
have ripened into the absolute right of a confirmed owner. The
issuance of the writ, upon proper application, is a ministerial
function that effectively forbids the exercise by the court of
any discretion. This scenario is governed by Section 6 of Act
3135, in relation to Section 35, Rule 39 of the Revised Rules of
Court.
In China Banking Corporation v. Spouses Lozada,17 we
reiterated:chanRoblesvirtualLawlibrary
It is thus settled that the buyer in a foreclosure sale becomes
the absolute owner of the property purchased if it is not
redeemed during the period of one year after the registration
of the sale. As such, he is entitled to the possession of the
said property and can demand it at any time following the
consolidation of ownership in his name and the issuance to
him of a new transfer certificate of title. The buyer can in fact
demand possession of the land even during the redemption
period except that he has to post a bond in accordance with
Section 7 of Act No. 3135, as amended. No such bond is
required after the redemption period if the property is not
redeemed. Possession of the land then becomes an
absolute right of the purchaser as confirmed owner.
Upon proper application and proof of title, the issuance
of the writ of possession becomes a ministerial duty of
the court.18ChanRoblesVirtualawlibrary
Thus, as in the instant case, after the consolidation of
ownership, and the issuance of Transfer Certificate of Title No.
T-175740 in favor of purchaser, BPI, the latter's right to
possession not only finds support in Section 7 of Act 3135, but
also on its right to possession as an incident of ownership.19
If the court has the ministerial power to issue a writ of
possession even during the redemption period, then with
more reason should the court issue the writ of possession
after the expiration of the redemption period, as the
purchaser has already acquired an absolute right to
possession on the basis of his ownership of the property. The
right to possess a property follows ownership.20
It should likewise be emphasized that the purchaser's right to
request for the issuance of the writ of possession of the land
never prescribes. The right to possess a property merely
follows the right of ownership, and it would be illogical to hold
that a person having ownership of a parcel of land is barred
from seeking possession thereof.21
As to petitioner's argument that they were not a party to the
real estate mortgage nor its claim that the mortgage does not
55
include the building allegedly owned by St. Raphael
Montessori, the same has no leg to stand on. When the
principal property is mortgaged, the mortgage shall include all
natural or civil fruits and improvements found thereon when
the secured obligation becomes due as provided in Article
212722of the Civil Code. Consequently, in case of non-payment
of the secured debt, foreclosure proceedings shall cover not
only the hypothecated property but all its accessions and
accessories as well.23
Thus, improvements constructed by the mortgagor on the
subject lot covered by the real estate mortgage contract with
the mortgagee bank are included in the foreclosure
proceedings instituted by the latter.24While this rule is not
without qualifications, the instant case does not fall under its
exceptions. For the exception to apply, the property need not
only be possessed by a third party, but also held by the third
party adversely to the judgment obligor. St. Raphael could not
be considered as an adverse claimant in the absence of proof
showing any adverse title or claim of ownership on the subject
lot.
Indeed, the claim of St. Raphael that it is the owner of the
building standing on the subject land cannot be given weight
in the absence of any evidence proving such ownership. It is
also noteworthy to mention that in St. Raphael's Articles of
Incorporation with S.E.C. Registration No. ANO92-03954, the
Spouses Andaya appeared to be the original incorporators and
trustees of St. Raphael, the same parties who mortgaged the
subject lot to BPI. St. Raphael insists that it is the owner of the
building, however, neither the Spouses Andaya and St.
Raphael failed to convince that they are separate entities and
that the Spouses Andaya did not act in behalf of St. Raphael.
Likewise, assuming that there was indeed a valid lease
agreement, the law requires that it must be noted as an
encumbrance in T-45006, which covers the property
mortgaged by St. Raphael and the Spouses Andaya to BPI.
The failure to comply with this requisite annotation of the
lease resulted in BPI's lack of knowledge as to the existence of
the said lease contract.25cralawred
Moreover, the appellate court's ratiocination on St. Raphael's
alleged lack of knowledge of the constituted real estate
mortgage is noteworthy, to wit:chanRoblesvirtualLawlibrary
The ruling of the court a quo that St. Raphael was a mere
stranger to the case between the Spouses Andaya and BPI
and that it entered into possession of the property before the
suit began is not supported by evidence on record. On the
contrary, the record before us reveals that St. Raphael is a
party to the mortgage agreement since the real estate
mortgages show that it obtained credit accommodations from
BPI through the spouses Josefina and Rolando Andaya who arc
its president and vice-president, respectively. The fact that a
mortgage was executed in favor of St. Raphael is likewise
annotated at the back of TCT No. T-45006. Moreover, the
undertaking executed by the Spouses Andaya reveals that
they affixed their respective signatures therein in their
capacity as President and Vice-President of St. Raphael. These
clearly show that St. Raphael is privy to the dealings between
the Spouses Andaya and BPI and thus belie that it is a mere
stranger to the case.26ChanRoblesVirtualawlibrary
Finally, the real estate mortgage agreement entered into by
BPI and the Spouses Andaya is the law between them. Suffice
it to say that in all of the real mortgage
agreements27 executed by BPI and the Spouses Andaya in
favor of St. Raphael, it was clearly and commonly stipulated
that the parties intend to include the improvements or
buildings erected or to be erected in the subject lot, to
wit:chanRoblesvirtualLawlibrary
x x x the MORTGAGOR does hereby transfer and convey by
way of mortgage unto to MORTGAGEE, its successors or
assigns, the parcel of land which are described in the list
inserted on the back of this document and/or appended
hereto, together with all the buildings and improvements now
existing or which may hereafter be erected or constructed
thereon, of which the MORTGAGOR declares that he/it is the
absolute owner free from lien and encumbrances. x x
x28ChanRoblesVirtualawlibrary
It is a cardinal rule in the interpretation of a contract that if its
terms are clear and leave no doubt on the intention of the
contracting parties, the literal meaning of its stipulation shall
control.29 In the absence of proof that the parties intended
otherwise, we will not delve to interpret the terms of the
contract which are unequivocal as to the intention of the
parties.
On a final note, it must be stressed that when certain
actuations of judges cast doubts as to their motives, the Court
deems it imperative to remind judges of their respective
duties of impartiality. The court a quo's judgment, which not
only granted petitioner's Motion to Quash and Third-Party
Claim but went as far as installing petitioner in actual
possession of the subject properties in sheer disregard of
established legal pronouncements and on obvious baseless
grounds, raise serious suspicions on the court a quo's
intentions. Let this, therefore, serve as a stern reminder that
lower court judges are, at all times, dutybound to render just,
correct and impartial decisions in a manner free of any
suspicion as to his fairness, impartiality or integrity.
WHEREFORE, all premises considered, the instant petition
is DENTED for lack of merit. Accordingly, the Decision dated
April 25, 2008 and the Resolution dated July 16, 2008 of the
Court of Appeals in CA-G.R. SP No. 101507 are AFFIRMED in
toto.
SO ORDERED
56