RESCISSIBLE CONTRACTS
8, which reads:
G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & LESSEE shall be given 30-days exclusive option to purchase the
CARMELO & BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the
respondent appellate court analyzed and interpreted particular
provisions of our laws on contracts and sales. In its assailed
decision, the respondent court reversed the trial court 3 which, in
dismissing the complaint for specific performance with damages
and annulment of contract, 4 found the option clause in the lease
contracts entered into by private respondent Mayfair Theater, Inc.
(hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc.
(hereafter, Carmelo) to be impossible of performance and
unsupported by a consideration and the subsequent sale of the
subject property to petitioner Equatorial Realty Development, Inc.
(hereafter, Equatorial) to have been made without any breach of or
prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court,
which narration, we note, is almost verbatim the basis of the
statement of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon located at Claro M Recto Avenue,
Manila, and covered by TCT No. 18529 issued in its name by the
Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with
Mayfair for the latter's lease of a portion of Carmelo's property
particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey
building, situated at C.M. Recto Avenue, Manila, with a floor area
of 1,610 square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey
building, situated at C.M. Recto Avenue, Manila, with a floor area
of 150 square meters.
for use by Mayfair as a motion picture theater and for a term of
twenty (20) years. Mayfair thereafter constructed on the leased
property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second
contract of lease with Carmelo for the lease of another portion of
Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey
building, situated at C.M. Recto Avenue, Manila, with a floor area
of 1,064 square meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and
MEZZANINE of the two-storey building situated at C.M. Recto
Avenue, Manila, with a floor area of 300 square meters and bearing
street numbers 1871 and 1875,
for similar use as a movie theater and for a similar term of twenty
(20) years. Mayfair put up another movie house known as
"Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded paragraph
That if the LESSOR should desire to sell the leased premises, the
same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
hereof that the purchaser shall recognize this lease and be bound
by all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed
Mr. Henry Yang, President of Mayfair, through a telephone
conversation that Carmelo was desirous of selling the entire Claro
M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose
Araneta was offering to buy the whole property for US Dollars
1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing
to buy the property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision.
On August 23, 1974, Mayfair replied through a letter stating as
follows:
It appears that on August 19, 1974 your Mr. Henry Pascal informed
our client's Mr. Henry Yang through the telephone that your
company desires to sell your above-mentioned C.M. Recto Avenue
property.
Under your company's two lease contracts with our client, it is
uniformly provided:
8. That if the LESSOR should desire to sell the leased
premises the LESSEE shall be given 30-days exclusive option to
purchase the same. In the event, however, that the leased premises
is sold to someone other than the LESSEE, the LESSOR is bound
and obligated, as it is (sic) herebinds (sic) and obligates itself, to
stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and conditions
hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo
purporting to express interest in acquiring not only the leased
premises but "the entire building and other improvements if the
price is reasonable. However, both Carmelo and Equatorial
questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M.
Recto Avenue land and building, which included the leased
premises housing the "Maxim" and "Miramar" theatres, to
Equatorial by virtue of a Deed of Absolute Sale, for the total sum
of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific
performance and annulment of the sale of the leased premises to
Equatorial. In its Answer, Carmelo alleged as special and
affirmative defense (a) that it had informed Mayfair of its desire to
sell the entire C.M. Recto Avenue property and offered the same
to Mayfair, but the latter answered that it was interested only in
buying the areas under lease, which was impossible since the
property was not a condominium; and (b) that the option to
purchase invoked by Mayfair is null and void for lack of
consideration. Equatorial, in its Answer, pleaded as special and
affirmative defense that the option is void for lack of consideration
(sic) and is unenforceable by reason of its impossibility of
performance because the leased premises could not be sold
1
separately from the other portions of the land and building. It
counterclaimed for cancellation of the contracts of lease, and for
increase of rentals in view of alleged supervening extraordinary
devaluation of the currency. Equatorial likewise cross-claimed
against co-defendant Carmelo for indemnification in respect of
Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the
parties stipulated on the following:
1. That there was a deed of sale of the contested premises
by the defendant Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the
stipulation granting the plaintiff exclusive option to purchase the
leased premises should the lessor desire to sell the same (admitted
subject to the contention that the stipulation is null and void);
3. That the two buildings erected on this land are not of the
condominium plan;
4. That the amounts stipulated and mentioned in paragraphs
3 (a) and (b) of the contracts of lease constitute the consideration
for the plaintiff's occupancy of the leased premises, subject of the
same contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option
to buy embodied in the contract;
7. That Carmelo & Bauermann owned the land and the two
buildings erected thereon;
8. That the leased premises constitute only the portions
actually occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to
defendant Equatorial Realty is the land and the two buildings
erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed
decision, the decretal portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo &
Bauermann P40,000.00 by way of attorney's fees on its
counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty
P35,000.00 per month as reasonable compensation for the use of
areas not covered by the contract (sic) of lease from July 31, 1979
until plaintiff vacates said area (sic) plus legal interest from July
31, 1978; P70,000 00 per month as reasonable compensation for
the use of the premises covered by the contracts (sic) of lease dated
(June 1, 1967 from June 1, 1987 until plaintiff vacates the premises
plus legal interest from June 1, 1987; P55,000.00 per month as
reasonable compensation for the use of the premises covered by
the contract of lease dated March 31, 1969 from March 30, 1989
until plaintiff vacates the premises plus legal interest from March
30, 1989; and P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim against
defendant Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are
declared expired and all persons claiming rights under these
contracts are directed to vacate the premises. 6
The trial court adjudged the identically worded paragraph 8 found
in both aforecited lease contracts to be an option clause which
however cannot be deemed to be binding on Carmelo because of
lack of distinct consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties
that the option in the contract of lease is not supported by a separate
consideration. Without a consideration, the option is therefore not
binding on defendant Carmelo & Bauermann to sell the C.M. Recto
property to the former. The option invoked by the plaintiff appears
in the contracts of lease . . . in effect there is no option, on the
ground that there is no consideration. Article 1352 of the Civil
Code, provides:
Contracts without cause or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals,
good custom, public order or public policy.
Contracts therefore without consideration produce no effect
whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is
founded upon consideration, as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determine thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply with the
promise unless the former establishes the existence of a distinct
consideration. In other words, the promisee has the burden of
proving the consideration. The consideration cannot be presumed
as in Article 1354:
Although the cause is not stated in the contract, it is presumed that
it exists and is lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354
applies to contracts in general, whereas when it comes to an option
it is governed particularly and more specifically by Article 1479
whereby the promisee has the burden of proving the existence of
consideration distinct from the price. Thus, in the case of Sanchez
vs. Rigor, 45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general, whereas the
second paragraph of Article 1479 refers to sales in particular, and,
more specifically, to an accepted unilateral promise to buy or to
sell. In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be binding upon
the promissor, Article 1479 requires the concurrence of a
condition, namely, that the promise be supported by a
consideration distinct from the price.
2
Accordingly, the promisee cannot compel the promissor to comply
with the promise, unless the former establishes the existence of
said distinct consideration. In other words, the promisee has the
burden of proving such consideration. Plaintiff herein has not even
alleged the existence thereof in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals.
Respondent appellate court reversed the court a quo and rendered
judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to
pay and return to Equatorial the amount of P11,300,000.00 within
fifteen (15) days from notice of this Decision, and ordering
Equatorial Realty Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing
Equatorial Realty Development, Inc. to execute the deeds and
documents necessary for the issuance and transfer of ownership to
Mayfair of the lot registered under TCT Nos. 17350, 118612,
60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be
unable to pay the amount as adjudged, declaring the Deed of
Absolute Sale between the defendants-appellants Carmelo &
Bauermann, Inc. and Equatorial Realty Development, Inc. as valid
and binding upon all the parties. 8
Rereading the law on the matter of sales and option contracts,
respondent Court of Appeals differentiated between Article 1324
and Article 1479 of the Civil Code, analyzed their application to
the facts of this case, and concluded that since paragraph 8 of the
two lease contracts does not state a fixed price for the purchase of
the leased premises, which is an essential element for a contract of
sale to be perfected, what paragraph 8 is, must be a right of first
refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324
and 1479, second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the
offeree may or may not accept within a certain period. Under this
article, the offer may be withdrawn by the offeror before the
expiration of the period and while the offeree has not yet accepted
the offer. However, the offer cannot be withdrawn by the offeror
within the period if a consideration has been promised or given by
the offeree in exchange for the privilege of being given that period
within which to accept the offer. The consideration is distinct from
the price which is part of the offer. The contract that arises is
known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670,
the Supreme court, citing Bouvier, defined an option as follows:
"A contract by virtue of which A, in consideration of the payment
of a certain sum to B, acquires the privilege of buying from or
selling to B, certain securities or properties within a limited time at
a specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of
an "accepted unilateral promise to buy or to sell a determinate thing
for a price within (which) is binding upon the promisee if the
promise is supported by a consideration distinct from the price."
That "unilateral promise to buy or to sell a determinate thing for a
price certain" is called an offer. An "offer", in laws, is a proposal
to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217). To
constitute a legal offer, the proposal must be certain as to the
object, the price and other essential terms of the contract (Art.
1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision
granting Mayfair "30-days exclusive option to purchase" the leased
premises is NOT AN OPTION in the context of Arts. 1324 and
1479, second paragraph, of the Civil Code. Although the provision
is certain as to the object (the sale of the leased premises) the price
for which the object is to be sold is not stated in the provision
Otherwise stated, the questioned stipulation is not by itself, an
"option" or the "offer to sell" because the clause does not specify
the price for the subject property.
Although the provision giving Mayfair "30-days exclusive option
to purchase" cannot be legally categorized as an option, it is,
nevertheless, a valid and binding stipulation. What the trial court
failed to appreciate was the intention of the parties behind the
questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily
found in a contract of lease. Even appellees have recognized that
the stipulation was incorporated in the two Contracts of Lease at
the initiative and behest of Mayfair. Evidently, the stipulation was
intended to benefit and protect Mayfair in its rights as lessee in case
Carmelo should decide, during the term of the lease, to sell the
leased property. This intention of the parties is achieved in two
ways in accordance with the stipulation. The first is by giving
Mayfair "30-days exclusive option to purchase" the leased
property. The second is, in case Mayfair would opt not to purchase
the leased property, "that the purchaser (the new owner of the
leased property) shall recognize the lease and be bound by all the
terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease,
particularly the stipulation giving Mayfair "30-days exclusive
option to purchase the (leased premises)," was meant to provide
Mayfair the opportunity to purchase and acquire the leased
property in the event that Carmelo should decide to dispose of the
property. In order to realize this intention, the implicit obligation
of Carmelo once it had decided to sell the leased property, was not
only to notify Mayfair of such decision to sell the property, but,
more importantly, to make an offer to sell the leased premises to
Mayfair, giving the latter a fair and reasonable opportunity to
accept or reject the offer, before offering to sell or selling the leased
property to third parties. The right vested in Mayfair is analogous
to the right of first refusal, which means that Carmelo should have
offered the sale of the leased premises to Mayfair before offering
it to other parties, or, if Carmelo should receive any offer from third
parties to purchase the leased premises, then Carmelo must first
give Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a
right of first refusal when he made the telephone call to Mr. Yang
in 1974. Mr. Pascal thus testified:
Q Can you tell this Honorable Court how you made the
offer to Mr. Henry Yang by telephone?
A I have an offer from another party to buy the property
and having the offer we decided to make an offer to Henry Yang
on a first-refusal basis. (TSN November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you
remember exactly what you have told him in connection with that
matter, Mr. Pascal?
3

A More or less, I told him that I received an offer from
another party to buy the property and I was offering him first
choice of the enter property. (TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders
effectual the intention of the parties. 9
Besides the ruling that paragraph 8 vests in Mayfair the right of
first refusal as to which the requirement of distinct consideration
indispensable in an option contract, has no application, respondent
appellate court also addressed the claim of Carmelo and Equatorial
that assuming arguendo that the option is valid and effective, it is
impossible of performance because it covered only the leased
premises and not the entire Claro M. Recto property, while
Carmelo's offer to sell pertained to the entire property in question.
The Court of Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the defendants-
appellees. It is to be noted that the Deed of Absolute Sale between
Carmelo and Equatorial covering the whole Claro M. Recto
property, made reference to four titles: TCT Nos. 17350, 118612,
60936 and 52571. Based on the information submitted by Mayfair
in its appellant's Brief (pp. 5 and 46) which has not been
controverted by the appellees, and which We, therefore, take
judicial notice of the two theaters stand on the parcels of land
covered by TCT No. 17350 with an area of 622.10 sq. m and TCT
No. 118612 with an area of 2,100.10 sq. m. The existence of four
separate parcels of land covering the whole Recto property
demonstrates the legal and physical possibility that each parcel of
land, together with the buildings and improvements thereof, could
have been sold independently of the other parcels.
At the time both parties executed the contracts, they were aware of
the physical and structural conditions of the buildings on which the
theaters were to be constructed in relation to the remainder of the
whole Recto property. The peculiar language of the stipulation
would tend to limit Mayfair's right under paragraph 8 of the
Contract of Lease to the acquisition of the leased areas only.
Indeed, what is being contemplated by the questioned stipulation
is a departure from the customary situation wherein the buildings
and improvements are included in and form part of the sale of the
subjacent land. Although this situation is not common, especially
considering the non-condominium nature of the buildings, the sale
would be valid and capable of being performed. A sale limited to
the leased premises only, if hypothetically assumed, would have
brought into operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the leased
premises and at the same time a co-owner with Carmelo of the
subjacent land in proportion to Mayfair's interest over the premises
sold to it. 10
Carmelo and Equatorial now comes before us questioning the
correctness and legal basis for the decision of respondent Court of
Appeals on the basis of the following assigned errors:
I to pre-empt the administrative proceedings to be undertaken
THE COURT OF APPEALS GRAVELY ERRED IN
CONCLUDING THAT THE OPTION CLAUSE IN THE
CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST
REFUSAL PROVISO. IN DOING SO THE COURT OF
APPEALS DISREGARDED THE CONTRACTS OF LEASE
WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR
AN OPTION, AND THE ADMISSION OF THE PARTIES OF
SUCH OPTION IN THEIR STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL,
THE COURT OF APPEALS ERRED IN DIRECTING
EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN
(18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS
OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL
ASSUMING IT WAS ONE) WHEN THE CONTRACTS
LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS
FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DIRECTED IMPLEMENTATION OF ITS DECISION EVEN
BEFORE ITS FINALITY, AND WHEN IT GRANTED
MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR
IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL
RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN
IT ALLOWED THE SAME DIVISION XII, PARTICULARLY
JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE
MOTIONS IN THE "COMPLETION PROCESS" AND TO
STILL RESOLVE THE MERITS OF THE CASE IN THE
"DECISION STAGE". 11
We shall first dispose of the fourth assigned error respecting
alleged irregularities in the raffle of this case in the Court of
Appeals. Suffice it to say that in our Resolution, 12 dated
December 9, 1992, we already took note of this matter and set out
the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty
Development, Inc. wrote a letter-complaint to this Court alleging
certain irregularities and infractions committed by certain lawyers,
and Justices of the Court of Appeals and of this Court in connection
with case CA-G.R. CV No. 32918 (now G.R. No. 106063). This
partakes of the nature of an administrative complaint for
misconduct against members of the judiciary. While the letter-
complaint arose as an incident in case CA-G.R. CV No. 32918
(now G.R. No. 106063), the disposition thereof should be separate
and independent from Case G.R. No. 106063. However, for
purposes of receiving the requisite pleadings necessary in
disposing of the administrative complaint, this Division shall
continue to have control of the case. Upon completion thereof, the
same shall be referred to the Court En Banc for proper disposition.
13
This court having ruled the procedural irregularities raised in the
fourth assigned error of Carmelo and Equatorial, to be an
independent and separate subject for an administrative complaint
based on misconduct by the lawyers and justices implicated
therein, it is the correct, prudent and consistent course of action not
respecting the said irregularities. Certainly, a discussion thereupon
by us in this case would entail a finding on the merits as to the real
nature of the questioned procedures and the true intentions and
motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature, scope
and efficacy of paragraph 8 stipulated in the two contracts of lease
between Carmelo and Mayfair in the face of conflicting findings
by the trial court and the Court of Appeals; and (2) to determine
the rights and obligations of Carmelo and Mayfair, as well as
Equatorial, in the aftermath of the sale by Carmelo of the entire
Claro M. Recto property to Equatorial.
4

Both contracts of lease in question provide the identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the
LESSEE shall be given 30-days exclusive option to purchase the
same.
In the event, however, that the leased premises is sold to someone
other than the LESSEE, the LESSOR is bound and obligated, as it
hereby binds and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this lease and be bound
by all the terms and conditions thereof. 14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor
of Mayfair. It is not an option clause or an option contract. It is a
contract of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15
unequivocal was our characterization of an option contract as one
necessarily involving the choice granted to another for a distinct
and separate consideration as to whether or not to purchase a
determinate thing at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to
wit, the letter of December 4, 1911, quoted at the beginning of this
decision, the defendant Valdes granted to the plaintiff Borck the
right to purchase the Nagtajan Hacienda belonging to Benito
Legarda, during the period of three months and for its assessed
valuation, a grant which necessarily implied the offer or obligation
on the part of the defendant Valdes to sell to Borck the said
hacienda during the period and for the price mentioned . . . There
was, therefore, a meeting of minds on the part of the one and the
other, with regard to the stipulations made in the said document.
But it is not shown that there was any cause or consideration for
that agreement, and this omission is a bar which precludes our
holding that the stipulations contained in Exhibit E is a contract of
option, for, . . . there can be no contract without the requisite,
among others, of the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option
as a contract, in the following language:
A contract by virtue of which A, in consideration of the payment
of a certain sum to B, acquires the privilege of buying from, or
selling to B, certain securities or properties within a limited time at
a specified price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing
the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St.
Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase
lands within a given time at a named price is neither a sale nor an
agreement to sell. It is simply a contract by which the owner of
property agrees with another person that he shall have the right to
buy his property at a fixed price within a certain time. He does not
sell his land; he does not then agree to sell it; but he does sell
something; that is, the right or privilege to buy at the election or
option of the other party. The second party gets in praesenti, not
lands, nor an agreement that he shall have lands, but he does get
something of value; that is, the right to call for and receive lands if
he elects. The owner parts with his right to sell his lands, except to
the second party, for a limited period. The second party receives
this right, or, rather, from his point of view, he receives the right to
elect to buy.
But the two definitions above cited refer to the contract of option,
or, what amounts to the same thing, to the case where there was
cause or consideration for the obligation, the subject of the
agreement made by the parties; while in the case at bar there was
no such cause or consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of
option or the option clause in a contract, in order to be valid and
enforceable, must, among other things, indicate the definite price
at which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy
the leased property for a named price per square meter upon failure
to make the purchase within the time specified; 17 in one other case
we freed the landowner from her promise to sell her land if the
prospective buyer could raise P4,500.00 in three weeks because
such option was not supported by a distinct consideration; 18 in the
same vein in yet one other case, we also invalidated an instrument
entitled, "Option to Purchase" a parcel of land for the sum of
P1,510.00 because of lack of consideration; 19 and as an exception
to the doctrine enumerated in the two preceding cases, in another
case, we ruled that the option to buy the leased premises for
P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation
or promise of each party is the consideration for that of the other.
20 In all these cases, the selling price of the object thereof is always
predetermined and specified in the option clause in the contract or
in the separate deed of option. We elucidated, thus, in the very
recent case of Ang Yu Asuncion vs. Court of Appeals 21 that:
. . . In sales, particularly, to which the topic for discussion about
the case at bench belongs, the contract is perfected when a person,
called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called the
buyer, over which the latter agrees. Article 1458 of the Civil Code
provides:
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership of and to deliver
a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract
to Sell" where invariably the ownership of the thing sold in retained
until the fulfillment of a positive suspensive condition (normally,
the full payment of the purchase price), the breach of the condition
will prevent the obligation to convey title from acquiring an
obligatory force. . . .
An unconditional mutual promise to buy and sell, as long as the
object is made determinate and the price is fixed, can be obligatory
on the parties, and compliance therewith may accordingly be
exacted.
An accepted unilateral promise which specifies the thing to be sold
and the price to be paid, when coupled with a valuable
consideration distinct and separate from the price, is what may
properly be termed a perfected contract of option. This contract is
legally binding, and in sales, it conforms with the second paragraph
of Article 1479 of the Civil Code, viz:
Art. 1479. ...
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price. (1451a).
5
Observe, however, that the option is not the contract of sale itself.
The optionee has the right, but not the obligation, to buy. Once the
option is exercised timely, i.e., the offer is accepted before a breach
of the option, a bilateral promise to sell and to buy ensues and both
parties are then reciprocally bound to comply with their respective
undertakings.
Let us elucidate a little. A negotiation is formally initiated by an
offer. An imperfect promise (policitacion) is merely an offer.
Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals.
These relations, until a contract is perfected, are not considered
binding commitments. Thus, at any time prior to the perfection of
the contract, either negotiating party may stop the negotiation. The
offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not
necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw
the offer before its acceptance, or if an acceptance has been made,
before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see Art. 1324, Civil
Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding
that this rule is applicable to a unilateral promise to sell under Art.
1479, modifying the previous decision in South Western Sugar vs.
Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Paraaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez
vs. Rigos, 45 SCRA 368). The right to withdraw, however, must
not be exercised whimsically or arbitrarily; otherwise, it could give
rise to a damage claim under Article 19 of the Civil Code which
ordains that "every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of
"option" deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The option,
however, is an independent contract by itself; and it is to be
distinguished from the projected main agreement (subject matter
of the option) which is obviously yet to be concluded. If, in fact,
the optioner-offeror withdraws the offer before its acceptance
(exercise of the option) by the optionee-offeree, the latter may not
sue for specific performance on the proposed contract ("object" of
the option) since it has failed to reach its own stage of perfection.
The optioner-offeror, however, renders himself liable for damages
for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording
of the questioned provision in the two lease contracts involved in
the instant case, we so hold that no option to purchase in
contemplation of the second paragraph of Article 1479 of the Civil
Code, has been granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said
paragraph 8 grants the right of first refusal to Mayfair and is not an
option contract. It also correctly reasoned that as such, the
requirement of a separate consideration for the option, has no
applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967
and March 31, 1969 contracts which would bring them into the
ambit of the usual offer or option requiring an independent
consideration.
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by
consideration. 22 In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into
the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in
paragraph 8 of the contracts is governed by Article 1324 on
withdrawal of the offer or Article 1479 on promise to buy and sell
would render in effectual or "inutile" the provisions on right of first
refusal so commonly inserted in leases of real estate nowadays.
The Court of Appeals is correct in stating that Paragraph 8 was
incorporated into the contracts of lease for the benefit of Mayfair
which wanted to be assured that it shall be given the first crack or
the first option to buy the property at the price which Carmelo is
willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The
stipulation is part and parcel of the entire contract of lease. The
consideration for the lease includes the consideration for the right
of first refusal. Thus, Mayfair is in effect stating that it consents to
lease the premises and to pay the price agreed upon provided the
lessor also consents that, should it sell the leased property, then,
Mayfair shall be given the right to match the offered purchase price
and to buy the property at that price. As stated in Vda. De Quirino
vs. Palarca, 23 in reciprocal contract, the obligation or promise of
each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the
true nature of the aforecited paragraph 8 to be that of a contractual
grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and
liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an
amplification of the precedent in Ang Yu Asuncion vs. Court of
Appeals. 24
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the
latter of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made
by both parties. Carmelo, however, did not pursue the exercise to
its logical end. While it initially recognized Mayfair's right of first
refusal, Carmelo violated such right when without affording its
negotiations with Mayfair the full process to ripen to at least an
interface of a definite offer and a possible corresponding
acceptance within the "30-day exclusive option" time granted
Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire
Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers
had, prior to the sale, studied the said contracts. As such, Equatorial
cannot tenably claim to be a purchaser in good faith, and, therefore,
rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article
1380 to 1381(3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly
6
accorded the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the petitioner
without recognizing their right of first priority under the Contract
of Lease.
According to Tolentino, rescission is a remedy granted by law to
the contracting parties and even to third persons, to secure
reparation for damages caused to them by a contract, even if this
should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of said contract. It
is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and preferent
right created by the contract. Rescission implies a contract which,
even if initially valid, produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its rescission
where it is shown that such third person is in lawful possession of
the subject of the contract and that he did not act in bad faith.
However, this rule is not applicable in the case before us because
the petitioner is not considered a third party in relation to the
Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract
of Sale. Moreover, the petitioner cannot be deemed a purchaser in
good faith for the record shows that it categorically admitted it was
aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it.
Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa
Reynoso, the petitioner cannot deny actual knowledge of such
lease which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a
right to or interest in such property and pays a full and fair price
for the same at the time of such purchase or before he has notice of
the claim or interest of some other person in the property. Good
faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these principles,
the petitioner cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would
prejudice its own interests.
The petitioner insists that it was not aware of the right of first
priority granted by the Contract of Lease. Assuming this to be true,
we nevertheless agree with the observation of the respondent court
that:
If Guzman-Bocaling failed to inquire about the terms of the Lease
Contract, which includes Par. 20 on priority right given to the
Bonnevies, it had only itself to blame. Having known that the
property it was buying was under lease, it behooved it as a prudent
person to have required Reynoso or the broker to show to it the
Contract of Lease in which Par. 20 is contained. 25
Petitioners assert the alleged impossibility of performance because
the entire property is indivisible property. It was petitioner
Carmelo which fixed the limits of the property it was leasing out.
Common sense and fairness dictate that instead of nullifying the
agreement on that basis, the stipulation should be given effect by
including the indivisible appurtenances in the sale of the dominant
portion under the right of first refusal. A valid and legal contract
where the ascendant or the more important of the two parties is the
landowner should be given effect, if possible, instead of being
nullified on a selfish pretext posited by the owner. Following the
arguments of petitioners and the participation of the owner in the
attempt to strip Mayfair of its rights, the right of first refusal should
include not only the property specified in the contracts of lease but
also the appurtenant portions sold to Equatorial which are claimed
by petitioners to be indivisible. Carmelo acted in bad faith when it
sold the entire property to Equatorial without informing Mayfair, a
clear violation of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and counter-offers
between the parties, Carmelo abandoned the negotiations without
giving Mayfair full opportunity to negotiate within the 30-day
period.
Accordingly, even as it recognizes the right of first refusal, this
Court should also order that Mayfair be authorized to exercise its
right of first refusal under the contract to include the entirety of the
indivisible property. The boundaries of the property sold should be
the boundaries of the offer under the right of first refusal. As to the
remedy to enforce Mayfair's right, the Court disagrees to a certain
extent with the concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of
Appeals should be modified, if not amplified under the peculiar
facts of this case.
As also earlier emphasized, the contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract of
lease prior to the sale. Equatorial's knowledge of the stipulations
therein should have cautioned it to look further into the agreement
to determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair has a right of first refusal, it can exercise the right
only if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible
and preferred right by the contract. 26 The sale of the subject real
property by Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject property
to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period. 27
This Court has always been against multiplicity of suits where all
remedies according to the facts and the law can be included. Since
Carmelo sold the property for P11,300,000.00 to Equatorial, the
price at which Mayfair could have purchased the property is,
therefore, fixed. It can neither be more nor less. There is no dispute
over it. The damages which Mayfair suffered are in terms of actual
injury and lost opportunities. The fairest solution would be to allow
Mayfair to exercise its right of first refusal at the price which it was
entitled to accept or reject which is P11,300,000.00. This is clear
from the records.
To follow an alternative solution that Carmelo and Mayfair may
resume negotiations for the sale to the latter of the disputed
property would be unjust and unkind to Mayfair because it is once
more compelled to litigate to enforce its right. It is not proper to
give it an empty or vacuous victory in this case. From the viewpoint
of Carmelo, it is like asking a fish if it would accept the choice of
7
being thrown back into the river. Why should Carmelo be rewarded
for and allowed to profit from, its wrongdoing? Prices of real estate
have skyrocketed. After having sold the property for
P11,300,000.00, why should it be given another chance to sell it at
an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the
Court stated that there was nothing to execute because a contract
over the right of first refusal belongs to a class of preparatory
juridical relations governed not by the law on contracts but by the
codal provisions on human relations. This may apply here if the
contract is limited to the buying and selling of the real property.
However, the obligation of Carmelo to first offer the property to
Mayfair is embodied in a contract. It is Paragraph 8 on the right of
first refusal which created the obligation. It should be enforced
according to the law on contracts instead of the panoramic and
indefinite rule on human relations. The latter remedy encourages
multiplicity of suits. There is something to execute and that is for
Carmelo to comply with its obligation to the property under the
right of the first refusal according to the terms at which they should
have been offered then to Mayfair, at the price when that offer
should have been made. Also, Mayfair has to accept the offer. This
juridical relation is not amorphous nor is it merely preparatory.
Paragraphs 8 of the two leases can be executed according to their
terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately
broke a contract entered into with Mayfair. It sold the property to
Equatorial with purpose and intend to withhold any notice or
knowledge of the sale coming to the attention of Mayfair. All the
circumstances point to a calculated and contrived plan of non-
compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because
it bought the property with notice and full knowledge that Mayfair
had a right to or interest in the property superior to its own.
Carmelo and Equatorial took unconscientious advantage of
Mayfair.
Neither may Carmelo and Equatorial avail of considerations based
on equity which might warrant the grant of interests. The vendor
received as payment from the vendee what, at the time, was a full
and fair price for the property. It has used the P11,300,000.00 all
these years earning income or interest from the amount. Equatorial,
on the other hand, has received rents and otherwise profited from
the use of the property turned over to it by Carmelo. In fact, during
all the years that this controversy was being litigated, Mayfair paid
rentals regularly to the buyer who had an inferior right to purchase
the property. Mayfair is under no obligation to pay any interests
arising from this judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court
of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is
HEREBY DENIED. The Deed of Absolute Sale between
petitioners Equatorial Realty Development, Inc. and Carmelo &
Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo
& Bauermann is ordered to return to petitioner Equatorial Realty
Development the purchase price. The latter is directed to execute
the deeds and documents necessary to return ownership to Carmelo
and Bauermann of the disputed lots. Carmelo & Bauermann is
ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00.
SO ORDERED.
[G.R. No. 140479. March 8, 2001]
ROSENCOR DEVELOPMENT CORPORATION and RENE
JOAQUIN, petitioners, vs. PATERNO INQUING, IRENE
GUILLERMO, FEDERICO BANTUGAN, FERNANDO
MAGBANUA and LIZZA TIANGCO, respondents.
DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules
of Court seeking reversal of the Decision[1] of the Court of
Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court
of Appeals decision reversed and set aside the Decision[2]dated
May 13, 1996 of Branch 217 of the Regional Trial Court of Quezon
City in Civil Case No. Q-93-18582.
The case was originally filed on December 10, 1993 by Paterno
Inquing, Irene Guillermo and Federico Bantugan, herein
respondents, against Rosencor Development Corporation
(hereinafter Rosencor), Rene Joaquin, and Eufrocina de Leon.
Originally, the complaint was one for annulment of absolute deed
of sale but was later amended to one for rescission of absolute deed
of sale. A complaint-for intervention was thereafter filed by
respondents Fernando Magbanua and Danna Lizza Tiangco. The
complaint-in-intervention was admitted by the trial court in an
Order dated May 4, 1994.[3]
The facts of the case, as stated by the trial court and adopted by the
appellate court, are as follows:
This action was originally for the annulment of the Deed of
Absolute Sale dated September 4, 1990 between defendants
Rosencor and Eufrocina de Leon but later amended (sic) praying
for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees
since 1971 of a two-story residential apartment located at No. 150
Tomas Morato Ave., Quezon City covered by TCT No. 96161 and
owned by spouses Faustino and Cresencia Tiangco. The lease was
not covered by any contract. The lessees were renting the premises
then for P150.00 a month and were allegedly verbally granted by
the lessors the pre-emptive right to purchase the property if ever
they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management
of the property was adjudicated to their heirs who were represented
by Eufrocina de Leon. The lessees were allegedly promised the
same pre-emptive right by the heirs of Tiangcos since the latter had
knowledge that this right was extended to the former by the late
spouses Tiangcos. The lessees continued to stay in the premises
and allegedly spent their own money amounting from P50,000.00
to P100,000.00 for its upkeep. These expenses were never
deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila
demanding that they vacate the premises so that the demolition of
the building be undertaken. They refused to leave the premises. In
that same month, de Leon refused to accept the lessees rental
payment claiming that they have run out of receipts and that a new
collector has been assigned to receive the payments. Thereafter,
they received a letter from Eufrocina de Leon offering to sell to
them the property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the
amount of P1,000,000.00. De Leon told them that she will be
submitting the offer to the other heirs. Since then, no answer was
given by de Leon as to their offer to buy the property. However, in
November 1990, Rene Joaquin came to the leased premises
introducing himself as its new owner.
8

In January 1991, the lessees again received another letter from
Atty. Aguila demanding that they vacate the premises. A month
thereafter, the lessees received a letter from de Leon advising them
that the heirs of the late spouses Tiangcos have already sold the
property to Rosencor. The following month Atty. Aguila wrote
them another letter demanding the rental payment and introducing
herself as counsel for Rosencor/Rene Joaquin, the new owners of
the premises.
The lessees requested from de Leon why she had disregarded the
pre-emptive right she and the late Tiangcos have promised them.
They also asked for a copy of the deed of sale between her and the
new owners thereof but she refused to heed their request. In the
same manner, when they asked Rene Joaquin a copy of the deed of
sale, the latter turned down their request and instead Atty. Aguila
wrote them several letters demanding that they vacate the premises.
The lessees offered to tender their rental payment to de Leon but
she refused to accept the same.
In April 1992 before the demolition can be undertaken by the
Buiding Official, the barangay interceded between the parties
herein after which Rosencor raised the issue as to the rental
payment of the premises. It was also at this instance that the lessees
were furnished with a copy of the Deed of Sale and discovered that
they were deceived by de Leon since the sale between her and Rene
Joaquin/Rosencor took place in September 4, 1990 while de Leon
made the offer to them only in October 1990 or after the sale with
Rosencor had been consummated. The lessees also noted that the
property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of
P726,000.00 plus an additional P274,000.00 to complete their
P1,000.000.00 earlier offer. When their offer was refused, they
filed the present action praying for the following: a) rescission of
the Deed of Absolute Sale between de Leon and Rosencor dated
September 4, 1990; b) the defendants Rosencor/Rene Joaquin be
ordered to reconvey the property to de Leon; and c) de Leon be
ordered to reimburse the plaintiffs for the repairs of the property,
or apply the said amount as part of the price for the purchase of the
property in the sum of P100,000.00.[4]
After trial on the merits, the Regional Trial Court rendered a
Decision[5] dated May 13, 1996 dismissing the complaint. The
trial court held that the right of redemption on which the complaint
was based was merely an oral one and as such, is unenforceable
under the law. The dispositive portion of the May 13, 1996
Decision is as follows:
WHEREFORE, in view of the foregoing, the Court DISMISSES
the instant action. Plaintiffs and plaintiffs-intervenors are hereby
ordered to pay their respective monthly rental of P1,000.00 per
month reckoned from May 1990 up to the time they leave the
premises. No costs.
SO ORDERED.[6]
Not satisfied with the decision of the trial court, respondents herein
filed a Notice of Appeal dated June 3, 1996. On the same date, the
trial court issued an Order for the elevation of the records of the
case to the Court of Appeals. On August 8, 1997, respondents filed
their appellate brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision[7]
reversing the decision of the trial court. The dispositive portion of
the June 25, 1999 decision is as follows:
WHEREFORE, premises considered, the appealed decision (dated
May 13, 1996) of the Regional Trial Court (Branch 217) in Quezon
City in Case No. Q-93-18582 is hereby REVERSED and SET
ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed between
the appellees on September 4, 1990;
(2) The reconveyance of the subject premises to appellee Eufrocina
de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee
Eufrocina de Leon, to afford the appellants thirty days within
which to exercise their right of first refusal by paying the amount
of ONE MILLION PESOS (P1,000,000.00) for the subject
property; and
(4) The appellants to, in turn, pay the appellees back rentals from
May 1990 up to the time this decision is promulgated.
No pronouncement as to costs.
SO ORDERED.[8]
Petitioners herein filed a Motion for Reconsideration of the
decision of the Court of Appeals but the same was denied in a
Resolution dated October 15, 1999.[9]
Hence, this petition for review on certiorari where petitioners
Rosencor Development Corporation and Rene Joaquin raise the
following assignment of errors[10]:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
ORDERED THE RESCISSION OF THE ABSOLUTE DEED OF
SALE BETWEEN EUFROCINA DE LEON AND PETITIONER
ROSENCOR.
II.
THE COURT OF APPEALS COMMITTED MANIFEST ERROR
IN MANDATING THAT EUFROCINA DE LEON AFFORD
RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR
RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN
CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL DESPITE
PETITIONERS RELIANCE ON THEIR DEFENSE BASED ON
THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses
Faustino and Crescencia Tiangco, did not appeal the decision of
the Court of Appeals.
At the onset, we note that both the Court of Appeals and the
Regional Trial Court relied on Article 1403 of the New Civil Code,
more specifically the provisions on the statute of frauds, in coming
out with their respective decisions. The trial court, in denying the
petition for reconveyance, held that right of first refusal relied upon
by petitioners was not reduced to writing and as such, is
unenforceable by virtue of the said article. The Court of Appeals,
on the other hand, also held that the statute of frauds governs the
right of first refusal claimed by respondents. However, the
appellate court ruled that respondents had duly proven the same by
reason of petitioners waiver of the protection of the statute by
reason of their failure to object to the presentation of oral evidence
of the said right.
9

Both the appellate court and the trial court failed to discuss,
however, the threshold issue of whether or not a right of first
refusal is indeed covered by the provisions of the New Civil Code
on the statute of frauds. The resolution of the issue on the
applicability of the statute of frauds is important as it will
determine the type of evidence which may be considered by the
trial court as proof of the alleged right of first refusal.
The term statute of frauds is descriptive of statutes which require
certain classes of contracts to be in writing. This statute does not
deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. Thus, they are included
in the provisions of the New Civil Code regarding unenforceable
contracts, more particularly Art. 1403, paragraph 2. Said article
provides, as follows:
Art. 1403. The following contracts are unenforceable, unless they
are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of
its contents:
a) An agreement that by its terms is not to be performed within a
year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage
of another;
c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action,
at a price not less than five hundred pesos, unless the buyer accept
and receive part of such goods and chattels, or the evidences, or
some of them, of such things in action, or pay at the time some part
of the purchase money; but when a sale is made by auction and
entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price,
names of purchasers and person on whose account the sale is made,
it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year,
or for the sale of real property or of an interest therein;
f) A representation to the credit of a third person.
The purpose of the statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by
the party to be charged.[11] Moreover, the statute of frauds refers
to specific kinds of transactions and cannot apply to any other
transaction that is not enumerated therein.[12] The application of
such statute presupposes the existence of a perfected contract.[13]
The question now is whether a right of first refusal is among those
enumerated in the list of contracts covered by the Statute of Frauds.
More specifically, is a right of first refusal akin to an agreement for
the leasing of a longer period than one year, or for the sale of real
property or of an interest therein as contemplated by Article 1403,
par. 2(e) of the New Civil Code.
We have previously held that not all agreements affecting land
must be put into writing to attain enforceability[14]. Thus, we have
held that the setting up of boundaries,[15] the oral partition of real
property[16], and an agreement creating a right of way[17] are not
covered by the provisions of the statute of frauds. The reason
simply is that these agreements are not among those enumerated in
Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable
under the statute of frauds. Furthermore, the application of Article
1403, par. 2(e) of the New Civil Code presupposes the existence of
a perfected, albeit unwritten, contract of sale.[18] A right of first
refusal, such as the one involved in the instant case, is not by any
means a perfected contract of sale of real property. At best, it is a
contractual grant, not of the sale of the real property involved, but
of the right of first refusal over the property sought to be sold[19]
It is thus evident that the statute of frauds does not contemplate
cases involving a right of first refusal. As such, a right of first
refusal need not be written to be enforceable and may be proven by
oral evidence.
The next question to be ascertained is whether or not respondents
have satisfactorily proven their right of first refusal over the
property subject of the Deed of Absolute Sale dated September 4,
1990 between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of
Appeals that respondents have adequately proven the existence of
their right of first refusal. Federico Bantugan, Irene Guillermo, and
Paterno Inquing uniformly testified that they were promised by the
late spouses Faustino and Crescencia Tiangco and, later on, by
their heirs a right of first refusal over the property they were
currently leasing should they decide to sell the same. Moreover,
respondents presented a letter[20] dated October 9, 1990 where
Eufrocina de Leon, the representative of the heirs of the spouses
Tiangco, informed them that they had received an offer to buy the
disputed property for P2,000,000.00 and offered to sell the same to
the respondents at the same price if they were interested. Verily, if
Eufrocina de Leon did not recognize respondents right of first
refusal over the property they were leasing, then she would not
have bothered to offer the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the
trial court contradicting the existence of the right of first refusal of
respondents over the disputed property. They only presented
petitioner Rene Joaquin, the vice-president of petitioner Rosencor,
who admitted having no personal knowledge of the details of the
sales transaction between Rosencor and the heirs of the spouses
Tiangco[21] They also dispensed with the testimony of Eufrocina
de Leon[22] who could have denied the existence or knowledge of
the right of first refusal. As such, there being no evidence to the
contrary, the right of first refusal claimed by respondents was
substantially proven by respondents before the lower court.
Having ruled upon the question as to the existence of respondents
right of first refusal, the next issue to be answered is whether or not
the Court of Appeals erred in ordering the rescission of the Deed
of Absolute Sale dated September 4, 1990 between Rosencor and
Eufrocina de Leon and in decreeing that the heirs of the spouses
Tiangco should afford respondents the exercise of their right of
first refusal. In other words, may a contract of sale entered into in
violation of a third partys right of first refusal be rescinded in order
that such third party can exercise said right?
The issue is not one of first impression.
10

In Guzman, Bocaling and Co, Inc. vs. Bonnevie[23], the Court
upheld the decision of a lower court ordering the rescission of a
deed of sale which violated a right of first refusal granted to one of
the parties therein. The Court held:
xxx Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381 (3) of the Civil Code, a contract otherwise
valid may nonetheless be subsequently rescinded by reason of
injury to third persons, like creditors. The status of creditors could
be validly accorded the Bonnevies for they had substantial interests
that were prejudiced by the sale of the subject property to the
petitioner without recognizing their right of first priority under the
Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to
the contracting parties and even to third persons, to secure
reparations for damages caused to them by a contract, even if this
should be valid, by means of the restoration of things to their
condition at the moment prior to the celebration of said contract. It
is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the
contract may cause, or to protect some incompatible and preferent
right created by the contract. Rescission implies a contract which,
even if initially valid, produces a lesion or pecuniary damage to
someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its rescission
where it is shown that such third person is in lawful possession of
the subject of the contract and that he did not act in bad faith.
However, this rule is not applicable in the case before us because
the petitioner is not considered a third party in relation to the
Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract
of Sale. Moreover, the petitioner cannot be deemed a purchaser in
good faith for the record shows that it categorically admitted that
it was aware of the lease in favor of the Bonnevies, who were
actually occupying the subject property at the time it was sold to it.
Although the Contract of Lease was not annotated on the transfer
certificate of title in the name of the late Jose Reynoso and Africa
Reynoso, the petitioner cannot deny actual knowledge of such
lease which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person has a
right to or interest in such property without and pays a full and fair
price for the same at the time of such purchase or before he has
notice of the claim or interest of some other person in the property.
Good faith connotes an honest intention to abstain from taking
unconscientious advantage of another. Tested by these principles,
the petitioner cannot tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the
agreement to determine if it involved stipulations that would
prejudice its own interests.
Subsequently[24] in Equatorial Realty and Development, Inc. vs.
Mayfair Theater, Inc.[25], the Court, en banc, with three justices
dissenting,[26] ordered the rescission of a contract entered into in
violation of a right of first refusal. Using the ruling in Guzman
Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that
since respondent therein had a right of first refusal over the said
property, it could only exercise the said right if the fraudulent sale
is first set aside or rescinded. Thus:
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the
latter of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made
by both parties. Carmelo, however, did not pursue the exercise to
its logical end. While it initially recognized Mayfairs right of first
refusal, Carmelo violated such right when without affording its
negotiations with Mayfair the full process to ripen to at least an
interface of a definite offer and a possible corresponding
acceptance within the 30-day exclusive option time granted
Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire
Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question, rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers
had, prior to the sale, studied the said contracts. As such, Equatorial
cannot tenably claim that to be a purchaser in good faith, and,
therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract of
lease prior to the sale. Equatorials knowledge of the stipulations
therein should have cautioned it to look further into the agreement
to determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair had a right of first refusal, it can exercise the right
only if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and now.
Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible
and preferred right by the contract. The sale of the subject real
property should now be rescinded considering that Mayfair, which
had substantial interest over the subject property, was prejudiced
by the sale of the subject property to Equatorial without Carmelo
conferring to Mayfair every opportunity to negotiate within the 30-
day stipulate period.[27]
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,[28] the
Court held that the allegations in a complaint showing violation of
a contractual right of first option or priority to buy the properties
subject of the lease constitute a valid cause of action enforceable
by an action for specific performance. Summarizing the rulings in
the two previously cited cases, the Court affirmed the nature of and
concomitant rights and obligations of parties under a right of first
refusal. Thus:
We hold however, that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the
sale of the properties for the amount of P9,000,000.00, the price
for which they were finally sold to respondent Raymundo, should
have likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the
concept of, and obligations under, a right of first refusal in the case
11
of Guzman, Bocaling & Co. vs. Bonnevie. In that case, under a
contract of lease, the lessees (Raul and Christopher Bonnevie) were
given a "right of first priority" to purchase the leased property in
case the lessor (Reynoso) decided to sell. The selling price quoted
to the Bonnevies was 600,000.00 to be fully paid in cash, less a
mortgage lien of P100,000.00. On the other hand, the selling price
offered by Reynoso to and accepted by Guzman was only
P400,000.00 of which P137,500.00 was to be paid in cash while
the balance was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not buy it at
the price quoted (P600,000.00), nonetheless, Reynoso could not
sell it to another for a lower price and under more favorable terms
and conditions without first offering said favorable terms and price
to the Bonnevies as well. Only if the Bonnevies failed to exercise
their right of first priority could Reynoso thereafter lawfully sell
the subject property to others, and only under the same terms and
conditions previously offered to the Bonnevies.
XXX
This principle was reiterated in the very recent case of Equatorial
Realty vs. Mayfair Theater, Inc. which was decided en banc. This
Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty "considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair
provided "that if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair
indicated interest in purchasing the property though it invoked the
30-day period. Nothing was heard thereafter from Carmelo. Four
years later, the latter sold its entire Recto Avenue property,
including the leased premises, to Equatorial for P11,300,000.00
without priorly informing Mayfair. The Court held that both
Carmelo and Equatorial acted in bad faith: Carmelo for knowingly
violating the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale, the
Court ordered Carmelo to allow Mayfair to buy the subject
property at the same price of P11,300,000.00.
In the recent case of Litonjua vs. L&R Corporation,[29] the Court,
also citing the case of Guzman, Bocaling & Co. vs. Bonnevie, held
that the sale made therein in violation of a right of first refusal
embodied in a mortgage contract, was rescissible. Thus:
While petitioners question the validity of paragraph 8 of their
mortgage contract, they appear to be silent insofar as paragraph 9
thereof is concerned. Said paragraph 9 grants upon L&R
Corporation the right of first refusal over the mortgaged property
in the event the mortgagor decides to sell the same. We see nothing
wrong in this provision. The right of first refusal has long been
recognized as valid in our jurisdiction. The consideration for the
loan mortgage includes the consideration for the right of first
refusal. L&R Corporation is in effect stating that it consents to lend
out money to the spouses Litonjua provided that in case they decide
to sell the property mortgaged to it, then L&R Corporation shall be
given the right to match the offered purchase price and to buy the
property at that price. Thus, while the spouses Litonjua had every
right to sell their mortgaged property to PWHAS without securing
the prior written consent of L&R Corporation, they had the
obligation under paragraph 9, which is a perfectly valid provision,
to notify the latter of their intention to sell the property and give it
priority over other buyers. It is only upon the failure of L&R
Corporation to exercise its right of first refusal could the spouses
Litonjua validly sell the subject properties to the others, under the
same terms and conditions offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of
L & R Corporation's contractual right of first refusal? On this score,
we agree with the Amended Decision of the Court of Appeals that
the sale made to PWHAS is rescissible. The case of Guzman,
Bocaling & Co. v. Bonnevie is instructive on this point.
XXX
It was then held that the Contract of Sale there, which violated the
right of first refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of
first refusal granted to L & R Corporation over the subject
properties since the Deed of Real Estate Mortgage containing such
a provision was duly registered with the Register of Deeds. As
such, PWHAS is presumed to have been notified thereof by
registration, which equates to notice to the whole world.
XXX
All things considered, what then are the relative rights and
obligations of the parties? To recapitulate: the sale between the
spouses Litonjua and PWHAS is valid, notwithstanding the
absence of L & R Corporation's prior written consent thereto.
Inasmuch as the sale to PWHAS was valid, its offer to redeem and
its tender of the redemption price, as successor-in-interest of the
spouses Litonjua, within the one-year period should have been
accepted as valid by the L & R Corporation. However, while the
sale is, indeed, valid, the same is rescissible because it ignored L
& R Corporation's right of first refusal.
Thus, the prevailing doctrine, as enunciated in the cited cases, is
that a contract of sale entered into in violation of a right of first
refusal of another person, while valid, is rescissible.
There is, however, a circumstance which prevents the application
of this doctrine in the case at bench. In the cases cited above, the
Court ordered the rescission of sales made in violation of a right of
first refusal precisely because the vendees therein could not have
acted in good faith as they were aware or should have been aware
of the right of first refusal granted to another person by the vendors
therein. The rationale for this is found in the provisions of the New
Civil Code on rescissible contracts. Under Article 1381 of the New
Civil Code, paragraph 3, a contract validly agreed upon may be
rescinded if it is undertaken in fraud of creditors when the latter
cannot in any manner collect the claim due them. Moreover, under
Article 1385, rescission shall not take place when the things which
are the object of the contract are legally in the possession of third
persons who did not act in bad faith.[30]
It must be borne in mind that, unlike the cases cited above, the right
of first refusal involved in the instant case was an oral one given to
respondents by the deceased spouses Tiangco and subsequently
recognized by their heirs. As such, in order to hold that petitioners
were in bad faith, there must be clear and convincing proof that
petitioners were made aware of the said right of first refusal either
by the respondents or by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary
evidence is adduced.[31] A purchaser in good faith is one who buys
the property of another without notice that some other person has
a right or interest in such a property and pays a full and fair price
at the time of the purchase or before he has notice of the claim or
interest of some other person in the property.[32] In this regard, the
rule on constructive notice would be inapplicable as it is
12
undisputed that the right of first refusal was an oral one and that
the same was never reduced to writing, much less registered with
the Registry of Deeds. In fact, even the lease contract by which
respondents derive their right to possess the property involved was
an oral one.
On this point, we hold that the evidence on record fails to show that
petitioners acted in bad faith in entering into the deed of sale over
the disputed property with the heirs of the spouses Tiangco.
Respondents failed to present any evidence that prior to the sale of
the property on September 4, 1990, petitioners were aware or had
notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 1990[33] as indicative
of petitioners knowledge of the said right. In this letter, a certain
Atty. Erlinda Aguila demanded that respondent Irene Guillermo
vacate the structure they were occupying to make way for its
demolition.
We fail to see how the letter could give rise to bad faith on the part
of the petitioner. No mention is made of the right of first refusal
granted to respondents. The name of petitioner Rosencor or any of
it officers did not appear on the letter and the letter did not state
that Atty. Aguila was writing in behalf of petitioner. In fact, Atty.
Aguila stated during trial that she wrote the letter in behalf of the
heirs of the spouses Tiangco. Moreover, even assuming that Atty.
Aguila was indeed writing in behalf of petitioner Rosencor, there
is no showing that Rosencor was aware at that time that such a right
of first refusal existed.
Neither was there any showing that after receipt of this June 1,
1990 letter, respondents notified Rosencor or Atty. Aguila of their
right of first refusal over the property. Respondents did not try to
communicate with Atty. Aguila and inform her about their
preferential right over the disputed property. There is even no
showing that they contacted the heirs of the spouses Tiangco after
they received this letter to remind them of their right over the
property.
Respondents likewise point to the letter dated October 9, 1990 of
Eufrocina de Leon, where she recognized the right of first refusal
of respondents, as indicative of the bad faith of petitioners. We do
not agree. Eufrocina de Leon wrote the letter on her own behalf
and not on behalf of petitioners and, as such, it only shows that
Eufrocina de Leon was aware of the existence of the oral right of
first refusal. It does not show that petitioners were likewise aware
of the existence of the said right. Moreover, the letter was made a
month after the execution of the Deed of Absolute Sale on
September 4, 1990 between petitioner Rosencor and the heirs of
the spouses Tiangco. There is no showing that prior to the date of
the execution of the said Deed, petitioners were put on notice of
the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on
respondents evidence, it would only be on the part of Eufrocina de
Leon as she was aware of the right of first refusal of respondents
yet she still sold the disputed property to Rosencor. However, bad
faith on the part of Eufrocina de Leon does not mean that petitioner
Rosencor likewise acted in bad faith. There is no showing that prior
to the execution of the Deed of Absolute Sale, petitioners were
made aware or put on notice of the existence of the oral right of
first refusal. Thus, absent clear and convincing evidence to the
contrary, petitioner Rosencor will be presumed to have acted in
good faith in entering into the Deed of Absolute Sale over the
disputed property.
Considering that there is no showing of bad faith on the part of the
petitioners, the Court of Appeals thus erred in ordering the
rescission of the Deed of Absolute Sale dated September 4, 1990
between petitioner Rosencor and the heirs of the spouses Tiangco.
The acquisition by Rosencor of the property subject of the right of
first refusal is an obstacle to the action for its rescission where, as
in this case, it was shown that Rosencor is in lawful possession of
the subject of the contract and that it did not act in bad faith.[34]
This does not mean however that respondents are left without any
remedy for the unjustified violation of their right of first refusal.
Their remedy however is not an action for the rescission of the
Deed of Absolute Sale but an action for damages against the heirs
of the spouses Tiangco for the unjustified disregard of their right
of first refusal[35].
WHEREFORE, premises considered, the decision of the Court of
Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The
Decision dated May 13, 1996 of the Quezon City Regional Trial
Court, Branch 217 is hereby REINSTATED insofar as it dismisses
the action for rescission of the Deed of Absolute Sale dated
September 4, 1990 and orders the payment of monthly rentals of
P1,000.00 per month reckoned from May 1990 up to the time
respondents leave the premises.
SO ORDERED.
[G.R. No. 144169. March 28, 2001]
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY
KHE and RAY STEVEN KHE, petitioners, vs. COURT OF
APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI
CITY and PHILAM INSURANCE CO., INC., respondents.
DECISION
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule
45, seeking to set aside the decision of the Court of Appeals dated
April 10, 2000 and its resolution dated July 11, 2000 denying the
motion for reconsideration of the aforesaid decision. The original
complaint that is the subject matter of this case is an accion
pauliana-- an action filed by Philam Insurance Company, Inc.
(respondent Philam) to rescind or annul the donations made by
petitioner Khe Hong Cheng allegedly in fraud of creditors. The
main issue for resolution is whether or not the action to rescind the
donations has already prescribed. While the first paragraph of
Article 1389 of the Civil Code states: The action to claim rescission
must be commenced within four years... the question is, from
which point or event does this prescriptive period commence to
run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of
Butuan Shipping Lines. It appears that on or about October 4, 1985,
the Philippine Agricultural Trading Corporation shipped on board
the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong
Cheng, 3,400 bags of copra at Masbate, Masbate, for delivery to
Dipolog City, Zamboanga del Norte. The said shipment of copra
was covered by a marine insurance policy issued by American
Home Insurance Company (respondent Philam's assured). M/V
PRINCE ERIC, however, sank somewhere between Negros Island
and Northeastern Mindanao, resulting in the total loss of the
shipment. Because of the loss, the insurer, American Home, paid
the amount of P354,000.00 (the value of the copra) to the
consignee.
Having been subrogated into the rights of the consignee, American
Home instituted Civil Case No. 13357 in the Regional Trial Court
(RTC) of Makati, Branch 147 to recover the money paid to the
consignee, based on breach of contract of carriage. While the case
13
was still pending, or on December 20, 1989, petitioner Khe Hong
Cheng executed deeds of donations of parcels of land in favor of
his children, herein co-petitioners Sandra Joy and Ray Steven. The
parcel of land with an area of 1,000 square meters covered by
Transfer Certificate of Title (TCT) No. T-3816 was donated to Ray
Steven. Petitioner Khe Hong Cheng likewise donated in favor of
Sandra Joy two (2) parcels of land located in Butuan City, covered
by TCT No. RT-12838. On the basis of said deeds, TCT No. T-
3816 was cancelled and in lieu thereof, TCT No. T-5072 was
issued in favor of Ray Steven and TCT No. RT-12838 was
cancelled and in lieu thereof, TCT No. RT-21054 was issued in the
name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong
Cheng in Civil Case No. 13357 on December 29, 1993, four years
after the donations were made and the TCTs were registered in the
donees names. The decretal portion of the aforesaid decision reads:
Wherefore, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against the defendant,
ordering the latter to pay the former:
1) the sum of P354,000.00 representing the amount paid by the
plaintiff to the Philippine Agricultural Trading Corporation with
legal interest at 12% from the time of the filing of the complaint in
this case;
2) the sum of P50,000.00 as attorneys fees;
3) the costs.[1]
After the said decision became final and executory, a writ of
execution was forthwith issued on September 14, 1995. Said writ
of execution, however, was not served. An alias writ of execution
was, thereafter, applied for and granted in October 1996. Despite
earnest efforts, the sheriff found no property under the name of
Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy
or garnish for the satisfaction of the trial court's decision. When the
sheriff, accompanied by counsel of respondent Philam, went to
Butuan City on January 17, 1997, to enforce the alias writ of
execution, they discovered that petitioner Khe Hong Cheng no
longer had any property and that he had conveyed the subject
properties to his children.
On February 25, 1997, respondent Philam filed a complaint with
the Regional Trial Court of Makati City, Branch 147, for the
rescission of the deeds of donation executed by petitioner Khe
Hong Cheng in favor of his children and for the nullification of
their titles (Civil Case No. 97-415). Respondent Philam alleged,
inter alia, that petitioner Khe Hong Cheng executed the aforesaid
deeds in fraud of his creditors, including respondent Philam.[2]
Petitioners subsequently filed their answer to the complaint a quo.
They moved for its dismissal on the ground that the action had
already prescribed. They posited that the registration of the deeds
of donation on December 27, 1989 constituted constructive notice
and since the complaint a quo was filed only on February 25, 1997,
or more than four (4) years after said registration, the action was
already barred by prescription.[3]
Acting thereon, the trial court denied the motion to dismiss. It held
that respondent Philam's complaint had not yet prescribed.
According to the trial court, the prescriptive period began to run
only from December 29, 1993, the date of the decision of the trial
court in Civil Case No. 13357.[4]
On appeal by petitioners, the CA affirmed the trial court's decision
in favor of respondent Philam. The CA declared that the action to
rescind the donations had not yet prescribed. Citing Articles 1381
and 1383 of the Civil Code, the CA basically ruled that the four
year period to institute the action for rescission began to run only
in January 1997, and not when the decision in the civil case became
final and executory on December 29, 1993. The CA reckoned the
accrual of respondent Philam's cause of action on January 1997,
the time when it first learned that the judgment award could not be
satisfied because the judgment creditor, petitioner Khe Hong
Cheng, had no more properties in his name. Prior thereto,
respondent Philam had not yet exhausted all legal means for the
satisfaction of the decision in its favor, as prescribed under Article
1383 of the Civil Code.[5]
The Court of Appeals thus denied the petition for certiorari filed
before it, and held that the trial court did not commit any error in
denying petitioners' motion to dismiss. Their motion for
reconsideration was likewise dismissed in the appellate court's
resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the
CA alleging that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN
GRAVE ABUSE OF DISCRETION WHEN IT DENIED THE
PETITION TO DISMISS THE CASE BASED ON THE
GROUND OF PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT PRESCRIPTION BEGINS TO
RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF
PETITIONER FELIX KHE CHENG TO SATISFY THE
JUDGMENT IN CIVIL CASE NO. 13357 AND FOUND OUT
THAT AS EARLY AS DEC. 20, 1989, PETITIONERS KHE
CHENG EXECUTED THE DEEDS OF DONATIONS IN
FAVOR OF HIS CO-PETITIONERS THAT THE ACTION FOR
RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN
TO RUN WHEN THESE DONATIONS WERE REGISTERED
WITH THE REGISTER OF DEEDS IN DECEMBER 1989, AND
WHEN THE COMPLAINT WAS FILED ONLY IN FEBRUARY
1997, MORE THAN FOUR YEARS HAVE ALREADY
LAPSED AND THEREFORE, IT HAS ALREADY
PRESCRIBED.[6]
Essentially, the issue for resolution posed by petitioners is this:
When did the four (4) year prescriptive period as provided for in
Article 1389 of the Civil Code for respondent Philam to file its
action for rescission of the subject deeds of donation commence to
run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, The action to
claim rescission must be commenced within four years. Since this
provision of law is silent as to when the prescriptive period would
commence, the general rule, i.e, from the moment the cause of
action accrues, therefore, applies. Article 1150 of the Civil Code is
particularly instructive:
Art. 1150. The time for prescription for all kinds of actions, when
there is no special provision which ordains otherwise, shall be
counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the starting
14
point for the computation of the prescriptive period for the
action.[7] Article 1383 of the Civil Code provides as follows:
Art. 1383. An action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other
legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana
must be of last resort, availed of only after all other legal remedies
have been exhausted and have been proven futile. For an accion
pauliana to accrue, the following requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to the
alienation, although demandable later; 2) That the debtor has made
a subsequent contract conveying a patrimonial benefit to a third
person; 3) That the creditor has no other legal remedy to satisfy his
claim, but would benefit by rescission of the conveyance to the
third person; 4) That the act being impugned is fraudulent; 5) That
the third person who received the property conveyed, if by onerous
title, has been an accomplice in the fraud.[8] (Emphasis ours)
We quote with approval the following disquisition of the CA on
the matter:
An accion pauliana accrues only when the creditor discovers that
he has no other legal remedy for the satisfaction of his claim
against the debtor other than an accion pauliana. The accion
pauliana is an action of a last resort. For as long as the creditor still
has a remedy at law for the enforcement of his claim against the
debtor, the creditor will not have any cause of action against the
creditor for rescission of the contracts entered into by and between
the debtor and another person or persons. Indeed, an accion
pauliana presupposes a judgment and the issuance by the trial court
of a writ of execution for the satisfaction of the judgment and the
failure of the Sheriff to enforce and satisfy the judgment of the
court. It presupposes that the creditor has exhausted the property
of the debtor. The date of the decision of the trial court against the
debtor is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the debtor of
his property. After all, the decision of the trial court against the
debtor will retroact to the time when the debtor became indebted
to the creditor.[9]
Petitioners, however, maintain that the cause of action of
respondent Philam against them for the rescission of the deeds of
donation accrued as early as December 27, 1989, when petitioner
Khe Hong Cheng registered the subject conveyances with the
Register of Deeds. Respondent Philam allegedly had constructive
knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:
Section 52. Constructive knowledge upon registration. Every
conveyance, mortgage, lease, lien, attachment, order, judgment,
instrument or entry affecting registered land shall, if registered,
filed or entered in the Office of the Register of Deeds for the
province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering,
filing, or entering.
Petitioners argument that the Civil Code must yield to the
Mortgage and Registration Laws is misplaced, for in no way does
this imply that the specific provisions of the former may be all
together ignored. To count the four year prescriptive period to
rescind an allegedly fraudulent contract from the date of
registration of the conveyance with the Register of Deeds, as
alleged by the petitioners, would run counter to Article 1383 of the
Civil Code as well as settled jurisprudence. It would likewise
violate the third requisite to file an action for rescission of an
allegedly fraudulent conveyance of property, i.e., the creditor has
no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment;
2) the issuance by the trial court of a writ of execution for the
satisfaction of the judgment, and 3) the failure of the sheriff to
enforce and satisfy the judgment of the court. It requires that the
creditor has exhausted the property of the debtor. The date of the
decision of the trial court is immaterial. What is important is that
the credit of the plaintiff antedates that of the fraudulent alienation
by the debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor became
indebted to the creditor.
Tolentino, a noted civilist, explained:
xxx[T]herefore, credits with suspensive term or condition are
excluded, because the accion pauliana presupposes a judgment and
unsatisfied execution, which cannot exist when the debt is not yet
demandable at the time the rescissory action is brought. Rescission
is a subsidiary action, which presupposes that the creditor has
exhausted the property of the debtor which is impossible in credits
which cannot be enforced because of a suspensive term or
condition.
While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory with
retroactive effect to the date when the credit was constituted.[10]
These principles were reiterated by the Court when it explained the
requisites of an accion pauliana in greater detail, to wit:
The following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly
fraudulent sale: (1) exhaust the properties of the debtor through
levying by attachment and execution upon all the property of the
debtor, except such as are exempt from execution; (2) exercise all
the rights and actions of the debtor, save those personal to him
(accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana).
Without availing of the first and second remedies, i.e., exhausting
the properties of the debtor or subrogating themselves in Francisco
Baregs transmissible rights and actions, petitioners simply
undertook the third measure and filed an action for annulment of
sale. This cannot be done.[11] (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA
when it upheld the dismissal of the accion pauliana on the basis of
lack of cause of action:
In this case, plaintiffs appellants had not even commenced an
action against defendants-appellees Bareng for the collection of the
alleged indebtedness. Plaintiffs-appellants had not even tried to
exhaust the property of defendants-appellees Bareng. Plaintiffs-
appellants, in seeking the rescission of the contracts of sale entered
into between defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property, either at the
time of the sale or at the time this action was filed, out of which
they could have collected this (sic) debts. (Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989,
that petitioner Khe Hong Cheng had executed the deeds of
donation in favor of his children, the complaint against Butuan
Shipping Lines and/or petitioner Khe Hong Cheng was still
pending before the trial court. Respondent Philam had no inkling,
at the time, that the trial court's judgment would be in its favor and
further, that such judgment would not be satisfied due to the deeds
15
of donation executed by petitioner Khe Hong Cheng during the
pendency of the case. Had respondent Philam filed his complaint
on December 27, 1989, such complaint would have been dismissed
for being premature. Not only were all other legal remedies for the
enforcement of respondent Philams claims not yet exhausted at the
time the deeds of donation were executed and registered.
Respondent Philam would also not have been able to prove then
that petitioner Khe Hong Chneg had no more property other than
those covered by the subject deeds to satisfy a favorable judgment
by the trial court.
It bears stressing that petitioner Khe Hong Cheng even expressly
declared and represented that he had reserved to himself property
sufficient to answer for his debts contracted prior to this date:
That the DONOR further states, for the same purpose as expressed
in the next preceding paragraph, that this donation is not made with
the object of defrauding his creditors having reserved to himself
property sufficient to answer his debts contracted prior to this
date.[12]
As mentioned earlier, respondent Philam only learned about the
unlawful conveyances made by petitioner Khe Hong Cheng in
January 1997 when its counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner Khe Hong Cheng. There
they found that he no longer had any properties in his name. It was
only then that respondent Philam's action for rescission of the
deeds of donation accrued because then it could be said that
respondent Philam had exhausted all legal means to satisfy the trial
court's judgment in its favor. Since respondent Philam filed its
complaint for accion pauliana against petitioners on February 25,
1997, barely a month from its discovery that petitioner Khe Hong
Cheng had no other property to satisfy the judgment award against
him, its action for rescission of the subject deeds clearly had not
yet prescribed.
A final point. Petitioners now belatedly raise on appeal the defense
of improper venue claiming that respondent Philams complaint is
a real action and should have been filed with the RTC of Butuan
City since the property subject matter of the donations are located
therein. Suffice it to say that petitioners are already deemed to have
waived their right to question the venue of the instant case.
Improper venue should be objected to as follows 1) in a motion to
dismiss filed within the time but before the filing of the
answer;[13] or 2) in the answer as an affirmative defense over
which, in the discretion of the court, a preliminary hearing may be
held as if a motion to dismiss had been filed.[14] Having failed to
either file a motion to dismiss on the ground of improper of venue
or include the same as an affirmative defense in their answer,
petitioners are deemed to have their right to object to improper
venue.
WHEREFORE, premises considered, the petition is hereby
DENIED for lack of merit.
SO ORDERED.
G.R. No. 152347 June 21, 2006
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.
SPS. ALFREDO ONG AND SUSANA ONG and JACKSON
LEE, Respondents.
DECISION
GARCIA, J.:
By this petition for review under Rule 45 of the Rules of Court,
petitioner Union Bank of the Philippines (Union Bank) seeks to set
aside the decision1 dated December 5, 2001 of the Court of
Appeals (CA) in CA-G.R. No. 66030 reversing an earlier decision
of the Regional Trial Court (RTC) of Pasig City in Civil Case No.
61601, a suit thereat commenced by the petitioner against the
herein respondents for annulment or rescission of sale in fraud of
creditors.
The facts:
Herein respondents, the spouses Alfredo Ong and Susana Ong,
own the majority capital stock of Baliwag Mahogany Corporation
(BMC). On October 10, 1990, the spouses executed a Continuing
Surety Agreement in favor of Union Bank to secure a
P40,000,000.00-credit line facility made available to BMC. The
agreement expressly stipulated a solidary liability undertaking.
On October 22, 1991, or about a year after the execution of the
surety agreement, the spouses Ong, for P12,500,000.00, sold their
974-square meter lot located in Greenhills, San Juan, Metro
Manila, together with the house and other improvements standing
thereon, to their co-respondent, Jackson Lee (Lee, for short). The
following day, Lee registered the sale and was then issued Transfer
Certificate of Title (TCT) No. 4746-R. At about this time, BMC
had already availed itself of the credit facilities, and had in fact
executed a total of twenty-two (22) promissory notes in favor of
Union Bank.
On November 22, 1991, BMC filed a Petition for Rehabilitation
and for Declaration of Suspension of Payments with the Securities
and Exchange Commission (SEC). To protect its interest, Union
Bank lost no time in filing with the RTC of Pasig City an action
for rescission of the sale between the spouses Ong and Jackson Lee
for purportedly being in fraud of creditors.
In its complaint, docketed as Civil Case No. 61601 and eventually
raffled to Branch 157 of the court, Union Bank assailed the validity
of the sale, alleging that the spouses Ong and Lee entered into the
transaction in question for the lone purpose of fraudulently
removing the property from the reach of Union Bank and other
creditors. The fraudulent design, according to Union Bank, is
evidenced by the following circumstances: (1) insufficiency of
consideration, the purchase price of P12,500,000.00 being below
the fair market value of the subject property at that time; (2) lack
of financial capacity on the part of Lee to buy the property at that
time since his gross income for the year 1990, per the credit
investigation conducted by the bank, amounted to only
P346,571.73; and (3) Lee did not assert absolute ownership over
the property as he allowed the spouses Ong to retain possession
thereof under a purported Contract of Lease dated October 29,
1991.
Answering, herein respondents, as defendants a quo, maintained,
in the main, that both contracts of sale and lease over the Greenhills
property were founded on good and valid consideration and
executed in good faith. They also scored Union Bank for forum
shopping, alleging that the latter is one of the participating
creditors in BMCs petition for rehabilitation.
Issues having been joined, trial followed. On September 27, 1999,
the trial court, applying Article 1381 of the Civil Code and noting
that the evidence on record "present[s] a holistic combination of
circumstances distinctly characterized by badges of fraud,"
rendered judgment for Union Bank, the Deed of Sale executed on
October 22, 1991 by the spouses Ong in favor of Lee being
declared null and void.
16
Foremost of the circumstances adverted to relates to the execution
of the sale against the backdrop of the spouses Ong, as owners of
70% of BMC's stocks, knowing of the companys insolvency. This
knowledge was the reason why, according to the court, the spouses
Ong disposed of the subject property leaving the bank without
recourse to recover BMC's indebtedness. The trial court also made
reference to the circumstances which Union Bank mentioned in its
complaint as indicia of conveyance in fraud of creditors.
Therefrom, herein respondents interposed an appeal to the CA
which docketed their recourse as CA-G.R. No. 66030.
In its Decision dated December 5, 2001, the CA reversed and set
aside the trial court's ruling, observing that the contract of sale
executed by the spouses Ong and Lee, being complete and regular
on its face, is clothed with the prima facie presumption of
regularity and legality. Plodding on, the appellate court said:
In order that rescission of a contract made in fraud of creditors may
be decreed, it is necessary that the complaining creditors must
prove that they cannot recover in any other manner what is due
them. xxx.
There is no gainsaying that the basis of liability of the appellant
spouses in their personal capacity to Union Bank is the Continuing
Surety Agreement they have signed on October 10, 1990.
However, the real debtor of Union Bank is BMC, which has a
separate juridical personality from appellants Ong. Granting that
BMC was already insolvent at the time of the sale, still, there was
no showing that at the time BMC filed a petition for suspension of
payment that appellants Ong were themselves bankrupt. In the case
at bench, no attempt was made by Union Bank, not even a feeble
or half-hearted one, to establish that appellants spouses have no
other property from which Union Bank, as creditor of BMC, could
obtain payment. While appellants Ong may be independently liable
directly to Union Bank under the Continuing Surety Agreement,
all that Union Bank tried to prove was that BMC was insolvent at
the time of the questioned sale. No competent evidence was
adduced showing that appellants Ong had no leviable assets other
than the subject property that would justify challenge to the
transaction.2
Petitioner moved for a reconsideration of the above decision but its
motion was denied by the appellate court in its resolution of
February 21, 2002.3
Hence, petitioners present recourse on its submission that the
appellate court erred:
I. xxx WHEN IT CONSIDERED THAT THE SALE
TRANSACTION BETWEEN [ RESPONDENTS SPOUSES
ONG AND LEE] ENJOYS THE PRESUMPTION OF
REGULARITY AND LEGALITY AS THERE EXISTS ALSO A
PRESUMPTION THAT THE SAID SALE WAS ENTERED IN
FRAUD OF CREDITORS. PETITIONER THEREFORE NEED
NOT PROVE THAT RESPONDENTS SPOUSES ONG DID
NOT LEAVE SUFFICIENT ASSETS TO PAY THEIR
CREDITORS. BUT EVEN THEN, PETITIONER HAS PROVEN
THAT THE SPOUSES HAVE NO OTHER ASSETS.
II. IN CONCLUDING, ASSUMING EX-GRATIA ARGUMENTI
THAT THE SALE BETWEEN DEFENDANT-APPELLANTS
ENJOY THE PRESUMPTION OF REGULARITY AND
LEGALITY, THAT THE EVIDENCE ADDUCED BY THE
PETITIONER WAS NOT SUFFICIENT TO OVERCOME
THE PRESUMPTION.
III. xxx IN FINDING THAT IT WAS [RESPONDENT] LEE
WHO HAS SUFFICIENTLY PROVEN THAT THERE WAS A
VALID AND SUFFICIENT CONSIDERATION FOR THE
SALE.
IV. xxx IN NOT FINDING THAT JACKSON LEE WAS IN BAD
FAITH WHEN HE PURCHASED THE PROPERTY.4
Petitioner maintains, citing China Banking Corporation vs. Court
of Appeals,5 that the sale in question, having been entered in fraud
of creditor, is rescissible. In the same breath, however, petitioner
would fault the CA for failing to consider that the sale between the
Ongs and Lee is presumed fraudulent under Section 70 of Act No.
1956, as amended, or the Insolvency Law. Elaborating on this
point, petitioner states that the subject sale occurred thirty (30)
days prior to the filing by BMC of a petition for suspension of
payment before the SEC, thus rendering the sale not merely
rescissible but absolutely void.
We resolve to deny the petition.
In effect, the determinative issue tendered in this case resolves
itself into the question of whether or not the Ong-Lee contract of
sale partakes of a conveyance to defraud Union Bank. Obviously,
this necessitates an inquiry into the facts and this Court eschews
factual examination in a petition for review under Rule 45 of the
Rules of Court, save when, as in the instant case, a clash between
the factual findings of the trial court and that of the appellate court
exists,6 among other exceptions.
As between the contrasting positions of the trial court and the CA,
that of the latter commends itself for adoption, being more in
accord with the evidence on hand and the laws applicable thereto.
Essentially, petitioner anchors its case on Article 1381 of the Civil
Code which lists as among the rescissible contracts "[T]hose
undertaken in fraud of creditors when the latter cannot in any other
manner collect the claim due them."
Contracts in fraud of creditors are those executed with the intention
to prejudice the rights of creditors. They should not be confused
with those entered into without such mal-intent, even if, as a direct
consequence thereof, the creditor may suffer some damage. In
determining whether or not a certain conveying contract is
fraudulent, what comes to mind first is the question of whether the
conveyance was a bona fide transaction or a trick and contrivance
to defeat creditors.7 To creditors seeking contract rescission on the
ground of fraudulent conveyance rest the onus of proving by
competent evidence the existence of such fraudulent intent on the
part of the debtor, albeit they may fall back on the disputable
presumptions, if proper, established under Article 1387 of the
Code.8
In the present case, respondent spouses Ong, as the CA had
determined, had sufficiently established the validity and legitimacy
of the sale in question. The conveying deed, a duly notarized
document, carries with it the presumption of validity and
regularity. Too, the sale was duly recorded and annotated on the
title of the property owners, the spouses Ong. As the transferee of
said property, respondent Lee caused the transfer of title to his
name.
There can be no quibbling about the transaction being supported
by a valid and sufficient consideration. Respondent Lees account,
while on the witness box, about this angle of the sale was
categorical and straightforward. An excerpt of his testimony:
Atty. De Jesus :Before you prepared the consideration of this
formal offer, as standard operating procedure of buy and sell, what
documents were prepared?
17
xxx xxx xxx
Jackson Lee:
A. There is a downpayment.
Q. And how much was the downpayment?
A. P2,500,000.00.
Q. Was that downpayment covered by a receipt signed by the
seller?
A. Yes, Sir, P500,000.00 and P2,000,000.00
xxx xxx xxx
Q. Are you referring to the receipt dated October 19, 1991, how
about the other receipt dated October 21, 1991?
A. Yes, Sir, this is the same receipt.
xxx xxx xxx
Q. Considering that the consideration of this document is for
P12,000,000.00 and you made mention only of P2,500,000.00,
covered by the receipts, do you have evidence to show that, finally,
Susana Ong received the balance of P10,000,000.00?
A. Yes, Sir.
Q. Showing to you a receipt denominated as Acknowledgement
Receipt, dated October 25, 1991, are you referring to this receipt
to cover the balance of P10,000,000.00?
A. Yes, sir.9
The foregoing testimony readily proves that money indeed
changed hands in connection with the sale of the subject property.
Respondent Lee, as purchaser, paid the stipulated contract price to
the spouses Ong, as vendors. Receipts presented in evidence
covered and proved such payment. Accordingly, any suggestion
negating payment and receipt of valuable consideration for the
subject conveyance, or worse, that the sale was fictitious must
simply be rejected.
In a bid to attach a badge of fraud on the transaction, petitioner
raises the issue of inadequate consideration, alleging in this regard
that only P12,500,000.00 was paid for property having, during the
period material, a fair market value of P14,500,000.00.
We do not agree.
The existence of fraud or the intent to defraud creditors cannot
plausibly be presumed from the fact that the price paid for a piece
of real estate is perceived to be slightly lower, if that really be the
case, than its market value. To be sure, it is logical, even expected,
for contracting minds, each having an interest to protect, to
negotiate on the price and other conditions before closing a sale of
a valuable piece of land. The negotiating areas could cover various
items. The purchase price, while undeniably an important
consideration, is doubtless only one of them. Thus, a scenario
where the price actually stipulated may, as a matter of fact, be
lower than the original asking price of the vendor or the fair market
value of the property, as what perhaps happened in the instant case,
is not out of the ordinary, let alone indicative of fraudulent
intention. That the spouses Ong acquiesced to the price of
P12,500,000.00, which may be lower than the market value of the
house and lot at the time of alienation, is certainly not an unusual
business phenomenon.
Lest it be overlooked, the disparity between the price appearing in
the conveying deed and what the petitioner regarded as the real
value of the property is not as gross to support a conclusion of
fraud. What is more, one Oliver Morales, a licensed real estate
appraiser and broker, virtually made short shrift of petitioners
claim of gross inadequacy of the purchase price. Mr. Morales
declared that there exists no gross disparity between the market
value of the subject property and the price mentioned in the deed
as consideration. He explained why:
ATTY. EUFEMIO:
Q. I am showing to you the said two (2) exhibits Mr. Morales and
I would like you to go over the terms and conditions stated therein
and as an expert in real estate appraiser (sic) and also as a real estate
broker, can you give this Honorable Court your considered opinion
whether the consideration stated therein P12,500,000.00 in the
light of all terms and conditions of the said Deed of Absolute Sale
and Offer to Purchase could be deemed fair and reasonable?
xxx xxx xxx
MR. MORALES:
A. My opinion generally a Deed of Absolute Sale indicated
prescribed not only the amount of the consideration. There are also
other expenses involved in the sales. I do not see here other
payment of who takes care of capital gains stocks (sic) in this Deed
of Sale neither who shouldered the documentary stamps or even
transfer tax. That is my comment regarding this.
Q. Precisely Mr. Witness we have also shown to you the Offer to
Purchase which has been marked as Exhibit "9" as to the terms
which we are asking?
xxx xxx xxx
A. Well, it says here in item C of the conditions the Capital Gains
Stocks (sic), documentary stamps, transfer tax registration and
brokers fee for the buyers account. I do not know how much is
this worth. If at all in condition (sic) to the 12.5 million which is
the selling price, may I, therefore aside (sic) how much is the total
cost pertaining to this. The capital gains tax on (sic), documentary
stamps, transfer tax are all computed on the basis of the
consideration which is P12.5 M, the capital gain stocks (sic) is 5%,
5% of 12.5 M.
xxx xxx xxx
Yes sir if the 5% capital gains tax and documentary stamps
respectively shall be added to the 12.5 Million before the inclusion
of the transfer tax, the amount will be already in the vicinity of
P13,250.000.
Q. With such consideration Mr. Witness and in the light of the
terms and conditions in the said Offer to Purchase and Deed of
Absolute Sale could you give your opinion as to whether the
consideration is fair and reasonable.
xxx xxx xxx
A. With our proposal of P14.5 M as compared now to
P13,250,000.00 may I give my opinion that generally there will be
two appraisers. In fairness to the situation, they should not vary by
as much as 7% down so we are playing at a variance actually of
about 15%. In my experience in this profession for the last 27 years
18
as I have said in fairness if there is another appraisal done by
another person, that kind of difference is very marginal should at
least indicate the fairness of the property and so therefore the only
way to find out is to determine the difference between the P14.5 M
and the P13,250,000.00. My computation indicates that it is close
to 10% something like that difference. What is the question again?
Q. Whether it is fair and reasonable under the circumstances.
A. I have answered already the question and I said maximum of
15%.
Q. So based on your computation this is about 10% which is fair
and reasonable.
A That is right sir.10
Withal, the consideration of the sale is fair and reasonable as would
justify the conclusion that the sale is undoubtedly a true and
genuine conveyance to which the parties thereto are irrevocably
and undeniably bound.
It may be stressed that, when the validity of sales contract is in
issue, two veritable presumptions are relevant: first, that there was
sufficient consideration of the contract11 ; and, second, that it was
the result of a fair and regular private transaction.12 If shown to
hold, these presumptions infer prima facie the transaction's
validity, except that it must yield to the evidence adduced13 which
the party disputing such presumptive validity has the burden of
overcoming. Unfortunately for the petitioner, it failed to discharge
this burden. Its bare allegation respecting the sale having been
executed in fraud of creditors and without adequate consideration
cannot, without more, prevail over the respondents' evidence
which more than sufficiently supports a conclusion as to the
legitimacy of the transaction and the bona fides of the parties.
Parenthetically, the rescissory action to set aside contracts in fraud
of creditors is accion pauliana, essentially a subsidiary remedy
accorded under Article 1383 of the Civil Code which the party
suffering damage can avail of only when he has no other legal
means to obtain reparation for the same.14 In net effect, the
provision applies only when the creditor cannot recover in any
other manner what is due him.
It is true that respondent spouses, as surety for BMC, bound
themselves to answer for the latters debt. Nonetheless, for
purposes of recovering what the eventually insolvent BMC owed
the bank, it behooved the petitioner to show that it had exhausted
all the properties of the spouses Ong. It does not appear in this case
that the petitioner sought other properties of the spouses other than
the subject Greenhills property. The CA categorically said so.
Absent proof, therefore, that the spouses Ong had no other property
except their Greenhills home, the sale thereof to respondent Lee
cannot simplistically be considered as one in fraud of creditors.
Neither was evidence adduced to show that the sale in question
peremptorily deprived the petitioner of means to collect its claim
against the Ongs. Where a creditor fails to show that he has no
other legal recourse to obtain satisfaction for his claim, then he is
not entitled to the rescission asked.15
For a contract to be rescinded for being in fraud of creditors, both
contracting parties must be shown to have acted maliciously so as
to prejudice the creditors who were prevented from collecting their
claims.16 Again, in this case, there is no evidence tending to prove
that the spouses Ong and Lee were conniving cheats. In fact, the
petitioner did not even attempt to prove the existence of personal
closeness or business and professional interdependence between
the spouses Ong and Lee as to cast doubt on their true intent in
executing the contract of sale. With the view we take of the
evidence on record, their relationship vis--vis the subject
Greenhills property was no more than one between vendor and
vendee dealing with each other for the first time. Any insinuation
that the two colluded to gyp petitioner bank is to read in a
relationship something which, from all indications, appears to be
purely business.
It cannot be overemphasized that rescission is generally unavailing
should a third person, acting in good faith, is in lawful possession
of the property,17 that is to say, he is protected by law against a
suit for rescission by the registration of the transfer to him in the
registry.
As recited earlier, Lee was - and may still be - in lawful possession
of the subject property as the transfer to him was by virtue of a
presumptively valid onerous contract of sale. His possession is
evidenced by no less than a certificate of title issued him by the
Registry of Deeds of San Juan, Metro Manila, after the usual
registration of the corresponding conveying deed of sale. On the
other hand, the bona fides of his acquisition can be deduced from
his conduct and outward acts previous to the sale. As testified to
by him and duly noted by the CA, respondent Lee undertook what
amounts to due diligence on the possible defects in the title of the
Ongs before proceeding with the sale. As it were, Lee decided to
buy the property only after being satisfied of the absence of such
defects.18
Time and again, the Court has held that one dealing with a
registered parcel of land need not go beyond the certificate of title
as he is charged with notice only of burdens which are noted on the
face of the register or on the certificate of title.19 The Continuing
Surety Agreement, it ought to be particularly pointed out, was
never recorded nor annotated on the title of spouses Ong. There is
no evidence extant in the records to show that Lee had knowledge,
prior to the subject sale, of the surety agreement adverted to. In
fine, there is nothing to remotely suggest that the purchase of the
subject property was characterized by anything other than good
faith.
Petitioner has made much of respondent Lee not taking immediate
possession of the property after the sale, stating that such failure is
an indication of his participation in the fraudulent scheme to
prejudice petitioner bank.
We are not persuaded.
Lee, it is true, allowed the respondent spouses to continue
occupying the premises even after the sale. This development,
however, is not without basis or practical reason. The spouses'
continuous possession of the property was by virtue of a one-year
lease20 they executed with respondent Lee six days after the sale.
As explained by the respondent spouses, they insisted on the lease
arrangement as a condition for the sale in question. And pursuant
to the lease contract aforementioned, the respondent Ongs paid and
Lee collected rentals at the rate of P25,000.00 a month. Contrary
thus to the petitioners asseveration, respondent Lee, after the sale,
exercised acts of dominion over the said property and asserted his
rights as the new owner. So, when the respondent spouses
continued to occupy the property after its sale, they did so as mere
tenants. While the failure of the vendee to take exclusive
possession of the property is generally recognized as a badge of
fraud, the same cannot be said here in the light of the existence of
what appears to be a genuine lessor-lessee relationship between the
spouses Ong and Lee. To borrow from Reyes vs. Court of
Appeals,21 possession may be exercised in ones own name or in
the name of another; an owner of a piece of land has possession,
either when he himself physically occupies the same or when
19
another person who recognizes his right as owner is in such
occupancy.
Petitioners assertion regarding respondent Lees lack of financial
capacity to acquire the property in question since his income in
1990 was only P346,571.73 is clearly untenable. Assuming for
argument that petitioner got its figure right, it is clearly incorrect
to measure ones purchasing capacity with ones income at a given
period. But the more important consideration in this regard is the
uncontroverted fact that respondent Lee paid the purchase price of
said property. Where he sourced the needed cash is, for the nonce,
really of no moment.
The cited case of China Banking22 cannot plausibly provide
petitioner with a winning card. In that case, the Court, applying
Article 1381 (3) of the Civil Code, rescinded an Assignment of
Rights to Redeem owing to the failure of the assignee to overthrow
the presumption that the said conveyance/assignment is fraudulent.
In turn, the presumption was culled from Article 1387, par. 2, of
the Code pertinently providing that "[A]lienation by onerous title
are also presumed fraudulent when made by persons against whom
some judgment has been rendered in any instance or some writ of
attachment has been issued."
Indeed, when the deed of assignment was executed in China
Banking, the assignor therein already faced at that time an adverse
judgment. In the same case, moreover, the Court took stock of
other signs of fraud which tainted the transaction therein and which
are, significantly, not obtaining in the instant case. We refer, firstly,
to the element of kinship, the assignor, Alfonso Roxas Chua, being
the father of the assignee, Paulino. Secondly, Paulino admitted
knowing his father to be insolvent. Hence, the Court, rationalizing
the rescission of the assignment of rights, made the following
remarks:
The mere fact that the conveyance was founded on valuable
consideration does not necessarily negate the presumption of fraud
under Article 1387 of the Civil Code. There has to be valuable
consideration and the transaction must have been made bona
fide.23
There lies the glaring difference with the instant case.
Here, the existence of fraud cannot be presumed, or, at the very
least, what were perceived to be badges of fraud have been proven
to be otherwise. And, unlike Alfonso Roxas Chua in China
Banking, a judgment has not been rendered against respondent
spouses Ong or that a writ of attachment has been issued against
them at the time of the disputed sale.
In a last-ditch attempt to resuscitate a feeble cause, petitioner cites
Section 70 of the Insolvency Law which, unlike the invoked
Article 1381 of the Civil Code that deals with a valid but rescissible
contract, treats of a contractual infirmity resulting in nullity no less
of the transaction in question. Insofar as pertinent, Section 70 of
the Insolvency Law provides:
Sec. 70. If any debtor, being insolvent, or in contemplation of
insolvency, within thirty days before the filing of a petition by or
against him, with a view to giving a preference to any creditor or
person having a claim against him xxx makes any xxx sale or
conveyance of any part of his property, xxx such xxx sale,
assignment or conveyance is void, and the assignee, or the receiver,
may recover the property or the value thereof, as assets of such
insolvent debtor. xxx. Any payment, pledge, mortgage,
conveyance, sale, assignment, or transfer of property of whatever
character made by the insolvent within one (1) month before the
filing of a petition in insolvency by or against him, except for a
valuable pecuniary consideration made in good faith shall be void.
xxx. (Emphasis added)
Petitioner avers that the Ong-Lee sales contract partakes of a
fraudulent transfer and is null and void in contemplation of the
aforequoted provision, the sale having occurred on October 22,
1991 or within thirty (30) days before BMC filed a petition for
suspension of payments on November 22, 1991.
Petitioner's reliance on the afore-quoted provision is misplaced for
the following reasons:
First, Section 70, supra, of the Insolvency Law specifically makes
reference to conveyance of properties made by a "debtor" or by an
"insolvent" who filed a petition, or against whom a petition for
insolvency has been filed. Respondent spouses Ong have
doubtlessly not filed a petition for a declaration of their own
insolvency. Neither has one been filed against them. And as the CA
aptly observed, it was never proven that respondent spouses are
likewise insolvent, petitioner having failed to show that they were
down to their Greenhills property as their only asset.
It may be that BMC had filed a petition for rehabilitation and
suspension of payments with the SEC. The nagging fact, however
is that BMC is a different juridical person from the respondent
spouses. Their seventy percent (70%) ownership of BMCs capital
stock does not change the legal situation. Accordingly, the alleged
insolvency of BMC cannot, as petitioner postulates, extend to the
respondent spouses such that transaction of the latter comes within
the purview of Section 70 of the Insolvency Law.
Second, the real debtor of petitioner bank in this case is BMC. The
fact that the respondent spouses bound themselves to answer for
BMCs indebtedness under the surety agreement referred to at the
outset is not reason enough to conclude that the spouses are
themselves debtors of petitioner bank. We have already passed
upon the simple reason for this proposition. We refer to the basic
precept in this jurisdiction that a corporation, upon coming into
existence, is invested by law with a personality separate and
distinct from those of the persons composing it.24 Mere ownership
by a single or small group of stockholders of nearly all of the
capital stock of the corporation is not, without more, sufficient to
disregard the fiction of separate corporate personality.25
Third, Section 70 of the Insolvency Law considers transfers made
within a month after the date of cleavage void, except those made
in good faith and for valuable pecuniary consideration. The twin
elements of good faith and valuable and sufficient consideration
have been duly established. Given the validity and the basic
legitimacy of the sale in question, there is simply no occasion to
apply Section 70 of the Insolvency Law to nullify the transaction
subject of the instant case.
All told, we are far from convinced by petitioners argumentation
that the circumstances surrounding the sale of the subject property
may be considered badges of fraud. Consequently, its failure to
show actual fraudulent intent on the part of the spouses Ong defeats
its own cause.
WHEREFORE, the instant petition is DENIED and the assailed
decision of the Court of Appeals is AFFIRMED.
Costs against petitioner.
SO ORDERED.
20
HEIRS OF SOFIA QUIRONG, G.R. No. 173441
Represented by ROMEO P.
QUIRONG,
Petitioners, Present:
Carpio, J., Chairperson,
- versus - Leonardo-De Castro,
Brion,
Peralta,* and
Abad, JJ.
DEVELOPMENT BANK OF
THE PHILIPPINES, Promulgated:
Respondent.
December 3, 2009
x -----------------------------------------------------------------------------
----------- x
DECISION
ABAD, J.:
This case is about the prescriptive period of an action for rescission
of a contract of sale where the buyer is evicted from the thing sold
by a subsequent judicial order in favor of a third party.
The Facts and the Case
The facts are not disputed. When the late Emilio Dalope died, he
left a 589-square meter untitled lot[1] in Sta. Barbara, Pangasinan,
to his wife, Felisa Dalope (Felisa) and their nine children, one of
whom was Rosa Dalope-Funcion.[2] To enable Rosa and her
husband Antonio Funcion (the Funcions) get a loan from
respondent Development Bank of the Philippines (DBP), Felisa
sold the whole lot to the Funcions. With the deed of sale in their
favor and the tax declaration transferred in their names, the
Funcions mortgaged the lot with the DBP.
On February 12, 1979, after the Funcions failed to pay their loan,
the DBP foreclosed the mortgage on the lot and consolidated
ownership in its name on June 17, 1981.[3]
Four years later or on September 20, 1983 the DBP conditionally
sold the lot to Sofia Quirong[4] for the price of P78,000.00. In their
contract of sale, Sofia Quirong waived any warranty against
eviction. The contract provided that the DBP did not guarantee
possession of the property and that it would not be liable for any
lien or encumbrance on the same. Quirong gave a down payment
of P14,000.00.
Two months after that sale or on November 28, 1983 Felisa and
her eight children (collectively, the Dalopes)[5] filed an action for
partition and declaration of nullity of documents with damages
against the DBP and the Funcions before the Regional Trial Court
(RTC) of Dagupan City, Branch 42, in Civil Case D-7159.
On December 27, 1984, notwithstanding the suit, the DBP
executed a deed of absolute sale of the subject lot in Sofia Quirongs
favor. The deed of sale carried substantially the same waiver of
warranty against eviction and of any adverse lien or encumbrance.
On May 11, 1985, Sofia Quirong having since died, her heirs
(petitioner Quirong heirs) filed an answer in intervention[6] in
Civil Case D-7159 in which they asked the RTC to award the lot
to them and, should it instead be given to the Dalopes, to allow the
Quirong heirs to recover the lots value from the DBP. But, because
the heirs failed to file a formal offer of evidence, the trial court did
not rule on the merits of their claim to the lot and, alternatively, to
relief from the DBP.[7]
On December 16, 1992 the RTC rendered a decision, declaring the
DBPs sale to Sofia Quirong valid only with respect to the shares of
Felisa and Rosa Funcion in the property. It declared Felisas sale to
the Funcions, the latters mortgage to the DBP, and the latters sale
to Sofia Quirong void insofar as they prejudiced the shares of the
eight other children of Emilio and Felisa who were each entitled to
a tenth share in the subject lot.
The DBP received a copy of the decision on January 13, 1993 and,
therefore, it had until January 28, 1993 within which to file a
motion for its reconsideration or a notice of appeal from it. But the
DBP failed to appeal supposedly because of excusable negligence
and the withdrawal of its previous counsel of record.[8]
When the RTC judgment became final and the court issued a writ
of execution, the DBP resisted the writ by motion to quash,
claiming that the decision could not be enforced because it failed
to state by metes and bounds the particular portions of the lot that
would be assigned to the different parties in the case. The RTC
denied the DBPs motion, prompting the latter to seek recourse by
special civil action of certiorari directly with this Court in G.R.
116575, Development Bank of the Philippines v. Fontanilla. On
September 7, 1994 the Court issued a resolution, denying the
petition for failure of the DBP to pay the prescribed fees. This
resolution became final and executory on January 17, 1995.[9]
On June 10, 1998 the Quirong heirs filed the present action[10]
against the DBP before the RTC of Dagupan City, Branch 44, in
Civil Case CV-98-02399-D for rescission of the contract of sale
between Sofia Quirong, their predecessor, and the DBP and
praying for the reimbursement of the price of P78,000.00 that she
paid the bank plus damages. The heirs alleged that they were
entitled to the rescission of the sale because the decision in Civil
Case D-7159 stripped them of nearly the whole of the lot that Sofia
Quirong, their predecessor, bought from the DBP. The DBP filed
a motion to dismiss the action on ground of prescription and res
judicata but the RTC denied their motion.
On June 14, 2004, after hearing the case, the RTC rendered a
decision,[11] rescinding the sale between Sofia Quirong and the
DBP and ordering the latter to return to the Quirong heirs the
P78,000.00 Sofia Quirong paid the bank.[12] On appeal by the
DBP, the Court of Appeals (CA) reversed the RTC decision and
dismissed the heirs action on the ground of prescription. The CA
concluded that, reckoned from the finality of the December 16,
1992 decision in Civil Case D-7159, the complaint filed on June
10, 1998 was already barred by the four-year prescriptive period
under Article 1389 of the Civil Code.[13] The Quirong heirs filed
a motion for reconsideration of the decision but the appellate court
denied it,[14] thus, this petition.
The Issues Presented
The issues presented in this case are:
1. Whether or not the Quirong heirs action for rescission of
respondent DBPs sale of the subject property to Sofia Quirong was
already barred by prescription; and
2. In the negative, whether or not the heirs of Quirong were entitled
to the rescission of the DBPs sale of the subject lot to the late Sofia
Quirong as a consequence of her heirs having been evicted from it.
The Courts Rulings
The CA held that the Quirong heirs action for rescission of the sale
between DBP and their predecessor, Sofia Quirong, is barred by
prescription reckoned from the date of finality of the December 16,
1992 RTC decision in Civil Case D-7159 and applying the
21
prescriptive period of four years set by Article 1389 of the Civil
Code.
Unfortunately, the CA did not state in its decision the date when
the RTC decision in Civil Case D-7159 became final and
executory, which decision resulted in the Quirong heirs loss of
80% of the lot that the DBP sold to Sofia Quirong. Petitioner heirs
claim that the prescriptive period should be reckoned from January
17, 1995, the date this Courts resolution in G.R. 116575 became
final and executory.[15]
But the incident before this Court in G.R. 116575 did not deal with
the merit of the RTC decision in Civil Case D-7159. That decision
became final and executory on January 28, 1993 when the DBP
failed to appeal from it within the time set for such appeal. The
incident before this Court in G.R. 116575 involved the issuance of
the writ of execution in that case. The DBP contested such issuance
supposedly because the dispositive portion of the decision failed to
specify details that were needed for its implementation. Since this
incident did not affect the finality of the decision in Civil Case D-
7159, the prescriptive period remained to be reckoned from
January 28, 1993, the date of such finality.
The next question that needs to be resolved is the applicable period
of prescription. The DBP claims that it should be four years as
provided under Article 1389 of the Civil Code.[16] Article 1389
provides that the action to claim rescission must be commenced
within four years. The Quirong heirs, on the other hand, claim that
it should be 10 years as provided under Article 1144 which states
that actions upon a written contract must be brought within 10
years from the date the right of action accrues.
Now, was the action of the Quirong heirs for rescission or upon a
written contract? There is no question that their action was for
rescission, since their complaint in Civil Case CV-98-02399-D
asked for the rescission of the contract of sale between Sofia
Quirong, their predecessor, and the DBP and the reimbursement of
the price of P78,000.00 that Sofia Quirong paid the bank plus
damages. The prescriptive period for rescission is four years.
But it is not that simple. The remedy of rescission is not confined
to the rescissible contracts enumerated under Article 1381.[17]
Article 1191 of the Civil Code gives the injured party in reciprocal
obligations, such as what contracts are about, the option to choose
between fulfillment and rescission. Arturo M. Tolentino, a well-
known authority in civil law, is quick to note, however, that the
equivalent of Article 1191 in the old code actually uses the term
resolution rather than the present rescission.[18] The calibrated
meanings of these terms are distinct.
Rescission is a subsidiary action based on injury to the plaintiffs
economic interests as described in Articles 1380 and 1381.
Resolution, the action referred to in Article 1191, on the other
hand, is based on the defendants breach of faith, a violation of the
reciprocity between the parties. As an action based on the binding
force of a written contract, therefore, rescission (resolution) under
Article 1191 prescribes in 10 years. Ten years is the period of
prescription of actions based on a written contract under Article
1144.
The distinction makes sense. Article 1191 gives the injured party
an option to choose between, first, fulfillment of the contract and,
second, its rescission. An action to enforce a written contract
(fulfillment) is definitely an action upon a written contract, which
prescribes in 10 years (Article 1144). It will not be logical to make
the remedy of fulfillment prescribe in 10 years while the alternative
remedy of rescission (or resolution) is made to prescribe after only
four years as provided in Article 1389 when the injury from which
the two kinds of actions derive is the same.
Here, the Quirong heirs alleged in their complaint that they were
entitled to the rescission of the contract of sale of the lot between
the DBP and Sofia Quirong because the decision in Civil Case D-
7159 deprived her heirs of nearly the whole of that lot. But what
was the status of that contract at the time of the filing of the action
for rescission? Apparently, that contract of sale had already been
fully performed when Sofia Quirong paid the full price for the lot
and when, in exchange, the DBP executed the deed of absolute sale
in her favor. There was a turnover of control of the property from
DBP to Sofia Quirong since she assumed under their contract, the
ejectment of squatters and/or occupants on the lot, at her own
expense.[19]
Actually, the cause of action of the Quirong heirs stems from their
having been ousted by final judgment from the ownership of the
lot that the DBP sold to Sofia Quirong, their predecessor, in
violation of the warranty against eviction that comes with every
sale of property or thing. Article 1548 of the Civil Code provides:
Article 1548. Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an act imputable to
the vendor, the vendee is deprived of the whole or of a part of thing
purchased.
xxxx
With the loss of 80% of the subject lot to the Dalopes by reason of
the judgment of the RTC in Civil Case D-7159, the Quirong heirs
had the right to file an action for rescission against the DBP
pursuant to the provision of Article 1556 of the Civil Code which
provides:
Article 1556. Should the vendee lose, by reason of the eviction, a
part of the thing sold of such importance, in relation to the whole,
that he would not have bought it without said part, he may demand
the rescission of the contract; but with the obligation to return the
thing without other encumbrances than those which it had when he
acquired it. x x x
And that action for rescission, which is based on a subsequent
economic loss suffered by the buyer, was precisely the action that
the Quirong heirs took against the DBP. Consequently, it
prescribed as Article 1389 provides in four years from the time the
action accrued. Since it accrued on January 28, 1993 when the
decision in Civil Case D-7159 became final and executory and
ousted the heirs from a substantial portion of the lot, the latter had
only until January 28, 1997 within which to file their action for
rescission. Given that they filed their action on June 10, 1998, they
did so beyond the four-year period.
With the conclusion that the Court has reached respecting the first
issue presented in this case, it would serve no useful purpose for it
to further consider the issue of whether or not the heirs of Quirong
would have been entitled to the rescission of the DBPs sale of the
subject lot to Sofia Quirong as a consequence of her heirs having
been evicted from it. As the Court has ruled above, their action was
barred by prescription. The CA acted correctly in reversing the
RTC decision and dismissing their action.
Parenthetically, the Quirong heirs were allowed by the RTC to
intervene in the original action for annulment of sale in Civil Case
D-7159 that the Dalopes filed against the DBP and the Funcions.
Not only did the heirs intervene in defense of the sale, they likewise
filed a cross claim against the DBP. And they were apparently
heard on their defense and cross claim but the RTC did not
adjudicate their claim for the reason that they failed to make a
formal offer of their documentary exhibits. Yet, they did not appeal
from this omission or from the judgment of the RTC, annulling the
DBPs sale of the subject lot to Sofia Quirong. This point is of
22
course entirely academic but it shows that the Quirong heirs have
themselves to blame for the loss of whatever right they may have
in the case.
WHEREFORE, the Court DENIES the petition and AFFIRMS the
November 30, 2005 decision of the Court of Appeals in CA-G.R.
CV 83897.
SO ORDERED.
[G.R. NO. 182435 - August 13, 2012]
LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON,
REMO BA YLON, JOSE BA YLON, ERIC BA YLON,
FLORENTINO BA YLON, and MA. RUBY BA YLON,
Petitioners, v. FLORANTE BA YLON, Respondent.
DECISION
REYES, J.:
Before this Court is a Petition for Review on Certiorari under Rule
45 of the Rules of Court seeking to annul and set aside the
Decision1 dated October 26, 2007 rendered by the Court of
Appeals (CA) in CA-G.R. CV No. 01746. The assailed decision
partially reversed and set aside the Decision2 dated October 20,
2005 issued ~y the Regional Trial Court (RTC), Tan jay City,
Negros Oriental, Branch 43 in Civil Case No. 11657.
The Antecedent Facts
This case involves the estate of spouses Florentino Baylon and
Maximina Elnas Baylon (Spouses Baylon) who died on November
7, 1961 and May 5, 1974, respectively.3 At the time of their death,
Spouses Baylon were survived by their legitimate children,
namely, Rita Baylon (Rita), Victoria Baylon (Victoria), Dolores
Baylon (Dolores), Panfila Gomez (Panfila), Ramon Baylon
(Ramon) and herein petitioner Lilia B. Ada (Lilia).
Dolores died intestate and without issue on August 4, 1976.
Victoria died on November 11, 1981 and was survived by her
daughter, herein petitioner Luz B. Adanza. Ramon died intestate
on July 8, 1989 and was survived by herein respondent Florante
Baylon (Florante), his child from his first marriage, as well as by
petitioner Flora Baylon, his second wife, and their legitimate
children, namely, Ramon, Jr. and herein petitioners Remo, Jose,
Eric, Florentino and Ma. Ruby, all surnamed Baylon.
On July 3, 1996, the petitioners filed with the RTC a Complaint4
for partition, accounting and damages against Florante, Rita and
Panfila. They alleged therein that Spouses Baylon, during their
lifetime, owned 43 parcels of land5 all situated in Negros Oriental.
After the death of Spouses Baylon, they claimed that Rita took
possession of the said parcels of land and appropriated for herself
the income from the same. Using the income produced by the said
parcels of land, Rita allegedly purchased two parcels of land, Lot
No. 47096 and half of Lot No. 4706,7 situated in Canda-uay,
Dumaguete City. The petitioners averred that Rita refused to effect
a partition of the said parcels of land.
In their Answer,8 Florante, Rita and Panfila asserted that they and
the petitioners co-owned 229 out of the 43 parcels of land
mentioned in the latter s complaint, whereas Rita actually owned
10 parcels of land10 out of the 43 parcels which the petitioners
sought to partition, while the remaining 11 parcels of land are
separately owned by Petra Cafino Adanza,11 Florante,12 Meliton
Adalia,13 Consorcia Adanza,14 Lilia15 and Santiago Mendez.16
Further, they claimed that Lot No. 4709 and half of Lot No. 4706
were acquired by Rita using her own money. They denied that Rita
appropriated solely for herself the income of the estate of Spouses
Baylon, and expressed no objection to the partition of the estate of
Spouses Baylon, but only with respect to the co-owned parcels of
land.
During the pendency of the case, Rita, through a Deed of Donation
dated July 6, 1997, conveyed Lot No. 4709 and half of Lot No.
4706 to Florante. On July 16, 2000, Rita died intestate and without
any issue. Thereafter, learning of the said donation inter vivos in
favor of Florante, the petitioners filed a Supplemental Pleading17
dated February 6, 2002, praying that the said donation in favor of
the respondent be rescinded in accordance with Article 1381(4) of
the Civil Code. They further alleged that Rita was already sick and
very weak when the said Deed of Donation was supposedly
executed and, thus, could not have validly given her consent
thereto.
Florante and Panfila opposed the rescission of the said donation,
asserting that Article 1381(4) of the Civil Code applies only when
there is already a prior judicial decree on who between the
contending parties actually owned the properties under
litigation.18rll
The RTC Decision
On October 20, 2005, the RTC rendered a Decision,19 the decretal
portion of which reads:rbl r l l
lbrr
Wherefore judgment is hereby rendered:rl
(1) declaring the existence of co-ownership over parcels nos. 1, 2,
3, 5, 7, 10, 13, 14, 16, 17, 18, 26, 29, 30, 33, 34, 35, 36, 40 and 41
described in the complaint;
(2) directing that the above mentioned parcels of land be
partitioned among the heirs of Florentino Baylon and Maximina
Baylon;
(3) declaring a co-ownership on the properties of Rita Baylon
namely parcels no[s]. 6, 11, 12, 20, 24, 27, 31, 32, 39 and 42 and
directing that it shall be partitioned among her heirs who are the
plaintiffs and defendant in this case;
(4) declaring the donation inter vivos rescinded without prejudice
to the share of Florante Baylon to the estate of Rita Baylon and
directing that parcels nos. 1 and 2 paragraph V of the complaint be
included in the division of the property as of Rita Baylon among
her heirs, the parties in this case;
(5) excluding from the co-ownership parcels nos. 20, 21, 22, 9, 43,
4, 8, 19 and 37.
chanrobles virtual law library
Considering that the parties failed to settle this case amicably and
could not agree on the partition, the parties are directed to nominate
a representative to act as commissioner to make the partition. He
shall immediately take [his] oath of office upon [his] appointment.
The commissioner shall make a report of all the proceedings as to
the partition within fifteen (15) days from the completion of this
partition. The parties are given ten (10) days within which to object
to the report after which the Court shall act on the commissioner
report.rbl r l l lbrr
SO ORDERED.20 (Emphasis ours)
chanrobles virtual law library
The RTC held that the death of Rita during the pendency of the
case, having died intestate and without any issue, had rendered the
issue of ownership insofar as parcels of land which she claims as
her own moot since the parties below are the heirs to her estate.
Thus, the RTC regarded Rita as the owner of the said 10 parcels of
land and, accordingly, directed that the same be partitioned among
her heirs. Nevertheless, the RTC rescinded the donation inter vivos
of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. In
23
rescinding the said donation inter vivos, the RTC explained
that:rbl r l l lbrr Baylon, during her lifetime, her donation thereof in favor of
However, with respect to lot nos. 4709 and 4706 which [Rita] had
conveyed to Florante Baylon by way of donation inter vivos, the
plaintiffs in their supplemental pleadings (sic) assailed the same to
be rescissible on the ground that it was entered into by the
defendant Rita Baylon without the knowledge and approval of the
litigants [or] of competent judicial authority. The subject parcels of
lands are involved in the case for which plaintiffs have asked the
Court to partition the same among the heirs of Florentino Baylon
and Maximina Elnas.
Clearly, the donation inter vivos in favor of Florante Baylon was
executed to prejudice the plaintiffs right to succeed to the estate of
Rita Baylon in case of death considering that as testified by
Florante Baylon, Rita Baylon was very weak and he tried to give
her vitamins x x x. The donation inter vivos executed by Rita
Baylon in favor of Florante Baylon is rescissible for the reason that
it refers to the parcels of land in litigation x x x without the
knowledge and approval of the plaintiffs or of this Court. However,
the rescission shall not affect the share of Florante Baylon to the
estate of Rita Baylon.21rll October 26, 2007 but it was denied by the CA in its Resolution28
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Florante sought reconsideration of the Decision dated October 20,
2005 of the RTC insofar as it rescinded the donation of Lot No.
4709 and half of Lot No. 4706 in his favor.22 He asserted that, at
the time of Rita s death on July 16, 2000, Lot No. 4709 and half of
Lot No. 4706 were no longer part of her estate as the same had
already been conveyed to him through a donation inter vivos three
years earlier. Thus, Florante maintained that Lot No. 4709 and half
of Lot No. 4706 should not be included in the properties that should
be partitioned among the heirs of Rita.
On July 28, 2006, the RTC issued an Order23 which denied the
motion for reconsideration filed by Florante.
The CA Decision
If the lots, however, are found to have belonged exclusively to Rita
Florante Baylon is valid. For then, she merely exercised her
ownership right to dispose of what legally belonged to her. Upon
her death, the lots no longer form part of her estate as their
ownership now pertains to Florante Baylon. On this score, an
action for rescission against such donation will not prosper. x x x.
Verily, before plaintiffs-appellees may file an action for rescission,
they must first obtain a favorable judicial ruling that lot no. 4709
and half of lot no. 4706 actually belonged to the estate of Spouses
Florentino and Maximina Baylon, and not to Rita Baylon during
her lifetime. Until then, an action for rescission is premature. For
this matter, the applicability of Article 1381, paragraph 4, of the
New Civil Code must likewise await the trial court s resolution of
the issue of ownership.
Be that as it may, an action for rescission should be filed by the
parties concerned independent of the proceedings below. The first
cannot simply be lumped up with the second through a mere
supplemental pleading.26 (Citation omitted)
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The petitioners sought reconsideration27 of the Decision dated
dated March 6, 2008.rbl r l l
lbrr
Hence, this petition.
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Issue
The lone issue to be resolved by this Court is whether the CA erred
in ruling that the donation inter vivos of Lot No. 4709 and half of
Lot No. 4706 in favor of Florante may only be rescinded if there is
already a judicial determination that the same actually belonged to
the estate of Spouses Baylon.
The Court s Rulingrbl r l l
lbrr

On appeal, the CA rendered a Decision24 dated October 26, 2007, The petition is partly meritorious.
the dispositive portion of which reads:rbl r chanrobles virtual law library
l l lbrr Procedural Matters

WHEREFORE, the Decision dated October 20, 2005 and Order Before resolving the lone substantive issue in the instant case, this
dated July 28, 2006 are REVERSED and SET ASIDE insofar as Court deems it proper to address certain procedural matters that
they decreed the rescission of the Deed of Donation dated July 6, need to be threshed out which, by laxity or otherwise, were not
1997 and the inclusion of lot no. 4709 and half of lot no. 4706 in raised by the parties herein.
the estate of Rita Baylon. The case is REMANDED to the trial
court for the determination of ownership of lot no. 4709 and half Misjoinder of Causes of Action
of lot no. 4706.rbl r l l
lbrr The complaint filed by the petitioners with the RTC involves two
SO ORDERED.25rll separate, distinct and independent actions partition and rescission.
chanrobles virtual law library First, the petitioners raised the refusal of their co-heirs, Florante,
The CA held that before the petitioners may file an action for Rita and Panfila, to partition the properties which they inherited
rescission, they must first obtain a favorable judicial ruling that Lot from Spouses Baylon. Second, in their supplemental pleading, the
No. 4709 and half of Lot No. 4706 actually belonged to the estate petitioners assailed the donation inter vivos of Lot No. 4709 and
of Spouses Baylon and not to Rita. Until then, the CA asserted, an half of Lot No. 4706 made by Rita in favor of Florante pendente
action for rescission is premature. Further, the CA ruled that the lite.
petitioners action for rescission cannot be joined with their action
for partition, accounting and damages through a mere The actions of partition and
supplemental pleading. Thus:rbl r l rescission cannot be joined in a
l lbrr single action.

If Lot No. 4709 and half of Lot No. 4706 belonged to the Spouses
estate, then Rita Baylon s donation thereof in favor of Florante
Baylon, in excess of her undivided share therein as co-heir, is void.
Surely, she could not have validly disposed of something she did
not own. In such a case, an action for rescission of the donation
may, therefore, prosper.
By a joinder of actions, or more properly, a joinder of causes of
action is meant the uniting of two or more demands or rights of
action in one action, the statement of more than one cause of action
in a declaration. It is the union of two or more civil causes of action,
each of which could be made the basis of a separate suit, in the
same complaint, declaration or petition. A plaintiff may under
certain circumstances join several distinct demands, controversies

24
or rights of action in one declaration, complaint or
petition.29rll party to the case or on its own initiative, to order the severance of
The objectives of the rule or provision are to avoid a multiplicity
of suits where the same parties and subject matter are to be dealt
with by effecting in one action a complete determination of all
matters in controversy and litigation between the parties involving
one subject matter, and to expedite the disposition of litigation at
minimum cost. The provision should be construed so as to avoid
such multiplicity, where possible, without prejudice to the rights of
the litigants.30rll therein notwithstanding the misjoinder of the same. If the court
Nevertheless, while parties to an action may assert in one pleading,
in the alternative or otherwise, as many causes of action as they
may have against an opposing party, such joinder of causes of
action is subject to the condition, inter alia, that the joinder shall
not include special civil actions governed by special rules.31rll Here, Florante posed no objection, and neither did the RTC direct
Here, there was a misjoinder of causes of action. The action for
partition filed by the petitioners could not be joined with the action
for the rescission of the said donation inter vivos in favor of
Florante. Lest it be overlooked, an action for partition is a special
civil action governed by Rule 69 of the Rules of Court while an
action for rescission is an ordinary civil action governed by the
ordinary rules of civil procedure. The variance in the procedure in
the special civil action of partition and in the ordinary civil action
of rescission precludes their joinder in one complaint or their being
tried in a single proceeding to avoid confusion in determining what
rules shall govern the conduct of the proceedings as well as in the
determination of the presence of requisite elements of each
particular cause of action.32rll the action for partition through a mere supplemental
A misjoined cause of action, if not
severed upon motion of a party or
by the court sua sponte, may be
adjudicated by the court together
with the other causes of action.
Nevertheless, misjoinder of causes of action is not a ground for
dismissal. Indeed, the courts have the power, acting upon the
motion of a party to the case or sua sponte, to order the severance
of the misjoined cause of action to be proceeded with separately.33
However, if there is no objection to the improper joinder or the
court did not motu proprio direct a severance, then there exists no
bar in the simultaneous adjudication of all the erroneously joined
causes of action. On this score, our disquisition in Republic of the
Philippines v. Herbieto34 is instructive, viz:rbl transactions, occurrences or events which have happened since the
r l l lbrr date of the pleading sought to be supplemented. The adverse party
This Court, however, disagrees with petitioner Republic in this
regard. This procedural lapse committed by the respondents should
not affect the jurisdiction of the MTC to proceed with and hear
their application for registration of the Subject
Lots.rbl r l l lbrr Thus:rbl r l l lbrr
xxx
chanrobles virtual law library
Considering every application for land registration filed in strict
accordance with the Property Registration Decree as a single cause
of action, then the defect in the joint application for registration
filed by the respondents with the MTC constitutes a misjoinder of
causes of action and parties. Instead of a single or joint application
for registration, respondents Jeremias and David, more
appropriately, should have filed separate applications for
registration of Lots No. 8422 and 8423, respectively.
Misjoinder of causes of action and parties do not involve a question
of jurisdiction of the court to hear and proceed with the case. They
are not even accepted grounds for dismissal thereof. Instead, under
the Rules of Court, the misjoinder of causes of action and parties
involve an implied admission of the court s jurisdiction. It
acknowledges the power of the court, acting upon the motion of a
the misjoined cause of action, to be proceeded with separately (in
case of misjoinder of causes of action); and/or the dropping of a
party and the severance of any claim against said misjoined party,
also to be proceeded with separately (in case of misjoinder of
parties).35 (Citations omitted) chanroblesvirtuallawlibrary
chanrobles virtual law library
It should be emphasized that the foregoing rule only applies if the
court trying the case has jurisdiction over all of the causes of action
trying the case has no jurisdiction over a misjoined cause of action,
then such misjoined cause of action has to be severed from the
other causes of action, and if not so severed, any adjudication
rendered by the court with respect to the same would be a nullity.
the severance of the petitioners action for rescission from their
action for partition. While this may be a patent omission on the part
of the RTC, this does not constitute a ground to assail the validity
and correctness of its decision. The RTC validly adjudicated the
issues raised in the actions for partition and rescission filed by the
petitioners.rbl r l l lbrr
Asserting a New Cause of Action in a Supplemental Pleading
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In its Decision dated October 26, 2007, the CA pointed out that the
said action for rescission should have been filed by the petitioners
independently of the proceedings in the action for partition. It
opined that the action for rescission could not be lumped up with
pleading.rbl r l l lbrr
We do not agree.
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A supplemental pleading may raise
a new cause of action as long as it
has some relation to the original
cause of action set forth in the
original complaint.rbl r l l
lbrr
Section 6, Rule 10 of the Rules of Court reads:rl
Sec. 6. Supplemental Pleadings. Upon motion of a party the court
may, upon reasonable notice and upon such terms as are just,
permit him to serve a supplemental pleading setting forth
may plead thereto within ten (10) days from notice of the order
admitting the supplemental pleading.
chanrobles virtual law library
In Young v. Spouses Sy,36 this Court had the opportunity to
elucidate on the purpose of a supplemental pleading.
As its very name denotes, a supplemental pleading only serves to
bolster or add something to the primary pleading. A supplement
exists side by side with the original. It does not replace that which
it supplements. Moreover, a supplemental pleading assumes that
the original pleading is to stand and that the issues joined with the
original pleading remained an issue to be tried in the action. It is
but a continuation of the complaint. Its usual office is to set up new
facts which justify, enlarge or change the kind of relief with respect
to the same subject matter as the controversy referred to in the
original complaint.
The purpose of the supplemental pleading is to bring into the
records new facts which will enlarge or change the kind of relief to
which the plaintiff is entitled; hence, any supplemental facts which
further develop the original right of action, or extend to vary the
25
relief, are available by way of supplemental complaint even though
they themselves constitute a right of action.37 (Citations omitted
and emphasis ours)
chanrobles virtual law library
Thus, a supplemental pleading may properly allege transactions,
occurrences or events which had transpired after the filing of the
pleading sought to be supplemented, even if the said supplemental
facts constitute another cause of action.
Admittedly, in Leobrera v. Court of Appeals,38 we held that a
supplemental pleading must be based on matters arising
subsequent to the original pleading related to the claim or defense
presented therein, and founded on the same cause of action. We
further stressed therein that a supplemental pleading may not be
used to try a new cause of action.
However, in Planters Development Bank v. LZK Holdings and
Development Corp.,39 we clarified that, while a matter stated in a
supplemental complaint should have some relation to the cause of
action set forth in the original pleading, the fact that the
supplemental pleading technically states a new cause of action
should not be a bar to its allowance but only a matter that may be
considered by the court in the exercise of its discretion. In such
cases, we stressed that a broad definition of "cause of action"
should be applied.
Here, the issue as to the validity of the donation inter vivos of Lot
No. 4709 and half of Lot No. 4706 made by Rita in favor of
Florante is a new cause of action that occurred after the filing of
the original complaint. However, the petitioners prayer for the
rescission of the said donation inter vivos in their supplemental
pleading is germane to, and is in fact, intertwined with the cause of
action in the partition case. Lot No. 4709 and half of Lot No. 4706
are included among the properties that were sought to be
partitioned.
The petitioners supplemental pleading merely amplified the
original cause of action, on account of the gratuitous conveyance
of Lot No. 4709 and half of Lot No. 4706 after the filing of the
original complaint and prayed for additional reliefs, i.e., rescission.
Indeed, the petitioners claim that the said lots form part of the estate
of Spouses Baylon, but cannot be partitioned unless the gratuitous
conveyance of the same is rescinded. Thus, the principal issue
raised by the petitioners in their original complaint remained the
same.
Main Issue: Propriety of Rescission
After having threshed out the procedural matters, we now proceed
to adjudicate the substantial issue presented by the instant petition.
The petitioners assert that the CA erred in remanding the case to
the RTC for the determination of ownership of Lot No. 4709 and
half of Lot No. 4706. They maintain that the RTC aptly rescinded
the said donation inter vivos of Lot No. 4709 and half of Lot No.
4706 pursuant to Article 1381(4) of the Civil Code.
In his Comment,40 Florante asserts that before the petitioners may
file an action for rescission, they must first obtain a favorable
judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually
belonged to the estate of Spouses Baylon. Until then, Florante
avers that an action for rescission would be
premature.rbl r l l lbrr subject of litigation.
The petitioners contentions are well-taken.
chanrobles virtual law library
The resolution of the instant dispute is fundamentally contingent
upon a determination of whether the donation inter vivos of Lot
No. 4709 and half of Lot No. 4706 in favor of Florante may be
rescinded pursuant to Article 1381(4) of the Civil Code on the
ground that the same was made during the pendency of the action
for partition with the RTC.
Rescission is a remedy to address
the damage or injury caused to the
contracting parties or third
persons.
Rescission is a remedy granted by law to the contracting parties
and even to third persons, to secure the reparation of damages
caused to them by a contract, even if it should be valid, by means
of the restoration of things to their condition at the moment prior
to the celebration of said contract.41 It is a remedy to make
ineffective a contract, validly entered into and therefore obligatory
under normal conditions, by reason of external causes resulting in
a pecuniary prejudice to one of the contracting parties or their
creditors.42rll
Contracts which are rescissible are valid contracts having all the
essential requisites of a contract, but by reason of injury or damage
caused to either of the parties therein or to third persons are
considered defective and, thus, may be rescinded.
The kinds of rescissible contracts, according to the reason for their
susceptibility to rescission, are the following: first, those which are
rescissible because of lesion or prejudice;43 second, those which
are rescissible on account of fraud or bad faith;44 and third, those
which, by special provisions of law,45 are susceptible to
rescission.46rll
Contracts which refer to things
subject of litigation is rescissible
pursuant to Article 1381(4) of the
Civil Code.
Contracts which are rescissible due to fraud or bad faith include
those which involve things under litigation, if they have been
entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority. Thus, Article
1381(4) of the Civil Code provides:rbl r
l l lbrr
Art. 1381. The following contracts are rescissible:rl
xxx
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(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority.
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The rescission of a contract under Article 1381(4) of the Civil Code
only requires the concurrence of the following: first, the defendant,
during the pendency of the case, enters into a contract which refers
to the thing subject of litigation; and second, the said contract was
entered into without the knowledge and approval of the litigants or
of a competent judicial authority. As long as the foregoing
requisites concur, it becomes the duty of the court to order the
rescission of the said contract.
The reason for this is simple. Article 1381(4) seeks to remedy the
presence of bad faith among the parties to a case and/or any
fraudulent act which they may commit with respect to the thing
When a thing is the subject of a judicial controversy, it should
ultimately be bound by whatever disposition the court shall render.
The parties to the case are therefore expected, in deference to the
court s exercise of jurisdiction over the case, to refrain from doing
acts which would dissipate or debase the thing subject of the
26
litigation or otherwise render the impending decision therein
ineffectual.
There is, then, a restriction on the disposition by the parties of the
thing that is the subject of the litigation. Article 1381(4) of the Civil
Code requires that any contract entered into by a defendant in a
case which refers to things under litigation should be with the
knowledge and approval of the litigants or of a competent judicial
authority.
Further, any disposition of the thing subject of litigation or any act
which tends to render inutile the court s impending disposition in
such case, sans the knowledge and approval of the litigants or of
the court, is unmistakably and irrefutably indicative of bad faith.
Such acts undermine the authority of the court to lay down the
respective rights of the parties in a case relative to the thing subject
of litigation and bind them to such determination.
It should be stressed, though, that the defendant in such a case is
not absolutely proscribed from entering into a contract which refer
to things under litigation. If, for instance, a defendant enters into a
contract which conveys the thing under litigation during the
pendency of the case, the conveyance would be valid, there being
no definite disposition yet coming from the court with respect to
the thing subject of litigation. After all, notwithstanding that the
subject thereof is a thing under litigation, such conveyance is but
merely an exercise of ownership.
This is true even if the defendant effected the conveyance without
the knowledge and approval of the litigants or of a competent
judicial authority. The absence of such knowledge or approval
would not precipitate the invalidity of an otherwise valid contract.
Nevertheless, such contract, though considered valid, may be
rescinded at the instance of the other litigants pursuant to Article
1381(4) of the Civil Code.
Here, contrary to the CA s disposition, the RTC aptly ordered the
rescission of the donation inter vivos of Lot No. 4709 and half of
Lot No. 4706 in favor of Florante. The petitioners had sufficiently
established the presence of the requisites for the rescission of a
contract pursuant to Article 1381(4) of the Civil Code. It is
undisputed that, at the time they were gratuitously conveyed by
Rita, Lot No. 4709 and half of Lot No. 4706 are among the
properties that were the subject of the partition case then pending
with the RTC. It is also undisputed that Rita, then one of the
defendants in the partition case with the RTC, did not inform nor
sought the approval from the petitioners or of the RTC with regard
to the donation inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of land in
favor of Florante was valid, the donation inter vivos of the same
being merely an exercise of ownership, Rita s failure to inform and
seek the approval of the petitioners or the RTC regarding the
conveyance gave the petitioners the right to have the said donation
rescinded pursuant to Article 1381(4) of the Civil Code.
Rescission under Article 1381(4) of
the Civil Code is not preconditioned
upon the judicial determination as
to the ownership of the thing
subject of litigation.
In this regard, we also find the assertion that rescission may only
be had after the RTC had finally determined that the parcels of land
belonged to the estate of Spouses Baylon intrinsically amiss. The
petitioners right to institute the action for rescission pursuant to
Article 1381(4) of the Civil Code is not preconditioned upon the
RTC s determination as to the ownership of the said parcels of land.
It bears stressing that the right to ask for the rescission of a contract
under Article 1381(4) of the Civil Code is not contingent upon the
final determination of the ownership of the thing subject of
litigation. The primordial purpose of Article 1381(4) of the Civil
Code is to secure the possible effectivity of the impending
judgment by a court with respect to the thing subject of litigation.
It seeks to protect the binding effect of a court s impending
adjudication vis- -vis the thing subject of litigation regardless of
which among the contending claims therein would subsequently be
upheld. Accordingly, a definitive judicial determination with
respect to the thing subject of litigation is not a condition sine qua
non before the rescissory action contemplated under Article
1381(4) of the Civil Code may be instituted.
Moreover, conceding that the right to bring the rescissory action
pursuant to Article 1381(4) of the Civil Code is preconditioned
upon a judicial determination with regard to the thing subject
litigation, this would only bring about the very predicament that
the said provision of law seeks to obviate. Assuming arguendo that
a rescissory action under Article 1381(4) of the Civil Code could
only be instituted after the dispute with respect to the thing subject
of litigation is judicially determined, there is the possibility that the
same may had already been conveyed to third persons acting in
good faith, rendering any judicial determination with regard to the
thing subject of litigation illusory. Surely, this paradoxical
eventuality is not what the law had envisioned.
Even if the donation inter vivos is
validly rescinded, a determination
as to the ownership of the subject
parcels of land is still necessary.
Having established that the RTC had aptly ordered the rescission
of the said donation inter vivos in favor of Florante, the issue that
has to be resolved by this Court is whether there is still a need to
determine the ownership of Lot No. 4709 and half of Lot No. 4706.
In opting not to make a determination as to the ownership of Lot
No. 4709 and half of Lot No. 4706, the RTC reasoned that the
parties in the proceedings before it constitute not only the surviving
heirs of Spouses Baylon but the surviving heirs of Rita as well. As
intimated earlier, Rita died intestate during the pendency of the
proceedings with the RTC without any issue, leaving the parties in
the proceedings before the RTC as her surviving heirs. Thus, the
RTC insinuated, a definitive determination as to the ownership of
the said parcels of land is unnecessary since, in any case, the said
parcels of land would ultimately be adjudicated to the parties in the
proceedings before it.rbl r l l
lbrr
We do not agree.
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Admittedly, whoever may be adjudicated as the owner of Lot No.
4709 and half of Lot No. 4706, be it Rita or Spouses Baylon, the
same would ultimately be transmitted to the parties in the
proceedings before the RTC as they are the only surviving heirs of
both Spouses Baylon and Rita. However, the RTC failed to realize
that a definitive adjudication as to the ownership of Lot No. 4709
and half of Lot No. 4706 is essential in this case as it affects the
authority of the RTC to direct the partition of the said parcels of
land. Simply put, the RTC cannot properly direct the partition of
Lot No. 4709 and half of Lot No. 4706 until and unless it
determines that the said parcels of land indeed form part of the
estate of Spouses Baylon.
It should be stressed that the partition proceedings before the RTC
only covers the properties co-owned by the parties therein in their
respective capacity as the surviving heirs of Spouses Baylon.
Hence, the authority of the RTC to issue an order of partition in the
27
proceedings before it only affects those properties which actually
belonged to the estate of Spouses Baylon.
In this regard, if Lot No. 4709 and half of Lot No. 4706, as
unwaveringly claimed by Florante, are indeed exclusively owned
by Rita, then the said parcels of land may not be partitioned
simultaneously with the other properties subject of the partition
case before the RTC. In such case, although the parties in the case
before the RTC are still co-owners of the said parcels of land, the
RTC would not have the authority to direct the partition of the said
parcels of land as the proceedings before it is only concerned with
the estate of Spouses Baylon.
WHEREFORE, in consideration of the foregoing disquisitions, the
petition is PARTIALLY GRANTED. The Decision dated October
26, 2007 issued by the Court of Appeals in CA-G.R. CV No. 01746
is MODIFIED in that the Decision dated October 20, 2005 issued
by the Regional Trial Court, Tanjay City, Negros Oriental, Branch
43 in Civil Case No. 11657, insofar as it decreed the rescission of
the Deed of Donation dated July 6, 1997 is hereby REINSTATED.
The case is REMANDED to the trial court for the determination of
the ownership of Lot No. 4709 and half of Lot No. 4706 in
accordance with this Decision..
G.R. No. 191178 March 13, 2013
ANCHOR SAVINGS BANK (FORMERLY ANCHOR
FINANCE AND INVESTMENT CORPORATION),
Petitioner,
vs.
HENRY H. FURIGAY, GELINDA C. FURIGAY,
HERRIETTE C. FURIGAY and HEGEM C. FURIGAY,
Respondents.
DECISION
MENDOZA, J.:
This concerns a petition for review_ on certiorari filed by petitioner
Anchor Savings Bank (ASB) under Rule 45 of the 1997 Rules of
Civil Procedure, assailing the May 28, 2009 Decision1 and the
January 22, 2010 Resolution2 of the Court of Appeals (CA), in
CA-G.R. CV No. 90123, dismissing the appeal.3
The assailed resolution denied the separate motions for
reconsideration of both parties.
The Facts
On April 21, 1999, ASB filed a verified complaint for sum of
money and damages with application for replevin against Ciudad
Transport Services, Inc. (CTS), its president, respondent Henry H.
Furigay; his wife, respondent Gelinda C. Furigay; and a "John
Doe." The case was docketed as Civil Case No. 99-865 and raffled
to Branch 143 of the Regional Trial Court of Makati City (RTC).4
On November 7, 2003, the RTC rendered its Decision5 in favor of
ASB, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
Anchor Savings Bank ordering defendants Ciudad Transport
Services, Inc., Henry H. Furigay and Genilda C. Furigay to pay the
following:
1) The amount of Eight Million Six Hundred Ninety Five
Thousand Two Hundred Two pesos and Fifty Nine centavos
(Php8,695,202.59) as PRINCIPAL OBLIGATION as of 12 April
1999;
2) An INTEREST of Twelve per cent (12%) per annum until fully
paid;
3) PENALTY CHARGE of Twelve per cent (12%) per annum until
fully paid;
4) LIQUIDATED DAMAGES of Ten (10%) per cent of the total
amount due;
5) One Hundred Thousand pesos as reasonable ATTORNEYS
FEES;
6) Costs of suit.
SO ORDERED.6
While Civil Case No. 99-865 was pending, respondent spouses
donated their registered properties in Alaminos, Pangasinan, to
their minor children, respondents Hegem G. Furigay and Herriette
C. Furigay. As a result, Transfer Certificate of Title (TCT) Nos.
21743,7 21742,8 21741,9 and 2174010 were issued in the names
of Hegem and Herriette Furigay.
Claiming that the donation of these properties was made in fraud
of creditors, ASB filed a Complaint for Rescission of Deed of
Donation, Title and Damages11 against the respondent spouses
and their children. The case was docketed as Civil Case No. A-
3040 and raffled to Branch 55 of the RTC of Alaminos,
Pangasinan. In its Complaint, ASB made the following allegations:
xxxx
4. That Ciudad Transport Services, Inc., Henry H. Furigay and
Gelinda C. Furigay obtained a loan from Anchor Savings Bank and
subsequently the former defaulted from their loan obligation which
prompted Anchor Savings Bank to file the case entitled "Anchor
Savings Bank vs. Ciudad Transport Services, Inc., Henry H.
Furigay and Gelinda C. Furigay" lodged before Makati City
Regional Trial Court Branch 143 and docketed as Civil Case No.
99-865. On 7 November 2003 the Honorable Court in the aforesaid
case issued a Decision the dispositive portion of which reads as
follows:
xxxx
5. That defendants Sps. Henry H. Furigay and Gelinda C. Furigay
are the registered owners of various real properties located at the
Province of Pangasinan covered by Transfer Certificate of Title
Nos. 19721, 21678, 21679, and 21682. x x x
6. That on 8 March 2001 defendants Sps. Henry H. Furigay and
Gelinda C. Furigay executed a Deed of Donation in favor of their
children herein defendants Hegem C. Furigay and Herriette C.
Furigay donating to them all of the above-mentioned properties.
Hence, the following titles were issued under their names to wit:
Transfer Certificate of Title Nos. 21743, 21742, 21741, and 21740.
xxx
7. That the donation made by defendants Sps. Henry H. Furigay
and Gelinda C. Furigay were done with the intention to defraud its
creditors particularly Anchor Savings Bank. Said transfer or
conveyance is the one contemplated by Article 1387 of the New
Civil Code, which reads:
xxxx
8. x x x In the instant case, Sps. Furigay donated the properties at
the time there was a pending case against them. x x x. In the instant
28
case, the Sps. Furigay donated the properties to their son and
daughter. Moreover, the transfer or donation was executed in 2001
when both donees Hegem C. Furigay and Herriette C. Furigay are
minors.
9. Clearly, the Donation made by defendants Sps. Furigay was
intended to deprive plaintiff Anchor Savings Bank from going after
the subject properties to answer for their due and demandable
obligation with the Bank. The donation being undertaken in fraud
of creditors then the same may be rescinded pursuant to Article
1381 of the New Civil Code. The said provision provides that: x x
xx
Consequently, Transfer Certificate of Title Nos. 21743, 21742,
21741, and 21740 issued under the names of defendants Herriette
C. Furigay and Hegem C. Furigay should likewise be cancelled and
reverted to the names of co-defendants Henry and Gelinda Furigay.
10. That because of the fraud perpetrated by defendants, plaintiff
suffered the following damages.
11. Plaintiff suffered actual and compensatory damages as a result
of the filing of the case the bank has spent a lot of man-hours of its
employees and officers re-evaluating the account of defendant Sps.
Furigay. Such man-hour when converted into monetary
consideration represents the salaries and per diems of its
employees particularly the CI/Appraiser, Head Office Lawyer and
Bank Auditor;
12. Said claim likewise represents administrative expenses such as
transportation expenses, reproduction of documents, and courier
expenses among others;
13. Defendants should be made to pay plaintiff Anchor Savings
Bank the amount of PESOS: ONE MILLION (P1,000,000.00) as
moral damages for the damage it caused to the latters business
goodwill and reputation;
14. By way of example for the public and to deter others from the
malicious filing of baseless (sic) suit, defendants should be ordered
to pay [plaintiff] the amount of PESOS: TWO HUNDRED
THOUSAND (P200,000.00) as exemplary damages.
15. Attorneys fees equivalent to twenty-five percent (25%) of the
total amount that can be collected from defendant;
16. Defendants should also be held liable to pay for the cost of
suit.12
Instead of filing an answer, respondents sought the dismissal of the
complaint, principally arguing that the RTC failed to acquire
jurisdiction over their persons as well as over the subject matter in
view of the failure of the ASB to serve the summons properly and
to pay the necessary legal fees.
RTC Resolutions
On September 29, 2006, the RTC issued an Order13 denying the
motion to dismiss. Respondents sought reconsideration of the
Order adding that the ASBs action for rescission had already
prescribed.
Upon filing of ASBs opposition to the motion for reconsideration,
on February 27, 2007, the RTC reconsidered its earlier
pronouncement and dismissed the complaint for failure of ASB to
pay the correct docket fees and for prescription.14
RTC explained that the service of summons by publication made
by ASB was valid because respondents whereabouts could not
have been ascertained with exactitude and because Section 14,
Rule 14 of the Rules of Court did not distinguish what kind of
action it would apply.
On the issue of lack of jurisdiction over the subject matter of the
case, the RTC ruled that the complaint was actually a real action as
it affected title to or possession of real property. Accordingly, the
basis for determining the correct docket fees was the fair market
value of the real property under litigation as stated in its current tax
declaration or its current zonal valuation, whichever was higher.
Considering that ASB did not state the current tax declaration or
current zonal valuation of the real properties involved, as well as
the amount of actual damages and attorneys fees it prayed for, the
trial court was of the view that ASB purposely evaded the payment
of the correct filing fees.
On the issue of prescription, the RTC ruled that the action for
rescission had already prescribed. It stated that an action for
rescission grounded on fraud should be filed within four (4) years
from the discovery of fraud. ASB filed the action for rescission
only on October 14, 2005 or after four (4) years from the time the
Deed of Donation was registered in the Register of Deeds of
Alaminos, Pangasinan, on April 4, 2001. The four-year
prescriptive period should be reckoned from the date of registration
of the deed of donation and not from the date of the actual
discovery of the registration of the deeds of donation because
registration is considered notice to the whole world. Thus, the RTC
disposed:
WHEREFORE, premises considered, the Order dated September
29, 2006 is hereby reconsidered and set aside, in lieu thereof, the
instant complaint is hereby ordered dismissed on the account of
lack of jurisdiction over the subject matter of the case for failure of
the plaintiff to pay the correct docket fees upon its institution
attended by bad faith and on the ground of prescription.
SO ORDERED.15
ASB sought reconsideration, but to no avail.16
Ruling of the CA
On appeal, the CA agreed with ASB that its complaint should not
have been dismissed on the ground that it failed to pay the correct
docket fees. It stated that the lack of specific amount of actual
damages and attorneys fees in ASBs complaint did not, by itself,
amount to evident bad faith. The CA noted that ASB had
previously manifested before the trial court that it was willing to
pay additional docket fees should the same be found insufficient.
On the issue of prescription, however, the CA saw things
differently. Considering the subsidiary nature of an action for
rescission, the CA found that the action of ASB had not yet
prescribed, but was premature. The CA noted that ASB failed to
allege in its complaint that it had resorted to all legal remedies to
obtain satisfaction of its claim. The CA wrote:
After a thorough examination of the foregoing precepts and the
facts engirding this case, this court opines that plaintiff-appellants
action for rescission has not yet prescribed for it must be
emphasized that it has not even accrued in the first place. To stress,
an action for rescission or accion pauliana accrues only if all five
requisites are present, to wit:
1) That the plaintiff asking for rescission, has a credit prior to the
alienation, although demandable later;
2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person;
29

3) That the creditor has no other legal remedy to satisfy his claim,
but would benefit by rescission of the conveyance to the third
person;
4) That the act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud.
In the instant case, the plaintiff-appellant failed to satisfy the third
requirement considering that it did not allege in its complaint that
it has resorted to all legal remedies to obtain satisfaction of his
claim. It did not even point out in its complaint if the decision in
Civil Case No. 99-865 has already become final and executory and
whether the execution thereof yielded negative result in satisfying
its claims. Even the skip tracing allegedly done by the plaintiff-
appellant to locate the properties of the defendant-appellees was
not mentioned. And although the skip tracing reports were
subsequently presented by the plaintiff-appellant, such reports are
not sufficient to satisfy the third requirement. First, they are not
prepared and executed by the sheriff, and second, they do not
demonstrate that the sheriff failed to enforce and satisfy the
judgment of the court and that the plaintiff-appellant has exhausted
the property of the defendant-appellees. Perforce, the action for
rescission filed by the plaintiff-appellant is dismissible.17
As stated at the outset, both parties sought reconsideration but were
rebuffed.
Issue
Hence, this recourse of ASB to the Court, presenting the lone issue
of:
WHETHER OR NOT THE COURT OF APPEALS, IN CA G.R.
CV NO 90123, HAS DECIDED A QUESTION OF
SUBSTANCE, NOT HERETOFORE DETERMINED BY THE
SUPREME COURT, OR HAS DECIDED IT IN A WAY
PROBABLY NOT IN ACCORDANCE WITH LAW OR THE
APPLICABLE DECISIONS OF THE SUPREME COURT,
WHEN IT RENDERED THE DECISION DATED 28 MAY 2009,
AND RESOLUTION DATED 22 JANUARY 2010, IN FINDING
THAT PETITIONER FAILED TO PROVE THAT IT HAS
RESORTED TO ALL LEGAL REMEDIES TO OBTAIN
SATISFACTION OF ITS CLAIM, WITHOUT GIVING
PETITIONER THE OPPORTUNITY TO BE HEARD OR THE
CHANCE TO PRESENT EVIDENCE TO SUPPORT ITS
ACTION, THEREBY DEPRIVING THE LATTER OF THE
RIGHT TO DUE PROCESS.18
ASB argues that, considering that its action was still in its
preliminary stages, the CA erred in dismissing its action on the
ground that it failed to allege in its complaint the fact that it had
resorted to all other legal remedies to satisfy its claim, because it is
a matter that need not be alleged in its complaint, but, rather, to be
proved during trial. It asserts that its action is not yet barred by
prescription, insisting that the reckoning point of the four
(4)-year prescriptive period should be counted from September
2005, when it discovered the fraudulent donation made by
respondent spouses.
The basic issue in this case is whether the CA was correct in
dismissing ASBs complaint on the ground that the action against
respondents was premature.
Ruling of the Court
The Court finds the petition bereft of merit.
Section 1 of Rule 2 of the Revised Rules of Court requires that
every ordinary civil action must be based on a cause of action.
Section 2 of the same rule defines a cause of action as an act or
omission by which a party violates the right of another. In order
that one may claim to have a cause of action, the following
elements must concur: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2)
an obligation on the part of the named defendant to respect or not
to violate such right; and (3) an act or omission on the part of such
defendant in violation of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff for which
the latter may maintain an action for recovery of damages or other
appropriate relief.19 In other words, "a cause of action arises when
that should have been done is not done, or that which should not
have been done is done."20
In Philippine American General Insurance Co., Inc. v. Sweet Lines,
Inc.,21 it was held that "before an action can properly be
commenced, all the essential elements of the cause of action must
be in existence, that is, the cause of action must be complete. All
valid conditions precedent to the institution of the particular action,
whether prescribed by statute, fixed by agreement of the parties or
implied by law must be performed or complied with before
commencing the action, unless the conduct of the adverse party has
been such as to prevent or waive performance or excuse non-
performance of the condition."
Moreover, it is not enough that a party has, in effect, a cause of
action.
The rules of procedure require that the complaint must contain a
concise statement of the ultimate or essential facts constituting the
plaintiff's cause of action. "The test of the sufficiency of the facts
alleged in the complaint is whether or not, admitting the facts
alleged, the court can render a valid judgment upon the same in
accordance with the prayer of plaintiff."22 The focus is on the
sufficiency, not the veracity, of the material allegations. Failure to
make a sufficient allegation of a cause of action in the complaint
warrants its dismissal.23
In relation to an action for rescission, it should be noted that the
remedy of rescission is subsidiary in nature; it cannot be instituted
except when the party suffering damage has no other legal means
to obtain reparation for the same.24 Article 1177 of the New Civil
Code provides:
The creditors, after having pursued the property in possession of
the debtor to satisfy their claims, may exercise all the rights and
bring all the actions of the latter for the same purpose, save those
which are inherent in his person; they may also impugn the actions
which the debtor may have done to defraud them. (Emphasis
added)
Consequently, following the subsidiary nature of the remedy of
rescission, a creditor would have a cause of action to bring an
action for rescission, if it is alleged that the following successive
measures have already been taken: (1) exhaust the properties of the
debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt by law from
execution; (2) exercise all the rights and actions of the debtor, save
those personal to him (accion subrogatoria); and (3) seek rescission
of the contracts executed by the debtor in fraud of their rights
(accion pauliana).25
With respect to an accion pauliana, it is required that the ultimate
facts constituting the following requisites must all be alleged in the
complaint, viz.:
30

1) That the plaintiff asking for rescission, has credit prior to the
alienation, although demandable later;
2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his claim,
but would benefit by rescission of the conveyance to the third
person;
4) That act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud.26
A cursory reading of the allegations of ASBs complaint would
show that it failed to allege the ultimate facts constituting its cause
of action and the prerequisites that must be complied before the
same may be instituted. ASB, without availing of the first and
second remedies, that is, exhausting the properties of CTS, Henry
H. Furigay and Genilda C. Furigay or their transmissible rights and
actions, simply undertook the third measure and filed an action for
annulment of the donation. This cannot be done. The Court hereby
quotes with approval the thorough discourse of the CA on this
score:27
To answer the issue of prescription, the case of Khe Hong Cheng
vs. Court of Appeals (G.R. No. 144169, March 28, 2001) is
pertinent. In said case, Philam filed an action for collection against
Khe Hong Cheng. While the case was still pending, or on
December 20, 1989, Khe Hong Cheng, executed deeds of
donations over parcels of land in favor of his children, and on
December 27, 1989, said deeds were registered. Thereafter, new
titles were issued in the names of Khe Hong Chengs children.
Then, the decision became final and executory. But upon
enforcement of writ of execution, Philam found out that Khe Hong
Cheng no longer had any property in his name. Thus, on February
25, 1997, Philam filed an action for rescission of the deeds of
donation against Khe Hong Cheng alleging that such was made in
fraud of creditors. However, Khe Hong Cheng moved for the
dismissal of the action averring that it has already prescribed since
the four-year prescriptive period for filing an action for rescission
pursuant to Article 1389 of the Civil Code commenced to run from
the time the deeds of donation were registered on December 27,
1989. Khe Hong Cheng averred that registration amounts to
constructive notice and since the complaint was filed only on
February 25, 1997, or more than four (4) years after said
registration, the action was already barred by prescription. The trial
court ruled that the complaint had not yet prescribed since the
prescriptive period began to run only from December 29, 1993, the
date of the decision of the trial court. Such decision was affirmed
by this court but reckoned the accrual of Philam's cause of action
in January 1997, the time when it first learned that the judgment
award could not be satisfied because the judgment creditor, Khe
Hong Cheng, had no more properties in his name. Hence, the case
reached the Supreme Court which ruled that the action for
rescission has not yet prescribed, ratiocinating as follows:
"Essentially, the issue for resolution posed by petitioners is this:
When did the four (4) year prescriptive period as provided for in
Article 1389 of the Civil Code for respondent Philam to file its
action for rescission of the subject deeds of donation commence to
run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, The action to
claim rescission must be commenced within four years. Since this
provision of law is silent as to when the prescriptive period would
commence, the general rule, i.e, from the moment the cause of
action accrues, therefore, applies. Article 1150 of the Civil Code is
particularly instructive:
ARTICLE 1150. The time for prescription for all kinds of actions,
when there is no special provision which ordains otherwise, shall
be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the starting
point for the computation of the prescriptive period for the action.
Article 1383 of the Civil Code provides as follows:
ARTICLE 1383. An action for rescission is subsidiary; it cannot
be instituted except when the party suffering damage has no other
legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana
must be of last resort, availed of only after all other legal remedies
have been exhausted and have been proven futile.1wphi1 For an
accion pauliana to accrue, the following requisites must concur:
1) That the plaintiff asking for rescission, has a credit prior to the
alienation, although demandable later; 2) That the debtor has made
a subsequent contract conveying a patrimonial benefit to a third
person; 3) That the creditor has no other legal remedy to satisfy his
claim, but would benefit by rescission of the conveyance to the
third person; 4) That the act being impugned is fraudulent; 5) That
the third person who received the property conveyed, if by onerous
title, has been an accomplice in the fraud.
We quote with approval the following disquisition of the CA on
the matter:
An accion pauliana accrues only when the creditor discovers that
he has no other legal remedy for the satisfaction of his claim
against the debtor other than an accion pauliana. The accion
pauliana is an action of a last resort. For as long as the creditor still
has a remedy at law for the enforcement of his claim against the
debtor, the creditor will not have any cause of action against the
creditor for rescission of the contracts entered into by and between
the debtor and another person or persons. Indeed, an accion
pauliana presupposes a judgment and the issuance by the trial court
of a writ of execution for the satisfaction of the judgment and the
failure of the Sheriff to enforce and satisfy the judgment of the
court. It presupposes that the creditor has exhausted the property
of the debtor. The date of the decision of the trial court against the
debtor is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the debtor of
his property. After all, the decision of the trial court against the
debtor will retroact to the time when the debtor became indebted
to the creditor.
Petitioners, however, maintain that the cause of action of
respondent Philam against them for the rescission of the deeds of
donation accrued as early as December 27, 1989, when petitioner
Khe Hong Cheng registered the subject conveyances with the
Register of Deeds. Respondent Philam allegedly had constructive
knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:
SECTION 52. Constructive knowledge upon registration. Every
conveyance, mortgage, lease, lien, attachment, order, judgment,
instrument or entry affecting registered land shall, if registered,
filed or entered in the Office of the Register of Deeds for the
province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering,
filing, or entering.
31

Petitioners argument that the Civil Code must yield to the
Mortgage and Registration Laws is misplaced, for in no way does
this imply that the specific provisions of the former may be all
together ignored. To count the four year prescriptive period to
rescind an allegedly fraudulent contract from the date of
registration of the conveyance with the Register of Deeds, as
alleged by the petitioners, would run counter to Article 1383 of the
Civil Code as well as settled jurisprudence. It would likewise
violate the third requisite to file an action for rescission of an
allegedly fraudulent conveyance of property, i.e., the creditor has
no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment;
2) the issuance by the trial court of a writ of execution for the
satisfaction of the judgment, and 3) the failure of the sheriff to
enforce and satisfy the judgment of the court. It requires that the
creditor has exhausted the property of the debtor. The date of the
decision of the trial court is immaterial. What is important is that
the credit of the plaintiff antedates that of the fraudulent alienation
by the debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor became
indebted to the creditor.
xxxx
Even if respondent Philam was aware, as of December 27, 1989,
that petitioner Khe Hong Cheng had executed the deeds of
donation in favor of his children, the complaint against Butuan
Shipping Lines and/or petitioner Khe Hong Cheng was still
pending before the trial court. Respondent Philam had no inkling,
at the time, that the trial court's judgment would be in its favor and
further, that such judgment would not be satisfied due to the deeds
of donation executed by petitioner Khe Hong Cheng during the
pendency of the case. Had respondent Philam filed his complaint
on December 27, 1989, such complaint would have been dismissed
for being premature. Not only were all other legal remedies for the
enforcement of respondent Philam's claims not yet exhausted at the
time the deeds of donation were executed and registered.
Respondent Philam would also not have been able to prove then
that petitioner Khe Hong Cheng had no more property other than
those covered by the subject deeds to satisfy a favorable judgment
by the trial court.
xxxx
As mentioned earlier, respondent Philam only learned about the
unlawful conveyances made by petitioner Khe Hong Cheng in
January 1997 when its counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner Khe Hong Cheng. There
they found that he no longer had any properties in his name. It was
only then that respondent
Philam's action for rescission of the deeds of donation accrued
because then it could be said that respondent Philam had exhausted
all legal means to satisfy the trial court's judgment in its favor.
Since respondent Philam filed its complaint for accion pauliana
against petitioners on February 25, 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other property
to satisfy the judgment award against him, its action for rescission
of the subject deeds clearly had not yet prescribed."
From the foregoing, it is clear that the four-year prescriptive period
commences to run neither from the date of the registration of the
deed sought to be rescinded nor from the date the trial court
rendered its decision but from the day it has become clear that there
are no other legal remedies by which the creditor can satisfy his
claims. [Emphases in the original]
In all, it is incorrect for ASB to argue that a complaint need not
allege all the elements constituting its cause of action since it would
simply adduce proof of the same during trial. "Nothing is more
settled than the rule that in a motion to dismiss for failure to state
a cause of action, the inquiry is "into the sufficiency, not the
veracity, of the material allegations."28 The inquiry is confined to
the four comers of the complaint, and no other.29 Unfortunately
for ASB, the Court finds the allegations of its complaint
insufficient in establishing its cause of action and in apprising the
respondents of the same so that they could defend themselves
intelligently and effectively pursuant to their right to due process.
It is a rule of universal application that courts of justice are
constituted to adjudicate substantive rights. While courts should
consider public policy and necessity in putting an end to litigations
speedily they must nevertheless harmonize such necessity with the
fundamental right of litigants to due process.
WHEREFORE, the petition is DENIED.
SO ORDERED.
VOIDABLE CONTRACTS
[G.R. No. 104223*. July 12, 2001]
TIBURCIO SAMONTE, petitioner, vs. COURT OF
APPEALS, EUGENIA DANGO GADIANO, TEOFILO
GADIANO, PETRONILO DANGO, FELICIANA DANGO,
NONILO MARAVE and GERONIMO DANGO, respondents.
DECISION
KAPUNAN, J.:
Tiburcio Samonte (petitioner) filed this petition for review on
certiorari seeking to reverse and set aside the Decision, dated
November 29, 1991, of the Court of Appeals (CA) in CA-G.R. CV
No. 16645. He likewise seeks the reversal of CA Resolution, dated
February 21, 1992, which denied his motion for reconsideration.
The parcel of land (Lot No. 216) subject of this dispute is situated
in Nasipit, Agusan del Norte, and originally covered by Original
Certificate of Title No. RO-238(555) issued in the names Apolonia
Abao and her daughter Irenea Tolero, pro indiviso. It contained an
area of 12,753 square meters. Two cases were separately filed in
the Regional Trial Court, Branch II of Nasipit, Agusan del Norte
involving the entire lot. Both cases were filed by the surviving heirs
of Apolonia Abao and Irenea Tolero.[1] These heirs, children of
Irenea Tolero and grandchildren of Apolonia Abao, are the
respondents in this case.
The first case, Civil Case No. 1672, was an action for quieting of
title and recovery of possession of a parcel of land which originally
formed part of the entire property. Said parcel of land was
denominated as Lot 216-B-2-G and covered by Transfer Certificate
of Title (TCT) No. RT-899 in the name of Irenea Tolero. The
defendants named therein were spouses Andres and Amanda
Lacho.
The second case, Civil Case No. 1816, is similarly an action for
quieting of title and recovery of possession. Unlike the first case,
however, Civil Case No. 1816 involved the entire Lot 216. The
complaint therein sought the annulment of several certificates of
title covering portions of Lot 216 and the reinstatement of OCT
No. RO-238(555). The defendants in the second case were Nicolas
Jadol, Beatriz Jadol, Jacobo Tagorda, Henry Jadol, Aurelio Rotor
and herein petitioner.
32
The present case stems only from the latter case (Civil Case No.
1816) and, as culled from the CA decision, the facts relevant herein
are as follows:
Civil Case No. 1816
(CA-G.R. CV No. 16645)
From the pleadings and the evidence adduced by the parties the
following are not disputed or deemed admitted: that Lot 216 of the
Cadastral survey of Nasipit, containing an area of 12,753 square
meters, more or less, situated at Anislagan, Nasipit, Agusan (now
del Norte) is covered by Original Certificate of Title (OCT) No.
RO-238 issued in 1927 in the name of Apolonia Abao and Irenea
Tolero in equal undivided shares (Exhibit E); that OCT No. RO-
238 was administratively reconstituted on August 8, 1957 and the
assigned number of the reconstituted title is OCT No. RO-238
(555) (Exhibit D identical to Exhibit-Samonte); that on August 8,
1957, based on an affidavit of Extra-judicial Settlement and
Confirmation of Sale (Exhibit D-1), OCT No. RO-238 (555) was
cancelled and lieu thereof Transfer Certificate of Title (TCT) No.
RT-476 was issued in the name of Irenea Tolero, share and Nicolas
Jadol, share (Exhibit C identical to Exhibit 3-Samonte); that on
February 13, 1959, based on subdivision plan, subdividing Lot 216
into Lot 216-A and Lot 216-B, the Register of Deeds of Agusan
(now del Norte) cancelled TCT No. RT-476 and issued in its place
TCT No. RT-553 in the name of Tiburcio Samonte for Lot 216-A
(Exhibit 2-Samonte) and TCT No. RT-554. Irenea Tolero and
Nicolas Jadol for Lot 216-B (Exhibit B); that on February 13, 1959
based on a subdivision plan subdividing Lot 216-B to 216-B-1 and
216-B-2, TCT No. RT-554 was cancelled and in its place TCT No.
RT-555 was issued in the name of Jacob B. Tagorda for Lot 216-
B-1 and TCT No. 556 in the name of Irenea Tolero and Nicolas
Jadol for Lot 216-B-2;
Plaintiffs in their evidence claim ownership over the entire lot, Lot
216, as one-half (1/2) of the area of 12.753 square meters was
registered in the name of their mother Irenea Tolero (Exhibit E) the
other half was registered in the name of their grandmother,
Apolonia Abao. After Apolonia Abao died during the Japanese
occupation and Irenea Tolero died in 1945, they inherited and
became owners of Lot 216. Plaintiffs questioned the series of
cancellation of the certificate of title starting from OCT No. RO-
238 (555) and the Deed of Extra-judicial Settlement and
Confirmation of Sale executed by Ignacio Atupan on August 7,
1957 (Exhibit D-1) adjudicating one-half (1/2) of the area of Lot
216. Plaintiffs maintain that Ignacio Atupan is not a son of
Apolonia Abao but he only grew up while living with Apolonia
Abao. That when Lot 216 was subdivided into two (2) lots, Lot
216-A and Lot 216-A (sic) which was made as one of the basis in
the cancellation of TCT No. 476 and issuance of TCT No. 553 and
TCT No. 554 on February 13, 1959, the plaintiffs or their
predecessors-in-interest have not signed any document agreeing as
to the manner how Lot 216 was to be divided, nor have they
consented to the partition of the same.
Defendant Samonte in his evidence claim that he bought portions
of the Lot 216 in good faith as he was made to believe that all the
papers in possession of his vendors were all in order. One of the
documents presented by him is a Deed of Absolute Sale executed
in 1939 (Exhibit 8-Samonte). He has been in open, continuous,
adverse and exclusive possession of the portions of Lot 216 he
bought for more than 20 years and have declared the land for
taxation purposes (Exhibits 5 and 7-Samonte) and have paid the
real estate taxes thereon (Exhibit 6 to 6-K, inclusive Samonte). The
portions he bought is now covered by TCT No. RT-553 (Exhibit
2-Samonte) and TCT No. RT-1658 (Exhibit 4-Samonte).
Defendant Jadols claim that they became owners of one-half (1/2)
portion of Lot 216 by purchase from Ignacio Atupan and Apolonia
Abao on September 15, 1939 as shown by a document notarized
by Jacobo Bello (Exhibit 1-Jadol) and signed by Irenea Tolero
(Exhibit 1-D-Jadol) as a witness. They were in possession since
they bought the land. The land is covered by Tax Declaration No.
1630 (Exhibit 2-Jadol) and Tax Declaration No. 1676 (Exhibit 3-
Jadol) in their name (Decision, pp. 36-39).[2]
Initially, the two cases were heard independently of each other. It
was discovered, however, that they were intimately related.
Accordingly, the court a quo jointly tried the two cases. After due
trial, the trial court rendered separate decisions, both in favor of the
plaintiffs therein. The dispositive portion particularly of the
decision in Civil Case No. 1816 reads:
Civil Case No. 1816
IN VIEW OF THE FOREGOING, judgment is hereby rendered in
favor of the plaintiffs and against the defendants:
a) declaring plaintiffs co-owners of the entire of (sic) Lot 216 being
the surviving heirs of Apolonia Abao and Irenea Tolero;
b) directing the reinstatement of Original Certificate of Title No.
RO-238(555);
c) directing the cancellation of Transfer Certificate of Title No.
RT-476 and all subsequent certificates of title derived therefrom
which are all declared null and void;
d) declaring the subdivision survey of Lot 216 null and void and
ineffectual;
e) directing the defendants to vacate the premises of Lot 216 and
to remove all their improvements therefrom as they are builders in
bad faith;
f) directing defendants Jadol and Samonte to pay jointly and
severally the plaintiffs the sum of P20,000.00 for the use and
occupation of the land;
g) directing defendants Jadol and Samonte to pay P5,000.00 as
attorneys fees;
h) ordering the dismissal of the counterclaims of defendants; and
i) directing the defendants Jadol and Samonte to pay the costs.
SO ORDERED.[3]
Plaintiffs were likewise declared the lawful owners of Lot 216-B-
2-G in Civil Case No. 1672. Defendants therein were ordered to,
among others, vacate the premises and remove the improvements
made thereon.[4]
The defendants in the two cases respectively appealed the aforesaid
decisions to the CA. The CA ordered the consolidation of the two
appeals. Thereafter, the CA rendered the decision of November 29,
1991 affirming the decisions of the trial court and dismissing the
appeals. Petitioner then filed the instant petition assailing
particularly the decision in CA-G.R. CV No. 16645. He alleges
that:
I
THE HONORABLE COURT OF APPEALS ERRED AS A
MATTER OF LAW IN DEPARTING FROM THE PREVAILING
DOCTRINE SUPPORTED BY THE WEIGHT OF
AUTHORITIES THAT THE DISCOVERY OF THE FRAUD IS
DEEMED TO HAVE TAKEN PLACE AT THE TIME OF THE
33
REGISTRATION (CARANTES VS. COURT OF APPEALS, 76
SCRA 514);[5]
II
THE COURT OF APPEALS ERRED AS A MATTER OF LAW
AND JURISPRUDENCE IN NOT HOLDING THAT HEREIN
PETITIONER WAS A BUYER IN GOOD FAITH FOR VALUE,
HENCE HE IS PROTECTED BY LAW.[6]
The petition is bereft of merit.
It is not disputed that Ignacio Atupan caused the fraudulent
cancellation of OCT No. RO-238(555). The trial court found that
Atupan, on the basis of his Affidavit of Extra-judicial Settlement
and Confirmation Sale, adjudicated unto himself one-half of Lot
216 by misrepresenting himself as the sole heir of Apolonia Abao.
Atupan, in said affidavit, likewise confirmed the two deeds of sale
allegedly executed by him and Abao on September 15 and 16,
1939, covering the latters one-half lot in favor of Nicolas Jadol.
The trial court found Atupans affidavit, dated August 7, 1957, to
be tainted with fraud because he falsely claimed therein that he was
the sole heir of Abao when in fact, he merely lived and grew up
with her. Jadol and his wife, Beatriz, knew about this fact. Despite
this knowledge, however, the Jadol spouses still presented the
affidavit of Atupan before the Register of Deeds of the Province of
Agusan when they caused the cancellation of OCT No. R0-
238(555) and issuance of TCT No. RT-476 in their names covering
that portion owned by Abao.
The trial court concluded that the incorporation of the statement in
Atupans affidavit confirming the alleged execution of the aforesaid
deeds of sale was intended solely to facilitate the issuance of the
certificate of title in favor of the Jadol spouses. It was noted that
the documents evidencing the alleged transactions were not
presented in the Register of Deeds. It was further pointed out that
the Jadol spouses only sought the registration of these transactions
in 1957, eighteen (18) years after they supposedly took place or
twelve (12) years after Abao died.
Based on the foregoing facts, the CA, on appeal, ruled that the
cancellation of OCT No. R0-238(555) and the consequent issuance
of TCT No. RT-476 in its place in the name of the Jadol spouses
were effected through fraudulent means and that they (spouses
Jadol) not only had actual knowledge of the fraud but were also
guilty of bad faith.[7]
Nonetheless, petitioner contends that respondents action in the
court a quo had already prescribed. Generally, an action for
reconveyance of real property based on fraud may be barred by the
statute of limitations which requires that the action must be
commenced within four (4) years from the discovery of fraud, and
in case of registered land, such discovery is deemed to have taken
place from the date of the registration of title.[8]
Article 1456 of the Civil Code, however, provides:
Art. 1456. If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes.
As it had been indubitably established that fraud attended the
registration of a portion of the subject property, it can be said that
the Jadol spouses were trustees thereof on behalf of the surviving
heirs of Abao. An action based on implied or constructive trust
prescribes in ten (10) years from the time of its creation or upon
the alleged fraudulent registration of the property.[9]
Petitioner, as successor-in-interest of the Jadol spouses, now
argues that the respondents action for reconveyance, filed only in
1975, had long prescribed considering that the Jadol spouses
caused the registration of a portion of the subject lot in their names
way back in August 8, 1957. It is petitioners contention that since
eighteen years had already lapsed from the issuance of TCT No.
RT-476 until the time when respondents filed the action in the
court a quo in 1975, the same was time-barred.
Petitioners defense of prescription is untenable. The general rule
that the discovery of fraud is deemed to have taken place upon the
registration of real property because it is considered a constructive
notice to all persons[10] does not apply in this case. Instead, the
CA correctly applied the ruling in Adille vs. Court of Appeals[11]
which is substantially on all fours with the present case.
In Adille, petitioner therein executed a deed of extra-judicial
partition misrepresenting himself to be the sole heir of his mother
when in fact she had other children. As a consequence, petitioner
therein was able to secure title to the land in his name alone. His
siblings then filed a case for partition on the ground that said
petitioner was only a trustee on an implied trust of the property.
Among the issues resolved by the Court in that case was
prescription. Said petitioner registered the property in 1955 and the
claim of private respondents therein was presented in 1974.
The Courts resolution of whether prescription had set in therein is
quite apropos to the instant case:
It is true that registration under the Torrens system is constructive
notice of title, but it has likewise been our holding that the Torrens
title does not furnish a shield for fraud. It is therefore no argument
to say that the act of registration is equivalent to notice of
repudiation, assuming there was one, notwithstanding the long-
standing rule that registration operates as a universal notice of title.
For the same reason, we cannot dismiss private respondents claims
commenced in 1974 over the estate registered in 1955. While
actions to enforce a constructive trust prescribes in ten years,
reckoned from the date of the registration of the property, we, as
we said, are not prepared to count the period from such a date in
this case. We note the petitioners sub rosa efforts to get hold of the
property exclusively for himself beginning with his fraudulent
misrepresentation in his unilateral affidavit of extrajudicial
settlement that he is the only heir and child of his mother Feliza
with the consequence that he was able to secure title in his name
[alone]. Accordingly, we hold that the right of the private
respondents commenced from the time they actually discovered the
petitioners act of defraudation. According to the respondent Court
of Appeals, they "came to know [of it] apparently only during the
progress of the litigation." Hence, prescription is not a bar.[12]
In this case, the CA reckoned the prescriptive period from the time
respondents had actually discovered the fraudulent act of Atupan
which was, as borne out by the records, only during the trial of
Civil Case No. 1672.[13] Citing Adille, the CA rightfully ruled that
respondents action for reconveyance had not yet prescribed.
On the issue of whether petitioner is a buyer in bad faith as he
claims, the Court likewise holds in the negative. It was established
during the trial by the court a quo that he knew that respondents
were the only surviving heirs of Irenea Tolero. Despite this
knowledge, petitioner still bought a portion of the subject lot from
the Jadol spouses on July 20, 1957, when the same was still
registered under OCT No. R0-238(555) in the name of Abao and
Tolero.
34
With respect to this particular lot therefore, petitioner cannot
pretend to be a purchaser in good faith. It is axiomatic that one who
buys from a person who is not a registered owner is not a purchaser
in good faith.[14]
Moreover, with respect to the other portion which petitioner bought
from Jacobo Tagorda, the trial court held that he was, as in the first
case, a buyer in bad faith. The general rule is that a person dealing
with registered land has a right to rely on the Torrens certificate of
title and to dispense with the need of making further inquiries.[15]
This rule, however, admits of exceptions: when the party has actual
knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry or when the
purchaser has knowledge of a defect or the lack of title in his
vendor or of sufficient facts to induce a reasonably prudent man to
inquire into the status of the title of the property in litigation.[16]
One who falls within the exception can neither be denominated an
innocent purchaser for value nor a purchaser in good faith; and
hence does not merit the protection of the law.[17]
The CA established that petitioner is not a purchaser in good faith
with respect to this portion of the subject property, thus:
xxx While it may be true that the second portion was purchased by
Samonte from Tagorda in whose name the same was then
registered under TCT No. RT-555, Samonte was previously
charged with the fact that Jadol lacked the capacity to transmit title
over any part of the subject property including that portion which
the latter sold to Tagorda. Thus, Samonte was clearly in bad faith
when he sought the registration of the deed of sale of July 10, 1972
which effected the cancellation of TCT No. RT-555 and the
issuance of TCT No. 1658 in his favor. xxx[18]
Petitioner cannot now claim that he already acquired valid title to
the property. The inscription in the registry, to be effective, must
be made in good faith. The defense of indefeasibility of a Torrens
Title does not extend to a transferee who takes the certificate of
title with notice of a flaw. A holder in bad faith of a certificate of
title is not entitled to the protection of the law, for the law cannot
be used as a shield for frauds.[19]
In fine, there is no compelling reason to deviate from the salutary
rule that findings and conclusions of the trial court, especially if
affirmed by the appellate court, are accorded utmost respect by this
Court.
WHEREFORE, the instant petition is DENIED for lack of merit.
The Decision, dated November 29, 1991 of the Court of Appeals
and its Resolution, dated February 21, 1992, in CA-G.R. CV No.
16645 are AFFIRMED in toto.
SO ORDERED.
[G.R. No. 143370. February 6, 2002]
MARIO J. MENDEZONA and TERESITA M.
MENDEZONA, LUIS J. MENDEZONA and MARICAR L.
MENDEZONA and TERESITA ADAD VDA. DE
MENDEZONA, petitioners, vs. JULIO H. OZAMIZ,
ROBERTO J. MONTALVAN, JOSE MA. OZAMIZ,
CARMEN H. OZAMIZ, PAZ O. MONTALVAN, MA.
TERESA O.F. ZARRAGA, CARLOS O. FORTICH, JOSE
LUIS O. ROS, PAULITA O. RODRIGUEZ, and LOURDES
O. LON, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1]
and the Resolution[2] of the Court of Appeals dated July 27, 1998
and May 19, 2000, respectively, in CA-G.R. CV No. 39752 which
reversed and set aside the Decision[3] dated September 23, 1992
rendered in favor of the petitioners by the Regional Trial Court
(RTC) of Cebu City, Branch 6 in Civil Case No. CEB-10766.
Civil Case No. CEB-10766 is a suit for quieting of title. It was
instituted on September 25, 1991 by petitioner spouses Mario J.
Mendezona and Teresita M. Mendezona as initial plaintiffs,[4] and
in the amended complaint filed on October 7, 1991, herein co-
petitioner spouses Luis J. Mendezona and Maricar L. Mendezona
and Teresita Adad Vda. de Mendezona joined as co-plaintiffs.[5]
In their complaint, the petitioners, as plaintiffs therein, alleged that
petitioner spouses Mario J. Mendezona and Teresita M.
Mendezona, petitioner spouses Luis J. Mendezona and Maricar L.
Mendezona, and petitioner Teresita Adad Vda. de Mendezona own
a parcel of land each in the Banilad Estate, Lahug, Cebu City with
almost similar areas of 3,462 square meters, 3,466 square meters
and 3,468 square meters, covered and described in Transfer
Certificate of Title (TCT) Nos. 116834, 116835, and 116836
respectively, of the Registry of Deeds of Cebu City.[6]
The petitioners ultimately traced their titles of ownership over their
respective properties from a notarized Deed of Absolute Sale[7]
dated April 28, 1989 executed in their favor by Carmen Ozamiz for
and in consideration of the sum of One Million Forty Thousand
Pesos (P1,040,000.00).
The petitioners initiated the suit to remove a cloud on their said
respective titles caused by the inscription thereon of a notice of lis
pendens, which came about as a result of an incident in Special
Proceeding No. 1250 of the RTC of Oroquieta City. Special
Proceeding No. 1250 is a proceeding for guardianship over the
person and properties of Carmen Ozamiz initiated by the
respondents Julio H. Ozamiz, Jose Ma. Ozamiz, Carmen H.
Ozamiz,[8] Paz O. Montalvan, Ma. Teresa O.F. Zarraga, Carlos O.
Fortich, Jose Luis O. Ros, Paulita O. Rodriguez and Lourdes O.
Lon.[9]
It appears that on January 15, 1991, the respondents instituted the
petition for guardianship with the Regional Trial Court of
Oroquieta City, alleging therein that Carmen Ozamiz, then 86
years old, after an illness in July 1987, had become disoriented and
could not recognize most of her friends; that she could no longer
take care of herself nor manage her properties by reason of her
failing health, weak mind and absent-mindedness. Mario
Mendezona and Luis Mendezona, herein petitioners who are
nephews of Carmen Ozamiz, and Pilar Mendezona, a sister of
Carmen Ozamiz, filed an opposition to the guardianship petition.
In the course of the guardianship proceeding, the petitioners and
the oppositors thereto agreed that Carmen Ozamiz needed a
guardian over her person and her properties, and thus respondent
Paz O. Montalvan was designated as guardian over the person of
Carmen Ozamiz while petitioner Mario J. Mendezona, respondents
Roberto J. Montalvan and Julio H. Ozamiz were designated as joint
guardians over the properties of the said ward.
As guardians, respondents Roberto J. Montalvan and Julio H.
Ozamiz filed on August 6, 1991 with the guardianship court their
inventories and Accounts,[10] listing therein Carmen Ozamizs
properties, cash, shares of stock, vehicles and fixed assets,
including a 10,396 square meter property known as the Lahug
property. Said Lahug property is the same property covered by the
Deed of Absolute Sale dated April 28, 1989 executed by Carmen
Ozamiz in favor of the petitioners. Respondents Roberto J.
Montalvan and Julio H. Ozamiz caused the inscription on the titles
of petitioners a notice of lis pendens,[11] regarding Special
35
Proceeding No. 1250, thus giving rise to the suit for quieting of
title, Civil Case No. CEB-10766, filed by herein petitioners.
In their Answer[12] in Civil Case No. CEB-10766 the respondents
opposed the petitioners claim of ownership of the Lahug property
and alleged that the titles issued in the petitioners names are
defective and illegal, and the ownership of the said property was
acquired in bad faith and without value inasmuch as the
consideration for the sale is grossly inadequate and
unconscionable. Respondents further alleged that at the time of the
sale on April 28, 1989 Carmen Ozamiz was already ailing and not
in full possession of her mental faculties; and that her properties
having been placed in administration, she was in effect
incapacitated to contract with petitioners.
The issues for resolution were delimited in the pre-trial to: (a) the
propriety of recourse to quieting of title; (b) the validity or nullity
of the Deed of Absolute Sale dated April 28, 1989 executed by
Carmen Ozamiz in favor of herein petitioners; (c) whether the titles
over the subject parcel of land in plaintiffs names be maintained or
should they be cancelled and the subject parcels of land
reconveyed; and (d) damages and attorneys fees.[13]
Trial on the merits ensued with the parties presenting evidence to
prove their respective allegations. Petitioners Mario Mendezona,
Teresita Adad Vda. de Mendezona and Luis Mendezona, as
plaintiffs therein, testified on the circumstances surrounding the
sale. Carmencita Cedeno and Martin Yungco, instrumental
witnesses to the Deed of Absolute Sale dated April 28, 1989, and,
Atty. Asuncion Bernades, the notary public who notarized the said
document, testified that on the day of execution of the said contract
that Carmen Ozamiz was of sound mind and that she voluntarily
and knowingly executed the said deed of sale.
For the defendants, the testimonies of respondent Paz O.
Montalvan, a sister of Carmen Ozamiz; Concepcion Agac-ac, an
assistant of Carmen Ozamiz; respondent Julio Ozamiz; Carolina
Lagura, a househelper of Carmen Ozamiz; Joselito Gunio, an
appraiser of land; Nelfa Perdido, a part-time bookkeeper of
Carmen Ozamiz, and the deposition of Dr. Faith Go, physician of
Carmen Ozamiz, were offered in evidence.
The petitioners presented as rebuttal witnesses petitioners Mario
Mendezona and Luis Mendezona, to rebut the testimony of
respondent Julio H. Ozamiz; and, Dr. William Buot, a doctor of
neurology to rebut aspects of the deposition of Dr. Faith Go on the
mental capacity of Carmen Ozamiz at the time of the sale.
During the trial, the trial court found that the following facts have
been duly established:[14]
(1) On April 28, 1989, Carmen Ozamiz sold to her nephews,
Mario, Antonio and Luis, all surnamed Mendezona, three (3)
parcels of residential land in Cebu City, per a Deed of Absolute
Sale (Exh. D) for a consideration of P1,040,000.00, in which deed
the usufructuary rights were reserved during her lifetime.
(2) The three parcels of land were subsequently transferred to the
names of the three vendees per TCTs Nos. 108729, 108730 and
108731 (Exhs. J, K & L, respectively). A partition agreement was
entered into by the three vendees (Exh. 3) and the parcels of land
are now titled in the names of the plaintiffs.
Mario Mendezona TCT No. 116834 (Exh. A);
Luis Mendezona TCT No. 116835 (Exh. B);
Antonio Mendezona TCT No. 116836 (Exh. C);
(3) The reservation of the usufructuary rights to the vendor Carmen
Ozamiz during her lifetime was confirmed by the plaintiffs-
spouses Mario Mendezona and Teresita Moraza and plaintiffs
spouses Luis Mendezona and Maricar Longa in a sworn statement
(Exh. I) executed on October 15, 1990, which was duly annotated
on the titles of the property;
(4) The capital gains tax was paid (Exh. H) on May 5, 1989 and a
certificate (Exh. H-1) was issued by the Bureau of Internal
Revenue authorizing the Register of Deeds to transfer the property
to the vendees;
(5) A petition for guardianship over the person and properties of
Carmen Ozamiz (Exh. E) was filed by all the defendants, (except
the defendant Roberto Montalvan) on January 15, 1991 with the
Regional Trial Court of Oroquieta City, denominated as Spec.
Proc. No. 1250 and subsequently, an Inventories and Accounts
(Exh. F) was filed by court-appointed guardians Roberto
Montalvan and Julio Ozamiz, in which the property was listed
(Exh. F-1) and a Notice of Lis Pendens was filed with the Register
of Deeds of Cebu City on August 13, 1991 by said joint guardians.
Plaintiff Mario Mendezona, as another joint guardian over Carmen
Ozamiz, filed his opposition (Exh. R) to the Inventories and
Accounts, with the Oroquieta Court as to the inclusion of the
property (Exh.R-1).
(6) Prior to his death, the deceased husband of plaintiff Teresita
Adad Mendezona was granted a General Power of Attorney (Exh.
1) by Carmen Ozamiz on March 23, 1988 and after his demise,
Carmen Ozamiz granted Mario Mendezona a General Power of
Attorney (Exh. 2.) on August 11, 1990. Both powers of attorney
relate to the administration of the property, subject of this action,
in Cebu City.
On September 23, 1992 the trial court rendered its decision in favor
of the petitioners, the dispositive portion of which reads, to wit:
Wherefore, premises considered, the Court is of the opinion and so
declares that:
1. The property described in the complaint was sold, with
reservation of usufructuary rights by Carmen Ozamiz to the
plaintiffs under a valid contract, voluntarily and deliberately
entered into while she was of sound mind, for sufficient and good
consideration, and without fraud, force, undue influence or
intimidation having been exercised upon her, and consequently, the
Court orders the defendants herein to acknowledge and recognize
the plaintiffs title to the aforecited property and to refrain from
further clouding the same;
2. That the one-third (1/3) share erroneously titled to Antonio
Mendezona should be titled in the name of Teresita Adad vda. de
Mendezona as her paraphernal property and the Register of Deeds
of Cebu City is hereby ordered to do so;
3. The Notice of Lis Pendens affecting the property should be
eliminated from the record and the Register of Deeds of Cebu City
is ordered to expunge the same.
No pronouncement as to costs.
SO ORDERED.
On appeal to the Court of Appeals, the appellate court reversed the
factual findings of the trial court and ruled that the Deed of
Absolute Sale dated April 28, 1989 was a simulated contract since
the petitioners failed to prove that the consideration was actually
paid, and, furthermore, that at the time of the execution of the
contract the mental faculties of Carmen Ozamiz were already
36
seriously impaired. Thus, the appellate court declared that the Deed
of Absolute Sale of April 28, 1989 is null and void. It ordered the
cancellation of the certificates of title issued in the petitioners
names and directed the issuance of new certificates of title in favor
of Carmen Ozamiz or her estate.
Petitioners filed a motion for reconsideration of the decision of the
appellate court. Subsequent thereto, the petitioners filed a motion
for a new trial and/or for reception of evidence. They contended,
among other things, that the appellate court totally ignored the
testimony of Judge Teodorico Durias regarding the mental
condition of Carmen Ozamiz a month before the execution of the
Deed of Absolute Sale in question. The said testimony was taken
in the Special Proceeding No. 1250 in the Regional Trial Court of
Oroquieta City. However, Judge Durias was not presented as a
witness in Civil Case No. CEB-10766 in the Regional Trial Court
of Cebu City. Petitioners alleged that Judge Duriass testimony is a
newly-discovered evidence which could not have been discovered
prior to the trial in the court below by the exercise of due diligence.
The appellate court denied both motions in its Resolution dated
May 19, 2000. Hence, the instant petition anchored on the
following grounds:[15]
I.
THE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE APRIL 28, 1989 DEED OF ABSOLUTE SALE WAS
A SIMULATED CONTRACT.
A.
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING
THE STATUTORY PRESUMPTIONS OF ACTUAL AND
SUFFICIENT CONSIDERATION FOR, AND OF THE
REGULARITY AND TRUTHFULNESS OF, THE NOTARIZED
DEED OF ABSOLUTE SALE.
B.
THE COURT OF APPEALS GRAVELY ERRED IN IMPOSING
ON THE PETITIONERS THE BURDEN OF PROVING
PAYMENT, AND IN REFUSING TO RECOGNIZE AND RULE
THAT IT WAS THE RESPONDENTS - AS THE PARTIES
ASSAILING THE DEED OF ABSOLUTE SALE - WHO HAD
FAILED TO DISCHARGE THEIR BURDEN OF PROVING
THAT THERE WAS NO CONSIDERATION FOR THE
TRANSACTION.
C.
THE COURT OF APPEALS GRAVELY ERRED IN REFUSING
TO RECEIVE IN EVIDENCE THE THREE (3) CHECKS,
WHICH PROVED BEYOND ANY DOUBT THAT THE
PURCHASE PRICE FOR THE LAHUG PROPERTY HAD
BEEN PAID TO CARMEN OZAMIZ, AFTER ASKING FOR
THEM AND HAVING THEM PRESENTED TO IT IN OPEN
COURT, THUS COOPERATING WITH RESPONDENTS
EFFORTS TO SUPPRESS THE CHECKS (WHICH THE
COURT ITSELF AND RESPONDENTS CHALLENGED
PETITIONERS TO PRODUCE).
II.
THE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT CARMEN OZAMIZS MENTAL FACULTIES WERE
SERIOUSLY IMPAIRED WHEN SHE EXECUTED THE DEED
OF ABSOLUTE SALE ON APRIL 28, 1989.
A.
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING
THE STATUTORY PRESUMPTION THAT CARMEN
OZAMIZ WAS OF SOUND MIND AND HAD THE REQUISITE
CAPACITY TO CONTRACT WHEN SHE EXECUTED THE
DEED OF ABSOLUTE SALE, AND IN REFUSING TO RULE
THAT IT WAS THE RESPONDENTS - AS THE PARTIES
ALLEGING MENTAL INCAPACITY- WHO HAD FAILED TO
DISCHARGE THEIR BURDEN OF REBUTTING THAT
PRESUMPTION.
B.
THE COURT OF APPEALS GRAVELY ERRED IN REFUSING
TO ACCEPT AND GIVE DUE AND PREPONDERANT
WEIGHT TO UNREFUTED EVIDENCE, INCLUDING THE
UNREFUTED TESTIMONIES OF THE INSTRUMENTAL
WITNESSES AND OF THE NOTARY PUBLIC, THAT
CARMEN OZAMIZ EXECUTED THE DEED OF ABSOLUTE
SALE FREELY, VOLUNTARILY, KNOWINGLY, AND
INTELLIGENTLY.
C.
THE COURT OF APPEALS GRAVELY ERRED IN GIVING
WEIGHT TO THE HEARSAY TESTIMONY OF DR. FAITH
GO ON THE MENTAL CONDITION OF CARMEN OZAMIZ
ON THE DATE SHE EXECUTED THE DEED OF ABSOLUTE
SALE.
D.
THE COURT OF APPEALS GRAVELY ERRED IN
IGNORING, AND IN REFUSING TO RECEIVE IN EVIDENCE,
JUDGE TEODORICO DURIASS TESTIMONY (THAT
CARMEN OZAMIZ WAS OF SOUND MIND WHEN SHE
EXECUTED ANOTHER CONTRACT BARELY A MONTH
BEFORE SHE EXECUTED THE DEED OF ABSOLUTE SALE)
ON THE GROUND THAT THAT TESTIMONY WAS
FORGOTTEN EVIDENCE.
We shall first rule on the issue of whether to consider the testimony
of Judge Durias as newly discovered evidence. A motion for new
trial upon the ground of newly discovered evidence is properly
granted only where there is concurrence of the following requisites,
namely: (a) the evidence had been discovered after trial; (b) the
evidence could not have been discovered and produced during trial
even with the exercise of reasonable diligence; and (c) the evidence
is material and not merely corroborative, cumulative or
impeaching and is of such weight that if admitted, would probably
alter the result. All three (3) requisites must characterize the
evidence sought to be introduced at the new trial.
We find that the requirement of reasonable diligence has not been
met by the petitioners. As early as the pre-trial of the case at bar,
the name of Judge Durias has already cropped up as a possible
witness for the defendants, herein respondents. That the
respondents chose not to present him is not an indicia per se of
suppression of evidence, since a party in a civil case is free to
choose who to present as his witness. Neither can Judge Durias
testimony in another case be considered as newly discovered
evidence since the facts to be testified to by Judge Durias which
were existing before and during the trial, could have been
presented by the petitioners at the trial below.[16] The testimony
of Judge Durias has been in existence waiting only to be elicited
from him by questioning.[17]
37
It has been held that a lack of diligence is exhibited where the
newly discovered evidence was necessary or proper under the
pleadings, and its existence must have occurred to the party in the
course of the preparation of the case, but no effort was made to
secure it; there is a failure to make inquiry of persons who were
likely to know the facts in question, especially where information
was not sought from co-parties; there is a failure to seek evidence
available through public records; there is a failure to discover
evidence that is within the control of the complaining party; there
is a failure to follow leads contained in other evidence; and, there
is a failure to utilize available discovery procedures.[18] Thus, the
testimony of Judge Durias cannot be considered as newly
discovered evidence to warrant a new trial.
In this petition at bench, herein petitioners essentially take
exception to two (2) main factual findings of the appellate court,
namely, (a) that the notarized Deed of Absolute Sale dated April
28, 1989 was a simulated contract, and (b) that Carmen Ozamizs
mental faculties were seriously impaired when she executed the
said contract on April 28, 1989. The petitioners allege that both
conclusions are contrary or opposed to well-recognized statutory
presumptions of regularity enjoyed by a notarized document and
that a contracting party to a notarized contract is of sound and
disposing mind when she executes the contract.
The respondents posit a different view. They contend that clear and
convincing evidence refuted the presumptions on regularity of
execution of the Deed of Absolute Sale and existence of
consideration thereof. Relying upon the testimonies of Paz O.
Montalvan, Concepcion Agac-ac, Carolina Lagura and Dr. Faith
Go, they aver that they were able to show that Carmen Ozamiz was
already physically and mentally incapacitated since the latter part
of 1987 and could not have executed the said Deed of Absolute
Sale on April 28, 1989 covering the disputed Lahug property. They
also alleged that no error is ascribable to the appellate court for not
considering the allegedly rehearsed testimonies of the instrumental
witnesses and the notary public.
Factual findings of the appellate court are generally conclusive on
this Court which is not a trier of facts. It is not the function of the
Supreme Court to analyze or weigh evidence all over again.
However, this rule is not without exception. If there is a showing
that the appellate courts findings of facts complained of are totally
devoid of support in the record or that they are so glaringly
erroneous as to constitute grave abuse of discretion, this Court
must discard such erroneous findings of facts.[19] We find that the
exception applies in the case at bench.
Simulation is defined as the declaration of a fictitious will,
deliberately made by agreement of the parties, in order to produce,
for the purposes of deception, the appearances of a juridical act
which does not exist or is different from what that which was really
executed.[20] The requisites of simulation are: (a) an outward
declaration of will different from the will of the parties; (b) the
false appearance must have been intended by mutual agreement;
and (c) the purpose is to deceive third persons.[21] None of these
were clearly shown to exist in the case at bar.
Contrary to the erroneous conclusions of the appellate court, a
simulated contract cannot be inferred from the mere non-
production of the checks. It was not the burden of the petitioners to
prove so. It is significant to note that the Deed of Absolute Sale
dated April 28, 1989 is a notarized document duly acknowledged
before a notary public. As such, it has in its favor the presumption
of regularity, and it carries the evidentiary weight conferred upon
it with respect to its due execution. It is admissible in evidence
without further proof of its authenticity and is entitled to full faith
and credit upon its face.[22]
Payment is not merely presumed from the fact that the notarized
Deed of Absolute Sale dated April 28, 1989 has gone through the
regular procedure as evidenced by the transfer certificates of title
issued in petitioners names by the Register of Deeds. In other
words, whosoever alleges the fraud or invalidity of a notarized
document has the burden of proving the same by evidence that is
clear, convincing, and more than merely preponderant.[23]
Therefore, with this well-recognized statutory presumption, the
burden fell upon the respondents to prove their allegations
attacking the validity and due execution of the said Deed of
Absolute Sale. Respondents failed to discharge that burden; hence,
the presumption in favor of the said deed stands. But more
importantly, that notarized deed shows on its face that the
consideration of One Million Forty Thousand Pesos
(P1,040,000.00) was acknowledged to have been received by
Carmen Ozamiz.
Simulation cannot be inferred from the alleged absence of payment
based on the testimonies of Concepcion Agac-ac, assistant of
Carmen Ozamiz, and Nelfa Perdido, part-time bookkeeper of
Carmen Ozamiz. The testimonies of these two (2) witnesses are
unreliable and inconsistent.
While Concepcion Agac-ac testified that she was aware of all the
transactions of Carmen Ozamiz, she also admitted that not all
income of Carmen Ozamiz passed through her since Antonio
Mendezona, as appointed administrator, directly reported to
Carmen Ozamiz.[24] With respect to Nelfa Perdido, she testified
that most of the transactions that she recorded refer only to rental
income and expenses, and the amounts thereof were reported to her
by Concepcion Agac-ac only, not by Carmen Ozamiz. She does
not record deposits or withdrawals in the bank accounts of Carmen
Ozamiz.[25] Their testimonies hardly deserve any credit and,
hence, the appellate court misplaced reliance thereon.
Considering that Carmen Ozamiz acknowledged, on the face of the
notarized deed, that she received the consideration at One Million
Forty Thousand Pesos (P1,040,000.00), the appellate court should
not have placed too much emphasis on the checks, the presentation
of which is not really necessary. Besides, the burden to prove
alleged non-payment of the consideration of the sale was on the
respondents, not on the petitioners. Also, between its conclusion
based on inconsistent oral testimonies and a duly notarized
document that enjoys presumption of regularity, the appellate court
should have given more weight to the latter. Spoken words could
be notoriously unreliable as against a written document that speaks
a uniform language.[26]
Furthermore, the appellate court erred in ruling that at the time of
the execution of the Deed of Absolute Sale on April 28, 1989 the
mental faculties of Carmen Ozamiz were already seriously
impaired.[27] It placed too much reliance upon the testimonies of
the respondents witnesses. However, after a thorough scrutiny of
the transcripts of the testimonies of the witnesses, we find that the
respondents core witnesses all made sweeping statements which
failed to show the true state of mind of Carmen Ozamiz at the time
of the execution of the disputed document. The testimonies of the
respondents witnesses on the mental capacity of Carmen Ozamiz
are far from being clear and convincing, to say the least.
Carolina Lagura, a househelper of Carmen Ozamiz, testified that
when Carmen Ozamiz was confronted by Paz O. Montalvan in
January 1989 with the sale of the Lahug property, Carmen Ozamiz
denied the same. She testified that Carmen Ozamiz understood the
question then.[28] However, this declaration is inconsistent with
her (Carolinas) statement that since 1988 Carmen Ozamiz could
not fully understand the things around her, that she was physically
fit but mentally could not carry a conversation or recognize persons
who visited her.[29] Furthermore, the disputed sale occurred on
38
April 28, 1989 or three (3) months after this alleged confrontation
in January 1989. This inconsistency was not explained by the
respondents.
The revelation of Dr. Faith Go did not also shed light on the mental
capacity of Carmen Ozamiz on the relevant day - April 28, 1989
when the Deed of Absolute Sale was executed and notarized. At
best, she merely revealed that Carmen Ozamiz was suffering from
certain infirmities in her body and at times, she was forgetful, but
there was no categorical statement that Carmen Ozamiz
succumbed to what the respondents suggest as her alleged second
childhood as early as 1987. The petitioners rebuttal witness, Dr.
William Buot, a doctor of neurology, testified that no conclusion
of mental incapacity at the time the said deed was executed can be
inferred from Dr. Faith Gos clinical notes nor can such fact be
deduced from the mere prescription of a medication for episodic
memory loss.
It has been held that a person is not incapacitated to contract merely
because of advanced years or by reason of physical infirmities.
Only when such age or infirmities impair her mental faculties to
such extent as to prevent her from properly, intelligently, and fairly
protecting her property rights, is she considered incapacitated.[30]
The respondents utterly failed to show adequate proof that at the
time of the sale on April 28, 1989 Carmen Ozamiz had allegedly
lost control of her mental faculties.
We note that the respondents sought to impugn only one document,
namely, the Deed of Absolute Sale dated April 28, 1989, executed
by Carmen Ozamiz. However, there are nine (9) other important
documents that were, signed by Carmen Ozamiz either before or
after April 28, 1989 which were not assailed by the
respondents.[31] Such is contrary to their assertion of complete
incapacity of Carmen Ozamiz to handle her affairs since 1987. We
agree with the trial courts assessment that it is unfair for the
[respondents] to claim soundness of mind of Carmen Ozamiz when
it benefits them and otherwise when it disadvantages them.[32] A
person is presumed to be of sound mind at any particular time and
the condition is presumed to continue to exist, in the absence of
proof to the contrary.[33] Competency and freedom from undue
influence, shown to have existed in the other acts done or contracts
executed, are presumed to continue until the contrary is shown.[34]
All the foregoing considered, we find the instant petition to be
meritorious and the same should be granted.
WHEREFORE, the instant petition is hereby GRANTED and the
assailed Decision and Resolution of the Court of Appeals are
hereby REVERSED and SET ASIDE. The Decision dated
September 23, 1992 of the Regional Trial Court of Cebu City,
Branch 6, in Civil Case No. CEB-10766 is REINSTATED. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 150429 August 29, 2006
ROBERTO G. FAMANILA, Petitioner,
vs.
THE COURT OF APPEALS (Spc. Fmr. Seventh Division) and
BARBERSHIP MANAGEMENT LIMITED and NFD
INTERNATIONAL MANNING AGENTS, INC. Respondents.
DECISION
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari assailing the
Decision 1 of the Court of Appeals in CA-G.R. SP No. 50615 dated
March 30, 2001 which affirmed the Decision 2 of the National
Labor Relations Commission (NLRC) dated March 31, 1998
dismissing petitioners complaint for payment of disability and
other benefits for lack of merit and the Resolution 3 dated October
5, 2001 of the Court of Appeals denying petitioners motion for
reconsideration.
The antecedent facts are as follows:
In 1989, respondent NFD International Manning Agents, Inc. hired
the services of petitioner Roberto G. Famanila as Messman 4 for
Hansa Riga, a vessel registered and owned by its principal and co-
respondent, Barbership Management Limited.
On June 21, 1990, while Hansa Riga was docked at the port of
Eureka, California, U.S.A. and while petitioner was assisting in the
loading operations, the latter complained of a headache. Petitioner
experienced dizziness and he subsequently collapsed. Upon
examination, it was determined that he had a sudden attack of left
cerebral hemorrhage from a ruptured cerebral aneurysm. 5
Petitioner underwent a brain operation and he was confined at the
Emmanuel Hospital in Portland, Oregon, U.S.A. On July 19, 1990,
he underwent a second brain operation.
Owing to petitioners physical and mental condition, he was
repatriated to the Philippines. On August 21, 1990, he was
examined at the American Hospital in Intramuros, Manila where
the examining physician, Dr. Patricia Abesamis declared that he
"cannot go back to sea duty and has been observed for 120 days,
he is being declared permanently, totally disabled." 6
Thereafter, authorized representatives of the respondents
convinced him to settle his claim amicably by accepting the
amount of US$13,200. 7 Petitioner accepted the offer as evidenced
by his signature in the Receipt and Release dated February 28,
1991. 8 His wife, Gloria Famanila and one Richard Famanila, acted
as witnesses in the signing of the release.
On June 11, 1997, petitioner filed a complaint 9 with the NLRC
which was docketed as NLRC OCW Case No. 6-838-97-L praying
for an award of disability benefits, share in the insurance proceeds,
moral damages and attorneys fees. On September 29, 1997,
Acting Executive Labor Arbiter Voltaire A. Balitaan dismissed the
complaint on the ground of prescription. Petitioner appealed the
decision with the NLRC. On March 31, 1998, the NLRC
promulgated its decision 10 finding the appeal to be without merit
and ordered its dismissal. When the motion for reconsideration 11
was denied by the NLRC in its resolution dated June 29, 1998, 12
petitioner filed a petition for certiorari with this Court. On
December 2, 1998, we resolved to refer the case to the Court of
Appeals pursuant to our ruling in St. Martin Funeral Home v.
National Labor Relations Commission. 13
On March 30, 2001, the Court of Appeals promulgated the assailed
decision which dismissed the petition for lack of merit. Petitioners
motion for reconsideration was denied, hence, the present petition
for review raising the following issues:
I. THE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN UPHOLDING THE VALIDITY OF THE
RECEIPT AND RELEASE SINCE PETITIONERS CONSENT
THERETO WAS VITIATED THEREBY MAKING THE SAME
VOID AND UNENFORCEABLE.
II. THE COURT OF APPEALS COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
39
JURISDICTION IN HOLDING THAT THE PRESCRIPTION
PERIOD APPLICABLE TO THE CLAIM OF THE PETITIONER
IS THE 3-YEAR PERIOD PROVIDED FOR UNDER THE
LABOR CODE OF THE PHILIPPINES AND NOT THE 10-
YEAR PERIOD PROVIDED FOR UNDER THE CIVIL CODE.
Petitioner claims that he did not sign the Receipt and Release
voluntarily or freely because he was permanently disabled and in
financial constraints. These factors allegedly vitiated his consent
which makes the Receipt and Release void and unenforceable.
The petition lacks merit.
It is fundamental that the scope of the Supreme Courts judicial
review under Rule 45 of the Rules of Court is confined only to
errors of law. It does not extend to questions of fact. More so in
labor cases where the doctrine applies with greater force. 14 The
Labor Arbiter and the NLRC have already determined the factual
issues, and these were affirmed by the Court of Appeals. Thus, they
are accorded not only great respect but also finality and are deemed
binding upon this Court so long as they are supported by
substantial evidence. 15 We reviewed the records of the case and
we find no reason to deviate from the findings of the labor arbiter,
NLRC and the Court of Appeals.
A vitiated consent does not make a contract void and
unenforceable. A vitiated consent only gives rise to a voidable
agreement. Under the Civil Code, the vices of consent are mistake,
violence, intimidation, undue influence or fraud. 16 If consent is
given through any of the aforementioned vices of consent, the
contract is voidable. 17 A voidable contract is binding unless
annulled by a proper action in court. 18
Petitioner contends that his permanent and total disability vitiated
his consent to the Receipt and Release thereby rendering it void
and unenforceable. However, disability is not among the factors
that may vitiate consent. Besides, save for petitioners self-serving
allegations, there is no proof on record that his consent was vitiated
on account of his disability. In the absence of such proof of vitiated
consent, the validity of the Receipt and Release must be upheld.
We agree with the findings of the Court of Appeals that:
In the case at bar, there is nothing in the records to show that
petitioners consent was vitiated when he signed the agreement.
Granting that petitioner has not fully recovered his health at the
time he signed the subject document, the same cannot still lead to
the conclusion that he did not voluntar[il]y accept the agreement,
for his wife and another relative witnessed his signing.
Moreover, the document entitled receipt and release which was
attached by petitioner in his appeal does not show on its face any
violation of law or public policy. In fact, petitioner did not present
any proof to show that the consideration for the same is not
reasonable and acceptable. Absent any evidence to support the
same, the Court cannot, on its own accord, decide against the
unreasonableness of the consideration. 19
It is true that quitclaims and waivers are oftentimes frowned upon
and are considered as ineffective in barring recovery for the full
measure of the workers right and that acceptance of the benefits
therefrom does not amount to estoppel. 20 The reason is plain.
Employer and employee, obviously do not stand on the same
footing. 21 However, not all waivers and quitclaims are invalid as
against public policy. If the agreement was voluntarily entered into
and represents a reasonable settlement, it is binding on the parties
and may not later be disowned simply because of change of mind.
It is only where there is clear proof that the waiver was wangled
from an unsuspecting or gullible person, or the terms of the
settlement are unconscionable on its face, that the law will step in
to annul the questionable transaction. But where it is shown that
the person making the waiver did so voluntarily, with full
understanding of what he was doing, and the consideration for the
quitclaim is credible and reasonable, the transaction must be
recognized as a valid and binding undertaking, 22 as in this case.
To be valid and effective, waivers must be couched in clear and
unequivocal terms, leaving no doubt as to the intention of those
giving up a right or a benefit that legally pertains to them. 23 We
have reviewed the terms and conditions contained in the Receipt
and Release and we find the same to be clear and unambiguous.
The signing was even witnessed by petitioners wife, Gloria T.
Famanila and one Richard T. Famanila. The Receipt and Release
provides in part:
That for and in consideration of the sum of THIRTEEN
THOUSAND TWO HUNDRED DOLLARS (US$13,200.00) or
its equivalent in Philippine currency THREE HUNDRED SIXTY
FIVE THOUSAND NINE HUNDRED FOUR PESOS
(365,904.00), the receipt of which is hereby acknowledged to my
full and complete satisfaction x x x I, ROBERTO G. FAMANILA,
x x x hereby remise, release and forever discharge said vessel
"HANSA RIGA", her Owners, operators, managers, charterers,
agents, underwriters, P and I Club, master, officers, and crew and
all parties at interest therein or thereon, whether named or not
named, including but not limited to BARBER SHIP
MANAGEMENT LIMITED, NFD INTERNATIONAL
MANNING AGENTS, INC. and ASSURANCEFORENIGEN
GARD from any and all claims, demands, debts, dues, liens,
actions or causes of action, at law or in equity, in common law or
in admiralty, statutory or contractual, arising from and under the
laws of the United States of America, Norway, Hongkong or the
Republic of the Philippines and/or any other foreign country now
held, owned or possessed by me or by any person or persons,
arising from or related to or concerning whether directly or
indirectly, proximately or remotely, without being limited to but
including the said illness suffered by me on board the vessel
"HANSA RIGA" on or about 21st June 1990 at Portland, Oregon
and disability compensation in connection therewith.
This instrument is a GENERAL RELEASE intended to release all
liabilities of any character and/or claims or damages and/or losses
and/or any other liabilities whatsoever, whether contractual or
statutory, at common law or in equity, tortious or in admiralty, now
or henceforth in any way related to or occurring as a consequence
of the illness suffered by me as Messman of the vessel "HANSA
RIGA", including but not limited to all damages and/or losses
consisting of loss of support, loss of earning capacity, loss of all
benefits of whatsoever nature and extent incurred, physical pain
and suffering and/or all damages and/or indemnities claimable in
law, tort, contract, common law, equity and/or admiralty by me or
by any person or persons pursuant to the laws of the United States
of America, Norway, Hongkong or the Republic of the Philippines
and of all other countries whatsoever.
I hereby certify that I am of legal age and that I fully understand
this instrument which was read to me in the local dialect and I agree
that this is a FULL AND FINAL RELEASE AND DISCHARGE
of all parties and things referred to herein, and I further agree that
this release may be pleaded as an absolute and final bar to any suit
or suits or legal proceedings that may hereafter be prosecuted by
me or by any one claiming by, through, or under me, against any
of the persons or things
referred to or related herein, for any matter or thing referred to or
related herein. 24
It is elementary that a contract is perfected by mere consent and
from that moment the parties are bound not only to the fulfillment
40
of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping
with good faith, usage and law. 25 Further, dire necessity is not an
acceptable ground for annulling the Receipt and Release since it
has not been shown that petitioner was forced to sign it. 26
Regarding prescription, the applicable prescriptive period for the
money claims against the respondents is the three year period
pursuant to Article 291 of the Labor Code which provides that:
ART. 291. Money Claims. All money claims arising from
employer-employee relations accruing during the effectivity of this
Code shall be filed within three (3) years from the time the cause
of action accrued; otherwise they shall be forever barred.
xxxx
Since petitioners demand for an award of disability benefits is a
money claim arising from his employment, Article 291 of the
Labor Code applies. From the time petitioner was declared
permanently and totally disabled on August 21, 1990 which gave
rise to his entitlement to disability benefits up to the time that he
filed the complaint on June 11, 1997, more than three years have
elapsed thereby effectively barring his claim.
WHEREFORE, the petition is DENIED. The Decision of the Court
of Appeals dated March 30, 2001 in CA-G.R. SP No. 50615 which
affirmed the Decision of the National Labor Relations Commission
dismissing petitioners complaint for disability and other benefits
for lack of merit, and
the Resolution dated October 5, 2001 denying the motion for
reconsideration, are AFFIRMED.
SO ORDERED.
CORAZON CATALAN, G.R. No. 159567
LIBRADA CATALAN-LIM,
EULOGIO CATALAN,
MILA CATALAN-MILAN,
ZENAIDA CATALAN, Present:
ALEX CATALAN, DAISY
CATALAN, FLORIDA PUNO, C.J., Chairperson,
CATALAN and GEMMA SANDOVAL-GUTIERREZ,
CATALAN, Heirs of the late CORONA,
FELICIANO CATALAN, AZCUNA, and
Petitioners, GARCIA, JJ.
- versus -
Promulgated:
JOSE BASA, MANUEL BASA,
LAURETA BASA, DELIA BASA,
JESUS BASA and ROSALINDA
BASA, Heirs of the late MERCEDES
CATALAN,
Respondents. July 31, 2007
x--------------------------------------------
----x
DECISION
PUNO, C.J.:
This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court of the Court of Appeals decision in CA-
G.R. CV No. 66073, which affirmed the judgment of the Regional
Trial Court, Branch 69, Lingayen, Pangasinan, in Civil Case No.
17666, dismissing the Complaint for Declaration of Nullity of
Documents, Recovery of Possession and Ownership, and damages.
The facts, which are undisputed by the parties, follow:
On October 20, 1948, FELICIANO CATALAN (Feliciano) was
discharged from active military service. The Board of Medical
Officers of the Department of Veteran Affairs found that he was
unfit to render military service due to his schizophrenic reaction,
catatonic type, which incapacitates him because of flattening of
mood and affect, preoccupation with worries, withdrawal, and
sparce (sic) and pointless speech.[1]
On September 28, 1949, Feliciano married Corazon Cerezo.[2]
On June 16, 1951, a document was executed, titled Absolute Deed
of Donation,[3] wherein Feliciano allegedly donated to his sister
MERCEDES CATALAN(Mercedes) one-half of the real property
described, viz:
A parcel of land located at Barangay Basing, Binmaley,
Pangasinan. Bounded on the North by heirs of Felipe Basa; on the
South by Barrio Road; On the East by heirs of Segundo Catalan;
and on the West by Roman Basa. Containing an area of Eight
Hundred One (801) square meters, more or less.
The donation was registered with the Register of Deeds. The
Bureau of Internal Revenue then cancelled Tax Declaration No.
2876, and, in lieu thereof, issued Tax Declaration No. 18080[4] to
Mercedes for the 400.50 square meters donated to her. The
remaining half of the property remained in Felicianos name under
Tax Declaration No. 18081.[5]
On December 11, 1953, Peoples Bank and Trust Company filed
Special Proceedings No. 4563[6] before the Court of First Instance
of Pangasinan to declare Feliciano incompetent. On December 22,
1953, the trial court issued its Order for Adjudication of
Incompetency for Appointing Guardian for the Estate and Fixing
Allowance[7] of Feliciano. The following day, the trial court
appointed Peoples Bank and Trust Company as Felicianos
guardian.[8] Peoples Bank and Trust Company has been
subsequently renamed, and is presently known as the Bank of the
Philippine Islands (BPI).
On November 22, 1978, Feliciano and Corazon Cerezo donated
Lots 1 and 3 of their property, registered under Original Certificate
of Title (OCT) No. 18920, to their son Eulogio Catalan.[9]
On March 26, 1979, Mercedes sold the property in issue in favor
of her children Delia and Jesus Basa.[10] The Deed of Absolute
Sale was registered with the Register of Deeds of Pangasinan on
February 20, 1992, and Tax Declaration No. 12911 was issued in
the name of respondents.[11]
On June 24, 1983, Feliciano and Corazon Cerezo donated Lot 2 of
the aforementioned property registered under OCT No. 18920 to
their children Alex Catalan, Librada Catalan and Zenaida Catalan.
On February 14, 1983, Feliciano and Corazon Cerezo donated Lot
4 (Plan Psu-215956) of the same OCT No. 18920 to Eulogio and
Florida Catalan.[12]
On April 1, 1997, BPI, acting as Felicianos guardian, filed a case
for Declaration of Nullity of Documents, Recovery of Possession
and Ownership,[13] as well as damages against the herein
respondents. BPI alleged that the Deed of Absolute Donation to
Mercedes was void ab initio, as Feliciano never donated the
property to Mercedes. In addition, BPI averred that even if
Feliciano had truly intended to give the property to her, the
donation would still be void, as he was not of sound mind and was
therefore incapable of giving valid consent. Thus, it claimed that if
the Deed of Absolute Donation was void ab initio, the subsequent
Deed of Absolute Sale to Delia and Jesus Basa should likewise be
nullified, for Mercedes Catalan had no right to sell the property to
anyone. BPI raised doubts about the authenticity of the deed of
sale, saying that its registration long after the death of Mercedes
Catalan indicated fraud. Thus, BPI sought remuneration for
incurred damages and litigation expenses.
On August 14, 1997, Feliciano passed away. The original
complaint was amended to substitute his heirs in lieu of BPI as
complainants in Civil Case No. 17666.
41
On December 7, 1999, the trial court found that the evidence
presented by the complainants was insufficient to overcome the
presumption that Feliciano was sane and competent at the time he
executed the deed of donation in favor of Mercedes Catalan. Thus,
the court declared, the presumption of sanity or competency not
having been duly impugned, the presumption of due execution of
the donation in question must be upheld.[14] It rendered judgment,
viz:
WHEREFORE, in view of the foregoing considerations, judgment
is hereby rendered:
1. Dismissing plaintiffs complaint;
2. Declaring the defendants Jesus Basa and Delia Basa the lawful
owners of the land in question which is now declared in their names
under Tax Declaration No. 12911 (Exhibit 4);
3. Ordering the plaintiff to pay the defendants Attorneys fees of
P10,000.00, and to pay the Costs.(sic)
SO ORDERED.[15]
Petitioners challenged the trial courts decision before the Court of
Appeals via a Notice of Appeal pursuant to Rule 41 of the Revised
Rules of Court.[16] The appellate court affirmed the decision of
the trial court and held, viz:
In sum, the Regional Trial Court did not commit a reversible error
in disposing that plaintiff-appellants failed to prove the insanity or
mental incapacity of late (sic) Feliciano Catalan at the precise
moment when the property in dispute was donated.
Thus, all the elements for validity of contracts having been present
in the 1951 donation coupled with compliance with certain
solemnities required by the Civil Code in donation inter vivos of
real property under Article 749, which provides:
xxx
Mercedes Catalan acquired valid title of ownership over the
property in dispute. By virtue of her ownership, the property is
completely subjected to her will in everything not prohibited by
law of the concurrence with the rights of others (Art. 428, NCC).
The validity of the subsequent sale dated 26 March 1979 (Exhibit
3, appellees Folder of Exhibits) of the property by Mercedes
Catalan to defendant-appellees Jesus Basa and Delia Basa must be
upheld. Nothing of the infirmities which allegedly flawed its
authenticity is evident much less apparent in the deed itself or from
the evidence adduced. As correctly stated by the RTC, the fact that
the Deed of Absolute Sale was registered only in 1992, after the
death of Mercedes Catalan does not make the sale void ab initio.
Moreover, as a notarized document, the deed of absolute sale
carries the evidentiary weight conferred upon such public
document with respect to its due execution (Garrido vs. CA 236
SCRA 450). In a similar vein, jurisprudence has it that documents
acknowledged before a notary public have in their favor the
presumption of regularity, and to contradict the same, there must
be evidence that is clear, convincing and more than preponderant
(Salame vs. CA, 239 SCRA 256).
WHEREFORE, foregoing premises considered, the Decision dated
December 7, 1999 of the Regional Trial Court, Branch 69, is
hereby affirmed.
SO ORDERED.[17]
Thus, petitioners filed the present appeal and raised the following
issues:
1. WHETHER OR NOT THE HONORABLE COURT
OF APPEALS HAS DECIDED CA-G.R. CV NO. 66073 IN A
WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH
THE APPLICABLE DECISIONS OF THE HONORABLE
COURT IN HOLDING THAT THE REGIONAL TRIAL COURT
DID NOT COMMIT A REVERSIBLE ERROR IN DISPOSING
THAT PLAINTIFF-APPELLANTS (PETITIONERS) FAILED
TO PROVE THE INSANITY OR MENTAL INCAPACITY OF
THE LATE FELICIANO CATALAN AT THE PRECISE
MOMENT WHEN THE PROPERTY IN DISPUTE WAS
DONATED;
2. WHETHER OR NOT THE CERTIFICATE OF
DISABILITY FOR DISCHARGE (EXHIBIT S) AND THE
REPORT OF A BOARD OF OFFICERS CONVENED UNDER
THE PROVISIONS OF ARMY REGULATIONS (EXHIBITS S-
1 AND S-2) ARE ADMISSIBLE IN EVIDENCE;
3. WHETHER OR NOT THE HONORABLE COURT
OF APPEALS HAS DECIDED CA-G.R. CV NO. 66073 IN A
WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH
THE APPLICABLE DECISIONS OF THE HONORABLE
COURT IN UPHOLDING THE SUBSEQUENT SALE OF THE
PROPERTY IN DISPUTE BY THE DONEE MERCEDES
CATALAN TO HER CHILDREN RESPONDENTS JESUS AND
DELIA BASA; AND-
4. WHETHER OR NOT CIVIL CASE NO. 17666 IS
BARRED BY PRESCRIPTION AND LACHES.[18]
Petitioners aver that the presumption of Felicianos competence to
donate property to Mercedes had been rebutted because they
presented more than the requisite preponderance of evidence. First,
they presented the Certificate of Disability for the Discharge of
Feliciano Catalan issued on October 20, 1948 by the Board of
Medical Officers of the Department of Veteran Affairs. Second,
they proved that on December 22, 1953, Feliciano was judged an
incompetent by the Court of First Instance of Pangasinan, and put
under the guardianship of BPI. Based on these two pieces of
evidence, petitioners conclude that Feliciano had been suffering
from a mental condition since 1948 which incapacitated him from
entering into any contract thereafter, until his death on August 14,
1997. Petitioners contend that Felicianos marriage to Corazon
Cerezo on September 28, 1948 does not prove that he was not
insane at the time he made the questioned donation. They further
argue that the donations Feliciano executed in favor of his
successors (Decision, CA-G.R. CV No. 66073) also cannot prove
his competency because these donations were approved and
confirmed in the guardianship proceedings.[19] In addition,
petitioners claim that the Deed of Absolute Sale executed on March
26, 1979 by Mercedes Catalan and her children Jesus and Delia
Basa is simulated and fictitious. This is allegedly borne out by the
fact that the document was registered only on February 20, 1992,
more that 10 years after Mercedes Catalan had already died. Since
Delia Basa and Jesus Basa both knew that Feliciano was
incompetent to enter into any contract, they cannot claim to be
innocent purchasers of the property in question.[20] Lastly,
petitioners assert that their case is not barred by prescription or
laches under Article 1391 of the New Civil Code because they had
filed their case on April 1, 1997, even before the four year period
after Felicianos death on August 14, 1997 had begun.[21]
The petition is bereft of merit, and we affirm the findings of the
Court of Appeals and the trial court.
A donation is an act of liberality whereby a person disposes
gratuitously a thing or right in favor of another, who accepts it.[22]
Like any other contract, an agreement of the parties is essential.
Consent in contracts presupposes the following requisites: (1) it
should be intelligent or with an exact notion of the matter to which
it refers; (2) it should be free; and (3) it should be spontaneous.[23]
The parties' intention must be clear and the attendance of a vice of
consent, like any contract, renders the donation voidable.[24]
In order for donation of property to be valid, what is crucial is the
donors capacity to give consent at the time of the donation.
Certainly, there lies no doubt in the fact that insanity impinges on
consent freely given.[25] However, the burden of proving such
incapacity rests upon the person who alleges it; if no sufficient
proof to this effect is presented, capacity will be presumed.[26]
A thorough perusal of the records of the case at bar indubitably
shows that the evidence presented by the petitioners was
insufficient to overcome the presumption that Feliciano was
competent when he donated the property in question to Mercedes.
42
Petitioners make much ado of the fact that, as early as 1948,
Feliciano had been found to be suffering from schizophrenia by the
Board of Medical Officers of the Department of Veteran Affairs.
By itself, however, the allegation cannot prove the incompetence
of Feliciano.
A study of the nature of schizophrenia will show that Feliciano
could still be presumed capable of attending to his property rights.
Schizophrenia was brought to the attention of the public when, in
the late 1800s, Emil Kraepelin, a German psychiatrist, combined
hebrephrenia and catatonia with certain paranoid states and called
the condition dementia praecox. Eugene Bleuler, a Swiss
psychiatrist, modified Kraepelins conception in the early 1900s to
include cases with a better outlook and in 1911 renamed the
condition schizophrenia. According to medical references, in
persons with schizophrenia, there is a gradual onset of symptoms,
with symptoms becoming increasingly bizarre as the disease
progresses. The condition improves (remission or residual stage)
and worsens (relapses) in cycles. Sometimes, sufferers may appear
relatively normal, while other patients in remission may appear
strange because they speak in a monotone, have odd speech habits,
appear to have no emotional feelings and are prone to have ideas
of reference. The latter refers to the idea that random social
behaviors are directed against the sufferers.[27] It has been proven
that the administration of the correct medicine helps the patient.
Antipsychotic medications help bring biochemical imbalances
closer to normal in a schizophrenic. Medications reduce delusions,
hallucinations and incoherent thoughts and reduce or eliminate
chances of relapse.[28] Schizophrenia can result in a dementing
illness similar in many aspects to Alzheimers disease. However,
the illness will wax and wane over many years, with only very slow
deterioration of intellect.[29]
From these scientific studies it can be deduced that a person
suffering from schizophrenia does not necessarily lose his
competence to intelligently dispose his property. By merely
alleging the existence of schizophrenia, petitioners failed to show
substantial proof that at the date of the donation, June 16, 1951,
Feliciano Catalan had lost total control of his mental faculties.
Thus, the lower courts correctly held that Feliciano was of sound
mind at that time and that this condition continued to exist until
proof to the contrary was adduced.[30] Sufficient proof of his
infirmity to give consent to contracts was only established when
the Court of First Instance of Pangasinan declared him an
incompetent on December 22, 1953.[31]
It is interesting to note that the petitioners questioned Felicianos
capacity at the time he donated the property, yet did not see fit to
question his mental competence when he entered into a contract of
marriage with Corazon Cerezo or when he executed deeds of
donation of his other properties in their favor. The presumption that
Feliciano remained competent to execute contracts, despite his
illness, is bolstered by the existence of these other contracts.
Competency and freedom from undue influence, shown to have
existed in the other acts done or contracts executed, are presumed
to continue until the contrary is shown.[32]
Needless to state, since the donation was valid, Mercedes had the
right to sell the property to whomever she chose.[33] Not a shred
of evidence has been presented to prove the claim that Mercedes
sale of the property to her children was tainted with fraud or
falsehood. It is of little bearing that the Deed of Sale was registered
only after the death of Mercedes. What is material is that the sale
of the property to Delia and Jesus Basa was legal and binding at
the time of its execution. Thus, the property in question belongs to
Delia and Jesus Basa.
Finally, we note that the petitioners raised the issue of prescription
and laches for the first time on appeal before this Court. It is
sufficient for this Court to note that even if the present appeal had
prospered, the Deed of Donation was still a voidable, not a void,
contract. As such, it remained binding as it was not annulled in a
proper action in court within four years.[34]
IN VIEW WHEREOF, there being no merit in the arguments of
the petitioners, the petition is DENIED. The decision of the Court
of Appeals in CA-G.R. CV No. 66073 is affirmed in toto.
SO ORDERED.
AMADO Z. AYSON, JR.,
Petitioner,
- versus -
SPOUSES FELIX and MAXIMA PARAGAS,
Respondents.
G.R. No. 146730
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
July 4, 2008
x------------------------------------------------------------------------------
------x
DECISION
NACHURA, J.:
For review on certiorari under Rule 45 of the Rules of Court are
the Decision[1] dated May 31, 2000 and the Resolution[2] dated
December 12, 2000 of the Court of Appeals in CA-G.R. CV No.
59645.
The subject of this controversy is the one-fourth (1/4) portion of,
corresponding to the share of respondent Maxima Paragas in, the
real property located at Caranglaan District, Dagupan City,
originally covered by Transfer Certificate of Title No. 7316 of the
Register of Deeds of Dagupan City.
The controversy commenced with the filing of an ejectment
complaint[3] on April 12, 1993 before Branch 1 of the Municipal
Trial Court in Cities (MTCC) of Dagupan City by herein petitioner
Amado Z. Ayson, as represented by his natural father Zosimo S.
Zareno[4] (Zareno), against respondent-spouses Felix and Maxima
Paragas. The complaint, docketed as Civil Case No. 9161, alleged,
among others, that: (1) petitioner is the registered owner of the
property being occupied by the respondent-spouses as shown by
Transfer Certificate of Title No. 59036 of the Registry of Deeds of
Dagupan City in his name; (2) respondent-spouses are occupying
the said land through his tolerance without rent; (3) on April 8,
1992, respondent-spouses executed an Affidavit[5] which
declared:
1. That we are occupants of a parcel of land (Lot 6595-
A-2) covered by Transfer Certificate of Title No. 57684 located at
Caranglaan District, Dagupan City owned by Amado Ll. Ayson;
43
2. That we occupy the said land by tolerance without
paying any rental whatsoever;
3. That we further agree to vacate the aforesaid land
within three (3) months from the date hereof and to remove and
transfer our house therefrom to another place;
4. That in consideration of vacating the said parcel of
land the amount of Twenty Thousand Pesos (P20,000.00) shall be
paid to us; and, that the amount of Ten Thousand Pesos
(P10,000.00) shall be paid upon signing of this affidavit and the
balance of Ten Thousand Pesos (P10,000.00) shall be paid upon
removal of our house on the third month from date hereof.
(4) despite the receipt of the P10,000.00 upon the execution of the
Affidavit, respondent-spouses refused to vacate the land as agreed
upon; and (5) despite demands, respondent-spouses still refused to
vacate, thus constraining him to file the complaint. Aside from
respondents vacating the land, petitioner prayed for the return of
the P10,000.00 he paid them; and the payment of P10,000.00 actual
damages, P10,000.00 exemplary damages, P20,000.00 attorneys
fees, and the costs.
In their Answer,[6] respondent-spouses alleged that Zareno had no
personality and authority to file the case and the filing of the
complaint was made in bad faith.
During the preliminary conference, the following admissions were
made
By petitioner:
(1) That the defendants (respondent spouses) had been in
possession of the land in question since 1930; and
(2) That the semi-concrete house of the defendants (respondent
spouses) stands on the land in question.
By respondent spouses:
(1) That the defendant (respondent) Felix Paragas had executed
an affidavit on April 8, 1992 wherein he admitted that he is
occupying the land by tolerance of the plaintiff (petitioner) without
paying any rental whatsoever and had agreed to vacate the
premises within three (3) months but refused to vacate later;
(2) That the plaintiff (petitioner) is the registered owner of the
land in question;
(3) That there was a demand to vacate the premises; and
(4) That there is a Certification to File Action in Court.[7]
On August 31, 1993, the MTCC, Branch 1, Dagupan City decided
in favor of petitioner, based mainly on the above admissions,
rendering judgment as follows:
WHEREFORE, the preponderance of evidence being in favor of
the plaintiff (petitioner), judgment is hereby rendered:
1) Ordering the defendants (respondent spouses) to vacate the land
in question located at Caranglaan District, Dagupan City and
covered by Transfer Certificate of Title No. 59036 of the Registry
of Deeds for the City of Dagupan, and to deliver the physical and
peaceful possession to the plaintiff (petitioner);
2) Ordering the defendants (respondent spouses) jointly and
severally to pay the plaintiff (petitioner) the sum of P300.00 as
monthly rental of the land from the date of the filing of the
complaint until the defendants (respondent spouses) vacate the
premises;
3) Ordering defendant (respondent) Felix Paragas to return or
indemnify the plaintiff (petitioner) the amount of P10,000.00
representing the sum received by him from the plaintiff (petitioner)
on April 8, 1992;
4) Other claims are denied for lack of merit.
With costs against the defendants.
SO ORDERED.[8]
Respondent-spouses appealed the said Decision to the Regional
Trial Court (RTC) of Dagupan City. In the Decision[9] dated
August 16, 1996, the RTC affirmed the MTCC Decision, the
dispositive portion of which reads
WHEREFORE, the appeal interposed by the appellants is hereby
DISMISSED. Judgment is rendered in favor of the plaintiff
(petitioner) and against the defendants (respondent spouses), to
wit:
1. ORDERING defendants (respondent spouses), their agents,
representatives and assigns to vacate the land subject matter of this
case;
2. ORDERING defendants (respondent spouses) to return to the
plaintiff (petitioner) the amount of P10,000.00 received by them in
consideration of their promise to vacate the land subject matter of
this case;
3. ORDERING defendants (respondent spouses) to pay to the
plaintiff (petitioner) P10,000.00 in actual damages; P10,000.00 in
exemplary damages; and P20,000.00 in attorneys fees; and
4. ORDERING defendants to pay the costs.
SO ORDERED.[10]
Respondent-spouses went to the Court of Appeals via a petition for
review. In its Decision[11] dated October 13, 1997, the appellate
court dismissed the petition. The Decision was appealed to this
Court. We denied the appeal in a Resolution dated December 3,
1997, on the basis of the failure of respondent-spouses to show any
reversible error in the decisions of the three courts below. Our
Resolution became final and executory on January 29, 1998 and
was entered in the Book of Entries of Judgments.[12]
Meanwhile, on October 11, 1993, during the pendency of the
appeal with the RTC, respondent-spouses filed against petitioner,
as represented by his attorney-in-fact Zosimo S. Zareno, the heirs
of Blas F. Rayos, the spouses Delfin and Gloria Alog, and Hon.
Judge George M. Mejia, as Presiding Judge of the Metropolitan
Trial Court, Branch 1 of Dagupan City, also before the RTC of
Dagupan City, a complaint[13] for declaration of nullity of deed of
sale, transactions, documents and titles with a prayer for
preliminary injunction and damages. The complaint was docketed
as Civil Case No. D-10772 and was raffled to Branch 42.
The complaint alleged, inter alia, that respondent Maxima is a co-
owner of a parcel of land originally covered by TCT No. 7316 of
the Registry of Deeds of Dagupan City, her share having an area
44
of 435.75 square meters. Sometime prior to April 13, 1955,
respondent Felix, then an employee of the defunct Dagupan
Colleges (now University of Pangasinan) failed to account for the
amount of P3,000.00. It was agreed that respondent Felix would
pay the said amount by installment to the Dagupan Colleges.
Pursuant to that agreement, Blas F. Rayos and Amado Ll. Ayson,
then both occupying high positions in the said institution, required
respondent-spouses to sign, without explaining to them, a Deed of
Absolute Sale on April 13, 1955 over respondent Maximas real
property under threat that respondent Felix would be incarcerated
for misappropriation if they refused to do so.
The complaint further alleged that later, respondent-spouses, true
to their promise to reimburse the defalcated amount, took pains to
pay their obligation in installments regularly deducted from the
salaries received by respondent Felix from Dagupan Colleges; that
the payments totaled P5,791.69; that notwithstanding the full
payment of the obligation, Amado Ll. Ayson and Blas F. Rayos
did nothing to cancel the purported Deed of Absolute Sale; and that
they were shocked when they received a copy of the complaint for
ejectment filed by petitioner.
During the pre-trial, the following was established
[T] he land in question was a portion of a larger lot covered by TCT
No. 41021 with an area of 1,743 square meters in the name of
Buenaventura Marias, father of the plaintiff (respondent) Maxima
Marias-Paragas. Transfer Certificate of Title No. 41021 was later
on cancelled and replaced by TCT No. 7316 in the names of
Maxima Marias, Rufino Marias, Rizalina Marias and
Buenaventura Marias, specifying that each would receive one-
fourth (1/4) thereof. The portion pertaining to Maxima Marias-
Paragas was later on allegedly conveyed to Blas F. Rayos and
Amado Ll. Ayson by virtue of a Deed of Sale allegedly executed
on April 13, 1955 by Maxima Marias-Paragas with the conformity
of her husband Felix Paragas, after which TCT 7354 was issued
canceling TCT No. 7316. Under TCT No. 7354, the new owners
were Blas F. Rayos and Amado Ll. Ayson, Rufino Marias, Rizalina
Marias and Angela Marias. The land was subdivided later on into
four (4) lots, distributed as follows: Lot A went to Blas F. Rayos
and Amado Ll. Ayson, Lot B to Rufino Marias, Lot C to Rizalina
Marias, and Lot D to Angela Marias. Each lot has an area of 435.75
square meters. For Lot A, TCT No. 22697 was issued in the name
of both Blas F. Rayos and Amado Ll. Ayson.
On November 15, 1991, Lot A was the subject of a subdivision
between Amado Ll. Ayson and Blas F. Rayos. Said subdivision
was approved on December 10, 1991, dividing the property into
equal halves, each half with an area of 217.88 square meters.
Thereafter, the one-half (1/2) pertaining to Blas F. Rayos was sold
by his successors-in-interest to spouses Delfin and Gloria Alog by
virtue of an Extra-Judicial Settlement With Sale dated January 10,
1992, to which the said spouses were issued TCT 57683 on January
14, 1992. On the same day, Amado Ll. Ayson for his portion of the
property was also issued TCT 57684. Amado Ll. Ayson later
passed on ownership of his share to Amado Z. Ayson and issued to
the latter was TCT 59036 after the latter executed an Affidavit of
Self Adjudication dated August 3, 1992 upon the death of Amado
Ll. Ayson.[14]
After trial on the merits, the RTC, Branch 42, Dagupan City
rendered its Decision[15] dated March 6, 1998 in favor of
respondent-spouses declaring the Deed of Absolute Sale as an
equitable mortgage, the decretal portion of which reads
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendants, except the spouses Delfin and
Gloria Alog:
1. Annulling the Deed of Sale executed by Felix Paragas and
Maxima Paragas on April 13, 1955 (Exh. 3) in favor of defendants
Blas F. Rayos and Amado Ll. Ayson except as it affects the interest
of Spouses Delfin and Gloria Alog over the property in question;
2. Annulling likewise TCT No. 57684 issued to Amado Ll.
Ayson and TCT No. 59036 issued to Amado Z. Ayson, including
the respective tax declarations thereof;
3. Ordering Amado Z. Ayson to reconvey ownership of the
property covered by TCT No. 59036 to the herein plaintiffs, the
true owners thereof;
4. Ordering defendant Amado Z. Ayson and the estate of Blas
F. Rayos to pay jointly and severally to the herein plaintiffs the
amount paid by Spouses Delfin and Gloria Alog to the late Blas F.
Rayos, there being no proof adduced by the plaintiffs as to the
actual current market value of the said property;
5. Ordering the said defendants Amado Z. Ayson and the estate
of Blas F. Rayos to pay jointly and severally to the plaintiffs other
amounts of P50,000.00 as moral damages and P10,000.00 as
attorneys fees, including appearance fee;
6. Further ordering the aforementioned defendants, except
defendant-spouses Delfin and Gloria Alog, to pay costs.
SO ORDERED.[16]
Petitioner appealed the said Decision to the Court of Appeals,
which affirmed the same in its Decision dated May 31, 2000. The
motion for reconsideration filed by petitioner was likewise denied
by the Court of Appeals in its Resolution dated December 12,
2000. Hence, this petition raising the sole issue that
The Honorable Court of Appeals has acted in excess of or with
grave abuse of discretion amounting to lack of jurisdiction in
dismissing the appeal of the herein petitioner Amado Z. Ayson, Jr.
and in affirming the decision of the Regional Trial Court, Branch
42, Dagupan City in Civil Case No. D-10772, in violation of the
laws on sale, equitable mortgage, prescription, laches and estoppel
as well as the laws on property registration.[17]
Petitioner contends that respondent-spouses are bound by the
judicial admissions they made both in the ejectment case and in the
case for declaration of nullity of the Deed of Absolute Sale.
With respect to the ejectment case, he posits that respondent-
spouses cannot renege on the effects of their admissions that
petitioner is the registered owner of the disputed property; that they
were occupying the same by mere tolerance of the latter without
rent; and that they undertook to vacate the premises in accordance
with the Affidavit dated April 8, 1992, especially when the findings
of the MTCC had already become final upon the Entry of Judgment
of our Resolution affirming the MTCC, the RTC, and the Court of
Appeals.
As regards the action for declaration of nullity of the deed of
absolute sale, petitioner claims that respondent-spouses are
likewise bound by their admission during the pre-trial that the
series of certificates of title from the time the Deed of Absolute
Sale was registered with the Register of Deeds of Dagupan City
eventually led to the issuance of TCT No. 59036 in his name.
Petitioner further argues that the action instituted before the RTC,
Branch 42, Dagupan City has already prescribed. According to
45
him, the complaint alleged that the Deed of Absolute Sale was
executed through fraud, making the said contract merely voidable,
and the action to annul voidable contracts based on fraud
prescribed in four (4) years from the discovery of fraud. He insists
that the registration of the Deed of Absolute Sale occurred on May
4, 1955, which operated as constructive notice of the fraud to the
whole world, including respondent-spouses. Thus, petitioner
concludes that the action had long prescribed when they filed the
same on October 11, 1993, since its cause had accrued 38 years
ago.
Petitioner adds that respondent-spouses are bound by estoppel and
guilty of laches in light of the judicial admissions they have already
made and the unreasonable length of time that had lapsed before
they questioned the validity of the Deed of Absolute Sale and the
Affidavit they executed on April 8, 1992.
He also asseverates that the Deed of Absolute Sale is a true sale
and not an equitable mortgage, arguing that the alleged payments
made by respondent Felix were made from December 29, 1965 to
December 17, 1980, long after the execution of the contract on
April 13, 1955; that respondent-spouses only paid realty taxes over
their house and not on the disputed land; that their possession of
the property was by his mere tolerance; that there was no evidence
proffered that the amount of P3,000.00 as consideration for the sale
was unusually inadequate in 1955; and that the other co-owners of
the land did not question or protest the subdivision thereof leading
to the issuance of TCT No. 59036 in his name.
Lastly, petitioner claims that he is a transferee in good faith, having
had no notice of the infirmity affecting the title of his predecessor
Amado Ll. Ayson over the property. He says that he was only
exercising his right as an heir when he adjudicated unto himself the
parcel of land pertaining to his adoptive father,[18] resulting in the
issuance of TCT No. 59036 in his name, and, thus, should not be
penalized for his exercise of a legal right.
The arguments do not persuade.
First. With respect to the admissions made by respondent-spouses,
through their counsel during the preliminary conference of the
ejectment case, it is worthy to note that, as early as the submission
of position papers before the MTCC, they already questioned the
sale of the subject property to Amado Ll. Ayson and Blas F. Rayos
for being fictitious and asserted their ownership over the land,
pointing to the fact that respondent Maxima had been living on the
land since her birth in 1913 and that they had been in continuous
possession thereof since her marriage to respondent Felix in 1944.
However, unfortunately for them, the MTCC held them bound by
the admissions made by their counsel and decided that petitioner
had a better right to possess the property.
Nevertheless, it must be remembered that in ejectment suits the
issue to be resolved is merely the physical possession over the
property, i.e., possession de facto and not possession de jure,
independent of any claim of ownership set forth by the party-
litigants.[19] Should the defendant in an ejectment case raise the
defense of ownership in his pleadings and the question of
possession cannot be resolved without deciding the issue of
ownership, the issue of ownership shall be resolved only to
determine the issue of possession.[20] The judgment rendered in
such an action shall be conclusive only with respect to physical
possession and shall in no wise bind the title to the realty or
constitute a binding and conclusive adjudication of the merits on
the issue of ownership. Therefore, such judgment shall not bar an
action between the same parties respecting the title or ownership
over the property,[21] which action was precisely resorted to by
respondent-spouses in this case.
Anent the claim that respondent-spouses admitted the series of
TCTs issued by reason of the registration of the questioned Deed
of Absolute Sale, suffice it to state that records show that they
admitted only the existence thereof, not necessarily the validity of
their issuance.
Second. The Deed of Absolute Sale is, in reality, an equitable
mortgage or a contract of loan secured by a mortgage. The Civil
Code enumerates the cases in which a contract, purporting to be a
sale, is considered only as a contract of loan secured by a mortgage,
viz.:
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
(1) When the price of the sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to repurchase
another instrument extending the period of redemption or granting
a new period is executed;
(4) When the purchaser retains for himself a part of the purchase
price;
(5) When the vendor binds himself to pay the taxes on the thing
sold;
(6) In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to
be received by the vendee as rent or otherwise shall be considered
as interest which shall be subject to the usury laws.[22]
Art. 1604. The provisions of article 1602 shall also apply to a
contract purporting to be an absolute sale.
In such cases, parol evidence then becomes competent and
admissible to prove that the instrument was in truth and in fact
given merely as a security for the repayment of a loan; and upon
adequate proof of the truth of such allegations, the courts will
enforce the agreement or understanding in this regard, in accord
with the true intent of the parties at the time the contract was
executed, even if the conveyance was accompanied by registration
in the name of the transferee and the issuance of a new certificate
of title in his name.[23]
In this case, the evidence before the RTC, Branch 42, Dagupan
City had established that the possession of the subject property
remained with respondent-spouses despite the execution of the
Deed of Absolute Sale on April 13, 1955. In fact, testimonies
during the trial showed that petitioner and his predecessors never
disturbed the possession of respondent-spouses until the filing of
the ejectment case on April 12, 1992.[24]
Moreover, the evidence presented by respondent-spouses
indubitably reveals that they signed the contract under threat of
prosecution, with the view to secure the payment of the P3,000.00
defalcated by respondent Felix. Amado Ll. Ayson and Blas F.
Rayos obviously exerted undue influence on Felix taking
advantage of the latters lack of education and understanding of the
legal effects of his signing the deed.
46
Respondent-spouses have clearly proven that they have already
paid the aforesaid amount. That the obligation was paid in
installments through salary deduction over a period of 10 years
from the signing of the Deed of Absolute Sale is of no moment. It
is safe to assume that this repayment scheme was in the nature of
an easy payment plan based on the respondent-spouses capacity to
pay. Also noteworthy is that the deductions from respondent Felixs
salary amounted to a total of P5,791.69,[25] or almost double the
obligation of P3,000.00. Furthermore, it cannot be denied that
petitioner failed to adduce countervailing proof that the payments,
as evidenced by the volume of receipts, were for some other
obligation.
That the realty taxes paid by respondent-spouses was only for their
house can be explained by the fact that, until the filing of the
ejectment case, respondent Maxima was not aware that the land
she co-owned was already partitioned, such that the payments of
real estate taxes in her name were limited to the improvement on
the land.
An equitable mortgage is a voidable contract. As such, it may be
annulled within four (4) years from the time the cause of action
accrues. This case, however, not only involves a contract resulting
from fraud, but covers a transaction ridden with threat,
intimidation, and continuing undue influence which started when
petitioners adoptive father Amado Ll. Ayson and Blas F. Rayos,
Felixs superiors at Dagupan Colleges, practically bullied
respondent-spouses into signing the Deed of Absolute Sale under
threat of incarceration. Thus, the four-year period should start from
the time the defect in the consent ceases.[26] While at first glance,
it would seem that the defect in the consent of respondent-spouses
ceased either from the payment of the obligation through salary
deduction or from the death of Amado Ll. Ayson and Blas F.
Rayos, it is apparent that such defect of consent never ceased up to
the time of the signing of the Affidavit on April 8, 1992 when
Zareno, acting on behalf of petitioner, caused respondent Felix to
be brought to him, and taking advantage of the latter being
unlettered, unduly influenced Felix into executing the said
Affidavit for a fee of P10,000.00.[27] The complaint praying for
the nullity of the Deed of Absolute Sale was filed on October 11,
1993, well within the four-year prescriptive period.
Regarding the finality of the adjudication of physical possession in
favor of petitioner, it may be reiterated that the right of possession
is a necessary incident of ownership. This adjudication of
ownership of the property to respondent-spouses must include the
delivery of possession to them since petitioner has not shown a
superior right to retain possession of the land independently of his
claim of ownership which is herein rejected. Verily, to grant
execution of the judgment in the ejectment case would work an
injustice on respondent-spouses who had been conclusively
declared the owners and thus, rightful possessors of the disputed
land.[28]
WHEREFORE, the petition is DENIED and the Decision of the
Court of Appeals in CA-G.R. CV No. 59645 dated May 31, 2000
is AFFIRMED.
SO ORDERED.
KINGS PROPERTIES
CORPORATION,
Petitioner,
- versus -
CANUTO A. GALIDO,
Respondent.
G.R. No. 170023
Present:
CARPIO, J., Chairperson,
LEONARDO-DE CASTRO,*
BRION,
DEL CASTILLO, and
ABAD, JJ.
Promulgated:
November 27, 2009
x--------------------------------------------
-------x
DECISION
CARPIO, J.:
The Case
Kings Properties Corporation (petitioner) filed this Petition for
Review on Certiorari[1]assailing the Court of Appeals
Decision[2]dated 20 December 2004 in CA-G.R. CV No. 68828 as
well as the Resolution[3]dated 10 October 2005 denying the
Motion for Reconsideration. In the assailed decision, the Court of
Appeals reversed the Regional Trial Courts Decision[4]dated 4
July 2000. This case involves an action for cancellation of
certificates of title, registration of deed of sale and issuance of
certificates of title filed by Canuto A. Galido (respondent) before
Branch 71 of the Regional Trial Court of Antipolo City (trial
court).
The Facts
On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina
Eniceo and Maria Eniceo, were awarded with Homestead Patent
No. 112947 consisting of four parcels of land located in San Isidro,
Antipolo, Rizal (Antipolo property) and particularly described as
follows:
1. Lot No. 1 containing an area of 96,297 square meters;
Lot No. 3 containing an area of 25,170 square meters;
Lot No. 4 containing an area of 26,812 square meters; and
Lot No. 5 containing an area of 603 square meters.
The Antipolo property with a total area of 14.8882 hectares was
registered under Original Certificate of Title (OCT) No.
535.[5]The issuance of the homestead patent was subject to the
following conditions:
To have and to hold the said tract of land, with the appurtenances
thereunto of right belonging unto the said Heirs of Domingo
Eniceo and to his heir or heirs and assigns forever, subject to the
provisions of sections 118, 121, 122 and 124 of Commonwealth
Act No. 141, as amended, which provide that except in favor of the
Government or any of its branches, units or institutions, the land
hereby acquired shall be inalienable and shall not be subject to
incumbrance for a period of five (5) years next following the date
of this patent, and shall not be liable for the satisfaction of any debt
contracted prior to the expiration of that period; that it shall not be
alienated, transferred or conveyed after five (5) years and before
twenty-five (25) years next following the issuance of title, without
the approval of the Secretary of Agriculture and Natural
Resources; that it shall not be incumbered, alienated, or transferred
to any person, corporation, association, or partnership not qualified
to acquire public lands under the said Act and its amendments; x x
x [6]
47
On 10 September 1973, a deed of sale covering the Antipolo
property was executed between Rufina Eniceo and Maria Eniceo
as vendors and respondent as vendee. Rufina Eniceo and Maria
Eniceo sold the Antipolo property to respondent for P250,000.[7]
A certain Carmen Aldana delivered the owners duplicate copy of
OCT No. 535 to respondent.[8]
Petitioner alleges that when Maria Eniceo died in June 1975,
Rufina Eniceo and the heirs of Maria Eniceo (Eniceo heirs),[9]who
continued to occupy the Antipolo property as owners, thought that
the owners duplicate copy of OCT No. 535 was lost.[10]
On 5 April 1988, the Eniceo heirs registered with the Registry of
Deeds of Marikina City (Registry of Deeds) a Notice of Loss dated
2 April 1988 of the owners copy of OCT No. 535. The Eniceo heirs
also filed a petition for the issuance of a new owners duplicate copy
of OCT No. 535 with Branch 72 of the Regional Trial Court (RTC)
of Antipolo, Rizal. The case was docketed as LRC Case No. 584-
A.[11]
On 31 January 1989, the RTC rendered a decision finding that the
certified true copy of OCT No. 535 contained no annotation in
favor of any person, corporation or entity. The RTC ordered the
Registry of Deeds to issue a second owners copy of OCT No. 535
in favor of the Eniceo heirs and declared the original owners copy
of OCT NO. 535 cancelled and considered of no further value.[12]
On 6 April 1989, the Registry of Deeds issued a second owners
copy of OCT No. 535 in favor of the Eniceo heirs.[13]
Petitioner states that as early as 1991, respondent knew of the RTC
decision in LRC Case No. 584-A because respondent filed a
criminal case against Rufina Eniceo and Leonila Bolinas (Bolinas)
for giving false testimony upon a material fact during the trial of
LRC Case No. 584-A.[14]
Petitioner alleges that sometime in February 1995, Bolinas came
to the office of Alberto Tronio Jr. (Tronio), petitioners general
manager, and offered to sell the Antipolo property. During an on-
site inspection, Tronio saw a house and ascertained that the
occupants were Bolinas relatives. Tronio also went to the Registry
of Deeds to verify the records on file. Tronio ascertained that OCT
No. 535 was clean and had no lien and encumbrances. After the
necessary verification, petitioner decided to buy the Antipolo
property.[15]
On 14 March 1995, respondent caused the annotation of his
adverse claim in OCT No. 535.[16]
On 20 March 1995, the Eniceo heirs executed a deed of absolute
sale in favor of petitioner covering lots 3 and 4 of the Antipolo
property for P500,000.[17]
On the same date, Transfer Certificate of Title (TCT) Nos. 277747
and 277120 were issued. TCT No. 277747 covering lots 1 and 5 of
the Antipolo property was registered in the names of Rufina
Eniceo, Ambrosio Eniceo, Rodolfo Calove, Fernando Calove and
Leonila Calove Bolinas.[18]TCT No. 277120 covering lots 3 and
4 of the Antipolo property was registered in the name of
petitioner.[19]
On 5 April 1995, the Eniceo heirs executed another deed of sale in
favor of petitioner covering lots 1 and 5 of the Antipolo property
for P1,000,000. TCT No. 278588 was issued in the name of
petitioner and TCT No. 277120 was cancelled.[20]
On 17 August 1995, the Secretary of the Department of
Environment and Natural Resources (DENR Secretary) approved
the deed of sale between the Eniceo heirs and respondent.[21]
On 16 January 1996, respondent filed a civil complaint with the
trial court against the Eniceo heirs and petitioner. Respondent
prayed for the cancellation of the certificates of title issued in favor
of petitioner, and the registration of the deed of sale and issuance
of a new transfer certificate of title in favor of respondent.[22]
On 4 July 2000, the trial court rendered its decision dismissing the
case for lack of legal and factual basis.[23]
Respondent appealed to the Court of Appeals (CA). On 20
December 2004, the CA rendered a decision reversing the trial
courts decision.[24] Respondent filed a motion for reconsideration,
which the CA denied in its Resolution dated 10 October 2005.
Aggrieved by the CAs decision and resolution, petitioner elevated
the case before this Court.
The Ruling of the Trial Court
The trial court stated that although respondent claims that the
Eniceo heirs sold to him the Antipolo property, respondent did not
testify in court as to the existence, validity and genuineness of the
purported deed of sale and his possession of the duplicate owners
copy of OCT No. 535. The trial court stated that as owner of a
property consisting of hectares of land, respondent should have
come to court to substantiate his claim and show that the
allegations of the Eniceo heirs and petitioner are mere
fabrications.[25]
The trial court noticed that respondent did not register the deed of
sale with the Register of Deeds immediately after its alleged
execution on 10 September 1973. Further, respondent waited for
22 long years before he had the sale approved by the DENR
Secretary. The trial court declared that respondent slept on his
rights. The trial court concluded that respondents failure to register
the sale and secure the cancellation of OCT No. 535 militates
against his claim of ownership. The trial court believed that
respondent has not established the preponderance of evidence
necessary to justify the relief prayed for in his complaint.[26]
The trial court stated that Bolinas was able to prove that the Eniceo
heirs have remained in actual possession of the land. The filing of
a petition for the issuance of a new owners duplicate copy requires
the posting of the petition in three different places which serves as
a notice to the whole world. Respondents failure to oppose this
petition can be deemed as a waiver of his right, which is fatal to his
cause.[27]
The trial court noted that petitioner is a buyer in good faith and for
value because petitioner has exercised due diligence in inspecting
the property and verifying the title with the Register of Deeds.[28]
The trial court held that even if the court were to believe that the
deed of sale in favor of respondent were genuine, still it could not
be considered a legitimate disposition of property, but merely an
equitable mortgage. The trial court stated that respondent never
obtained possession of the Antipolo property at any given time and
a buyer who does not take possession of a property sold to him is
presumed to be a mortgagee only and not a vendee.[29]
The Ruling of the Court of Appeals
The CA ruled that the deed of sale in favor of respondent, being a
notarized document, has in its favor the presumption of regularity
and carries the evidentiary weight conferred upon it with respect to
48
its due execution. The CA added that whoever asserts forgery has
the burden of proving it by clear, positive and convincing evidence
because forgery can never be presumed. The CA found that
petitioner and the Eniceo heirs have not substantiated the allegation
of forgery.[30]
The CA pointed out that laches has not set in. One of the requisites
of laches, which is injury or prejudice to the defendant in the event
relief is accorded to the complainant or the suit is not held to be
barred, is wanting in the instant case. The CA added that
unrecorded sales of land brought under the Torrens system are
valid between parties because registration of the instrument is
merely intended to bind third persons.[31]
The CA declared that petitioners contention regarding the validity
of the questioned deed on the ground that it was executed without
the approval of the DENR Secretary is untenable. The DENR
Secretary approved the deed of sale on 17 August 1995. However,
even supposing that the sale was not approved, the requirement for
the DENR Secretarys approval is merely directory and its absence
does not invalidate any alienation, transfer or conveyance of the
homestead after 5 years and before 25 years from the issuance of
the title which can be complied with at any time in the future.[32]
The CA ruled that petitioner is a buyer in bad faith because it
purchased the disputed properties from the Eniceo heirs after
respondent had caused the inscription on OCT No. 535 of an
adverse claim. Registration of the adverse claim serves as a
constructive notice to the whole world. Petitioner cannot feign
ignorance of facts which should have put it on guard and then claim
that it acted under the honest belief that there was no defect in the
title of the vendors. Knowing that an adverse claim was annotated
in the certificates of title of the Eniceo heirs, petitioner was
forewarned that someone is claiming an interest in the disputed
properties.[33]
The CA found no merit in petitioners contention that the
questioned deed of sale is an equitable mortgage. The CA stated
that for the presumption of an equitable mortgage to arise, one must
first satisfy the requirement that the parties entered into a contract
denominated as a contract of sale and that their intention was to
secure an existing debt by way of mortgage.[34]
The CA stated that the execution of the notarized deed of sale, even
without actual delivery of the disputed properties, transferred
ownership from the Eniceo heirs to respondent. The CA held that
respondents possession of the owners duplicate copy of OCT No.
535 bolsters the contention that the Eniceo heirs sold the disputed
properties to him by virtue of the questioned deed.[35]
The CA reversed the trial courts decision. The dispositive portion
of the CA decision reads:
WHEREFORE, the appealed decision of the Regional Trial Court
of Rizal (Antipolo, Branch 71) is REVERSED and SET ASIDE
and another rendered as follows:
1. DECLARING NULL AND VOID TRANSFER
CERTIFICATES OF TITLES NOS. 277747, 277120 AND
278588 OF THE REGISTRY OF DEEDS OF MARIKINA CITY
(THE LAST TWO IN THE NAME OF DEFENDANT-
APPELLEE KINGS PROPERTIES CORPORATION), THE
DERIVATIVE TITLES THEREOF AND THE INSTRUMENTS
WHICH WERE THE BASES OF THE ISSUANCE OF SAID
CERTIFICATES OF TITLE; AND
2. DECLARING PLAINTIFF-APPELLANT CANUTO A.
GALIDO THE OWNER OF FEE SIMPLE OF LOT NOS. 1, 3, 4,
5 FORMERLY REGISTERED UNDER ORIGINAL
CERTIFICATE OF TITLE NO. 535 IN THE NAME OF THE
HEIRS OF DOMINGO ENICEO, REPRESENTED BY RUFINA
ENICEO, AND ORDERING THE REGISTER OF DEEDS OF
MARIKINA CITY TO ISSUE NEW TRANSFER
CERTIFICATES OF TITLE FOR SAID PARCELS OF LAND IN
THE NAME OF PLAINTIFF-APPELLANT CANUTO A.
GALIDO, UPON PAYMENT OF THE PROPER FEES AND
PRESENTATION OF THE DEED OF SALE DATED
SEPTEMBER 10, 1973 EXECUTED BY RUFINA ENICEO
AND MARIA ENICEO, AS SOLE HEIRS OF THE LATE
DOMINGO ENICEO, IN FAVOR OF THE LATTER.[36]
The Issues
Petitioner raises two issues in this petition:
1. Whether the adverse claim of respondent over the Antipolo
property should be barred by laches;[37]and
2. Whether the deed of sale delivered to respondent should be
presumed an equitable mortgage pursuant to Article 1602(2) and
1604 of the Civil Code.[38]
The Ruling of the Court
Validity of the deed of sale to respondent
The contract between the Eniceo heirs and respondent executed on
10 September 1973 was a perfected contract of sale. A contract is
perfected once there is consent of the contracting parties on the
object certain and on the cause of the obligation.[39]In the present
case, the object of the sale is the Antipolo property and the price
certain is P250,000.
The contract of sale has also been consummated because the
vendors and vendee have performed their respective obligations
under the contract. In a contract of sale, the seller obligates himself
to transfer the ownership of the determinate thing sold, and to
deliver the same to the buyer, who obligates himself to pay a price
certain to the seller.[40]The execution of the notarized deed of sale
and the delivery of the owners duplicate copy of OCT No. 535 to
respondent is tantamount to a constructive delivery of the object of
the sale. In Navera v. Court of Appeals, the Court ruled that since
the sale was made in a public instrument, it was clearly tantamount
to a delivery of the land resulting in the symbolic possession
thereof being transferred to the buyer.[41]
Petitioner alleges that the deed of sale is a forgery. The Eniceo heirs
also claimed in their answer that the deed of sale is fake and
spurious.[42]However, as correctly held by the CA, forgery can
never be presumed. The party alleging forgery is mandated to
prove it with clear and convincing evidence.[43]Whoever alleges
forgery has the burden of proving it. In this case, petitioner and the
Eniceo heirs failed to discharge this burden.
49
Petitioner invokes the belated approval by the DENR Secretary,
made within 25 years from the issuance of the homestead, to nullify
the sale of the Antipolo property. The sale of the Antipolo property
cannot be annulled on the ground that the DENR Secretary gave
his approval after 21 years from the date the deed of sale in favor
of respondent was executed. Section 118 of Commonwealth Act
No. 141 or the Public Land Act (CA 141), as amended by
Commonwealth Act No. 456,[44]reads:
SEC. 118. EXCEPT IN FAVOR OF THE GOVERNMENT OR
ANY OF ITS BRANCHES, UNITS, OR INSTITUTIONS, OR
LEGALLY CONSTITUTED BANKING CORPORATIONS,
LANDS ACQUIRED UNDER FREE PATENT OR
HOMESTEAD PROVISIONS SHALL NOT BE SUBJECT TO
ENCUMBRANCE OR ALIENATION FROM THE DATE OF
THE APPROVAL OF THE APPLICATION AND FOR A TERM
OF FIVE YEARS FROM AND AFTER THE DATE OF THE
ISSUANCE OF THE PATENT OR GRANT X X X
No alienation, transfer, or conveyance of any homestead after five
years and before twenty-five years after the issuance of title shall
be valid without the approval of the Secretary of Agriculture and
Natural Resources,[45]which approval shall not be denied except
on constitutional and legal grounds.
In Spouses Alfredo v. Spouses Borras,[46]the Court explained the
implications of Section 118 of CA 141. Thus:
A grantee or homesteader is prohibited from alienating to a private
individual a land grant within five years from the time that the
patent or grant is issued. A violation of this prohibition renders a
sale void. This , however, expires on the fifth year. From then on
until the next 20 years, the land grant may be alienated provided
the Secretary of Agriculture and Natural Resources approves the
alienation. The Secretary is required to approve the alienation
unless there are constitutional and legal grounds to deny the
approval. In this case, there are no apparent or legal grounds for
the Secretary to disapprove the sale of the Subject Land.
The failure to secure the approval of the Secretary does not ipso
factomake a sale void. The absence of approval by the Secretary
does not a sale made after the expiration of the 5-year period, for
in such event the requirement of Section 118 of the Public Land
Act becomes merely directory or a formality. The approval may be
secured later, producing the effect of ratifying and adopting the
transaction as if the sale had been previously authorized.
(Underscoring supplied)
Equitable Mortgage
Petitioner contends that the deed of sale in favor of respondent is
an equitable mortgage because the Eniceo heirs remained in
possession of the Antipolo property despite the execution of the
deed of sale.
An equitable mortgage is 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, and contains nothing
impossible or contrary to law.[47]The essential requisites of an
equitable mortgage are:
1. The parties entered into a contract denominated as a contract
of sale; and
2. Their intention was to secure existing debt by way of a
mortgage.[48]
In Lim v. Calaguas,[49]the Court held that in order for the
presumption of equitable mortgage to apply, there must be: (1)
something in the language of the contract; or (2) in the conduct of
the parties which shows clearly and beyond doubt that they
intended the contract to be a mortgage and not a pacto de retro
sale.[50]Proof by parol evidence should be presented in court.
Parol evidence is admissible to support the allegation that an
instrument in writing, purporting on its face to transfer the absolute
title to property, was in truth and in fact given merely as security
for the payment of a loan. The presumption of equitable mortgage
under Article 1602 of the Civil Code is not conclusive. It may be
rebutted by competent and satisfactory proof of the contrary.[51]
Petitioner claims that an equitable mortgage can be presumed
because the Eniceo heirs remained in possession of the Antipolo
property. Apart from the fact that the Eniceo heirs remained in
possession of the Antipolo property, petitioner has failed to
substantiate its claim that the contract of sale was intended to
secure an existing debt by way of mortgage. In fact, mere tolerated
possession is not enough to prove that the transaction was an
equitable mortgage.[52]
Furthermore, petitioner has not shown any proof that the Eniceo
heirs were indebted to respondent. On the contrary, the deed of sale
executed in favor of respondent was drafted clearly to convey that
the Eniceo heirs sold and transferred the Antipolo property to
respondent. The deed of sale even inserted a provision about
defrayment of registration expenses to effect the transfer of title to
respondent.
In any event, as pointed out by respondent in his Memorandum,
this defense of equitable mortgage is available only to petitioners
predecessors-in-interest who should have demanded, but did not,
for the reformation of the deed of sale.[53] A perusal of the records
shows that the Eniceo heirs never presented the defense of
equitable mortgage before the trial court. In their Answer[54]and
Memorandum[55]filed before the trial court, the Eniceo heirs
claimed that the alleged deed of sale dated 10 September 1973
between Rufina Eniceo and Maria Eniceo was fake and spurious.
The Eniceo heirs contended that even assuming there was a
contract, no consideration was involved. It was only in the
Appellees Brief[56]filed before the CA that the Eniceo heirs
claimed as an alternative defense that the deed should be presumed
as an equitable mortgage.
IN PHILIPPINE PORTS AUTHORITY V. CITY OF
ILOILO,[57]WE RULED THAT A PARTY WHO ADOPTS A
CERTAIN THEORY UPON WHICH THE CASE IS TRIED AND
DECIDED BY THE LOWER COURT WILL NOT BE
PERMITTED TO CHANGE THE THEORY ON APPEAL. A
THEORY OF THE CASE NOT BROUGHT TO THE
ATTENTION OF THE LOWER COURT WILL NOT BE
CONSIDERED BY A REVIEWING COURT, AS A NEW
THEORY CANNOT BE RAISED FOR THE FIRST TIME AT
SUCH LATE STAGE.
50
ALTHOUGH PETITIONER RAISED THE DEFENSE OF
EQUITABLE MORTGAGE IN THE LOWER COURT, HE
CANNOT CLAIM THAT THE DEED WAS AN EQUITABLE
MORTGAGE BECAUSE PETITIONER WAS NOT A PRIVY
TO THE DEED OF SALE DATED 10 SEPTEMBER 1973.
PETITIONER MERELY STEPPED INTO THE SHOES OF THE
ENICEO HEIRS. PETITIONER, WHO MERELY ACQUIRED
ALL THE RIGHTS OF ITS PREDECESSORS, CANNOT
ESPOUSE A THEORY THAT IS CONTRARY TO THE
THEORY OF THE CASE CLAIMED BY THE ENICEO HEIRS.
The Court notes that the Eniceo heirs have not appealed the CAs
decision, hence, as to the Eniceo heirs, the CAs decision that the
contract was a sale and not an equitable mortgage is now final.
Since petitioner merely assumed the rights of the Eniceo heirs,
petitioner is now estopped from questioning the deed of sale dated
10 September 1973.
Petitioner is not a buyer in good faith
Petitioner maintains that the subsequent sale must be upheld
because petitioner is a buyer in good faith, having exercised due
diligence by inspecting the property and the title sometime in
February 1995.
In Agricultural and Home Extension Development Group v. Court
of Appeals,[58] a buyer in good faith is defined as one who buys
the property of another without notice that some other person has
a right to or interest in such property and pays a full and fair price
for the same at the time of such purchase or before he has notice of
the claim or interest of some other person in the property.
In Balatbat v. Court of Appeals,[59]the Court held that in the realm
of double sales, the registration of an adverse claim places any
subsequent buyer of the registered land in bad faith because such
annotation was made in the title of the property before the Register
of Deeds and he could have discovered that the subject property
was already sold.[60]The Court explained further, thus:
A purchaser of a valued piece of property cannot just close his eyes
to facts which should put a reasonable man upon his guard and then
claim that he acted in good faith and under the belief that there
were no defect in the title of the vendor. One who purchases real
estate with knowledge of a defect or lack of title in his vendor
cannot claim that he has acquired title thereto in good faith as
against the true owner of the land or of an interest therein; and the
same rule must be applied to one who has knowledge of facts
which should have put him upon such inquiry and investigation as
be necessary to acquaint him with the defects in the title of his
vendor.[61]
Petitioner does not dispute that respondent registered his adverse
claim with the Registry of Deeds on 14 March 1995. The
registration of the adverse claim constituted, by operation of law,
notice to the whole world.[62]From that date onwards, subsequent
buyers were deemed to have constructive notice of respondents
adverse claim.
PETITIONER PURCHASED THE ANTIPOLO PROPERTY
ONLY ON 20 MARCH 1995 AND 5 APRIL 1995 AS SHOWN
BY THE DATES IN THE DEEDS OF SALE. ON THE SAME
DATES, THE REGISTRY OF DEEDS ISSUED NEW TCTS IN
FAVOR OF PETITIONER WITH THE ANNOTATED
ADVERSE CLAIM. CONSEQUENTLY, THE ADVERSE
CLAIM REGISTERED PRIOR TO THE SECOND SALE
CHARGED PETITIONER WITH CONSTRUCTIVE NOTICE
OF THE DEFECT IN THE TITLE OF ENICEO HEIRS.
THEREFORE, PETITIONER CANNOT BE DEEMED AS A
PURCHASER IN GOOD FAITH WHEN THEY BOUGHT AND
REGISTERED THE ANTIPOLO PROPERTY.
IN CARBONELL V. COURT OF APPEALS,[63]THIS COURT
RULED THAT IN DOUBLE SALES, THE FIRST BUYER
ALWAYS HAS PRIORITY RIGHTS OVER SUBSEQUENT
BUYERS OF THE SAME PROPERTY. BEING THE FIRST
BUYER, HE IS NECESSARILY IN GOOD FAITH COMPARED
TO SUBSEQUENT BUYERS. THE GOOD FAITH OF THE
FIRST BUYER REMAINS ALL THROUGHOUT DESPITE HIS
SUBSEQUENT ACQUISITION OF KNOWLEDGE OF THE
SUBSEQUENT SALE. ON THE OTHER HAND, THE
SUBSEQUENT BUYER, WHO MAY HAVE ENTERED INTO
A CONTRACT OF SALE IN GOOD FAITH, WOULD BECOME
A BUYER IN BAD FAITH BY HIS SUBSEQUENT
ACQUISITION OF ACTUAL OR CONSTRUCTIVE
KNOWLEDGE OF THE FIRST SALE.[64]THE SEPARATE
OPINION OF THEN JUSTICE TEEHANKEE IS
INSTRUCTIVE, THUS:
The governing principle here is prius tempore, potior jure(first in
time, stronger in right). Knowledge gained by the first buyer of the
second sale cannot defeat the first buyers rights except only as
provided by the Code and that is where the second buyer first
registers in good faith the second sale ahead of the first. Such
knowledge of the first buyer does bar her from availing of her
rights under the law, among them, to first her purchase as against
the second buyer. But in converso knowledge gained by the second
buyer of the first sale defeats his rights even if he is first to register
the second sale, since such knowledge taints his prior registration
with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the
second buyer being able to displace the first buyer: that before the
second buyer can obtain priority over the first, he must show that
he acted in good faith throughout (i.e., in ignorance of the first sale
and of the first buyers rights) from the time of acquisition until the
title is transferred to him by registration or failing registration, by
delivery of possession. The second buyer must show continuing
good faith and innocence or lack of knowledge of the first sale until
his contract ripens into full ownership through prior registration as
provided by law.[65]
Laches
PETITIONER CONTENDS THAT RESPONDENT IS GUILTY
OF LACHES BECAUSE HE SLEPT ON HIS RIGHTS BY
FAILING TO REGISTER THE SALE OF THE ANTIPOLO
PROPERTY AT THE EARLIEST POSSIBLE TIME.
PETITIONER CLAIMS THAT DESPITE RESPONDENTS
KNOWLEDGE OF THE SUBSEQUENT SALE IN 1991,
RESPONDENT STILL FAILED TO HAVE THE DEED OF
SALE REGISTERED WITH THE REGISTRY OF DEEDS.
The essence of laches is the failure or neglect, for an unreasonable
and unexplained length of time, to do that which, through due
diligence, could have been done earlier, thus giving rise to a
presumption that the party entitled to assert it had either abandoned
or declined to assert it.[66]
51

Respondent discovered in 1991 that a new owners copy of OCT
No. 535 was issued to the Eniceo heirs. Respondent filed a criminal
case against the Eniceo heirs for false testimony. When respondent
learned that the Eniceo heirs were planning to sell the Antipolo
property, respondent caused the annotation of an adverse claim. On
16 January 1996, when respondent learned that OCT No. 535 was
cancelled and new TCTs were issued, respondent filed a civil
complaint with the trial court against the Eniceo heirs and
petitioner. Respondents actions negate petitioners argument that
respondent is guilty of laches.
True, unrecorded sales of land brought under Presidential Decree
No. 1529 or the Property Registration Decree (PD 1529) are
effective between and binding only upon the immediate parties.
The registration required in Section 51 of PD 1529 is intended to
protect innocent third persons, that is, persons who, without
knowledge of the sale and in good faith, acquire rights to the
property.[67] Petitioner, however, is not an innocent purchaser for
value.
WHEREFORE, we DENY the petition. We AFFIRM the 20
December 2004 Decision and 10 October 2005 Resolution of the
Court of Appeals in CA-G.R. CV No. 68828.
SO ORDERED.
UNENFORCEABLE CONTRACTS
[G.R. No. 139532. August 9, 2001]
REGAL FILMS, INC., petitioner, vs. GABRIEL
CONCEPCION, respondent.
DECISION
VITUG, J.:
The case involves a compromise judgment issued by the Regional
Trial Court of Quezon City, later affirmed by the Court of Appeals,
and now being assailed in the instant petition for review.
Culled from the records, the facts that led to the controversy would
not appear to be in serious dispute.
In 1991, respondent Gabriel "Gabby" Concepcion, a television
artist and movie actor, through his manager Lolita Solis, entered
into a contract with petitioner Regal Films, Inc., for services to be
rendered by respondent in petitioners motion pictures. Petitioner,
in turn, undertook to give two parcels of land to respondent, one
located in Marikina and the other in Cavite, on top of the talent fees
it had agreed to pay.
In 1993, the parties renewed the contract, incorporating the same
undertaking on the part of petitioner to give respondent the two
parcels of land mentioned in the first agreement. Despite the
appearance of respondent in several films produced by petitioner,
the latter failed to comply with its promise to convey to respondent
the two aforementioned lots.
On 30 May 1994, respondent and his manager filed an action
against petitioner before the Regional Trial Court of Quezon City,
docketed Civil Case No. Q-94-20714 and raffled to Branch 76, for
rescission of contract with damages. In his complaint, respondent
contended that he was entitled to rescind the contract, plus
damages, and to be released from further commitment to work
exclusively for petitioner owing to the latters failure to honor the
agreement.
Instead of filing an answer to the complaint, petitioner moved for
its dismissal on the allegation that the parties had settled their
differences amicably. Petitioner averred that both parties had
executed an agreement, dated 17 June 1994, which was to so
operate as an addendum to the 1991 and 1993 contracts between
them. The agreement was signed by a representative of petitioner
and by Solis purportedly acting for and in behalf of respondent
Concepcion.
The preliminary conference held by the trial court failed to produce
a settlement between the parties; thereupon, the trial court ordered
Solis and respondent to comment on petitioner's motion to dismiss.
On 30 September 1994, Solis filed a motion to dismiss the
complaint reiterating that she, acting for herself and for respondent
Concepcion, had already settled the case amicably with petitioner.
On 17 October 1994, respondent Concepcion himself opposed the
motion to dismiss contending that the addendum, containing
provisions grossly disadvantageous to him, was executed without
his knowledge and consent. Respondent stated that Solis had since
ceased to be his manager and had no authority to sign the
addendum for him.
During the preliminary conference held on 23 June 1995, petitioner
intimated to respondent and his counsel its willingness to allow
respondent to be released from his 1991 and 1993 contracts with
petitioner rather than to further pursue the addendum which
respondent had challenged.
On 03 July 1995, respondent filed a manifestation with the trial
court to the effect that he was now willing to honor the addendum
to the 1991 and 1993 contracts and to have it considered as a
compromise agreement as to warrant a judgment in accordance
therewith. The manifestation elicited a comment from both
petitioner and Solis to the effect that the relationship between the
parties had by then become strained, following the notorious
Manila Film Festival scam involving respondent, but that it was
still willing to release respondent from his contract.
On 24 October 1995, the trial court issued an order rendering
judgment on compromise based on the subject addendum which
respondent had previously challenged but later agreed to honor
pursuant to his manifestation of 03 July 1995.
Petitioner moved for reconsideration; having been denied, it then
elevated the case to the Court of Appeals arguing that the trial court
erred in treating the addendum of 17 June 1994 as being a
compromise agreement and in depriving it of its right to procedural
due process.
On 30 July 1999, the appellate court rendered judgment affirming
the order of the trial court of 24 October 1995; it ruled:
"In the instant case, there was an Addendum to the contract signed
by Lolita and Regal Films' representative to which addendum
Concepcion through his Manifestation expressed his conformity.
There was, therefore, consent of all the parties.
The addendum/compromise agreement was perfected and is
binding on the parties and may not later be disowned simply
because of a change of mind of Regal Films and/or Lolita by
claiming, in their Opposition/Reply to Concepcion's
Manifestation, that after the 1995 Metro Manila Films Festival
scam/fiasco in which Concepcion was involved, the relationship
between the parties had become bitter to render compliance with
52
the terms and conditions of the Addendum no longer possible and
consequently release Concepcion from the 1991 and 1993
contracts."[1]
Dissatisfied, petitioner appealed to this Court claiming in its
petition for review that -
"I.
THE COURT OF APPEALS ERRED IN AFFIRMING THE
TRIAL COURT'S ACTION IN RENDERING JUDGMENT ON
A COMPROMISE BASED ON THE ADDENDUM WHEN
PETITIONER REGAL FILMS SUBMITTED THIS
DOCUMENT TO THE TRIAL COURT MERELY TO SERVE
AS BASIS FOR ITS MOTION TO DISMISS;
II.
THE COURT OF APPEALS ERRED IN RENDERING
JUDGMENT ON A COMPROMISE WHEN THE PARTIES DID
NOT AGREE TO SUCH A COMPROMISE;
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
MINDS OF THE PARTIES HAD MET TO ELEVATE THE
PREVIOUSLY REJECTED ADDENDUM TO THE LEVEL OF
A JUDGMENT ON A COMPROMISE."[2]
The petition is meritorious.
Petitioner argues that the subject addendum could not be the basis
of the compromise judgment. The Court agrees.
A compromise is an agreement between two or more persons who,
for preventing or putting an end to a lawsuit, adjust their respective
positions by mutual consent in the way they feel they can live with.
Reciprocal concessions are the very heart and life of every
compromise agreement,[3] where each party approximates and
concedes in the hope of gaining balanced by the danger of
losing.[4] It is, in essence, a contract. Law and jurisprudence recite
three minimum elements for any valid contract - (a) consent; (b)
object certain which is the subject matter of the contract; and (c)
cause of the obligation which is established.[5] Consent is
manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the agreement. The
offer, however, must be certain and the acceptance seasonable and
absolute; if qualified, the acceptance would merely constitute a
counter-offer.[6]
In this instance, the addendum was flatly rejected by respondent on
the theses (a) that he did not give his consent thereto nor authorized
anyone to enter into the agreement, and (b) that it contained
provisions grossly disadvantageous to him. The outright rejection
of the addendum made known to the other ended the offer. When
respondent later filed his Manifestation, stating that he was, after
all, willing to honor the addendum, there was nothing to still
accept.
Verily, consent could be given not only by the party himself but by
anyone duly authorized and acting for and in his behalf. But by
respondent's own admission, the addendum was entered into
without his knowledge and consent. A contract entered into in the
name of another by one who ostensibly might have but who, in
reality, had no real authority or legal representation, or who, having
such authority, acted beyond his powers, would be
unenforceable.[7] The addendum, let us then assume, resulted in
an unenforceable contract, might it not then be susceptible to
ratification by the person on whose behalf it was executed? The
answer would obviously be in the affirmative; however, that
ratification should be made before its revocation by the other
contracting party.[8] The adamant refusal of respondent to accept
the terms of the addendum constrained petitioner, during the
preliminary conference held on 23 June 1995, to instead express its
willingness to release respondent from his contracts prayed for in
his complaint and to thereby forego the rejected addendum.
Respondent's subsequent attempt to ratify the addendum came
much too late for, by then, the addendum had already been deemed
revoked by petitioner.
WHEREFORE, the petition is GRANTED, and the appealed
judgment of the Court of Appeals affirming that of the trial court
is SET ASIDE, and the case is remanded to the trial court for
further proceedings. No costs.
SO ORDERED.
[G.R. No. 122134. October 3, 2003]
ROMANA LOCQUIAO VALENCIA and CONSTANCIA L.
VALENCIA, petitioners, vs. BENITO A. LOCQUIAO, now
deceased and substituted by JIMMY LOCQUIAO, TOMASA
MARA and the REGISTRAR OF DEEDS OF PANGASINAN,
respondents.
CONSTANCIA L. VALENCIA, petitioner, vs. BENITO A.
LOCQUIAO, now deceased and substituted by JIMMY
LOCQUIAO, respondent.
DECISION
TINGA, J.:
The Old Civil Code[1] and the Old Code of Civil Procedure,[2]
repealed laws that they both are notwithstanding, have not abruptly
become mere quiescent items of legal history since their relevance
do not wear off for a long time. Verily, the old statutes proved to
be decisive in the adjudication of the case at bar.
Before us is a petition for review seeking to annul and set aside the
joint Decision[3] dated November 24, 1994, as well as the
Resolution[4] dated September 8, 1995, of the former Tenth
Division[5] of the Court of Appeals in two consolidated cases
involving an action for annulment of title[6] and an action for
ejectment.[7]
Both cases involve a parcel of land consisting of 4,876 square
meters situated in Urdaneta, Pangasinan. This land was originally
owned by the spouses Herminigildo and Raymunda Locquiao, as
evidenced by Original Certificate of Title No. 18383[8] issued on
October 3, 1917 by the Register of Deeds of Pangasinan.
On May 22, 1944, Herminigildo and Raymunda Locquiao
executed a deed of donation propter nuptias which was written in
the Ilocano dialect, denominated as Inventario Ti Sagut[9] in favor
of their son, respondent Benito Locquiao (hereafter, respondent
Benito) and his prospective bride, respondent Tomasa Mara
(hereafter, respondent Tomasa). By the terms of the deed, the
donees were gifted with four (4) parcels of land, including the land
in question, as well as a male cow and one-third (1/3) portion of
the conjugal house of the donor parents, in consideration of the
impending marriage of the donees.
The donees took their marriage vows on June 4, 1944 and the fact
of their marriage was inscribed at the back of O.C.T. No.
18383.[10]
Herminigildo and Raymunda died on December 15, 1962 and
January 9, 1968, respectively, leaving as heirs their six (6) children,
namely: respondent Benito, Marciano, Lucio, Emeteria, Anastacia,
53
and petitioner Romana, all surnamed Locquiao[11]. With the
permission of respondents Benito and Tomasa, petitioner Romana
Valencia (hereinafter, Romana) took possession and cultivated the
subject land.[12] When respondent Romanas husband got sick
sometime in 1977, her daughter petitioner Constancia Valencia
(hereafter, petitioner Constancia) took over, and since then, has
been in possession of the land.[13]
Meanwhile, respondents Benito and Tomasa registered the
Inventario Ti Sagut with the Office of the Register of Deeds of
Pangasinan on May 15, 1970.[14] In due course, the original title
was cancelled and in lieu thereof Transfer Certificate of Title No.
84897[15] was issued in the name of the respondents Benito and
Tomasa.
On March 18, 1973, the heirs of the Locquiao spouses, including
respondent Benito and petitioner Romana, executed a Deed of
Partition with Recognition of Rights,[16] wherein they distributed
among only three (3) of them, the twelve (12) parcels of land left
by their common progenitors, excluding the land in question and
other lots disposed of by the Locquiao spouses earlier. Contained
in the deed is a statement that respondent Benito and Marciano
Locquiao, along with the heirs of Lucio Locquiao, have already
received our shares in the estates of our parents, by virtue of
previous donations and conveyances, and that for that reason the
heirs of Lucio Locquaio were not made parties to the deed. All the
living children of the Locquaio spouses at the time, including
petitioner Romana, confirmed the previous dispositions and
waived their rights to whomsoever the properties covered by the
deed of partition were adjudicated.[17]
Later on, disagreements among five (5) heirs or groups of heirs,
including petitioner Romana, concerning the distribution of two (2)
of the lots covered by the deed of partition which are Lots No. 2467
and 5567 of the Urdaneta Cadastral Survey surfaced. As their
differences were settled, the heirs concerned executed a Deed of
Compromise Agreement[18] on June 12, 1976, which provided for
the re-distribution of the two (2) lots. Although not directly
involved in the discord, Benito signed the compromise agreement
together with his feuding siblings, nephews and nieces.
Significantly, all the signatories to the compromise agreement,
including petitioner Romana, confirmed all the other stipulations
and provisions of the deed of partition.[19]
Sometime in 1983, the apparent calm pervading among the heirs
was disturbed when petitioner Constancia filed an action for
annulment of title against the respondents before the Regional Trial
Court of Pangasinan.[20] The record shows that the case was
dismissed by the trial court but it does not indicate the reason for
the dismissal.[21]
On December 13, 1983, respondent Benito filed with the
Municipal Trial Court of Urdaneta, Pangasinan a Complaint[22]
seeking the ejectment of petitioner Constancia from the subject
property.
On November 25, 1985, the Municipal Trial Court rendered a
Decision,[23] ordering the defendant in the case, petitioner
Constancia, to vacate the land in question.
Petitioners Romana and Constancia countered with a
Complaint[24] for the annulment of Transfer Certificate of Title
No. 84897 against respondents Benito and Tomasa [25] which they
filed with the Regional Trial Court of Pangasinan on December 23,
1985. Petitioners alleged that the issuance of the transfer certificate
of title was fraudulent; that the Inventario Ti Sagut is spurious; that
the notary public who notarized the document had no authority to
do so, and; that the donation did not observe the form required by
law as there was no written acceptance on the document itself or in
a separate public instrument.
Meanwhile, the decision in the ejectment case was appealed to the
same RTC where the case for annulment of title was also pending.
Finding that the question of ownership was the central issue in both
cases, the court issued an Order[26] suspending the proceedings in
the ejectment case until it shall have decided the ownership issue
in the title annulment case.
After trial, the RTC rendered a Decision[27] dated January 30,
1989 dismissing the complaint for annulment of title on the
grounds of prescription and laches. It likewise ruled that the
Inventario Ti Sagut is a valid public document which transmitted
ownership over the subject land to the respondents. With the
dismissal of the complaint and the confirmation of the respondents
title over the subject property, the RTC affirmed in toto the
decision of the MTC in the ejectment case[28].
Dissatisfied, petitioners elevated the two (2) decisions to the
respondent Court of Appeals. Since they involve the same parties
and the same property, the appealed cases were consolidated by the
appellate court.
On November 24, 1994, the Court of Appeals rendered the assailed
Decision affirming the appealed RTC decisions. The appellate
court upheld the RTCs conclusion that the petitioners cause of
action had already prescribed, considering that the complaint for
annulment of title was filed more than fifteen (15) years after the
issuance of the title, or beyond the ten (10) - year prescriptive
period for actions for reconveyance. It likewise rejected the
petitioners assertion that the donation propter nuptias is null and
void for want of acceptance by the donee, positing that the implied
acceptance flowing from the very fact of marriage between the
respondents, coupled with the registration of the fact of marriage
at the back of OCT No. 18383, constitutes substantial compliance
with the requirements of the law.
The petitioners filed a Motion for Reconsideration[29] but it was
denied by the appellate court in its Resolution[30] dated September
8, 1995. Hence, this petition.
We find the petition entirely devoid of merit.
Concerning the annulment case, the issues to be threshed out are:
(1) whether the donation propter nuptias is authentic; (2) whether
acceptance of the donation by the donees is required; (3) if so, in
what form should the acceptance appear, and; (4) whether the
action is barred by prescription and laches.
The Inventario Ti Sagut which contains the donation propter
nuptias was executed and notarized on May 22, 1944. It was
presented to the Register of Deeds of Pangasinan for registration
on May 15, 1970. The photocopy of the document presented in
evidence as Exhibit 8 was reproduced from the original kept in the
Registry of Deeds of Pangasinan.[31]
The petitioners have launched a two-pronged attack against the
validity of the donation propter nuptias, to wit: first, the Inventario
Ti Sagut is not authentic; and second, even assuming that it is
authentic, it is void for the donees failure to accept the donation in
a public instrument.
To buttress their claim that the document was falsified, the
petitioners rely mainly on the Certification[32] dated July 9, 1984
of the Records Management and Archives Office that there was no
notarial record for the year 1944 of Cipriano V. Abenojar who
notarized the document on May 22, 1944 and that therefore a copy
of the document was not available.
54

The certification is not sufficient to prove the alleged inexistence
or spuriousness of the challenged document. The appellate court is
correct in pointing out that the mere absence of the notarial record
does not prove that the notary public does not have a valid notarial
commission and neither does the absence of a file copy of the
document with the archives effect evidence of the falsification of
the document.[33] This Court ruled that the failure of the notary
public to furnish a copy of the deed to the appropriate office is a
ground for disciplining him, but certainly not for invalidating the
document or for setting aside the transaction therein involved.[34]
Moreover, the heirs of the Locquaio spouses, including petitioner
Romana, made reference in the deed of partition and the
compromise agreement to the previous donations made by the
spouses in favor of some of the heirs. As pointed out by the
RTC,[35] respondent Benito was not allotted any share in the deed
of partition precisely because he received his share by virtue of
previous donations. His name was mentioned in the deed of
partition only with respect to the middle portion of Lot No. 2638
which is the eleventh (11th) parcel in the deed but that is the same
one-third (1/3) portion of Lot No. 2638 covered by O.C.T. No.
18259 included in the donation propter nuptias. Similarly,
Marciano Locquiao and the heirs of Lucio Locquiao were not
allocated any more share in the deed of partition since they
received theirs by virtue of prior donations or conveyances.
The pertinent provisions of the deed of partition read:
That the heirs of Lucio Locquiao are not included in this Partition
by reason of the fact that in the same manner as we, BENITO and
MARCIANO LOCQUIAO are concerned, we have already
received our shares in the estate of our parents by virtue of previous
donations and conveyances, and that we hereby confirm said
dispositions, waiving our rights to whomsoever will these
properties will now be adjudicated;
That we, the Parties herein, do hereby waive and renounce as
against each other any claim or claims that we may have against
one or some of us, and that we recognize the rights of ownership
of our co-heirs with respect to those parcels already distributed and
adjudicated and that in the event that one of us is cultivating or in
possession of any one of the parcels of land already adjudicated in
favor of another heir or has been conveyed, donated or disposed of
previously, in favor of another heir, we do hereby renounce and
waive our right of possession in favor of the heir in whose favor
the donation or conveyance was made previously.[36] (Emphasis
supplied)
The exclusion of the subject property in the deed of partition
dispels any doubt as to the authenticity of the earlier Inventario Ti
Sagut.
This brings us to the admissibility of the Deed of Partition with
Recognition of Rights, marked as Exhibit 2, and the Deed of
Compromise Agreement, marked as Exhibit 3.
The petitioners fault the RTC for admitting in evidence the deed of
partition and the compromise agreement on the pretext that the
documents were not properly submitted in evidence, pointing out
that when presented to respondent Tomasa Mara for identification,
she simply stated that she knew about the documents but she did
not actually identify them.[37]
The argument is not tenable. Firstly, objection to the documentary
evidence must be made at the time it is formally offered.[38] Since
the petitioners did not even bother to object to the documents at the
time they were offered in evidence,[39] it is now too late in the day
for them to question their admissibility. Secondly, the documents
were identified during the Pre-Trial, marked as Exhibits 2 and 3
and testified on by respondent Tomasa.[40] Thirdly, the questioned
deeds, being public documents as they were duly notarized, are
admissible in evidence without further proof of their due execution
and are conclusive as to the truthfulness of their contents, in the
absence of clear and convincing evidence to the contrary.[41] A
public document executed and attested through the intervention of
the notary public is evidence of the facts therein expressed in clear,
unequivocal manner.[42]
Concerning the issue of form, petitioners insist that based on a
provision[43] of the Civil Code of Spain (Old Civil Code), the
acceptance by the donees should be made in a public instrument.
This argument was rejected by the RTC and the appellate court on
the theory that the implied acceptance of the donation had flowed
from the celebration of the marriage between the respondents,
followed by the registration of the fact of marriage at the back of
OCT No. 18383.
The petitioners, the appellate court and the trial court all erred in
applying the requirements on ordinary donations to the present
case instead of the rules on donation propter nuptias. Underlying
the blunder is their failure to take into account the fundamental
dichotomy between the two kinds of donations.
Unlike ordinary donations, donations propter nuptias or donations
by reason of marriage are those made before its celebration, in
consideration of the same and in favor of one or both of the future
spouses.[44] The distinction is crucial because the two classes of
donations are not governed by exactly the same rules, especially as
regards the formal essential requisites.
Under the Old Civil Code, donations propter nuptias must be made
in a public instrument in which the property donated must be
specifically described.[45] However, Article 1330 of the same
Code provides that acceptance is not necessary to the validity of
such gifts. In other words, the celebration of the marriage between
the beneficiary couple, in tandem with compliance with the
prescribed form, was enough to effectuate the donation propter
nuptias under the Old Civil Code.
Under the New Civil Code, the rules are different. Article 127
thereof provides that the form of donations propter nuptias are
regulated by the Statute of Frauds. Article 1403, paragraph 2,
which contains the Statute of Frauds requires that the contracts
mentioned thereunder need be in writing only to be enforceable.
However, as provided in Article 129, express acceptance is not
necessary for the validity of these donations. Thus, implied
acceptance is sufficient.
The pivotal question, therefore, is which formal requirements
should be applied with respect to the donation propter nuptias at
hand. Those under the Old Civil Code or the New Civil Code?
It is settled that only laws existing at the time of the execution of a
contract are applicable thereto and not later statutes, unless the
latter are specifically intended to have retroactive effect.[46]
Consequently, it is the Old Civil Code which applies in this case
since the donation propter nuptias was executed in 1944 and the
New Civil Code took effect only on August 30, 1950.[47] The fact
that in 1944 the Philippines was still under Japanese occupation is
of no consequence. It is a well-known rule of the Law of Nations
that municipal laws, as contra-distinguished from laws of political
nature, are not abrogated by a change of sovereignty.[48] This
Court specifically held that during the Japanese occupation period,
the Old Civil Code was in force.[49] As a consequence, applying
Article 1330 of the Old Civil Code in the determination of the
validity of the questioned donation, it does not matter whether or
55
not the donees had accepted the donation. The validity of the
donation is unaffected in either case.
Even the petitioners agree that the Old Civil Code should be
applied. However, they invoked the wrong provisions[50] thereof.
Even if the provisions of the New Civil Code were to be applied,
the case of the petitioners would collapse just the same. As earlier
shown, even implied acceptance of a donation propter nuptias
suffices under the New Civil Code.[51]
With the genuineness of the donation propter nuptias and
compliance with the applicable mandatory form requirements fully
established, petitioners hypothesis that their action is
imprescriptible cannot take off.
Viewing petitioners action for reconveyance from whatever
feasible legal angle, it is definitely barred by prescription.
Petitioners right to file an action for the reconveyance of the land
accrued in 1944, when the Inventario Ti Sagut was executed. It
must be remembered that before the effectivity of the New Civil
Code in 1950, the Old Code of Civil Procedure (Act No. 190)
governed prescription.[52] Under the Old Code of Civil Procedure,
an action for recovery of the title to, or possession of, real property,
or an interest therein, can only be brought within ten years after the
cause of such action accrues.[53] Thus, petitioners action, which
was filed on December 23, 1985, or more than forty (40) years
from the execution of the deed of donation on May 22, 1944, was
clearly time-barred.
Even following petitioners theory that the prescriptive period
should commence from the time of discovery of the alleged fraud,
the conclusion would still be the same. As early as May 15, 1970,
when the deed of donation was registered and the transfer
certificate of title was issued, petitioners were considered to have
constructive knowledge of the alleged fraud, following the
jurisprudential rule that registration of a deed in the public real
estate registry is constructive notice to the whole world of its
contents, as well as all interests, legal and equitable, included
therein.[54] As it is now settled that the prescriptive period for the
reconveyance of property allegedly registered through fraud is ten
(10) years, reckoned from the date of the issuance of the certificate
of title,[55] the action filed on December 23, 1985 has clearly
prescribed.
In any event, independent of prescription, petitioners action is
dismissible on the ground of laches. The elements of laches are
present in this case, viz:
(1) conduct on the part of the defendant, or one under whom he
claims, giving rise to the situation that led to the complaint and for
which the complainant seeks a remedy;
(2) delay in asserting the complainants rights, having had
knowledge or notice of defendants conduct and having been
afforded an opportunity to institute a suit;
(3) lack of knowledge or notice on the part of the defendant that
the complainant would assert the right on which he bases his suit,
and
(4) injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held barred.[56]
Of the facts which support the finding of laches, stress should be
made of the following: (a) the petitioners Romana unquestionably
gained actual knowledge of the donation propter nuptias when the
deed of partition was executed in 1973 and the information must
have surfaced again when the compromise agreement was forged
in 1976, and; (b) as petitioner Romana was a party-signatory to the
two documents, she definitely had the opportunity to question the
donation propter nuptias on both occasions, and she should have
done so if she were of the mindset, given the fact that she was still
in possession of the land in dispute at the time. But she did not
make any move. She tarried for eleven (11) more years from the
execution of the deed of partition until she, together with petitioner
Constancia, filed the annulment case in 1985.
Anent the ejectment case, we find the issues raised by the
petitioners to be factual and, therefore, beyond this Courts power
of review. Not being a trier of facts, the Court is not tasked to go
over the proofs presented by the parties and analyze, assess, and
weigh them to ascertain if the trial court and the appellate court
were correct in according them superior credit in this or that piece
of evidence of one party or the other.[57] In any event, implicit in
the affirmance of the Court of Appeals is the existence of
substantial evidence supporting the decisions of the courts below.
WHEREFORE, finding no reversible error in the assailed decision,
the same is hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
[G.R. No. 148116. April 14, 2004]
ANTONIO K. LITONJUA and AURELIO K. LITONJUA,
JR., petitioners, vs. MARY ANN GRACE FERNANDEZ,
HEIRS OF PAZ TICZON ELEOSIDA, represented by
GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO B.
TICZON, represented by MARY MEDIATRIX T.
FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL
R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON,
JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE
DOES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the
Court of Appeals in CA-G.R. CV No. 64940, which reversed and
set aside the June 23, 1999 Decision[2] of the Regional Trial Court
of Pasig City, Branch 68, in Civil Case No. 65629, as well as its
Resolution dated April 30, 2001 denying the petitioners motion for
reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon[3] are the owners of a parcel of
land located in San Pablo City, covered by Transfer Certificate of
Title (TCT) No. T-36766 of the Register of Deeds of San Pablo
City.[4] On the other hand, the heirs of Paz Ticzon Eleosida,
represented by Gregorio T. Eleosida, are the owners of a parcel of
land located in San Pablo City, covered by TCT No. 36754, also of
the Register of Deeds of San Pablo City.[5]
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and Agapito
Fisico who worked as brokers, offered to sell to the petitioners,
Antonio K. Litonjua and Aurelio K. Litonjua, Jr., the parcels of
land covered by TCT Nos. 36754 and 36766. The petitioners were
shown a locator plan and copies of the titles showing that the
owners of the properties were represented by Mary Mediatrix
Fernandez and Gregorio T. Eleosida, respectively. The brokers told
the petitioners that they were authorized by respondent Fernandez
to offer the property for sale. The petitioners, thereafter, made two
ocular inspections of the property, in the course of which they saw
some people gathering coconuts.
56

In the afternoon of November 27, 1995, the petitioners met with
respondent Fernandez and the two brokers at the petitioners office
in Mandaluyong City.[6] The petitioners and respondent
Fernandez agreed that the petitioners would buy the property
consisting of 36,742 square meters, for the price of P150 per square
meter, or the total sum of P5,098,500. They also agreed that the
owners would shoulder the capital gains tax, transfer tax and the
expenses for the documentation of the sale. The petitioners and
respondent Fernandez also agreed to meet on December 8, 1995 to
finalize the sale. It was also agreed upon that on the said date,
respondent Fernandez would present a special power of attorney
executed by the owners of the property, authorizing her to sell the
property for and in their behalf, and to execute a deed of absolute
sale thereon. The petitioners would also remit the purchase price to
the owners, through respondent Fernandez. However, only Agapito
Fisico attended the meeting. He informed the petitioners that
respondent Fernandez was encountering some problems with the
tenants and was trying to work out a settlement with them.[7] After
a few weeks of waiting, the petitioners wrote respondent Fernandez
on January 5, 1995, demanding that their transaction be finalized
by January 30, 1996.[8]
When the petitioners received no response from respondent
Fernandez, the petitioners sent her another Letter[9] dated
February 1, 1996, asking that the Deed of Absolute Sale covering
the property be executed in accordance with their verbal agreement
dated November 27, 1995. The petitioners also demanded the
turnover of the subject properties to them within fifteen days from
receipt of the said letter; otherwise, they would have no option but
to protect their interest through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the
petitioners on February 14, 1996[10] and clarified her stand on the
matter in this wise:
1) It is not true I agreed to shoulder registration fees and other
miscellaneous expenses, etc. I do not recall we ever discussed
about them. Nonetheless, I made an assurance at that time that there
was no liens/encumbrances and tenants on my property (TCT
36755).
2) It is not true that we agreed to meet on December 8, 1995 in
order to sign the Deed of Absolute Sale. The truth of the matter is
that you were the one who emphatically stated that you would
prepare a Contract to Sell and requested us to come back first week
of December as you would be leaving the country then. In fact,
what you were demanding from us was to apprise you of the status
of the property, whether we would be able to ascertain that there
are really no tenants. Ms. Alimario and I left your office, but we
did not assure you that we would be back on the first week of
December.
Unfortunately, some people suddenly appeared and claiming to be
tenants for the entire properties (including those belonging to my
other relatives.) Another thing, the Barangay Captain now refuses
to give a certification that our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to
Mr. Agapito that due to the appearance of alleged tenants who are
demanding for a one-hectare share, my cousin and I have thereby
changed our mind and that the sale will no longer push through. I
specifically instructed her to inform you thru your broker that we
will not be attending the meeting to be held sometime first week of
December.
In view thereof, I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We
have not demanded and received from you any earnest money,
thereby, no obligations exist. In the meantime, we hope that in the
future we will eventually be able to transact business since we still
have other properties in San Pablo City.[11]
Appended thereto was a copy of respondent Fernandez letter to the
petitioners dated January 16, 1996, in response to the latters
January 5, 1996 letter.[12]
On April 12, 1996, the petitioners filed the instant Complaint for
specific performance with damages[13] against respondent
Fernandez and the registered owners of the property. In their
complaint, the petitioners alleged, inter alia, the following:
4. On 27 November 1995, defendants offered to sell to plaintiffs
two (2) parcels of land covered by Transfer Certificates of Title
Nos. 36766 and 36754 measuring a total of 36,742 square meters
in Barrio Concepcion, San Pablo City. After a brief negotiation,
defendants committed and specifically agreed to sell to plaintiffs
33,990 square meters of the two (2) aforementioned parcels of land
at P150.00 per square meter.
5. The parties also unequivocally agreed to the following:
(a) The transfer tax and all the other fees and expenses for the
titling of the subject property in plaintiffs names would be for
defendants account.
(b) The plaintiffs would pay the entire purchase price of
P5,098,500.00 for the aforementioned 33,990 square meters of
land in plaintiffs office on 8 December 1995.
6. Defendants repeatedly assured plaintiffs that the two (2) subject
parcels of land were free from all liens and encumbrances and that
no squatters or tenants occupied them.
7. Plaintiffs, true to their word, and relying in good faith on the
commitment of defendants, pursued the purchase of the subject
parcels of lands. On 5 January 1996, plaintiffs sent a letter of even
date to defendants, setting the date of sale and payment on 30
January 1996.
7.1 Defendants received the letter on 12 January 1996 but did not
reply to it.
8. On 1 February 1996, plaintiffs again sent a letter of even date to
defendants demanding execution of the Deed of Sale.
8.1 Defendants received the same on 6 February 1996. Again, there
was no reply. Defendants thus reneged on their commitment a
second time.
9. On 14 February 1996, defendant Fernandez sent a written
communication of the same date to plaintiffs enclosing therein a
copy of her 16 January 1996 letter to plaintiffs which plaintiffs
never received before. Defendant Fernandez stated in her 16
January 1996 letter that despite the meeting of minds among the
parties over the 33,990 square meters of land for P150.00 per
square meter on 27 November 1995, defendants suddenly had a
change of heart and no longer wished to sell the same. Paragraph 6
thereof unquestionably shows defendants previous agreement as
above-mentioned and their unjustified breach of their obligations
under it.
10. Defendants cannot unilaterally, whimsically and capriciously
cancel a perfected contract to sell.
11. Plaintiffs intended to use the subject property for their
subdivision project to support plaintiffs quarry operations,
processing of aggregate products and manufacture of construction
57
materials. Consequently, by reason of defendants failure to honor
their just obligations, plaintiffs suffered, and continue to suffer,
actual damages, consisting in unrealized profits and cost of money,
in the amount of at least P5 Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on
account of defendants fraudulent actuations for which reason
defendants are liable to plaintiffs for moral damages in the amount
of at least P1.5 Million.
13. By reason of defendants above-described fraudulent actuations,
plaintiffs, despite their willingness and ability to pay the agreed
purchase price, have to date been unable to take delivery of the title
to the subject property. Defendants acted in a wanton, fraudulent
and malevolent manner in violating the contract to sell. By way of
example or correction for the public good, defendants are liable to
plaintiff for exemplary damages in the amount of P500,000.00.
14. Defendants bad faith and refusal to honor their just obligations
to plaintiffs constrained the latter to litigate and to engage the
services of undersigned counsel for a fee in the amount of at least
P250,000.00.[14]
The petitioners prayed that, after due hearing, judgment be
rendered in their favor ordering the respondents to
(a) Secure at defendants expense all clearances from the
appropriate government agencies that will enable defendants to
comply with their obligations under the Contract to Sell;
(b) Execute a Contract to Sell with terms agreed upon by the
parties;
(c) Solidarily pay the plaintiffs the following amounts:
1. P5,000,000.00 in actual damages;
2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;
4. P250,000.00 in attorneys fees.[15]
On July 5, 1996, respondent Fernandez filed her Answer to the
complaint.[16] She claimed that while the petitioners offered to
buy the property during the meeting of November 27, 1995, she
did not accept the offer; thus, no verbal contract to sell was ever
perfected. She specifically alleged that the said contract to sell was
unenforceable for failure to comply with the statute of frauds. She
also maintained that even assuming arguendo that she had, indeed,
made a commitment or promise to sell the property to the
petitioners, the same was not binding upon her in the absence of
any consideration distinct and separate from the price. She, thus,
prayed that judgment be rendered as follows:
1. Dismissing the Complaint, with costs against the plaintiffs;
2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant
moral damages in the amount of not less than P2,000,000.00 and
exemplary damages in the amount of not less than P500,000.00 and
attorneys fees and reimbursement expenses of litigation in the
amount of P300,000.00.[17]
On September 24, 1997, the trial court, upon motion of the
petitioners, declared the other respondents in default for failure to
file their responsive pleading within the reglementary period.[18]
At the pre-trial conference held on March 2, 1998, the parties
agreed that the following issues were to be resolved by the trial
court: (1) whether or not there was a perfected contract to sell; (2)
in the event that there was, indeed, a perfected contract to sell,
whether or not the respondents breached the said contract to sell;
and (3) the corollary issue of damages.[19]
Respondent Fernandez testified that she requested Lourdes
Alimario to look for a buyer of the properties in San Pablo City on
a best offer basis. She was later informed by Alimario that the
petitioners were interested to buy the properties. On November 27,
1995, along with Alimario and another person, she met with the
petitioners in the latters office and told them that she was at the
conference merely to hear their offer, that she could not bind the
owners of the properties as she had no written authority to sell the
same. The petitioners offered to buy the property at P150 per
square meter. After the meeting, respondent Fernandez requested
Joy Marquez to secure a barangay clearance stating that the
property was free of any tenants. She was surprised to learn that
the clearance could not be secured. She contacted a cousin of hers,
also one of the owners of the property, and informed him that there
was a prospective buyer of the property but that there were tenants
thereon. Her cousin told her that he was not selling his share of the
property and that he was not agreeable to the price of P150 per
square meter. She no longer informed the other owners of the
petitioners offer. Respondent Fernandez then asked Alimario to
apprise the petitioners of the foregoing developments, through
their agent, Agapito Fisico. She was surprised to receive a letter
from the petitioners dated January 5, 1996. Nonetheless, she
informed the petitioners that she had changed her mind in pursuing
the negotiations in a Letter dated January 18, 1996. When she
received petitioners February 1, 1996 Letter, she sent a Reply-
Letter dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in favor
of the petitioners on June 23, 1999,[20] the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of plaintiffs ANTONIO K. LITONJUA and
AURELIO K. LITONJUA and against defendants MARY
MEDIATRIX T. FERNANDEZ, HEIRS OF PAZ TICZON
ELEOSIDA, represented by GREGORIO T. ELEOSIDA, JOHN
DOES and JANE DOES; HEIRS OF DOMINGO B. TICZON,
represented by MARY MEDIATRIX T. FERNANDEZ,
CRISTETA TICZON, EVANGELINE JILL R. TICZON,
ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA
LUISA PIAMONTE, JOHN DOES and JANE DOES, ordering
defendants to:
1. execute a Contract of Sale and/or Absolute Deed of Sale with
the terms agreed upon by the parties and to secure all clearances
from the concerned government agencies and removal of any
tenants from the subject property at their expense to enable
defendants to comply with their obligations under the perfected
agreement to sell; and
2. pay to plaintiffs the sum of Two Hundred Thousand
(P200,000.00) Pesos as and by way of attorneys fees.[21]
On appeal to the Court of Appeals, the respondents ascribed the
following errors to the court a quo:
I. THE LOWER COURT ERRED IN HOLDING THAT THERE
WAS A PERFECTED CONTRACT OF SALE OF THE TWO
LOTS ON NOVEMBER 27, 1995.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT
THE VERBAL CONTRACT OF SALE AS CLAIMED BY
PLAINTIFFS-APPELLEES ANTONIO LITONJUA AND
AURELIO LITONJUA WAS UNENFORCEABLE.
58
III. THE LOWER COURT ERRED IN HOLDING THAT THE
LETTER OF DEFENDANT-APPELLANT FERNANDEZ
DATED JANUARY 16, 1996 WAS A CONFIRMATION OF
THE PERFECTED SALE AND CONSTITUTED AS WRITTEN
EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A
SPECIAL POWER OF ATTORNEY WAS REQUIRED IN
ORDER THAT DEFENDANT-APPELLANT FERNANDEZ
COULD NEGOTIATE THE SALE ON BEHALF OF THE
OTHER REGISTERED CO-OWNERS OF THE TWO LOTS.
V. THE LOWER COURT ERRED IN AWARDING
ATTORNEYS FEES IN THE DISPOSITIVE PORTION OF THE
DECISION WITHOUT STATING THE BASIS IN THE TEXT
OF SAID DECISION.[22]
On February 28, 2001, the appellate court promulgated its decision
reversing and setting aside the judgment of the trial court and
dismissing the petitioners complaint, as well as the respondents
counterclaim.[23] The appellate court ruled that the petitioners
failed to prove that a sale or a contract to sell over the property
between the petitioners and the private respondent had been
perfected.
Hence, the instant petition for review on certiorari under Rule 45
of the Revised Rules of Court.
The petitioners submit the following issues for the Courts
resolution:
A. WHETHER OR NOT THERE WAS A PERFECTED
CONTRACT OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER
THE COVERAGE OF THE STATUTE OF FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN
DEFAULT ARE BENEFITED BY THE ASSAILED DECISION
OF THE COURT OF APPEALS.[24]
The petition has no merit.
The general rule is that the Courts jurisdiction under Rule 45 of the
Rules of Court is limited to the review of errors of law committed
by the appellate court. As the findings of fact of the appellate court
are deemed continued, this Court is not duty-bound to analyze and
calibrate all over again the evidence adduced by the parties in the
court a quo.[25] This rule, however, is not without exceptions, such
as where the factual findings of the Court of Appeals and the trial
court are conflicting or contradictory.[26] Indeed, in this case, the
findings of the trial court and its conclusion based on the said
findings contradict those of the appellate court. However, upon
careful review of the records of this case, we find no justification
to grant the petition. We, thus, affirm the decision of the appellate
court.
On the first and second assignment of errors, the petitioners assert
that there was a perfected contract of sale between the petitioners
as buyers and the respondents-owners, through respondent
Fernandez, as sellers. The petitioners contend that the perfection of
the said contract is evidenced by the January 16, 1996 Letter of
respondent Fernandez.[27] The pertinent portions of the said letter
are as follows:
[M]y cousin and I have thereby changed our mind and that the sale
will no longer push through. I specifically instructed her to inform
you thru your broker that we will not be attending the meeting to
be held sometime first week of December.
In view thereof, I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We
have not demanded and received from you any earnest money,
thereby, no obligations exist[28]
The petitioners argue that the letter is a sufficient note or
memorandum of the perfected contract, thus, removing it from the
coverage of the statute of frauds. The letter specifically makes
reference to a sale which respondent Fernandez agreed to initially,
but which the latter withdrew because of the emergence of some
people who claimed to be tenants on both parcels of land.
According to the petitioners, the respondents-owners, in their
answer to the complaint, as well as respondent Fernandez when she
testified, admitted the authenticity and due execution of the said
letter. Besides, when the petitioner Antonio Litonjua testified on
the contract of sale entered into between themselves and the
respondents-owners, the latter did not object thereto.
Consequently, the respondents-owners thereby ratified the said
contract of sale. The petitioners thus contend that the appellate
courts declaration that there was no perfected contract of sale
between the petitioners and the respondents-owners is belied by the
evidence, the pleadings of the parties, and the law.
The petitioners contention is bereft of merit. In its decision, the
appellate court ruled that the Letter of respondent Fernandez dated
January 16, 1996 is hardly the note or memorandum contemplated
under Article 1403(2)(e) of the New Civil Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they
are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or secondary evidence of
its contents:
(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein.[29]
The appellate court based its ruling on the following disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-
appellant can hardly be said to constitute the note or memorandum
evidencing the agreement of the parties to enter into a contract of
sale as it is very clear that defendant-appellant as seller did not
accept the condition that she will be the one to pay the registration
fees and miscellaneous expenses and therein also categorically
denied she had already committed to execute the deed of sale as
claimed by the plaintiffs-appellees. The letter, in fact, stated the
reasons beyond the control of the defendant-appellant, why the sale
could no longer push through because of the problem with tenants.
The trial court zeroed in on the statement of the defendant-
appellant that she and her cousin changed their minds, thereby
concluding that defendant-appellant had unilaterally cancelled the
sale or backed out of her previous commitment. However, the tenor
of the letter actually reveals a consistent denial that there was any
such commitment on the part of defendant-appellant to sell the
subject lands to plaintiffs-appellees. When defendant-appellant
used the words changed our mind, she was clearly referring to the
decision to sell the property at all (not necessarily to plaintiffs-
appellees) and not in selling the property to herein plaintiffs-
appellees as defendant-appellant had not yet made the final
decision to sell the property to said plaintiffs-appellees. This
conclusion is buttressed by the last paragraph of the subject letter
stating that we are no longer selling the property until all problems
59
are fully settled. To read a definite previous agreement for the sale
of the property in favor of plaintiffs-appellees into the contents of
this letter is to unduly restrict the freedom of the contracting parties
to negotiate and prejudice the right of every property owner to
secure the best possible offer and terms in such sale transactions.
We believe, therefore, that the trial court committed a reversible
error in finding that there was a perfected contract of sale or
contract to sell under the foregoing circumstances. Hence, the
defendant-appellant may not be held liable in this action for
specific performance with damages.[30]
In Rosencor Development Corporation vs. Court of Appeals,[31]
the term statute of frauds is descriptive of statutes which require
certain classes of contracts to be in writing. The statute does not
deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. The purpose of the
statute is to prevent fraud and perjury in the enforcement of
obligations, depending for their existence on the unassisted
memory of witnesses, by requiring certain enumerated contracts
and transactions to be evidenced by a writing signed by the party
to be charged. The statute is satisfied or, as it is often stated, a
contract or bargain is taken within the statute by making and
executing a note or memorandum of the contract which is sufficient
to state the requirements of the statute.[32] The application of such
statute presupposes the existence of a perfected contract. However,
for a note or memorandum to satisfy the statute, it must be
complete in itself and cannot rest partly in writing and partly in
parol. The note or memorandum must contain the names of the
parties, the terms and conditions of the contract and a description
of the property sufficient to render it capable of identification.[33]
Such note or memorandum must contain the essential elements of
the contract expressed with certainty that may be ascertained from
the note or memorandum itself, or some other writing to which it
refers or within which it is connected, without resorting to parol
evidence.[34] To be binding on the persons to be charged, such
note or memorandum must be signed by the said party or by his
agent duly authorized in writing.[35]
In City of Cebu v. Heirs of Rubi,[36] we held that the exchange of
written correspondence between the parties may constitute
sufficient writing to evidence the agreement for purposes of
complying with the statute of frauds.
In this case, we agree with the findings of the appellate court that
there was no perfected contract of sale between the respondents-
owners, as sellers, and the petitioners, as buyers.
There is no documentary evidence on record that the respondents-
owners specifically authorized respondent Fernandez to sell their
properties to another, including the petitioners. Article 1878 of the
New Civil Code provides that a 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,[37] or to create or convey real rights over
immovable property,[38] or for any other act of strict
dominion.[39] Any sale of real property by one purporting to be
the agent of the registered owner without any authority therefor in
writing from the said owner is null and void.[40] The declarations
of the agent alone are generally insufficient to establish the fact or
extent of her authority.[41] In this case, the only evidence adduced
by the petitioners to prove that respondent Fernandez was
authorized by the respondents-owners is the testimony of petitioner
Antonio Litonjua that respondent Fernandez openly represented
herself to be the representative of the respondents-owners,[42] and
that she promised to present to the petitioners on December 8, 1996
a written authority to sell the properties.[43] However, the
petitioners claim was belied by respondent Fernandez when she
testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?
A I told them that I was there representing myself as one of the
owners of the properties, and I was just there to listen to his
proposal because that time, we were just looking for the best offer
and I did not have yet any written authorities from my brother and
sisters and relatives. I cannot agree on anything yet since it is just
a preliminary meeting, and so, I have to secure authorities and
relate the matters to my relatives, brother and sisters, sir.
Q And what else was taken up?
A Mr. Antonio Litonjua told me that they will be leaving for
another country and he requested me to come back on the first
week of December and in the meantime, I should make an
assurance that there are no tenants in our properties, sir.[44]
The petitioners cannot feign ignorance of respondent Fernandez
lack of authority to sell the properties for the respondents-owners.
It must be stressed that the petitioners are noted businessmen who
ought to be very familiar with the intricacies of business
transactions, such as the sale of real property.
The settled rule is that persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof
is upon them to prove it.[45] In this case, respondent Fernandez
specifically denied that she was authorized by the respondents-
owners to sell the properties, both in her answer to the complaint
and when she testified. The Letter dated January 16, 1996 relied
upon by the petitioners was signed by respondent Fernandez alone,
without any authority from the respondents-owners. There is no
evidence on record that the respondents-owners ratified all the
actuations of respondent Fernandez in connection with her dealings
with the petitioners. As such, said letter is not binding on the
respondents as owners of the subject properties.
Contrary to the petitioners contention, the letter of January 16,
1996[46] is not a note or memorandum within the context of
Article 1403(2) because it does not contain the following: (a) all
the essential terms and conditions of the sale of the properties; (b)
an accurate description of the property subject of the sale; and, (c)
the names of the respondents-owners of the properties.
Furthermore, the letter made reference to only one property, that
covered by TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the
specific area of the properties they were seeking to buy. In their
complaint, they alleged to have agreed to buy from the
respondents-owners 33,990 square meters of the total acreage of
the two lots consisting of 36,742 square meters. In their Letter to
respondent Fernandez dated January 5, 1996, the petitioners stated
that they agreed to buy the two lots, with a total area of 36,742
square meters.[47] However, in their Letter dated February 1,
1996, the petitioners declared that they agreed to buy a portion of
the properties consisting of 33,990 square meters.[48] When he
testified, petitioner Antonio Litonjua declared that the petitioners
agreed to buy from the respondents-owners 36,742 square meters
at P150 per square meter or for the total price of P5,098,500.[49]
The failure of respondent Fernandez to object to parol evidence to
prove (a) the essential terms and conditions of the contract asserted
by the petitioners and, (b) her authority to sell the properties for the
respondents-registered owners did not and should not prejudice the
respondents-owners who had been declared in default.[50]
60
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The decision of the appellate court is AFFIRMED IN TOTO. Costs
against the petitioners.
SO ORDERED.
G.R. No. 167812 December 19, 2006
JESUS M. GOZUN, petitioner,
vs.
JOSE TEOFILO T. MERCADO a.k.a. DON PEPITO
MERCADO, respondent.
DECISION
CARPIO MORALES, J.:
On challenge via petition for review on certiorari is the Court of
Appeals Decision of December 8, 2004 and Resolution of April
14, 2005 in CA-G.R. CV No. 763091 reversing the trial courts
decision2 against Jose Teofilo T. Mercado a.k.a. Don Pepito
Mercado (respondent) and accordingly dismissing the complaint of
Jesus M. Gozun (petitioner).
In the local elections of 1995, respondent vied for the gubernatorial
post in Pampanga. Upon respondents request, petitioner, owner of
JMG Publishing House, a printing shop located in San Fernando,
Pampanga, submitted to respondent draft samples and price
quotation of campaign materials.
By petitioners claim, respondents wife had told him that
respondent already approved his price quotation and that he could
start printing the campaign materials, hence, he did print campaign
materials like posters bearing respondents photograph,3 leaflets
containing the slate of party candidates,4 sample ballots,5 poll
watcher identification cards,6 and stickers.
Given the urgency and limited time to do the job order, petitioner
availed of the services and facilities of Metro Angeles Printing and
of St. Joseph Printing Press, owned by his daughter Jennifer Gozun
and mother Epifania Macalino Gozun, respectively.7
Petitioner delivered the campaign materials to respondents
headquarters along Gapan-Olongapo Road in San Fernando,
Pampanga.8
Meanwhile, on March 31, 1995, respondents sister-in-law, Lilian
Soriano (Lilian) obtained from petitioner "cash advance" of
P253,000 allegedly for the allowances of poll watchers who were
attending a seminar and for other related expenses. Lilian
acknowledged on petitioners 1995 diary9 receipt of the amount.10
Petitioner later sent respondent a Statement of Account11 in the
total amount of P2,177,906 itemized as follows: P640,310 for JMG
Publishing House; P837,696 for Metro Angeles Printing; P446,900
for St. Joseph Printing Press; and P253,000, the "cash advance"
obtained by Lilian.
On August 11, 1995, respondents wife partially paid P1,000,000
to petitioner who issued a receipt12 therefor.
Despite repeated demands and respondents promise to pay,
respondent failed to settle the balance of his account to petitioner.
Petitioner and respondent being compadres, they having been
principal sponsors at the weddings of their respective daughters,
waited for more than three (3) years for respondent to honor his
promise but to no avail, compelling petitioner to endorse the matter
to his counsel who sent respondent a demand letter.13 Respondent,
however, failed to heed the demand.14
Petitioner thus filed with the Regional Trial Court of Angeles City
on November 25, 1998 a complaint15 against respondent to collect
the remaining amount of P1,177,906 plus "inflationary
adjustment" and attorneys fees.
In his Answer with Compulsory Counterclaim,16 respondent
denied having transacted with petitioner or entering into any
contract for the printing of campaign materials. He alleged that the
various campaign materials delivered to him were represented as
donations from his family, friends and political supporters. He
added that all contracts involving his personal expenses were
coursed through and signed by him to ensure compliance with
pertinent election laws.
On petitioners claim that Lilian, on his (respondents) behalf, had
obtained from him a cash advance of P253,000, respondent denied
having given her authority to do so and having received the same.
At the witness stand, respondent, reiterating his allegations in his
Answer, claimed that petitioner was his over-all coordinator in
charge of the conduct of seminars for volunteers and the
monitoring of other matters bearing on his candidacy; and that
while his campaign manager, Juanito "Johnny" Cabalu (Cabalu),
who was authorized to approve details with regard to printing
materials, presented him some campaign materials, those were
partly donated.17
When confronted with the official receipt issued to his wife
acknowledging her payment to JMG Publishing House of the
amount of P1,000,000, respondent claimed that it was his first time
to see the receipt, albeit he belatedly came to know from his wife
and Cabalu that the P1,000,000 represented "compensation [to
petitioner] who helped a lot in the campaign as a gesture of
goodwill."18
Acknowledging that petitioner is engaged in the printing business,
respondent explained that he sometimes discussed with petitioner
strategies relating to his candidacy, he (petitioner) having actively
volunteered to help in his campaign; that his wife was not
authorized to enter into a contract with petitioner regarding
campaign materials as she knew her limitations; that he no longer
questioned the P1,000,000 his wife gave petitioner as he thought
that it was just proper to compensate him for a job well done; and
that he came to know about petitioners claim against him only
after receiving a copy of the complaint, which surprised him
because he knew fully well that the campaign materials were
donations.19
Upon questioning by the trial court, respondent could not,
however, confirm if it was his understanding that the campaign
materials delivered by petitioner were donations from third
parties.20
Finally, respondent, disclaiming knowledge of the Comelec rule
that if a campaign material is donated, it must be so stated on its
face, acknowledged that nothing of that sort was written on all the
materials made by petitioner.21
As adverted to earlier, the trial court rendered judgment in favor of
petitioner, the dispositive portion of which reads:
WHEREFORE, the plaintiff having proven its (sic) cause of action
by preponderance of evidence, the Court hereby renders a decision
in favor of the plaintiff ordering the defendant as follows:
1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest
per annum from the filing of this complaint until fully paid;
61
2. To pay the sum of P50,000.00 as attorneys fees and the costs of
suit.
SO ORDERED.22
Also as earlier adverted to, the Court of Appeals reversed the trial
courts decision and dismissed the complaint for lack of cause of
action.
In reversing the trial courts decision, the Court of Appeals held
that other than petitioners testimony, there was no evidence to
support his claim that Lilian was authorized by respondent to
borrow money on his behalf. It noted that the acknowledgment
receipt23 signed by Lilian did not specify in what capacity she
received the money. Thus, applying Article 131724 of the Civil
Code, it held that petitioners claim for P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing House
P640,310, Metro Angeles Printing P837,696, and St. Joseph
Printing Press P446,900, the appellate court, noting that since the
owners of the last two printing presses were not impleaded as
parties to the case and it was not shown that petitioner was
authorized to prosecute the same in their behalf, held that petitioner
could not collect the amounts due them.
Finally, the appellate court, noting that respondents wife had paid
P1,000,000 to petitioner, the latters claim of P640,310 (after
excluding the P253,000) had already been settled.
Hence, the present petition, faulting the appellate court to have
erred:
1. . . . when it dismissed the complaint on the ground that there is
no evidence, other than petitioners own testimony, to prove that
Lilian R. Soriano was authorized by the respondent to receive the
cash advance from the petitioner in the amount of P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with respect to the amounts
due to the Metro Angeles Press and St. Joseph Printing Press on
the ground that the complaint was not brought by the real party in
interest.
x x x x25
By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of
another, with the consent or authority of the latter.26 Contracts
entered into in the name of another person by one who has been
given no authority or legal representation or who has acted beyond
his powers are classified as unauthorized contracts and are declared
unenforceable, unless they are ratified.27
Generally, the agency may be oral, unless the law requires a
specific form.28 However, a special power of attorney is necessary
for an agent to, as in this case, borrow money, unless it be urgent
and indispensable for the preservation of the things which are
under administration.29 Since nothing in this case involves the
preservation of things under administration, a determination of
whether Soriano had the special authority to borrow money on
behalf of respondent is in order.
Lim Pin v. Liao Tian, et al.30 held that the requirement of a special
power of attorney refers to the nature of the authorization and not
to its form.
. . . The requirements are met if there is a clear mandate from the
principal specifically authorizing the performance of the act. As
early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil.
680) stated that such a mandate may be either oral or written. The
one thing vital being that it shall be express. And more recently,
We stated that, if the special authority is not written, then it must
be duly established by evidence:
"the Rules require, for attorneys to compromise the litigation of
their clients, a special authority. And while the same does not state
that the special authority be in writing the Court has every reason
to expect that, if not in writing, the same be duly established by
evidence other than the self-serving assertion of counsel himself
that such authority was verbally given him."31 (Emphasis and
underscoring supplied)
Petitioner submits that his following testimony suffices to establish
that respondent had authorized Lilian to obtain a loan from him,
viz:
Q : Another caption appearing on Exhibit "A" is cash advance, it
states given on 3-31-95 received by Mrs. Lilian Soriano in behalf
of Mrs. Annie Mercado, amount P253,000.00, will you kindly tell
the Court and explain what does that caption means?
A : It is the amount representing the money borrowed from me by
the defendant when one morning they came very early and talked
to me and told me that they were not able to go to the bank to get
money for the allowances of Poll Watchers who were having a
seminar at the headquarters plus other election related expenses
during that day, sir.
Q : Considering that this is a substantial amount which according
to you was taken by Lilian Soriano, did you happen to make her
acknowledge the amount at that time?
A : Yes, sir.32 (Emphasis supplied)
Petitioners testimony failed to categorically state, however,
whether the loan was made on behalf of respondent or of his wife.
While petitioner claims that Lilian was authorized by respondent,
the statement of account marked as Exhibit "A" states that the
amount was received by Lilian "in behalf of Mrs. Annie Mercado."
Invoking Article 187333 of the Civil Code, petitioner submits that
respondent informed him that he had authorized Lilian to obtain
the loan, hence, following Macke v. Camps34 which holds that one
who clothes another with apparent authority as his agent, and holds
him out to the public as such, respondent cannot be permitted to
deny the authority.
Petitioners submission does not persuade. As the appellate court
observed:
. . . Exhibit "B" [the receipt issued by petitioner] presented by
plaintiff-appellee to support his claim unfortunately only indicates
the Two Hundred Fifty Three Thousand Pesos (P253,0000.00) was
received by one Lilian R. Soriano on 31 March 1995, but without
specifying for what reason the said amount was delivered and in
what capacity did Lilian R. Soriano received [sic] the money. The
note reads:
"3-31-95
261,120 ADVANCE MONEY FOR TRAINEE
RECEIVED BY
RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO
HUNDRED FIFTY THREE THOUSAND PESOS
62
(SIGNED)
LILIAN R. SORIANO
3-31-95"
Nowhere in the note can it be inferred that defendant-appellant was
connected with the said transaction. Under Article 1317 of the New
Civil Code, a person cannot be bound by contracts he did not
authorize to be entered into his behalf.35 (Underscoring supplied)
It bears noting that Lilian signed in the receipt in her name alone,
without indicating therein that she was acting for and in behalf of
respondent. She thus bound herself in her personal capacity and not
as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the
principal by a mortgage on real property executed by an agent, it
must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is
not enough merely that the agent was in fact authorized to make
the mortgage, if he has not acted in the name of the principal. x x
x36 (Emphasis and underscoring supplied)
On the amount due him and the other two printing presses,
petitioner explains that he was the one who personally and directly
contracted with respondent and he merely sub-contracted the two
printing establishments in order to deliver on time the campaign
materials ordered by respondent.
Respondent counters that the claim of sub-contracting is a change
in petitioners theory of the case which is not allowed on appeal.
In Oco v. Limbaring,37 this Court ruled:
The parties to a contract are the real parties in interest in an action
upon it, as consistently held by the Court. Only the contracting
parties are bound by the stipulations in the contract; they are the
ones who would benefit from and could violate it. Thus, one who
is not a party to a contract, and for whose benefit it was not
expressly made, cannot maintain an action on it. One cannot do so,
even if the contract performed by the contracting parties would
incidentally inure to one's benefit.38 (Underscoring supplied)
In light thereof, petitioner is the real party in interest in this case.
The trial courts findings on the matter were affirmed by the
appellate court.39 It erred, however, in not declaring petitioner as
a real party in interest insofar as recovery of the cost of campaign
materials made by petitioners mother and sister are concerned,
upon the wrong notion that they should have been, but were not,
impleaded as plaintiffs.
In sum, respondent has the obligation to pay the total cost of
printing his campaign materials delivered by petitioner in the total
of P1,924,906, less the partial payment of P1,000,000, or
P924,906.
WHEREFORE, the petition is GRANTED. The Decision dated
December 8, 2004 and the Resolution dated April 14, 2005 of the
Court of Appeals are hereby REVERSED and SET ASIDE.
The April 10, 2002 Decision of the Regional Trial Court of
Angeles City, Branch 57, is REINSTATED mutatis mutandis, in
light of the foregoing discussions. The trial courts decision is
modified in that the amount payable by respondent to petitioner is
reduced to P924,906.
SO ORDERED.
NELSON CABALES and G.R. No. 162421
RITO CABALES,
Petitioners,
Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
- versus - CORONA,
AZCUNA, and
GARCIA, JJ.
COURT OF APPEALS, Promulgated:
JESUS FELIANO and
ANUNCIACION FELIANO,
Respondents. August 31, 2007
x------------------------------------------------------------------------------
-----------x
DECISION
PUNO, C.J.:
This is a petition for review on certiorari seeking the reversal of the
decision[1] of the Court of Appeals dated October 27, 2003, in CA-
G.R. CV No. 68319 entitled Nelson Cabales and Rito Cabales v.
Jesus Feliano and Anunciacion Feliano, which affirmed with
modification the decision[2] of the Regional Trial Court of Maasin,
Southern Leyte, Branch 25, dated August 11, 2000, in Civil Case
No. R-2878. The resolution of the Court of Appeals dated February
23, 2004, which denied petitioners motion for
reconsideration, is likewise herein assailed.
The facts as found by the trial court and the appellate court are well
established.
Rufino Cabales died on July 4, 1966 and left a 5,714-square meter
parcel of land located in Brgy. Rizal, Sogod, Southern Leyte,
covered by Tax Declaration No. 17270 to his surviving wife
Saturnina and children Bonifacio, Albino, Francisco, Leonora,
Alberto and petitioner Rito.
On July 26, 1971, brothers and co-owners Bonifacio, Albino and
Alberto sold the subject property to Dr. Cayetano Corrompido for
P2,000.00, with right to repurchase within eight (8) years. The
three (3) siblings divided the proceeds of the sale among
themselves, each getting a share of P666.66.
The following month or on August 18, 1971, Alberto secured a
note (vale) from Dr. Corrompido in the amount of P300.00.
In 1972, Alberto died leaving his wife and son, petitioner Nelson.
On December 18, 1975, within the eight-year redemption period,
Bonifacio and Albino tendered their payment of P666.66 each to
Dr. Corrompido. But Dr. Corrompido only released the document
of sale with pacto de retro after Saturnina paid for the share of her
deceased son, Alberto, including his vale of P300.00.
On even date, Saturnina and her four (4) children Bonifacio,
Albino, Francisco and Leonora sold the subject parcel of land to
respondents-spouses Jesus and Anunciacion Feliano for P8,000.00.
The Deed of Sale provided in its last paragraph, thus:
It is hereby declared and understood that the amount of TWO
THOUSAND TWO HUNDRED EIGHTY SIX PESOS
(P2,286.00) corresponding and belonging to the Heirs of Alberto
Cabales and to Rito Cabales who are still minors upon the
execution of this instrument are held
in trust by the VENDEE and to be paid and delivered only to them
upon reaching the age of 21.
63

On December 17, 1985, the Register of Deeds of Southern Leyte
issued Original Certificate of Title No. 17035 over the purchased
land in the names of respondents-spouses.
On December 30, 1985, Saturnina and her four (4) children
executed an affidavit to the effect that petitioner Nelson would only
receive the amount of P176.34 from respondents-spouses when he
reaches the age of 21 considering that Saturnina paid Dr.
Corrompido P966.66 for the obligation of petitioner Nelsons late
father Alberto, i.e., P666.66 for his share in the redemption of the
sale with pacto de retro as well as his vale of P300.00.
On July 24, 1986, 24-year old petitioner Rito Cabales
acknowledged receipt of the sum of P1,143.00 from respondent
Jesus Feliano, representing the formers share in the proceeds of the
sale of subject property.
In 1988, Saturnina died. Petitioner Nelson, then residing in Manila,
went back to his fathers hometown in Southern Leyte. That same
year, he learned from his uncle, petitioner Rito, of the sale of
subject property. In 1993, he signified his intention to redeem the
subject land during a barangay conciliation process that he
initiated.
On January 12, 1995, contending that they could not have sold their
respective shares in subject property when they were minors,
petitioners filed before the Regional Trial Court of Maasin,
Southern Leyte, a complaint for redemption of the subject land plus
damages.
In their answer, respondents-spouses maintained that petitioners
were estopped from claiming any right over subject property
considering that (1) petitioner Rito had already received the
amount corresponding to his share of the proceeds of the sale of
subject property, and (2) that petitioner Nelson failed to consign to
the court the total amount of the redemption price necessary for
legal redemption. They prayed for the dismissal of the case on the
grounds of laches and prescription.
No amicable settlement was reached at pre-trial. Trial ensued and
on August 11, 2000, the trial court ruled against petitioners. It held
that (1) Alberto or, by his death, any of his heirs including
petitioner Nelson lost their right to subject land when not one of
them repurchased it from Dr. Corrompido; (2) Saturnina was
effectively subrogated to the rights and interests of Alberto when
she paid for Albertos share as well as his obligation to Dr.
Corrompido; and (3) petitioner Rito had no more right to redeem
his share to subject property as the sale by Saturnina, his legal
guardian pursuant to Section 7, Rule 93 of the Rules of Court, was
perfectly valid; and it was shown that he received his share of the
proceeds of the sale on July 24, 1986, when he was 24 years old.
On appeal, the Court of Appeals modified the decision of the trial
court. It held that the sale by Saturnina of petitioner Ritos
undivided share to the property was unenforceable for lack of
authority or legal representation but that the contract was
effectively ratified by petitioner Ritos receipt of the proceeds on
July 24, 1986. The appellate court also ruled that petitioner Nelson
is co-owner to the extent of one-seventh (1/7) of subject property
as Saturnina was not subrogated to Albertos rights when she
repurchased his share to the property. It further directed petitioner
Nelson to pay the estate of the late Saturnina Cabales the amount
of P966.66, representing the amount which the latter paid for the
obligation of petitioner Nelsons late father Alberto. Finally,
however, it denied petitioner Nelsons claim for redemption for his
failure to tender or consign in court the redemption money within
the period prescribed by law.
In this petition for review on certiorari, petitioners contend that the
Court of Appeals erred in (1) recognizing petitioner Nelson
Cabales as co-owner of subject land but denied him the right of
legal redemption, and (2) not recognizing petitioner Rito Cabales
as co-owner of subject land with similar right of legal redemption.
First, we shall delineate the rights of petitioners to subject land.
When Rufino Cabales died intestate, his wife Saturnina and his six
(6) children, Bonifacio, Albino, Francisco, Leonora, Alberto and
petitioner Rito, survived and succeeded him. Article 996 of the
New Civil Code provides that [i]f a widow or widower and
legitimate children or descendants are left, the surviving spouse has
in the succession the same share as that of each of the children.
Verily, the seven (7) heirs inherited equally on subject property.
Petitioner Rito and Alberto, petitioner Nelsons father, inherited in
their own rights and with equal shares as the others.
But before partition of subject land was effected, Alberto died. By
operation of law, his rights and obligations to one-seventh of
subject land were transferred to his legal heirs his wife and his son
petitioner Nelson.
We shall now discuss the effects of the two (2) sales of subject land
to the rights of the parties.
The first sale with pacto de retro to Dr. Corrompido by the brothers
and co-owners Bonifacio, Albino and Alberto was valid but only
as to their pro-indiviso shares to the land. When Alberto died prior
to repurchasing his share, his rights and obligations were
transferred to and assumed by his heirs, namely his wife and his
son, petitioner Nelson. But the records show that it was Saturnina,
Albertos mother, and not his heirs, who repurchased for him. As
correctly ruled by the Court of Appeals, Saturnina was not
subrogated to Albertos or his heirs rights to the property when she
repurchased the share.
In Paulmitan v. Court of Appeals,[3] we held that a co-owner who
redeemed the property in its entirety did not make her the owner of
all of it. The property remained in a condition of co-ownership as
the redemption did not provide for a mode of terminating a co-
ownership.[4] But the one who redeemed had the right to be
reimbursed for the redemption price and until reimbursed, holds a
lien upon the subject property for the amount due.[5] Necessarily,
when Saturnina redeemed for Albertos heirs who had then acquired
his pro-indiviso share in subject property, it did not vest in her
ownership over the pro-indiviso share she redeemed. But she had
the right to be reimbursed for the redemption price and held a lien
upon the property for the amount due until reimbursement. The
result is that the heirs of Alberto, i.e., his wife and his son petitioner
Nelson, retained ownership over their pro-indiviso share.
Upon redemption from Dr. Corrompido, the subject property was
resold to respondents-spouses by the co-owners. Petitioners Rito
and Nelson were then minors and as indicated in the Deed of Sale,
their shares in the proceeds were held in trust by respondents-
spouses to be paid and delivered to them upon reaching the age of
majority.
As to petitioner Rito, the contract of sale was unenforceable as
correctly held by the Court of Appeals. Articles 320 and 326 of the
New Civil Code[6] state that:
Art. 320. The father, or in his absence the mother, is the legal
administrator of the property pertaining to the child under parental
authority. If the property is worth more than two thousand pesos,
the father or mother shall give a bond subject to the approval of the
Court of First Instance.
Art. 326. When the property of the child is worth more than two
thousand pesos, the father or mother shall be considered a guardian
64
of the childs property, subject to the duties and obligations of
guardians under the Rules of Court.
In other words, the father, or, in his absence, the mother, is
considered legal administrator of the property pertaining to the
child under his or her parental authority without need of giving a
bond in case the amount of the property of the child does not
exceed two thousand pesos.[7] Corollary to this, Rule 93, Section
7 of the Revised Rules of Court of 1964, applicable to this case,
automatically designates the parent as legal guardian of the child
without need of any judicial appointment in case the latters
property does not exceed two thousand pesos,[8] thus:
Sec. 7. Parents as guardians. When the property of the child under
parental authority is worth two thousand pesos or less, the father or
the mother, without the necessity of court appointment, shall be his
legal guardian x x x x[9]
Saturnina was clearly petitioner Ritos legal guardian without
necessity of court appointment considering that the amount of his
property or one-seventh of subject property was P1,143.00, which
is less than two thousand pesos. However, Rule 96, Sec. 1[10]
provides that:
Section 1. To what guardianship shall extend. A guardian
appointed shall have the care and custody of the person of his ward,
and the management of his estate, or the management of the estate
only, as the case may be. The guardian of the estate of a nonresident
shall have the management of all the estate of the ward within the
Philippines, and no court other than that in which such guardian
was appointed shall have jurisdiction over the guardianship.
Indeed, the legal guardian only has the plenary power of
administration of the minors property. It does not include the
power of alienation which needs judicial authority.[11] Thus, when
Saturnina, as legal guardian of petitioner Rito, sold the latters pro-
indiviso share in subject land, she did not have the legal authority
to do so.
Article 1403 of the New Civil Code provides, thus:
Art. 1403. The following contracts are unenforceable, unless they
are ratified:
(1) Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has
acted beyond his powers;
xxxx
Accordingly, the contract of sale as to the pro-indiviso share of
petitioner Rito was unenforceable. However, when he
acknowledged receipt of the proceeds of the sale on July 24, 1986,
petitioner Rito effectively ratified it. This act of ratification
rendered the sale valid and binding as to him.
With respect to petitioner Nelson, on the other hand, the contract
of sale was void. He was a minor at the time of the sale. Saturnina
or any and all the other co-owners were not his legal guardians with
judicial authority to alienate or encumber his property. It was his
mother who was his legal guardian and, if duly authorized by the
courts, could validly sell his undivided share to the property. She
did not. Necessarily, when Saturnina and the others sold the subject
property in its entirety to respondents-spouses, they only sold and
transferred title to their pro-indiviso shares and not that part which
pertained to petitioner Nelson and his mother. Consequently,
petitioner Nelson and his mother retained ownership over their
undivided share of subject property.[12]
But may petitioners redeem the subject land from respondents-
spouses? Articles 1088 and 1623 of the New Civil Code are
pertinent:
Art. 1088. Should any of the heirs sell his hereditary rights to a
stranger before the partition, any or all of the co-heirs may be
subrogated to the rights of the purchaser by reimbursing him for
the price of the sale, provided they do so within the period of one
month from the time they were notified in writing of the sale by
the vendor.
Art. 1623. The right of legal pre-emption or redemption shall not
be exercised except within thirty days from the notice in writing by
the prospective vendor, or by the vendor, as the case may be. The
deed of sale shall not be recorded in the Registry of Property,
unless accompanied by an affidavit of the vendor that he has given
written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining
owners.
Clearly, legal redemption may only be exercised by the co-owner
or co-owners who did not part with his or their pro-indiviso share
in the property held in common. As demonstrated, the sale as to the
undivided share of petitioner Rito became valid and binding upon
his ratification on July 24, 1986. As a result, he lost his right to
redeem subject property.
However, as likewise established, the sale as to the undivided share
of petitioner Nelson and his mother was not valid such that they
were not divested of their ownership thereto. Necessarily, they may
redeem the subject property from respondents-spouses. But they
must do so within thirty days from notice in writing of the sale by
their co-owners vendors. In reckoning this period, we held in
Alonzo v. Intermediate Appellate Court,[13] thus:
x x x we test a law by its results; and likewise, we may add, by its
purposes. It is a cardinal rule that, in seeking the meaning of the
law, the first concern of the judge should be to discover in its
provisions the intent of the lawmaker. Unquestionably, the law
should never be interpreted in such a way as to cause injustice as
this is never within the legislative intent. An indispensable part of
that intent, in fact, for we presume the good motives of the
legislature, is to render justice.
Thus, we interpret and apply the law not independently of but in
consonance with justice. Law and justice are inseparable, and we
must keep them so. x x x x
x x x x While we may not read into the law a purpose that is not
there, we nevertheless have the right to read out of it the reason for
its enactment. In doing so, we defer not to the letter that killeth but
to the spirit that vivifieth, to give effect to the lawmakers will.
In requiring written notice, Article 1088 (and Article 1623 for that
matter)[14] seeks to ensure that the redemptioner is properly
notified of the sale and to indicate the date of such notice as the
starting time of the 30-day period of redemption. Considering the
shortness of the period, it is really necessary, as a general rule, to
pinpoint the precise date it is supposed to begin, to obviate the
problem of alleged delays, sometimes consisting of only a day or
two.
In the instant case, the right of redemption was invoked not days
but years after the sale was made in 1978. We are not unmindful of
the fact that petitioner Nelson was a minor when the sale was
perfected. Nevertheless, the records show that in 1988, petitioner
Nelson, then of majority age, was informed of the sale of subject
property. Moreover, it was noted by the appellate court that
petitioner Nelson was likewise informed thereof in 1993 and he
signified his intention to redeem subject property during a
barangay conciliation process. But he only filed the complaint for
legal redemption and damages on January 12, 1995, certainly more
than thirty days from learning about the sale.
In the face of the established facts, petitioner Nelson cannot feign
ignorance of the sale of subject property in 1978. To require strict
proof of written notice of the sale would be to countenance an
obvious false claim of lack of knowledge thereof, thus
65
commending the letter of the law over its purpose, i.e., the
notification of redemptioners.
The Court is satisfied that there was sufficient notice of the sale to
petitioner Nelson. The thirty-day redemption period commenced
in 1993, after petitioner Nelson sought the barangay conciliation
process to redeem his property. By January 12, 1995, when
petitioner Nelson filed a complaint for legal redemption and
damages, it is clear that the thirty-day period had already expired.
As in Alonzo, the Court, after due consideration of the facts of the
instant case, hereby interprets the law in a way that will render
justice.[15]
Petitioner Nelson, as correctly held by the Court of Appeals, can
no longer redeem subject property. But he and his mother remain
co-owners thereof with respondents-spouses. Accordingly, title to
subject property must include them.
IN VIEW WHEREOF, the petition is DENIED. The assailed
decision and resolution of the Court of Appeals of October 27,
2003 and February 23, 2004 are AFFIRMED WITH
MODIFICATION. The Register of Deeds of Southern Leyte is
ORDERED to cancel Original Certificate of Title No. 17035 and
to issue in lieu thereof a new certificate of title in the name of
respondents-spouses Jesus and Anunciacion Feliano for the 6/7
portion, and petitioner Nelson Cabales and his mother for the
remaining 1/7 portion, pro indiviso.
SO ORDERED.
LINA PEALBER,
Petitioner,
- versus -
QUIRINO RAMOS, LETICIA PEALBER, and BARTEX
INC.,
Respondents.
G.R. No. 178645
Present:
AUSTRIA-MARTINEZ, J.,
Acting Chairperson,
TINGA,*
CHICO-NAZARIO,
NACHURA, and
PERALTA, JJ.
Promulgated:
January 30, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - -x
DECISION
CHICO-NAZARIO, J.:
Assailed in this Petition for Review on Certiorari under Rule 45 of
the Rules of Court is the Decision[1] dated 15 December 2006 of
the Court of Appeals in CA-G.R. CV No. 69731. Said Decision
reversed and set aside the Decision[2] dated 19 January 2000 of the
Regional Trial Court (RTC) of Tuguegarao City, Branch 2, in Civil
Case No. 3672, which declared petitioner Lina Pealber the owner
of the Bonifacio property subject of this case and ordered
respondent spouses Quirino Ramos and Leticia Pealber to
reconvey the same to petitioner.
The factual and procedural antecedents of the case are set forth
hereunder.
Petitioner is the mother of respondent Leticia and the mother-in-
law of respondent Quirino, husband of Leticia. Respondent Bartex,
Inc., on the other hand, is a domestic corporation which bought
from respondent spouses Ramos one of the two properties involved
in this case.
On 18 February 1987, petitioner filed before the RTC a Complaint
for Declaration of Nullity of Deeds and Titles, Reconveyance,
Damages, [with] Application for a Writ of Preliminary Prohibitory
Injunction against the respondents.[3] It was docketed as Civil
Case No. 3672.
First Cause of Action
Firstly, petitioner alleged in her Complaint that she was the owner
of a parcel of land situated in Ugac Norte, Tuguegarao, Cagayan,
with an area of 1,457 sq.m. and covered by Transfer Certificate of
Title (TCT) No. T-43373[4] of the Register of Deeds for the
Province of Cagayan, registered in petitioners name. A residential
house and a warehouse were constructed on the said parcel of land
which petitioner also claimed to own (the land and the
improvements thereon shall be hereinafter referred to as the Ugac
properties). Petitioner averred that in the middle part of 1986, she
discovered that TCT No. T-43373 was cancelled on 13 May 1983
and TCT No. T-58043[5] was issued in its stead in the name of
respondent spouses Ramos. Upon verification, petitioner learned
that the basis for the cancellation of her title was a Deed of
Donation of a Registered Land, Residential House and Camarin,[6]
which petitioner purportedly executed in favor of respondent
spouses Ramos on 27 April 1983. Petitioner insisted that her
signature on the said Deed of Donation was a forgery as she did
not donate any property to respondent spouses Ramos. When
petitioner confronted the respondent spouses Ramos about the false
donation, the latter pleaded that they would just pay for the Ugac
properties in the amount of P1 Million. Petitioner agreed to the
proposition of the respondent spouses Ramos.
Subsequently, around 10 January 1987,[7] petitioner found out that
the respondent spouses Ramos were selling the Ugac properties to
respondent Bartex, Inc. Petitioner then sent her son, Johnson
Paredes (Johnson),[8] to caution respondent Bartex, Inc. that
respondent spouses Ramos were not the lawful owners of the said
properties. Johnson was allegedly able to convey petitioners caveat
to a representative of respondent Bartex, Inc. Petitioner also
warned respondent spouses Ramos not to sell the Ugac properties
anymore, otherwise, she would file the necessary action against
them. The respondent spouses Ramos then assured her that they
would do no such thing. As a precaution, petitioner executed an
Affidavit of Adverse Claim over the Ugac Properties on 19 January
1987 and caused the same to be annotated on TCT No. T-58043 on
the same day. Despite petitioners warnings, respondent spouses
Ramos still executed in favor of respondent Bartex, Inc. a Deed of
Absolute Sale[9] over the Ugac properties on 12 January 1987 for
a total price of P150,000.00. As a result, TCT No. T-58043 in the
name of respondent spouses Ramos was cancelled and TCT No. T-
68825[10] in the name of respondent Bartex, Inc. was issued on 20
January 1987.
Petitioner contended that the Deed of Absolute Sale executed by
respondent spouses Ramos in favor of respondent Bartex, Inc. did
not convey any valid title, not only because respondent Bartex, Inc.
was a buyer in bad faith, but also because respondent spouses
Ramos did not own the Ugac properties. Thus, petitioner prayed
66
for the declaration of nullity of (1) the Deed of Donation of a
Registered Land, Residential House and Camarin purportedly
executed by petitioner in favor respondent spouses Ramos; (2)
TCT No. T-58043, issued in the name of respondent spouses
Ramos; (3) the Deed of Absolute Sale executed by the respondent
spouses Ramos in favor of respondent Bartex, Inc.; and (4) TCT
No. T-68825, issued in the name of respondent Bartex, Inc. Should
petitioners prayer not be granted, petitioner sought in the
alternative that respondent spouses Ramos be ordered to pay the
assessed value of the Ugac properties, which was about P1.5
Million. Petitioner further prayed that TCT No. T-43373, in her
name, be declared valid and active.
Second Cause of Action
Secondly, petitioner claimed that for many years prior to 1984, she
operated a hardware store in a building she owned along Bonifacio
St., Tuguegarao, Cagayan. However, the commercial lot
(Bonifacio property) upon which the building stood is owned by
and registered in the name of Maria Mendoza (Mendoza), from
whom petitioner rented the same.
On 22 March 1982, petitioner allowed respondent spouses Ramos
to manage the hardware store. Thereafter, in 1984, Mendoza put
the Bonifacio property up for sale. As petitioner did not have
available cash to buy the property, she allegedly entered into a
verbal agreement with respondent spouses Ramos with the
following terms:
[1.] The lot would be bought [by herein respondent spouses
Ramos] for and in behalf of [herein petitioner];
[2.] The consideration of P80,000.00 for said lot would be paid by
[respondent spouses Ramos] from the accumulated earnings of the
store;
[3.] Since [respondent spouses Ramos] have the better credit
standing, they would be made to appear in the Deed of Sale as the
vendees so that the title to be issued in their names could be used
by [them] to secure a loan with which to build a bigger building
and expand the business of [petitioner].
In accordance with the above agreement, respondent spouses
Ramos allegedly entered into a contract of sale[11] with Mendoza
over the Bonifacio property,[12] and on 24 October 1984, TCT No.
T-62769[13] covering said property was issued in the names of
respondent spouses Ramos.
On 20 September 1984, respondent spouses Ramos returned the
management of the hardware store to petitioner. On the bases of
receipts and disbursements, petitioner asserted that the Bonifacio
property was fully paid out of the funds of the store and if
respondent spouses Ramos had given any amount for the purchase
price of the said property, they had already sufficiently reimbursed
themselves from the funds of the store. Consequently, petitioner
demanded from respondent spouses Ramos the reconveyance of
the title to the Bonifacio property to her but the latter unjustifiably
refused.
Petitioner insisted that respondent spouses Ramos were, in reality,
mere trustees of the Bonifacio property, thus, they were under a
moral and legal obligation to reconvey title over the said property
to her. Petitioner, therefore, prayed that she be declared the owner
of the Bonifacio property; TCT No. T-62769, in the name of
respondent spouses, be declared null and void; and the Register of
Deeds for the Province of Cagayan be directed to issue another title
in her name.
On 2 March 1987, respondent spouses Ramos accordingly filed
before the RTC their Answer[14] to petitioners Complaint. As
regards the first cause of action, respondent spouses Ramos alleged
that petitioner, together with her son, Johnson, and the latters wife,
Maria Teresa Paredes, mortgaged the Ugac properties to the
Development Bank of the Philippines (DBP) on 19 August 1990
for the amount of P150,000.00. When the mortgage was about to
be foreclosed because of the failure of petitioner to pay the
mortgage debt, petitioner asked respondent spouses Ramos to
redeem the mortgaged property or pay her mortgage debt to DBP.
In return, petitioner promised to cede, convey and transfer full
ownership of the Ugac properties to them. Respondent spouses
Ramos paid the mortgage debt and, in compliance with her
promise, petitioner voluntarily transferred the Ugac properties to
the former by way of a Deed of Donation dated 27 April 1983.
After accepting the donation and having the Deed of Donation
registered, TCT No. T- 58043 was issued to respondent spouses
Ramos and they then took actual and physical possession of the
Ugac properties. Respondent spouses Ramos asserted that
petitioner had always been aware of their intention to sell the Ugac
properties as they posted placards thereon stating that the said
properties were for sale. Respondent spouses Ramos further
averred that petitioner also knew that they finally sold the Ugac
properties to respondent Bartex, Inc. for P150,000.00. Thus,
respondent spouses Ramos maintained that petitioner was not
entitled to any reimbursement for the Ugac properties.
With regard to petitioners second cause of action involving the
Bonifacio property, respondent spouses Ramos contended that
they were given not only the management, but also the full
ownership of the hardware store by the petitioner, on the condition
that the stocks and merchandise of the store will be inventoried,
and out of the proceeds of the sales thereof, respondent spouses
Ramos shall pay petitioners outstanding obligations and liabilities.
After settling and paying the obligations and liabilities of
petitioner, respondent spouses Ramos bought the Bonifacio
property from Mendoza out of their own funds.
Lastly, even if petitioner and respondent spouses Ramos belonged
to the same family, the spouses Ramos faulted petitioner for failing
to exert efforts to arrive at an amicable settlement of their dispute.
Hence, respondent spouses Ramos sought, by way of a
counterclaim against petitioner, moral and exemplary damages and
attorneys fees, for allegedly filing a false, flimsy and frivolous
complaint.
On 27 April 1987, respondent Bartex, Inc. filed before the RTC its
own Answer to petitioners Complaint, alleging, inter alia, that
when a representative of the corporation inquired about the Ugac
properties for sale, respondent spouses Ramos presented their
owners duplicate copy of TCT No. T-58043, together with the tax
declarations covering the parcel of land and the buildings thereon.
Respondent Bartex, Inc. even verified the title and tax declarations
covering the Ugac properties with the Register of Deeds and the
Office of the Municipal Assessor as to any cloud, encumbrance or
lien on the properties, but none were found. Respondent spouses
Ramos were then actually occupying the Ugac properties and they
only vacated the same after the consummation of the sale to
respondent Bartex, Inc. Respondent Bartex, Inc. claimed that the
sale of the Ugac properties by respondent spouses Ramos to the
corporation was already consummated on 12 January 1987, and the
documents conveying the said properties were by then being
processed for registration, when petitioner caused the annotation
of an adverse claim at the back of TCT No. T-58043 on 19 January
1987. As respondent Bartex, Inc. was never aware of any
imperfection in the title of respondent spouses Ramos over the
Ugac properties, it claimed that it was an innocent purchaser in
good faith.
67
Trial of the case thereafter ensued.
On 19 January 2000, the RTC promulgated its decision, ruling on
petitioners first cause of action in this wise:
On the first cause of action, the Court finds the testimony of [herein
petitioner] Lina Penalber (sic) denying her execution of the deed
of donation over the Ugac property in favor of [herein respondent
spouses] Quirino Ramos and Leticia Penalber-Ramos (sic)
insufficient to support the said cause of action. A notarial
document is, by law, entitled to full faith and credit upon its face
(Arrieta v. Llosa, 282 SCRA 248) and a high degree of proof is
needed to overthrow the presumption of truth in the recitals
contained in a public document executed with all legal formalities
(People vs. Fabro, 277 SCRA 19). Hence, in order to contradict the
facts contained in a notarial document and the presumption of
regularity in its favor, these (sic) must be evidence that is clear,
convincing and more than merely preponderant (Calahat vs.
Intermediate Appellate Court, 241 SCRA 356). In the case at
bench, [petitioner] claims that she did not execute the deed of
donation over the Ugac property in favor of [respondent spouses
Ramos]. Such denial, by itself, is not sufficient to overcome the
presumption of regularity of the notarial deed of donation and its
entitlement to full faith and credit. While it is true that, generally,
the party who asserts the affirmative side of a proposition has the
burden of proof, which in this instance is (sic) the [respondent
spouses Ramos] who are asserting the validity of the deed of
donation, [respondent spouses Ramos] can merely rely on the
above-stated presumption given to notarial documents and need
not present any evidence to support their claim of validity and due
execution of the notarized deed of donation. On the other hand,
[petitioner], in addition to her allegation that she did not execute
any such deed of donation in favor of [respondent spouses Ramos]
should have had her allegedly falsified signature on the deed of
donation examined by qualified handwriting experts to prove that,
indeed, she did not execute the same. Her failure to do so results in
the failure of her cause.[15] (Emphasis ours.)
With respect to petitioners second cause of action, the RTC
adjudged that:
On the second cause of action, the Court finds the evidence
preponderantly in favor of the [herein petitioner]. The evidence on
record shows that when [petitioner] allowed [herein respondent
spouses Ramos] full management of the hardware store located on
the Bonifacio property in March, 1982 (sic) an inventory of the
stocks in trade in the said store was made showing stocks worth
P226,951.05* and when she got back the store from [respondent
spouses Ramos] on September 1984, another inventory was made
[on] the stocks in trade in the said store showing, stocks worth
P110,005.88* or a difference of P116,946.17.* The only reason for
an inventory having been made when the hardware store was
turned over to [respondent spouses Ramos] was, to the mind of the
Court, for the latter to account for the sales of such stocks. And to
arrive at the net amount due to [petitioner], all that is needed to be
done is to deduct the value of the stocks present at the store when
management was returned to [petitioner] in September 1984 from
the value of the stocks found in the hardware store when said
management was given to [respondent spouses Ramos] in 1982.
[Petitioner] claims that the purchase price for the Bonifacio
property was to be taken from the proceeds of sales from the
hardware store which, as the evidence on record stands[,] shows a
balance in her favor of more than P116,000.00. [Respondent
spouses Ramos] contend that said amount was expended to pay off
[petitioners] obligations to her suppliers. The record, however, is
totally silent on how much and when [respondent spouses Ramos]
paid said alleged obligations of [petitioner] or even who were the
said suppliers thus paid. That [petitioner] and [respondent spouses
Ramos] agreed that the amount due [petitioner] from the proceeds
of the sales of her stocks in the hardware store would be applied to
the purchase price of the Bonifacio property is supported by the
fact that [petitioner] did not ever ask for an accounting of said
proceeds, despite the fact that as early as September, 1984 (sic) she
already knew that her stocks left by her in March, 1982 (sic) was
already sold by [respondent spouses Ramos] and that there was a
difference of P116,000.00 plus which was due to her.[16]
(Emphasis ours.)
Thus, the RTC decreed:
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered:
1. Finding the evidence on record insufficient to prove
the [herein petitioners] first cause of action, and, hence, dismissing
the same;
2. On the second cause of action, in favor of the
[petitioner] and against the [herein respondent spouses Ramos];
2.1 Declaring the [petitioner] the owner of Lot 2-B of
subdivision plan PST-2-01-019316 (sic) with an area of 195 square
meters situated along Bonifacio Street, Tuguegarao, Cagayan; and
2.2 Ordering the [respondent spouses Ramos] to reconvey
to the [petitioner] the said property (Bonifacio property).
With costs de oficio.[17] (Emphasis ours.)
On 22 February 2000, respondent spouses Ramos filed with the
RTC a Motion for Reconsideration[18] of the afore-mentioned
decision, assailing the ruling of the RTC on petitioners second
cause of action on the ground that the alleged express trust created
between them and petitioner involving the Bonifacio property
could not be proven by parol evidence. In an Order[19] dated 17
July 2000, the RTC denied respondent spouses Ramos Motion for
Reconsideration for lack of merit, ratiocinating that respondent
spouses Ramos failed to interpose timely objections when
petitioner testified on their alleged verbal agreement regarding the
purchase of the Bonifacio property. As such, respondent spouses
Ramos were deemed to have waived such objections, which cannot
be raised anymore in their Motion for Reconsideration. The RTC
then reiterated its finding that petitioners evidence clearly
established her second cause of action. Additionally, the RTC held
that the requirement that the parties exert earnest efforts towards
an amicable settlement of the dispute had likewise been waived by
the respondents as they filed no motion regarding the same before
the trial.
On 24 July 2000, respondent spouses Ramos elevated their case to
the Court of Appeals, insofar as the ruling of the RTC on
petitioners second cause of action was concerned.[20] The appeal
was docketed as CA-G.R. CV No. 69731.
On 15 December 2006, the Court of Appeals rendered the assailed
Decision in favor of respondent spouses Ramos.
Finding merit in the appeal, the appellate court observed that the
second cause of action involved not only the petitioner and her
daughter, but also her son-in-law, who was not covered by the term
family relations under Article 150[21] of the Family Code.
Therefore, Article 151[22] of the Family Code, requiring the
exertion of earnest efforts toward a compromise, did not apply as
the impediment arising from the said provision was limited only to
68
suits between members of the same family or those encompassed
in the term family relations under Article 150.
The Court of Appeals also declared that petitioner failed to prove
her claim with the required quantum of evidence. According to the
Court of Appeals:
It appears that before management of the store was transferred to
[herein respondent spouses Ramos], a beginning inventory of the
stocks of the hardware store was made by [herein petitioners] other
children showing stocks amounting to Php226,951.05. After
management of the hardware store was returned to [petitioner], a
second inventory was made with stocks amounting to
Php110,004.88 showing a difference of Php116,946.15. Contrary,
however, to the finding of the trial court, We find that said
inventory showing such difference is not conclusive proof to show
that the said amount was used to pay the purchase price of the
subject lot. In fact, as testified by Johnson Paredes, son of
[petitioner] who made the computation on the alleged inventories,
it is not known if the goods, representing the amount of
Php116,946.17, were actually sold or not. It may have been taken
without actually being sold.
It is a basic rule of evidence that bare allegations, unsubstantiated
by evidence, are not equivalent to proof. As between [petitioners]
bare allegation of a verbal trust agreement, and the deed of absolute
sale between Maria Mendoza and [respondent spouses Ramos], the
latter should prevail.
Although oral testimony is allowed to prove that a trust exists,
contrary to the contention of [respondent spouses Ramos], and the
court may rely on parol evidence to arrive at a conclusion that an
express trust exists, what is crucial is the intention to create a trust.
While oftentimes the intention is manifested by the trustor in
express or explicit language, such intention may be manifested by
inference from what the trustor has said or done, from the nature
of the transaction, or from the circumstances surrounding the
creation of the purported trust.
However, an inference of the intention to create a trust, made from
language, conduct or circumstances, must be made with reasonable
certainty. It cannot rest on vague, uncertain or indefinite
declarations. An inference of intention to create a trust, predicated
only on circumstances, can be made only where they admit of no
other interpretation. Here, [petitioner] failed to establish with
reasonable certainty her claim that the purchase of the subject lot
was pursuant to a verbal trust agreement with [respondent spouses
Ramos].[23] (Emphasis ours.)
Thus, the Court of Appeals disposed of the case as follows:
WHEREFORE, in view of the foregoing, the instant appeal is
hereby GRANTED and the Decision dated 19 January 2000 of the
Regional Trial Court (RTC) of Tuguegarao City, Branch 2, with
respect to the second cause of action or the Bonifacio Property in
Civil Case No. 3672 is hereby REVERSED and SET ASIDE and
a new one entered DISMISSING the second cause of action of
[herein petitioners] complaint.[24]
On 12 January 2007, petitioner sought reconsideration[25] of the
foregoing Decision, but it was denied by the appellate court in a
Resolution[26] dated 31 May 2007.
To have the ruling of the Court of Appeals overturned, petitioner
brought her case before us through the instant Petition, raising the
following issues: (1) whether the existence of a trust agreement
between her and respondent spouses Ramos was clearly
established, and (2) whether such trust agreement was valid and
enforceable.
At the outset, it is apparent that petitioner is raising questions of
fact in the instant Petition. Be it noted that in a petition for review
under Rule 45 of the Rules of Court, only questions of law must be
entertained. 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.[27] When the doubt or difference arises as to the truth or
falsehood of alleged facts or when the query necessarily solicits
calibration of the whole evidence considering mostly the
credibility of witnesses, existence and relevancy of specific
surrounding circumstances, their relation to each other and to the
whole and probabilities of the situation, questions or errors of fact
are raised.[28] The rule that only questions of law may be raised in
a petition for review under Rule 45, however, admits of certain
exceptions,[29] among which is when the findings of the trial court
are grounded entirely on speculation, surmise and conjecture. As
will be discussed further, we find the afore-mentioned exception to
be applicable in the present Petition, thus, warranting a departure
from the general rule.
In its technical legal sense, a trust is defined as the right,
enforceable solely in equity, to the beneficial enjoyment of
property, the legal title to which is vested in another, but the word
trust is frequently employed to indicate duties, relations, and
responsibilities which are not strictly technical trusts.[30] A person
who establishes a trust is called the trustor; one in whom
confidence is reposed is known as the trustee; and the person for
whose benefit the trust has been created is referred to as the
beneficiary.[31] There is a fiduciary relation between the trustee
and the beneficiary (cestui que trust) as regards certain property,
real, personal, money or choses in action.[32]
Trusts are either express or implied. Express trusts are created by
the intention of the trustor or of the parties. Implied trusts come
into being by operation of law.[33] Express trusts are those which
are created by the direct and positive acts of the parties, by some
writing or deed, or will, or by words either expressly or impliedly
evincing an intention to create a trust.[34] No particular words are
required for the creation of an express trust, it being sufficient that
a trust is clearly intended.[35] However, in accordance with Article
1443 of the Civil Code, when an express trust concerns an
immovable property or any interest therein, the same may not be
proved by parol or oral evidence.[36]
In the instant case, petitioner maintains that she was able to prove
the existence of a trust agreement between her and respondent
spouses Ramos. She calls attention to the fact that respondent
spouses Ramos could not account for the P116,946.15 difference
in the beginning inventory and the second inventory of the stocks
of the hardware store, and they failed to present proof to support
their allegation that the amount was used to pay the other
obligations of petitioner. As respondent spouses Ramos never
denied the existence of the P116,946.15 difference, petitioner
contends that they have the burden of proving where this amount
had gone, if indeed they did not use the same to buy the Bonifacio
property. Petitioner asserts that given the respondent spouses
Ramos failure to discharge such burden, the only conclusion would
be that they did use the amount to purchase the Bonifacio property.
Petitioner further alleges that based on the verbal agreement
between her and respondent spouses Ramos, a trust agreement was
created and that the same is valid and enforceable. Petitioner
claims that she is the trustor for it was she who entrusted the
Bonifacio property to respondent spouses Ramos as the trustees,
with the condition that the same be used to secure a loan, the
proceeds of which would be used to build a bigger building to
69
expand petitioners business. Petitioner maintains that a trust
agreement was clearly intended by the parties when petitioner left
the management of the hardware store to respondent spouses
Ramos, with the agreement that the proceeds from the sales from
said store be used to buy the lot upon which the store stands. The
respondent spouses Ramos assumption of the management of the
hardware store and their eventual purchase of the Bonifacio
property indubitably shows that respondent spouses Ramos
honored their obligation under the verbal agreement. Such being
the case, it behooved for the respondent spouses Ramos to hold the
Bonifacio property for petitioners benefit.
Petitioners arguments fail to persuade.
It bears stressing that petitioner has the burden of proving her cause
of action in the instant case and she may not rely on the weakness
of the defense of respondent spouses Ramos. Burden of proof is
the duty of any party to present evidence to establish his claim or
defense by the amount of evidence required by law, which is
preponderance of evidence in civil cases. Preponderance of
evidence[37] is the weight, credit, and value of the aggregate
evidence on either side and is usually considered to be synonymous
with the term "greater weight of the evidence" or "greater weight
of the credible evidence. It is evidence which is more convincing
to the court as worthy of belief than that which is offered in
opposition thereto.[38] Therefore, the party, whether plaintiff or
defendant, who asserts the affirmative of the issue has the burden
of proof to obtain a favorable judgment. For the plaintiff, the
burden of proof never parts.[39] For the defendant, an affirmative
defense is one which is not a denial of an essential ingredient in the
plaintiffs cause of action, but one which, if established, will be a
good defense i.e., an avoidance of the claim.[40]
From the allegations of the petitioners Complaint in Civil Case No.
3672, the alleged verbal trust agreement between petitioner and
respondent spouses Ramos is in the nature of an express trust as
petitioner explicitly agreed therein to allow the respondent spouses
Ramos to acquire title to the Bonifacio property in their names, but
to hold the same property for petitioners benefit. Given that the
alleged trust concerns an immovable property, however,
respondent spouses Ramos counter that the same is unenforceable
since the agreement was made verbally and no parol evidence may
be admitted to prove the existence of an express trust concerning
an immovable property or any interest therein.
On this score, we subscribe to the ruling of the RTC in its Order
dated 17 July 2000 that said spouses were deemed to have waived
their objection to the parol evidence as they failed to timely object
when petitioner testified on the said verbal agreement. The
requirement in Article 1443 that the express trust concerning an
immovable or an interest therein be in writing is merely for
purposes of proof, not for the validity of the trust agreement.
Therefore, the said article is in the nature of a statute of frauds. The
term statute of frauds is descriptive of statutes which require
certain classes of contracts to be in writing. The statute does not
deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable.[41] The effect of non-
compliance is simply that no action can be proved unless the
requirement is complied with. Oral evidence of the contract will be
excluded upon timely objection. But if the parties to the action,
during the trial, make no objection to the admissibility of the oral
evidence to support the contract covered by the statute, and thereby
permit such contract to be proved orally, it will be just as binding
upon the parties as if it had been reduced to writing.[42]
Per petitioners testimony,[43] the Bonifacio property was offered
for sale by its owner Mendoza. Petitioner told respondent spouses
Ramos that she was going to buy the lot, but the title to the same
will be in the latters names. The money from the hardware store
managed by respondent spouses Ramos shall be used to buy the
Bonifacio property, which shall then be mortgaged by the
respondent spouses Ramos so that they could obtain a loan for
building a bigger store. The purchase price of P80,000.00 was paid
for the Bonifacio property. On 20 September 1984, the respondent
spouses Ramos returned the management of the store to petitioner.
Thereafter, petitioner allowed her son Johnson to inventory the
stocks of the store. Johnson found out that the purchase price of
P80,000.00 for the Bonifacio property was already fully paid.
When petitioner told the respondent spouses Ramos to transfer the
title to the Bonifacio property in her name, the respondent spouses
Ramos refused, thus, prompting petitioner to file a complaint
against them.
Similarly, Johnson testified[44] that on 22 March 1982, petitioner
turned over the management of the hardware store to respondent
spouses Ramos. During that time, an inventory[45] of the stocks of
the store was made and the total value of the said stocks were
determined to be P226,951.05. When respondent spouses Ramos
returned the management of the store to petitioner on 20 September
1984, another inventory[46] of the stocks was made, with the total
value of the stocks falling to P110,004.88. The difference of
P116,946.16 was attributed to the purchase of the Bonifacio
property by the respondent spouses Ramos using the profits from
the sales of the store.
A careful perusal of the records of the case reveals that respondent
spouses Ramos did indeed fail to interpose their objections
regarding the admissibility of the afore-mentioned testimonies
when the same were offered to prove the alleged verbal trust
agreement between them and petitioner. Consequently, these
testimonies were rendered admissible in evidence. Nevertheless,
while admissibility of evidence is an affair of logic and law,
determined as it is by its relevance and competence, the weight to
be given to such evidence, once admitted, still depends on judicial
evaluation.[47] Thus, despite the admissibility of the said
testimonies, the Court holds that the same carried little weight in
proving the alleged verbal trust agreement between petitioner and
respondent spouses.
Petitioners allegations as to the existence of an express trust
agreement with respondent spouses Ramos, supported only by her
own and her son Johnsons testimonies, do not hold water. As
correctly ruled by the Court of Appeals, a resulting difference of
P116,946.15 in the beginning inventory of the stocks of the
hardware store (before management was transferred to respondent
spouses Ramos) and the second inventory thereof (after
management was returned to petitioner), by itself, is not conclusive
proof that the said amount was used to pay the purchase price of
the Bonifacio property, such as would make it the property of
petitioner held merely in trust by respondent spouses Ramos. Such
a conclusion adopted by the RTC is purely speculative and non
sequitur. The resulting difference in the two inventories might have
been caused by other factors and the same is capable of other
interpretations (e. g., that the amount thereof may have been
written off as business losses due to a bad economic condition, or
that the stocks of the store might have been damaged or otherwise
their purchase prices have increased dramatically, etc.), the
exclusion of which rested upon the shoulders of petitioner alone
who has the burden of proof in the instant case. This petitioner
miserably failed to do. The fact that respondent spouses Ramos
never denied the P116,946.15 difference, or that they failed to
present proof that they indeed used the said amount to pay the other
obligations and liabilities of petitioner is not sufficient to discharge
petitioners burden to prove the existence of the alleged express
trust agreement.
70
WHEREFORE, premises considered, the instant Petition for
Review on Certiorari under Rule 45 of the Rules of Court is hereby
DENIED. The assailed Decision of the Court of Appeals in CA-
G.R. CV No. 69731 dated 15 December 2006 is hereby
AFFIRMED. Costs against petitioner.
SO ORDERED.
THE ESTATE OF PEDRO C. GONZALES and HEIRS OF
PEDRO C. GONZALES,
Petitioners,
- versus -
THE HEIRS OF MARCOS PEREZ,
Respondents.
G.R. No. 169681
Present:
QUISUMBING,* J.,
CARPIO, J., Chairperson,
CHICO-NAZARIO,
PERALTA, and
ABAD,** JJ.
Promulgated:
November 5, 2009
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DECISION
PERALTA, J.:
This resolves the instant Petition for Review on Certiorari under
Rule 45 of the Rules of Court praying for the nullification of the
Decision[1] of the Court of Appeals (CA) dated April 25, 2005 in
CA-G.R. CV No. 60998 and its Resolution[2] dated September 14,
2005. The challenged Decision of the CA reversed and set aside
the judgment of the Regional Trial Court (RTC) of Marikina City,
Branch 272 in Civil Case No. 94-57-MK while its assailed
Resolution denied petitioners' motion for reconsideration.
The antecedent facts are as follows:
The former Municipality of Marikina in the Province of Rizal (now
City of Marikina, Metro Manila) used to own a parcel of land
located in Barrio Concepcion of the said municipality covered by
Original Certificate of Title (OCT) No. 629[3] of the Register of
Deeds of Rizal. The said property was subdivided into three (3)
lots, namely, lots A, B and C, per subdivision plan (LRC) Psd-
4571.[4]
On January 14, 1966, the Municipal Council of Marikina passed
Resolution No. 9, series of 1966 which authorized the sale through
public bidding of Municipal Lots A and C.
On April 25, 1966, a public bidding was conducted wherein Pedro
Gonzales was the highest bidder. Two days thereafter, or on April
27, 1966, the Municipal Council of Marikina issued Resolution No.
75 accepting the bid of Pedro. Thereafter, a deed of sale was
executed in favor of the latter which was later forwarded to the
Provincial Governor of Rizal for his approval. The Governor,
however, did not act upon the said deed.
Sometime in September 1966, Pedro sold to Marcos Perez a
portion of Lot C, denominated as Lot C-3, which contains an area
of 375 square meters. The contract of sale was embodied in a Deed
of Sale[5] which, however, was not notarized. To segregate the
subject property from the remaining portions of Lot C, Marcos had
the same surveyed wherein a technical description of the subject
lot was prepared by a surveyor.[6]
Subsequently, Pedro and Marcos died.
On February 7, 1992, the Municipality of Marikina, through its
then Mayor Rodolfo Valentino, executed a Deed of Absolute
Transfer of Real Property over Lots A and C in favor of the Estate
of Pedro C. Gonzales.[7] On June 25, 1992, Transfer Certificate of
Title (TCT) No. 223361, covering Lot C, was issued in the name
of the said estate.[8]
Subsequently, herein petitioners executed an extra-judicial
partition wherein Lot C was subdivided into three lots. As a result
of the subdivision, new titles were issued wherein the 370-square-
meter portion of Lot C-3 is now denominated as Lot C-1 and is
covered by TCT No. 244447[9] and the remaining 5 square meters
of the subject lot (Lot C-3) now forms a portion of another lot
denominated as Lot C-2 and is now covered by TCT No.
244448.[10]
On October 1, 1992, herein respondents sent a demand letter to one
of herein petitioners asking for the reconveyance of the subject
property.[11] However, petitioners refused to reconvey the said lot.
As a consequence, respondents filed an action for Annulment
and/or Rescission of Deed of Absolute Transfer of Real Property x
x x and for Reconveyance with Damages.[12]
On February 2, 1998, the RTC rendered its Decision with the
following dispositive portion:
WHEREFORE, foregoing premises, judgment is hereby rendered
as follows:
1. DISMISSING the complaint subject of the case in caption for
lack of merit;
2. DECLARING VALID both Transfer Certificates of Title
Nos. 244447 and 244448 issued by the Register of Deeds of
Marikina;
3. DISMISSING the defendants' counterclaim.
No pronouncement as to costs.
SO ORDERED.[13]
The RTC ruled that since the Deed of Sale executed between Pedro
and Marcos was not notarized, the same is considered void and of
no effect. In addition, the trial court also held that Pedro became
the owner of the subject lot only on February 7, 1992; as such, he
could not have lawfully transferred ownership thereof to Marcos in
1966.
Herein respondents appealed the RTC Decision to the CA
contending that the RTC erred in relying only on Articles 1356 and
1358 of the Civil Code. Instead, respondents assert that the RTC
should also have applied the provisions of Articles 1357, 1403 (2),
1405 and 1406 of the same Code.
On April 25, 2005, the CA rendered its presently assailed Decision
disposing as follows:
71

WHEREFORE, premises considered, the instant Appeal is hereby
GRANTED and the assailed Decision dated February 2, 1998 is
REVERSED and SET ASIDE. TCT No. 244447 and partially,
TCT No. 244448, with respect to five (5) square meters, are
declared NULL and VOID and defendants-appellees are ordered
to reconvey in favor of the plaintiffs-appellants the subject
property covered by said Transfer Certificates of Title (five square
meters only with respect to TCT No. 244448). The trial court's
dismissal of defendants-appellees' counterclaim is, however,
AFFIRMED.
SO ORDERED.[14]
The CA held that a sale of real property, though not consigned in a
public instrument, is nevertheless valid and binding among the
parties and that the form required in Article 1358 of the Civil Code
is not essential to the validity or enforceability of the transactions
but only for convenience.
Petitioners filed a motion for reconsideration, but the same was
denied by the CA in its Resolution of September 14, 2005 on the
ground that the said motion was filed out of time.
Hence, the present petition with the following assignment of errors:
WITH DUE RESPECT TO THE HONORABLE COURT OF
APPEALS, ITS FINDINGS OF FACT RUN COUNTER TO
THOSE OF THE TRIAL COURT, THUS, IT HAS DECIDED
THE CASE IN A WAY NOT IN ACCORD WITH LAW AND
JURISPRUDENCE.
WITH DUE RESPECT, THE ALLEGED DEED OF SALE IS
SUSPECT AND RIDDEN WITH INCONSISTENCIES. IN
FACT, THE LOWER COURT HELD THAT THE DEED OF
SALE FAILED TO MEET THE SOLEMNITY
REQUIREMENTS PROVIDED UNDER THE LAW FOR ITS
VALIDITY.
WITH DUE RESPECT, THE COURT OF APPEALS ERRED IN
DISREGARDING THE FINDINGS OF FACT AND THE
APPLICATION OF LAW BY THE REGIONAL TRIAL COURT
THAT UNDER THE PURPORTED DEED OF SALE THE
VENDOR COULD NOT HAVE TRANSFERRED
OWNERSHIP.[15]
In their first and last assigned errors, petitioners contend that
Marcos, who is respondents' predecessor-in-interest, could not
have legally bought the disputed parcel of land from petitioners'
predecessor-in-interest, Pedro, in September 1966 because, during
that time, Pedro had not yet acquired ownership of the subject lot.
Petitioners' assertion is based on the premise that as of February
29, 1968, the Deed of Sale between Pedro and the Municipality of
Marikina was still subject to approval by the Provincial Governor
of Rizal, as required under Section 2196 of the Revised
Administrative Code. Considering that on the supposed date of sale
in favor of Marcos, the requisite approval of the Provincial
Governor was not yet secured, petitioners conclude that Pedro
could not be considered as the owner of the subject property and,
as such, he did not yet possess the right to transfer ownership
thereof and, thus, could not have lawfully sold the same to Marcos.
The Court does not agree.
Section 2196 of the Revised Administrative Code provides:
SECTION 2196. Execution of deeds. When the government of a
municipality is a party to a deed or an instrument which conveys
real property or any interest therein or which creates a lien upon
the same, such deed or instrument shall be executed on behalf of
the municipal government by the mayor, upon resolution of the
council, with the approval of the governor.
In Municipality of Camiling v. Lopez,[16] the Court found
occasion to expound on the nature and effect of the provincial
governor's power to approve contracts entered into by a municipal
government as provided for under Section 2196 of the Revised
Administrative Code. The Court held, thus:
x x x The approval by the provincial governor of contracts entered
into and executed by a municipal council, as required in [S]ection
2196 of the Revised Administrative Code, is part of the system of
supervision that the provincial government exercises over the
municipal governments. It is not a prohibition against municipal
councils entering into contracts regarding municipal properties
subject of municipal administration or control. It does not deny the
power, right or capacity of municipal councils to enter into such
contracts; such power or capacity is recognized. Only the exercise
thereof is subject to supervision by approval or disapproval, i.e.,
contracts entered in pursuance of the power would ordinarily be
approved if entered into in good faith and for the best interests of
the municipality; they would be denied approval if found illegal or
unfavorable to public or municipal interest. The absence of the
approval, therefore, does not per se make the contracts null and
void.[17]
This pronouncement was later reiterated in Pechueco Sons
Company v. Provincial Board of Antique,[18] where the Court
ruled more emphatically that:
In other words, as regards the municipal transactions specified in
Section 2196 of the Revised Administrative Code, the Provincial
Governor has two courses of action to take either to approve or
disapprove the same. And since absence of such approval does not
necessarily render the contract entered into by the municipality null
and void, the transaction remains voidable until such time when by
subsequent unfavorable action of the governor, for reasons of
public interest, the contract is thereby invalidated.[19]
It is clear from the above-quoted pronouncements of the Court that,
pending approval or disapproval by the Provincial Governor of a
contract entered into by a municipality which falls under the
provisions of Section 2196 of the Revised Administrative Code,
such contract is considered voidable. In the instant case, there is no
showing that the contract of sale entered into between Pedro and
the Municipality of Marikina was ever acted upon by the Provincial
Governor. Hence, consistent with the rulings enunciated above, the
subject contract should be considered voidable. Voidable or
annullable contracts, before they are set aside, are existent, valid,
and binding, and are effective and obligatory between the
parties.[20]
In the present case, since the contract was never annulled or set
aside, it had the effect of transferring ownership of the subject
property to Pedro. Having lawfully acquired ownership of Lots A
and C, Pedro, in turn, had the full capacity to transfer ownership of
these parcels of land or parts thereof, including the subject property
which comprises a portion of Lot C.
It is wrong for petitioners to argue that it was only on June 25,
1992, when TCT No. 223361 covering Lot C was issued in the
name of the estate of Pedro, that he became the owner thereof.
Article 1496 of the Civil Code provides:
The ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in
Articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to the
vendee.
72
In conjunction with the above-stated provision, Article 1497 of the
Civil Code states that:
The thing sold shall be understood as delivered when it is placed
in the control and possession of the vendee.
In the present case, there is no dispute that Pedro took control and
possession of the said lot immediately after his bid was accepted
by the Municipal Government of Marikina. In fact, herein
petitioners, in their Answer with Compulsory Counterclaim admit
that both Pedro and Marcos, together with their respective heirs,
were already occupying the subject property even before the same
was sold to Pedro and that, after buying the same, Pedro allowed
Marcos and his family to stay thereon.[21] This only shows that
upon perfection of the contract of sale between the Municipality of
Marikina and Pedro, the latter acquired ownership of the subject
property by means of delivery of the same to him.
Hence, the issuance of TCT No. 223361, as well as the execution
of the Deed of Absolute Transfer of Real Property on February 7,
1992 by the Municipal Mayor of Marikina, could not be considered
as the operative acts which transferred ownership of Lot C to
Pedro. Pedro already acquired ownership of the subject property as
early as 1966 when the same was delivered to him by the
Municipality of Marikina, and the execution of the Deed of
Absolute Transfer of Real Property as well as the consequent
issuance of TCT No. 223316 are simply a confirmation of such
ownership.
It may not be amiss to point out at this juncture that the Deed of
Absolute Transfer of Real Property executed by the Mayor of
Marikina was no longer subject to approval by the Provincial
Governor of Rizal because Marikina already became part of Metro
Manila on November 7, 1975.[22] On December 8, 1996, Marikina
became a chartered city.[23]
In their second assignment of error, petitioners question the
authenticity and due execution of the Deed of Sale executed by
Pedro in favor of Marcos. Petitioners also argue that even assuming
that Pedro actually executed the subject Deed of Sale, the same is
not valid because it was not notarized as required under the
provisions of Articles 1403 and 1358 of the Civil Code.
The Court is not persuaded.
The RTC, in its abbreviated discussion of the questions raised
before it, did not touch on the issue of whether the Deed of Sale
between Pedro and Marcos is authentic and duly executed.
However, the CA, in its presently assailed Decision, adequately
discussed this issue and ruled as follows:
x x x In the present case, We are convinced that plaintiffs-
appellants [herein respondents] have substantially proven that
Pedro, indeed, sold the subject property to Marcos for P9,378.75.
The fact that no receipt was presented to prove actual payment of
consideration, in itself, the absence of receipts, or any proof of
consideration, would not be conclusive since consideration is
always presumed. Likewise, the categorical statement in the trial
court of Manuel P. Bernardo, one of the witnesses in the Deed of
Sale, that he himself saw Pedro sign such Deed lends credence.
This was corroborated by another witness, Guillermo Flores.
Although the defendants-appellees [herein petitioners] are
assailing the genuineness of the signatures of their parents on the
said Deed, they presented no evidence of the genuine signatures of
their parents as would give this Court a chance to scrutinize and
compare it with the assailed signatures. Bare allegations,
unsubstantiated by evidence, are not equivalent to proof under our
Rules.[24]
In the instant petition, petitioners would have us review the factual
determinations of the CA. However, settled is the rule that the
Court is not a trier of facts and only questions of law are the proper
subject of a petition for review on certiorari in this Court.[25]
While there are exceptions to this rule,[26] the Court finds that the
instant case does not fall under any of them. Hence, the Court sees
no reason to disturb the findings of the CA, which are supported
by evidence on record.
On the question of whether the subject Deed of Sale is invalid on
the ground that it does not appear in a public document, Article
1358 of the same Code enumerates the acts and contracts that
should be embodied in a public document, to wit:
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
are 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; and
(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.
On the other hand, pertinent portions of Article 1403 of the Civil
Code provide as follows:
Art. 1403. The following contracts are unenforceable, unless they
are ratified:
xxxx
(2) Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of
its contents:
(a) An agreement that by its terms is not to be performed within
a year from the making thereof;
xxxx
(e) An agreement for the leasing for a longer period than one year,
or for the sale of real property or of an interest therein; x x x[27]
Under Article 1403(2), the sale of real property should be in
writing and subscribed by the party charged for it to be
enforceable.[28] In the case before the Court, the Deed of Sale
between Pedro and Marcos is in writing and subscribed by Pedro
and his wife Francisca; hence, it is enforceable under the Statute of
Frauds.
73

However, not having been subscribed and sworn to before a notary
public, the Deed of Sale is not a public document and, therefore,
does not comply with Article 1358 of the Civil Code.
Nonetheless, it is a settled rule that the failure to observe the proper
form prescribed by Article 1358 does not render the acts or
contracts enumerated therein invalid. It has been uniformly held
that the form required under the said Article is not essential to the
validity or enforceability of the transaction, but merely for
convenience.[29] The Court agrees with the CA in holding that a
sale of real property, though not consigned in a public instrument
or formal writing, is, nevertheless, valid and binding among the
parties, for the time-honored rule is that even a verbal contract of
sale of real estate produces legal effects between the parties.[30]
Stated differently, although a conveyance of land is not made in a
public document, it does not affect the validity of such conveyance.
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.[31] Thus, based on the
foregoing, the Court finds that the CA did not err in ruling that the
contract of sale between Pedro and Marcos is valid and binding.
WHEREFORE, the instant petition is DENIED. The assailed
Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 60998 are AFFIRMED.
SO ORDERED.
G.R. No. 179625 February 24, 2014
NICANORA G. BUCTON (deceased), substituted by
REQUILDA B. YRAY, Petitioner,
vs.
RURAL BANK OF EL SALVADOR, INC., MISAMIS
ORIENTAL, and REYNALDO CUYONG, Respondents,
vs.
ERLINDA CONCEPCION AND HER HUSBAND AND
AGNES BUCTON LUGOD, Third Party Defendants.
DECISION
DEL CASTILLO, J.:
A mortgage executed by an authorized agent who signed in his own
name without indicating that he acted for and on behalf of his
principal binds only the agent and not the principal.
This Petition for Review on Certiorari1 under Rule 45 of the Rules
of Court assails the August 17, 2005 Decision2 and the June 7,
2007 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV
No. 60841.
Factual Antecedents
On April 29, 1988, petitioner Nicanora G. Bucton filed with the
Regional Trial Court (RTC) of Cagayan de Oro a case4 for
Annulment of Mortgage, Foreclosure, and Special Power of
Attorney (SPA) against Erlinda Concepcion (Concepcion) and
respondents Rural Bank of El Salvador, Misamis Oriental, and
Sheriff Reynaldo Cuyong.5
Petitioner alleged that she is the owner of a parcel of land, covered
by Transfer Certificate of Title (TCT) No. T-3838, located in
Cagayan de Oro City;6 that on June 6, 1982, Concepcion borrowed
the title on the pretext that she was going to show it to an interested
buyer;7 that Concepcion obtained a loan in the amount of
P30,000.00 from respondent bank;8 that as security for the loan,
Concepcion mortgaged petitioners house and lot to respondent
bank using a SPA9 allegedly executed by petitioner in favor of
Concepcion;10 that Concepcion failed to pay the loan;11 that
petitioners house and lot were foreclosed by respondent sheriff
without a Notice of Extra-Judicial Foreclosure or Notice of
Auction Sale;12 and that petitioners house and lot were sold in an
auction sale in favor of respondent bank.13
Respondent bank filed an Answer14 interposing lack of cause of
action as a defense.15 It denied the allegation of petitioner that the
SPA was forged16 and averred that on June 22, 1987, petitioner
went to the bank and promised to settle the loan of Concepcion
before September 30, 1987.17 As to the alleged irregularities in the
foreclosure proceedings, respondent bank asserted that it complied
with the requirements of the law in foreclosing the house and lot.18
By way of cross-claim, respondent bank prayed that in the event of
an adverse judgment against it, Concepcion, its co-defendant, be
ordered to indemnify it for all damages.19
However, since summons could not be served upon Concepcion,
petitioner moved to drop her as a defendant,20 which the RTC
granted in its Order dated October 19, 1990.21
This prompted respondent bank to file a Third-Party Complaint22
against spouses Concepcion and Agnes Bucton Lugod (Lugod), the
daughter of petitioner. Respondent bank claimed that it would not
have granted the loan and accepted the mortgage were it not for the
assurance of Concepcion and Lugod that the SPA was valid.23
Thus, respondent bank prayed that in case it be adjudged liable, it
should be reimbursed by third-party defendants.24
On January 30, 1992, spouses Concepcion were declared in default
for failing to file a responsive pleading.25
During the trial, petitioner testified that a representative of
respondent bank went to her house to inform her that the loan
secured by her house and lot was long overdue.26 Since she did
not mortgage any of her properties nor did she obtain a loan from
respondent bank, she decided to go to respondent bank on June 22,
1987 to inquire about the matter.27 It was only then that she
discovered that her house and lot was mortgaged by virtue of a
forged SPA.28 She insisted that her signature and her husbands
signature on the SPA were forged29 and that ever since she got
married, she no longer used her maiden name, Nicanora Gabar, in
signing documents.30 Petitioner also denied appearing before the
notary public, who notarized the SPA.31 She also testified that the
property referred to in the SPA, TCT No. 3838, is a vacant lot and
that the house, which was mortgaged and foreclosed, is covered by
a different title, TCT No. 3839.32
To support her claim of forgery, petitioner presented Emma Nagac
who testified that when she was at Concepcions boutique, she was
asked by the latter to sign as a witness to the SPA;33 that when she
signed the SPA, the signatures of petitioner and her husband had
already been affixed;34 and that Lugod instructed her not to tell
petitioner about the SPA.35
Respondent bank, on the other hand, presented the testimonies of
its employees36 and respondent sheriff. Based on their testimonies,
it appears that on June 8, 1982, Concepcion applied for a loan for
her coconut production business37 in the amount of P40,000.00
but only the amount of P30,000.00 was approved;38 that she
offered as collateral petitioners house and lot using the SPA;39
and that the proceeds of the loan were released to Concepcion and
Lugod on June 11, 1982.40
Edwin Igloria, the bank appraiser, further testified that Concepcion
executed a Real Estate Mortgage41 over two properties, one
registered in the name of petitioner and the other under the name
74
of a certain Milagros Flores.42 He said that he inspected
petitioners property;43 that there were several houses in the
compound;44 and although he was certain that the house offered
as collateral was located on the property covered by TCT No. 3838,
he could not explain why the house that was foreclosed is located
on a lot covered by another title, not included in the Real Estate
Mortgage.45
Ruling of the Regional Trial Court
On February 23, 1998, the RTC issued a Decision46 sustaining the
claim of petitioner that the SPA was forged as the signatures
appearing on the SPA are different from the genuine signatures
presented by petitioner.47 The RTC opined that the respondent
bank should have conducted a thorough inquiry on the authenticity
of the SPA considering that petitioners residence certificate was
not indicated in the acknowledgement of the SPA.48 Thus, the
RTC decreed:
WHEREFORE, the court hereby declares null and void or annuls
the following:
1. The special power of attorney which was purportedly executed
by [petitioner] x x x;
2. The real estate mortgage x x x
3. The sheriffs sale of Lot No. 2078-B-1-E, and the certificate of
title issued in favor of the Rural Bank of El Salavador [by] virtue
thereof, as well as the sheriffs sale of the two[-]story house
described in the real estate mortgage.
4. The certificate of title in the name of the Rural Bank of El
Salvador if any, issued [by] virtue of the sheriffs sale.
The court hereby also orders [respondent] bank to pay [petitioner]
attorneys fees of P20,000 and moral damages of P20,000 as well
as the costs of the case.
SO ORDERED.49
On reconsideration,50 the RTC in its May 8, 1998 Resolution51
rendered judgment on the Third-Party Complaint filed by
respondent bank, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered under the third-party
complaint and against third-party defendants Erlinda Concepcion
and her husband:
To indemnify or reimburse [respondent bank] all sums of money
plus interests thereon or damages that [respondent bank] has in this
case been forced to pay, disburse or deliver to [petitioner]
including the costs.
SO ORDERED.52
Ruling of the Court of Appeals
Dissatisfied, respondent bank elevated the case to the CA arguing
that the SPA was not forged53 and that being a notarized
document, it enjoys the presumption of regularity.54 Petitioner, on
the other hand, maintained that the signatures were forged55 and
that she cannot be made liable as both the Promissory Note56 and
the Real Estate Mortgage, which were dated June 11, 1982, were
signed by Concepcion in her own personal capacity.57
On August 17, 2005, the CA reversed the findings of the RTC. The
CA found no cogent reason to invalidate the SPA, the Real Estate
Mortgage, and Foreclosure Sale as it was not convinced that the
SPA was forged. The CA declared that although the Promissory
Note and the Real Estate Mortgage did not indicate that
Concepcion was signing for and on behalf of her principal,
petitioner is estopped from denying liability since it was her
negligence in handing over her title to Concepcion that caused the
loss.58 The CA emphasized that under the Principle of Equitable
Estoppel, where one or two innocent persons must suffer a loss, he
who by his conduct made the loss possible must bear it.59 Thus:
WHEREFORE, the above premises considered, the Decision and
the Resolution of the Regional Trial Court (RTC), 10th Judicial
Region, Br. 19 of Cagayan de Oro City in Civil Case No. 88-113
is hereby REVERSED and SET ASIDE. The Second Amended
Complaint of Nicanora Bucton is DISMISSED. Accordingly, the
following are declared VALID:
1. The Special Power of Attorney of Nicanora Gabar in favor of
Erlinda Concepcion, dated June 7, 1982;
2. The Real Estate Mortgage, the foreclosure of the same, and the
foreclosure sale to the Rural Bank of El Salvador, Misamis
Oriental; and
3. The certificate of title issued to the Rural Bank of El Salavador,
Misamis Oriental as a consequence of the foreclosure sale.
Costs against [petitioner].
SO ORDERED.60
Petitioner moved for reconsideration61 but the same was denied
by the CA in its June 7, 2007 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
FIRST
X X X WHETHER X X X THE [CA] WAS RIGHT IN
DECLARING THE PETITIONER LIABLE ON THE
LITIGATED LOAN/MORTGAGE WHEN (i) SHE DID NOT
EXECUTE EITHER IN PERSON OR BY ATTORNEY-IN-
FACT SUBJECT MORTGAGE; (ii) IT WAS EXECUTED BY
CONCEPCION IN HER PERSONAL CAPACITY AS
MORTGAGOR, AND (iii) THE LOAN SECURED BY THE
MORTGAGE WAS CONCEPCIONS EXCLUSIVE LOAN FOR
HER OWN COCONUT PRODUCTION
SECOND
X X X WHETHER X X X UNDER ARTICLE 1878 (NEW CIVIL
CODE) THE [CA] WAS RIGHT IN MAKING PETITIONER A
SURETY PRIMARILY ANSWERABLE FOR CONCEPCIONS
PERSONAL LOAN, IN THE ABSENCE OF THE REQUIRED
[SPA]
THIRD
WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED
THAT PETITIONERS DECLARATIONS ARE SELF-
SERVING TO JUSTIFY ITS REVERSAL OF THE TRIAL
COURTS JUDGMENT, IN THE FACE OF THE
RESPONDENTS DOCUMENTARY EVIDENCES X X X,
WHICH INCONTROVERTIBLY PROVED THAT
PETITIONER HAS ABSOLUTELY NO PARTICIPATION OR
LIABILITY ON THE LITIGATED LOAN/MORTGAGE
FOURTH
75

WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND
THAT IT WAS PETITIONERS NEGLIGENCE WHICH MADE
THE LOSS POSSIBLE, DESPITE [THE FACT] THAT SHE HAS
NO PART IN [THE] SUBJECT LOAN/MORTGAGE, THE
BANKS [FAILURE] TO CONDUCT CAREFUL
EXAMINATION OF APPLICANTS TITLE AS WELL AS
PHYSICAL INVESTIGATION OF THE LAND OFFERED AS
SECURITY, AND TO INQUIRE AND DISCOVER UPON ITS
OWN PERIL THE AGENTS AUTHORITY, ALSO ITS
INORDINATE HASTE IN THE PROCESSING, EVALUATION
AND APPROVAL OF THE LOAN.
FIFTH
WHETHER X X X THE [CA] WAS RIGHT WHEN IT
DISREGARDED THE FALSE TESTIMONY OF THE
[RESPONDENT] BANKS EMPLOYEE, [WHEN HE
DECLARED] THAT HE CONDUCTED ACTUAL
INSPECTION OF THE MORTGAGED PROPERTY AND
INVESTIGATION WHERE HE ALLEGEDLY VERIFIED THE
QUESTIONED SPA.
SIXTH
WHETHER THE [CA] WAS RIGHT WHEN IT DISREGARDED
ESTABLISHED FACTS AND CIRCUMSTANCES PROVING
THAT THE [SPA] IS A FORGED DOCUMENT AND/OR
INFECTED BY INFIRMITIES DIVESTING IT OF THE
PRESUMPTION OF REGULARITY CONFERRED BY LAW
ON NOTARIZED DEEDS, AND EVEN IF VALID, THE
POWER WAS NOT EXERCISED BY CONCEPCION.63
Petitioners Arguments
Petitioner maintains that the signatures in the SPA were forged64
and that she could not be held liable for the loan as it was obtained
by Concepcion in her own personal capacity, not as an attorney-in-
fact of petitioner.65 She likewise denies that she was negligent and
that her negligence caused the damage.66 Instead, she puts the
blame on respondent bank as it failed to carefully examine the title
and thoroughly inspect the property.67 Had it done so, it would
have discovered that the house and lot mortgaged by Concepcion
are covered by two separate titles.68 Petitioner further claims that
respondent sheriff failed to show that he complied with the
requirements of notice and publication in foreclosing her house and
lot.69
Respondent banks Arguments
Respondent bank, on the other hand, relies on the presumption of
regularity of the notarized SPA.70 It insists that it was not
negligent as it inspected the property before it approved the loan,71
unlike petitioner who was negligent in entrusting her title to
Concepcion.72 As to the foreclosure proceedings, respondent bank
contends that under the Rural Bank Act, all loans whose principal
is below P100,000.00 are exempt from publication.73 Hence, the
posting of the Notice of Foreclosure in the places defined by the
rules was sufficient.74 Besides, respondent sheriff is presumed to
have regularly performed his work.75
Our Ruling
The Petition is meritorious.
The Real Estate Mortgage was entered
into by Concepcion in her own personal
capacity.
As early as the case of Philippine Sugar Estates Development Co.
v. Poizat,76 we already ruled that "in order to bind the principal by
a deed executed by an agent, the deed must upon its face purport
to be made, signed and sealed in the name of the principal."77 In
other words, the mere fact that the agent was authorized to
mortgage the property is not sufficient to bind the principal, unless
the deed was executed and signed by the agent for and on behalf of
his principal. This ruling was adhered to and reiterated with
consistency in the cases of Rural Bank of Bombon (Camarines
Sur), Inc. v. Court of Appeals,78 Gozun v. Mercado,79 and Far
East Bank and Trust Company (Now Bank of the Philippine Island)
v. Cayetano.80
In Philippine Sugar Estates Development Co., the wife authorized
her husband to obtain a loan and to secure it with mortgage on her
property. Unfortunately, although the real estate mortgage stated
that it was executed by the husband in his capacity as attorney-in-
fact of his wife, the husband signed the contract in his own name
without indicating that he also signed it as the attorney-in-fact of
his wife.
In Rural Bank of Bombon, the agent contracted a loan from the
bank and executed a real estate mortgage. However, he did not
indicate that he was acting on behalf of his principal.
In Gozun, the agent obtained a cash advance but signed the receipt
in her name alone, without any indication that she was acting for
and on behalf of her principal.
In Far East Bank and Trust Company, the mother executed an SPA
authorizing her daughter to contract a loan from the bank and to
mortgage her properties. The mortgage, however, was signed by
the daughter and her husband as mortgagors in their individual
capacities, without stating that the daughter was executing the
mortgage for and on behalf of her mother.
Similarly, in this case, the authorized agent failed to indicate in the
mortgage that she was acting for and on behalf of her principal.
The Real Estate Mortgage, explicitly shows on its face, that it was
signed by Concepcion in her own name and in her own personal
capacity. In fact, there is nothing in the document to show that she
was acting or signing as an agent of petitioner. Thus, consistent
with the law on agency and established jurisprudence, petitioner
cannot be bound by the acts of Concepcion.
In light of the foregoing, there is no need to delve on the issues of
forgery of the SPA and the nullity of the foreclosure sale. For even
if the SPA was valid, the Real Estate Mortgage would still not bind
petitioner as it was signed by Concepcion in her personal capacity
and not as an agent of petitioner. Simply put, the Real Estate
Mortgage is void and unenforceable against petitioner.
Respondent bank was negligent.
At this point, we find it significant to mention that respondent bank
has no one to blame but itself.1wphi1 Not only did it act with
undue haste when it granted and released the loan in less than three
days, it also acted negligently in preparing the Real Estate
Mortgage as it failed to indicate that Concepcion was signing it for
and on behalf of petitioner. We need not belabor that the words "as
attorney-in-fact of," "as agent of," or "for and on behalf of," are
vital in order for the principal to be bound by the acts of his agent.
Without these words, any mortgage, although signed by the agent,
cannot bind the principal as it is considered to have been signed by
the agent in his personal capacity.
Respondent bank is liable to pay
petitioner attorneys fees, and the costs
of the suit.
76

Considering that petitioner was compelled to litigate or to incur
expenses to protect her interest,81 the RTC was right when it ruled
that respondent bank is liable to pay petitioner attorneys fees in
the amount of P20,000.00. However, we are not convinced that
petitioner is entitled to an award of moral damages as it was not
satisfactorily shown that respondent bank acted in bad faith or with
malice. Neither was it proven that respondent banks acts were the
proximate cause of petitioners wounded feelings. On the contrary,
we note that petitioner is not entirely free of blame considering her
negligence in entrusting her title to Concepcion. In any case, the
RTC did not fully explain why petitioner is entitled to such award.
Concepcion is liable to pay respondent
bank her unpaid obligation and
reimburse it for all damages, attorneys
fees and costs of suit.
Concepcion, on the other hand, is liable to pay respondent bank her
unpaid obligation under the Promissory Note dated June 11, 1982,
with interest. As we have said, Concepcion signed the Promissory
Note in her own personal capacity; thus, she cannot escape
liability. She is also liable to reimburse respondent bank for all
damages, attorneys' fees, and costs the latter is adjudged to pay
petitioner in this case.
WHEREFORE, the Petition is hereby GRANTED. The assailed
August 17, 2005 Decision and the June 7, 2007 Resolution of the
Court of Appeals in CA-G.R. CV No. 60841 are hereby
REVERSED and SET ASIDE.
The February 23, 1998 Decision of the Regional Trial Court of
Cagayan de Oro, Branch 19, in Civil Case No. 88-113 is hereby
REINSTATED, insofar as it (a) annuls the Real Estate Mortgage
dated June 11, 1982, the Sheriffs Sale of petitioner Nicanora
Bucton's house and lot and the Transfer Certificate of Title issued
in the name of respondent Rural Bank of El Salvador, Misamis
Oriental; and (b) orders respondent bank to pay petitioner
attorney's fees in the amount of P20,000.00 and costs of suit with
MODIFICATION that the award of moral damages in the amount
of P20,000.00 is deleted for lack of basis.
Likewise, the May 8, 1998 Resolution of the Regional Trial Court
of Cagayan de Oro, Branch 19, in Civil Case No. 88-113 ordering
the Third-Party Defendants, Erlinda Concepcion and her husband,
to indemnify or reimburse respondent bank damages, attorneys'
fees, and costs the latter is adjudged to pay petitioner, is hereby
REINSTATED.
Finally, Third-Party Defendants, Erlinda Concepcion and her
husbahd, are hereby ordered to pay respondent bank the unpaid
obligation under the Promissory Note dated June 11, 1982 with
interest.
SO ORDERED.
G.R. No. 194964-65, January 11, 2016
UNIVERSITY OF MINDANAO, INC., Petitioner, v.
BANGKO SENTRAL PILIPINAS, ET AL., Respondents.
DECISION
LEONEN, J.:
Acts of an officer that arc not authorized by the board of
directors/trustees do not bind the corporation unless the
corporation ratifies the acts or holds the officer out as a person with
authority to transact on its behalf.
This is a Petition for Review on Certiorari1 of the Court of Appeals'
December 17, 2009 Decision2 and December 20, 2010
Resolution.3 The Court of Appeals reversed the Cagayan De Oro
City trial court's and the Iligan City trial court's Decisions to nullify
mortgage contracts involving University of Mindanao's
properties.4
University of Mindanao is an educational institution. For the year
1982, its Board of Trustees was chaired by Guillermo B. Torres.
His wife, Dolores P. Torres, sat as University of Mindanao's
Assistant Treasurer.5
Before 1982, Guillermo B. Torres and Dolores P. Torres
incorporated and operated two (2) thrift banks: (1) First Iligan
Savings & Loan Association, Inc. (FISLAI); and (2) Davao
Savings and Loan Association, Inc. (DSLAI). Guillermo B. Torres
chaired both thrift banks. He acted as FISLAI's President, while his
wife, Dolores P. Torres, acted as DSLAI's President and FISLAI's
Treasurer.6
Upon Guillermo B. Torres' request, Bangko Sentral ng Pilipinas
issued a P1.9 million standby emergency credit to FISLAI. The
release of standby emergency credit was evidenced by three (3)
promissory notes dated February 8, 1982, April 7, 1982, and May
4, 1982 in the amounts of P500,000.00, P600,000.00, and
P800,000.00, respectively. All these promissory notes were signed
by Guillermo B. Torres, and were co-signed by either his wife,
Dolores P. Torres, or FISLAI's Special Assistant to the President,
Edmundo G. Ramos, Jr.7
On May 25, 1982, University of Mindanao's Vice President for
Finance, Saturnino Petalcorin, executed a deed of real estate
mortgage over University of Mindanao's property in Cagayan de
Oro City (covered by Transfer Certificate of Title No. T-14345) in
favor of Bangko Sentral ng Pilipinas.8 "The mortgage served as
security for FISLAI's PI.9 Million loan[.]"9 It was allegedly
executed on University of Mindanao's behalf.10
As proof of his authority to execute a real estate mortgage for
University of Mindanao, Saturnino Petalcorin showed a Secretary's
Certificate signed on April 13, 1982 by University of Mindanao's
Corporate Secretary, Aurora de Leon.11 The Secretary's
Certificate stated:chanRoblesvirtualLawlibrary
That at the regular meeting' of the Board of Trustees of the
aforesaid corporation [University of Mindanao] duly convened on
March 30, 1982, at which a quorum was present, the following
resolution was unanimously adopted:chanRoblesvirtualLawlibrary
"Resolved that the University of Mindanao, Inc. be and is hereby
authorized, to mortgage real estate properties with the Central
Bank of the Philippines to serve as security for the credit facility of
First Iligan Savings and Loan Association, hereby authorizing the
President and/or Vice-president for Finance, Saturnino R.
Petalcorin of the University of Mindanao,- Inc. to sign, execute and
deliver the covering mortgage document or any other documents
which may be proper[l]y required."12
cralawlawlibrary
The Secretary's Certificate was supported by an excerpt from the
minutes of the January 19, 1982 alleged meeting of University of
Mindanao's Board of Trustees. The excerpt was certified by Aurora
de Leon on March 13, 1982 to be a true copy of University of
77
Mindanao's records on file.13 The excerpt
reads:chanRoblesvirtualLawlibrary
3 - Other Matters:
(a) Cagayan de Oro and Iligan properties:
Resolution No. 82-1-8
Authorizing the Chairman to appoint Saturnino R. Petalcorin,
Vice-President for Finance, to represent the University of
Mindanao to transact, transfer, convey, lease, mortgage, or
otherwise hypothecate any or all of the following properties
situated at Cagayan de Oro and Iligan City and authorizing further
Mr. Petalcorin to sign any or all documents relative
thereto:chanRoblesvirtualLawlibrary
A parcel of land situated at Cagayan de Oro City, covered and
technically described in TRANSFER CERTIFICATE OF TITLE
No. T-14345 of the Registry of Deeds of Cagayan de Oro City;
A parcel of land situated at Iligan City, covered and technically
described in TRANSFER CERTIFICATE OF TITLE NO..T-
15696 (a.t.) of the Registry of Deeds of Iligan City; and
A parcel of land situated at Iligan City, covered and technically
described in TRANSFER CERTIFICATE OF TITLE NO. T-
15697 (a.f.) of the Registry of Deeds of Iligan City.14
cralawlawlibrary
The mortgage deed executed by Saturnino Petalcorin in favor of
Bangko Sentral ng Pilipinas was annotated on the certificate of title
of the Cagayan de Oro City property (Transfer Certificate of Title
No. 14345) on June 25, 1982. Aurora de Leon's'certification was
also annotated on the Cagayan de Oro City property's certificate of
title (Transfer Certificate of Title No. 14345).15
On October 21, 1982, Bangko Sentral ng Pilipinas granted FISLAI
an additional loan of P620,700.00. Guillermo B. Torres and
Edmundo Ramos executed a promissory note on October 21, 1982
to cover that amount.16
On November 5, 1982, Saturnino Petalcorin executed another deed
of real estate mortgage, allegedly on behalf of University of
Mindanao, over its two properties in Iligan City. This mortgage
served as additional security for FISLAI's loans. The two Iligan
City properties were covered by Transfer Certificates of Title Nos,
T-15696 and T-15697.17
On January 17, 1983, Bangko Sentral ng Pilipinas' mortgage lien
over the Iligan City properties and Aurora de Leon's certification
were annotated on Transfer Certificates of Title Nos. T-15696 and
T-15697.18 On January 18, 1983, Bangko Sentral ng Pilipinas'
mortgage lien over the Iligan City properties was also annotated on
the tax declarations covering the Iligan City properties.19
Bangko Sentral ng Pilipinas also granted emergency advances to
DSLAI on May 27, 1983 and on August 20, 1984 in the amounts
of P1,633,900.00 and P6,489,000.00, respectively.20
On January 11, 1985, FISLAI, DSLAI, and Land Bank of the
Philippines entered into a Memorandum of Agreement intended to
rehabilitate the thrift banks, which had been suffering from their
depositors' heavy withdrawals. Among the terms of the agreement
was the merger of FISLAI and DSLAI, with DSLAI as the
surviving corporation. DSLAI later became known as Mindanao
Savings and Loan Association, Inc. (MSLAI).21
Guillermo B. Torres died on March 2, 1989.22
MSLAI failed to recover from its losses and was liquidated on May
24, 1991.23
On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter to
University of Mindanao, informing it that the bank would foreclose
its properties if MSLAI's total outstanding obligation of
P12,534,907.73 remained unpaid.24
In its reply to Bangko Sentral ng Pilipinas' June 18, 1999 letter,
University of Mindanao, through its Vice President for
Accounting, Gloria E. Detoya, denied that University of
Mindanao's properties were mortgaged. It also denied having
received any loan proceeds from Bangko Sentral ng
Pilipinas.25cralawred
On July 16, 1999, University of Mindanao filed two Complaints
for nullification and cancellation of mortgage. One Complaint was
filed before the Regional Trial Court of Cagayan de Oro City, and
the other Complaint was filed before the Regional Trial Court of
Iligan City.26
University of Mindanao alleged in its Complaints that it did not
obtain any loan from Bangko Sentral ng Pilipinas. It also did not
receive any loan proceeds from the bank.27
University of Mindanao also alleged that Aurora de Leon's
certification was anomalous. It never authorized Saturnino
Petalcorin to execute real estate mortgage contracts involving its
properties to secure FISLAI's debts. It never ratified the execution
of the mortgage contracts. Moreover, as an educational institution,
it cannot mortgage its properties to secure another person's
debts.28
On November 23, 2001, the Regional Trial Court of Cagayan de
Oro City rendered a Decision in favor of University of
Mindanao,29 thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby rendered
in favor of plaintiff and against
defendants:chanRoblesvirtualLawlibrary
1. DECLARING the real estate mortgage Saturnino R. Petalcorin
executed in favor of BANGKO SENTRAL NG PILIPINAS
involving Lot 421-A located in Cagayan de Oro City with an area
of 482 square meters covered by TCT No. T-14345 as annuled
[sic];
2. ORDERING the Register of Deeds of Cagayan de Oro City to
cancel Entry No. 9951 and Entry No. 9952 annotated at the back
of said TCT No. T-14345, Registry of Deeds of Cagayan de Oro
City;
Prayer for attorney's fee [sic] is hereby denied there being no proof
that in demanding payment of the emergency loan, defendant
BANGKO SENTRAL NG PILIPINAS was motivated by evident
bad faith,
SO ORDERED.30 (Citation omitted)cralawlawlibrary
The Regional Trial Court of Cagayan de Oro City found that there
was no board resolution giving Saturnino Petalcorin authority to
execute mortgage contracts on behalf of University of Mindanao.
The Cagayan de Oro City trial court gave weight to Aurora de
Leon's testimony that University ofMindanao's Board of Trustees
did not issue a board resolution that would support the Secretary's
78
Certificate she issued. She testified that she signed the Secretary's
Certificate only upon Guillermo B. Torres' orders.31
Saturnino Petalcorin testified that he had no authority to execute a
mortgage contract on University ofMindanao's behalf. He merely
executed the contract because of Guillermo B. Torres' request.32
Bangko Sentral ng Pilipinas' witness Daciano Pagui, Jr. also
admitted that there was no board resolution giving Saturnino
Petalcorin authority to execute mortgage contracts on behalf of
University of Mindanao.33
The Regional Trial Court of Cagayan de Oro City ruled that
Saturnino Petalcorin was not authorized to execute mortgage
contracts for University of Mindanao. Hence, the mortgage of
University ofMindanao's Cagayan de Oro City property was
unenforceable. Saturnino Petalcorin's unauthorized acts should be
annulled.34
Similarly, the Regional Trial Court of Iligan City rendered a
Decision on December 7, 2001 in favor of University of
Mindanao.35 The dispositive portion of the Decision
reads:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby rendered
in favor of the plaintiff and against the defendants, as
follows:chanRoblesvirtualLawlibrary
1. Nullifying and canceling [sic] the subject Deed of Real Estate
Mortgage dated November 5, 1982 for being unenforceable or void
contract;
2. Ordering the Office of the Register of Deeds of Iligan City to
cancel the entries on TCT No. T-15696 and TCT No. T- 15697
with respect to the aforesaid Deed of Real Estate Mortgage dated
November 5, 1982 and all other entries related thereto;
3. Ordering the defendant Bangko Sentral ng Pilipinas to return the
owner's duplicate copies of TCT No. T-15696 and TCT No. 15697
to the plaintiff;
4. Nullifying the subject [foreclosure [proceedings and the
[a]uction [s]ale conducted by defendant Atty. Gerardo Paguio, Jr.
on October 8, 1999 including all the acts subsequent thereto and
ordering the Register of Deeds of Iligan City not to register any
Certificate of Sale pursuant to the said auction sale nor make any
transfer of the corresponding titles, and if already registered and
transferred, to cancel all the said entries in TCT No. T-15696 and
TCT No. T-15697 and/or cancel the corresponding new TCTs in
the name of defendant Bangko Sentral ng Pilipinas;
5. Making the Preliminary Injunction per Order of this Court dated
October 13, 2000 permanent.
No pronouncement as to costs.36 (Citation
omitted)cralawlawlibrary
The Iligan City trial court found that the Secretary's Certificate
issued by Aurora de Leon was fictitious37 and irregular for being
unnumbered.38 It also did not specify the identity, description, or
location of the mortgaged properties.39
The Iligan City trial court gave credence to Aurora de Leon's
testimony that the University of Mindanao's Board of Trustees did
not take up the documents in its meetings. Saturnino Petalcorin
corroborated her testimony.40
The Iligan City trial court ruled that the lack of a board resolution
authorizing Saturnino Petalcorin to execute documents of
mortgage on behalf of University of Mindanao made the real estate
mortgage contract unenforceable under Article 140341 of the Civil
Code.42 The mortgage contract and the subsequent acts of
foreclosure and auction sale were void because the mortgage
contract was executed without University of Mindanao' s
authority.43
The Iligan City trial court also ruled that the annotations on the
titles of University of Mindanao's properties do not operate as
notice to the University because annotations only bind third parties
and not owners.44 Further, Bangko Sentral ng Pilipinas' right to
foreclose the University of Mindanao's properties had already
prescribed.45
Bangko Sentral ng Pilipinas separately appealed the Decisions of
both the Cagayan de Oro City and the Iligan City trial courts.46
After consolidating both cases, the Court of Appeals issued a
Decision on December 17, 2009 in favor of Bangko Sentral ng
Pilipinas, thus:chanRoblesvirtualLawlibrary
FOR THE REASONS STATED, the Decision dated 23 November
2001 of the Regional Trial Court of Cagayan de Oro City, Branch
24 in Civil Case No. 99-414 and the Decision dated 7 December
2001 of the Regional Trial Court of Iligan City, Branch 1 in Civil
Case No. 4790 are REVERSED and SET ASIDE. The Complaints
in both cases before the trial courts are DISMISSED. The Writ of
Preliminary Injunction issued by the Regional Trial Court of Iligan
City, Branch 1 in Civil Case No. 4790 is LIFTED and SET ASIDE.
SO ORDERED.47cralawlawlibrary
The Court of Appeals ruled that "[although BSP failed to prove that
the UM Board of Trustees actually passed a Board Resolution
authorizing Petalcorin to mortgage the subject real properties,"48
Aurora de Leon's Secretary's Certificate "clothed Petalcorin with
apparent and ostensible authority to execute the mortgage deed on
its behalf[.]"49 Bangko Sentral ng Pilipinas merely relied in good
faith on the Secretary's Certificate.50 University of Mindanao is
estopped from denying Saturnino Petalcorin's authority.51
Moreover, the Secretary's Certificate was notarized. This meant
that it enjoyed the presumption of regularity as to the truth of its
statements and authenticity of the signatures.52 Thus, "BSP cannot
be faulted for relying on the [Secretary's Certificate.]"53
The Court of Appeals also ruled that since University of
Mindanao's officers, Guillermo B. Torres and his wife, Dolores P.
Torres, signed the promissory notes, University of Mindanao was
presumed to have knowledge of the transaction.54 Knowledge of
an officer in relation to matters within the scope of his or her
authority is notice to the corporation.55
The annotations on University of Mindanao's certificates of title
also operate as constructive notice to it that its properties were
mortgaged.56 Its failure to disown the mortgages for more than a
decade was implied ratification.57
The Court of Appeals also ruled that Bangko Sentral ng Pilipinas'
action for foreclosure had not yet prescribed because the due date
extensions that Bangko Sentral ng Pilipinas granted to FISLAI
extended the due date of payment to five (5) years from February
8, 1985.58 The bank's demand letter to Dolores P. Torres on June
18, 1999 also interrupted the prescriptive period.59
79
University of Mindanao and Bangko Sentral ng Pilipinas filed a
Motion for Reconsideration60 and Motion for Partial
Reconsideration respectively of the Court of Appeals' Decision. On
December 20, 2010, the Court of Appeals issued a Resolution,
thus:chanRoblesvirtualLawlibrary
Acting on the foregoing incidents, the Court RESOLVES
to:chanRoblesvirtualLawlibrary
GRANT the appellant's twin motions for extension of time to file
comment/opposition and NOTE the Comment . on the appellee's
Motion for Reconsideration it subsequently filed on June 23, 2010;
GRANT the appellee's three (3) motions for extension of time to
file comment/opposition and NOTE the Comment on the
appellant's Motion for Partial Reconsideration it filed on July 26,
2010;
NOTE the appellant's "Motion for Leave to File Attached Reply
Dated August 11, 2010" filed on August 13, 2010 and DENY the
attached "Reply to Comment Dated July 26, 2010";
DENY the appellee's Motion for Reconsideration as it does' not
offer any arguments sufficiently meritorious to warrant
modification or reversal of the Court's 17 December 2009
Decision. The Court finds that there is no compelling reason to
reconsider its ruling; and
GRANT the appellant's Motion for Partial Reconsideration, as the
Court finds it meritorious, considering that it ruled in its Decision
that "BSP can still foreclose on the UM's real property in Cagayan
de Oro City covered by TCT No. T- 14345." It then follows that
the injunctive writ issued by the RTC of Cagayan de Oro City,
Branch 24 must be lifted. The Court's 17 December 2009 Decision
is accordingly MODIFIED and AMENDED to read as
follows:chanRoblesvirtualLawlibrary
"FOR THE REASONS STATED, the Decision dated 23
November 2001 of the Regional Trial Court of Cagayan de Oro
City, Branch 24 in Civil Case No. 99-414 and the Decision dated
7 December 2001 of the Regional Trial Court of Iligan City,
Branch 1 in Civil Case No. 4790 are REVERSED and SET ASIDE.
The Complaints in both cases before the trial courts are
DISMISSED. The Writs of Preliminary Injunction issued by the
Regional Trial Court of Iligan City, Branch 1 in Civil Case No.
4790 and in the Regional Trial Court of Cagayan de Oro City,
Branch 24 in Civil Case No. 99-414 are LIFTED and SET ASIDE."
SO ORDERED.61 (Citation omitted)
cralawlawlibrary
Hence, University of Mindanao filed this Petition for Review. The
issues for resolution are:chanRoblesvirtualLawlibrary
First, whether respondent Bangko Sentral ng Pilipinas' action to
foreclose the mortgaged properties had already prescribed; and
Second, whether petitioner University of Mindanao is bound by the
real estate mortgage contracts executed by Saturnino Petalcorin.
We grant the Petition.
I execution of contract, without barring a cause of action on the
Petitioner argues that respondent's action to foreclose its
mortgaged properties had already prescribed.
Petitioner is mistaken.
Prescription is the mode of acquiring or losing rights through the
lapse of time.62 Its purpose is "to protect the diligent and vigilant,
not those who sleep on their rights."63
The prescriptive period for actions on mortgages is ten (10) years
from the day they may be brought.64 Actions on mortgages may
be brought not upon the execution of the mortgage contract but
upon default in payment of the obligation secured by the
mortgage.65
A debtor is considered in default when he or she fails to pay the
obligation on due date and, subject to exceptions, after demands
for payment were made by the creditor. Article 1169 of the Civil
Code provides:chanRoblesvirtualLawlibrary
ART. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:chanRoblesvirtualLawlibrary
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation
it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.cralawlawlibrary
Article 1193 of the Civil'Code provides that an obligation is
demandable only upon due date. It
provides:chanRoblesvirtualLawlibrary
ART. 1193. Obligations for whose fulfillment a day certain has
been fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but
terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily
come, although it may not be known when.
If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of
the preceding Section.cralawlawlibrary
In other words, as a general rule, a person defaults and prescriptive
period for action runs when (1) the obligation becomes due and
demandable; and (2) demand for payment has been made.
The prescriptive period neither runs from the date of the execution
of a contract nor does the prescriptive period necessarily run on the
date when the loan becomes due and demandable.66 Prescriptive
period runs from the date of demand,67 subject to certain
exceptions.
In other words, ten (10) .years may lapse from the date of the
mortgage when there is a gap between the period of execution of
the contract and the due date or between the due date and the
demand date in cases when demand is necessary.68
80
The mortgage contracts in this case were executed by Saturnino
Petalcorin in 1982. The maturity dates of FISLAI's loans were
repeatedly extended until the loans became due and demandable
only in 1990. Respondent informed petitioner of its decision to
foreclose its properties and demanded payment in 1999.
The running of the prescriptive period of respondent's action on the
mortgages did not start when it executed the mortgage contracts
with Saturnino Petalcorin in 1982.
The prescriptive period for filing an action may run either (1) from
1990 when the loan became due, if the obligation was covered by
the exceptions under Article 1169 of the Civil Code; (2) or from
1999 when respondent demanded payment, if the obligation was
not covered by the exceptions under Article 1169 of the Civil Code.
In either case, respondent's Complaint with cause of action based
on the mortgage contract was filed well within the prescriptive
period.
Given the termination of all traces of FISLAI's existence,70
demand may have been rendered unnecessary under Article
1169(3)71 of the Civil Code. Granting that this is the
case,.respondent would have had ten (10) years from due date in
1990 or until 2000 to institute an action on the mortgage contract.
However, under Article 115572 of the Civil Code, prescription of
actions may be interrupted by (1) the filing of a court action; (2) a
written extrajudicial demand; and (3) the written acknowledgment
of the debt by the debtor.
Therefore, the running of the prescriptive period was interrupted
when respondent sent its demand letter to petitioner on June 18,
1999. This eventually led to petitioner's filing of its annulment of
mortgage complaints before the Regional Trial Courts of Iligan
City and Cagayan De Oro City on July 16, 1999.
Assuming that demand was necessary, respondent's action was
within the ten (10)-year prescriptive period. Respondent demanded
payment of the loans in 1999 and filed an action in the same year.
II
Petitioner argues that the execution of the mortgage contract was
ultra vires. As an educational institution, it may not secure the
loans of third persons.73 Securing loans of third persons is not
among the purposes for which petitioner was established.74
Petitioner, is correct.
Corporations are artificial entities granted legal personalities upon
their creation by their incorporators in accordance with law. Unlike
natural persons, they have no inherent powers. Third persons
dealing with corporations cannot assume that corporations have
powers. It is up to those persons dealing with corporations to
determine their competence as expressly defined by the law and
their articles of incorporation.75
A corporation may exercise its powers only within those
definitions. Corporate acts that are outside those express
definitions under the law or articles of incorporation or those
"committed outside the object for which a corporation is
created"76 are ultra vires.
The only exception to this, rule is when acts are necessary and
incidental to carry out a corporation's purposes, and to the exercise
of powers conferred by the Corporation Code and under a
corporation's articles of incorporation.77 This exception is
specifically included in the general powers of a corporation under
Section 36 of the Corporation Code:chanRoblesvirtualLawlibrary
SEC. 36. Corporate powers and capacity.Every corporation
incorporated under this Code has the power and
capacity:chanRoblesvirtualLawlibrary
To sue and be sued in its corporate name;
Of succession by its corporate name for the period of time stated
in the articles of incorporation and the certificate of incorporation;
To adopt and use a corporate seal;
To amend its articles of incorporation in accordance with the
provisions of this Code;
To adopt by-laws, not contrary to law, morals, or public policy, and
to amend or repeal the same in accordance with this Code;
In case of stock corporations, to issue or sell stocks to subscribers
and to sell treasury stocks in accordance with the provisions of this
Code; and to admit members to the corporation if it be a non- stock
corporation;
To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as
the transaction of the lawful business of the corporation may
reasonably and necessarily require, subject to the limitations
prescribed by law and the Constitution;
To enter into merger or consolidation with other corporations as
provided in this Code;
To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or
similar purposes: Provided, That no corporation, domestic or
foreign, shall give donations in aid of any political party or
candidate or for purposes of partisan political activity;
To establish pension, retirement, and other plans for the benefit of
its directors, trustees, officers and employees; and
To exercise such other powers as may be essential or necessary to
carry out its purpose or purposes as stated in its articles of
incorporation. (Emphasis supplied)
cralawlawlibrary
Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc.78 stated
the test to determine if a corporate act is in accordance with its
purposes:chanRoblesvirtualLawlibrary
It is a question, therefore, in each case, of the logical relation of the
act to the corporate purpose expressed in the charter. If that act is
one which is lawful in itself, and not otherwise prohibited, is done
for the purpose of serving corporate ends, and is reasonably
tributary to the promotion of those ends, in a substantial, and not
in a remote and fanciful, sense, it may fairly be considered within
charter powers. The test to be applied is whether the act in question
is in direct and immediate furtherance of the corporation's business,
fairly incident to the express powers and reasonably necessary to
their exercise. If so, the corporation has the power to do it;
otherwise, not.79 (Emphasis supplied)cralawlawlibrary
As an educational institution, petitioner
serves:chanRoblesvirtualLawlibrary
To establish, conduct and operate a college or colleges, and/or
university;
To acquire properties,, real and/or personal, in connection with the
establishment and operation of such college or colleges;
To do and perform the various and sundry acts and things permitted
by the laws of the Philippines unto corporations like classes and
kinds;
81
To engage in agricultural, industrial, and/or commercial pursuits in
line with educational program of the corporation and to acquire all
properties, real and personal [,] necessary for the purposes[;]
To establish, operate, and/or acquire broadcasting and television
stations also in line with the educational program of the corporation
and for such other purposes as the Board of Trustees may
determine from time to time;
To undertake housing projects of faculty members and employees,
and to acquire real estates for this purpose;
To establish, conduct and operate and/or invest in educational
foundations; [As amended on December 15, 1965][;]
To establish, conduct and operate housing and dental schools,
medical facilities and other related undertakings;
To invest in other corporations. [As amended on December 9,
1998]. [Amended Articles of Incorporation of the University of
Mindanao, Inc. - the Petitioner].80
cralawlawlibrary
Petitioner does not have the power to mortgage its properties in
order to secure loans of other persons. As an educational
institution, it is limited to developing human capital thrpugh formal
instruction. It is not a corporation engaged in the business of
securing loans of others.
Hiring professors, instructors, and personnel; acquiring equipment
and real estate; establishing housing facilities for personnel and
students; hiring a concessionaire; and other activities that can be
directly connected to the operations and conduct of the education
business may constitute the necessary and incidental acts of an
educational institution.
Securing FISLAI's loans by mortgaging petitioner's properties
does not appear to have even the remotest connection to the
operations of petitioner as an educational institution. Securing
loans is not an adjunct of the educational institution's conduct of
business.81 It does not appear that securing third-party loans was
necessary to maintain petitioner's business of providing instruction
to individuals.
This court upheld the validity of corporate acts when those acts
were shown to be clearly within the corporation's powers or were
connected to the corporation's purposes.
In Pirovano, et al. v. De la Rama Steamship Co.,82 this court
declared valid the donation given to the children of a deceased
person who contributed to the growth of the corporation.83 This
court found that this donation was within the broad scope of
powers and purposes of the corporation to "aid in any other manner
any person . . . in which any interest is held by this corporation or
in the affairs or prosperity of which this corporation has a lawful
interest."84
In Twin Towers Condominium Corporation v. Court of Appeals,
et al.,85 this court declared valid a rule by Twin Towers
Condominium denying delinquent members the right to use
condominium facilities. This court ruled that the condominium's
power to promulgate rules on the use of facilities and to enforce
provisions of the Master Deed was clear in the Condominium Act,
Master Deed, and By-laws of the condominium.87 Moreover, the
promulgation of such rule was "reasonably necessary" to attain the
purposes of the condominium project.88
This court has, in effect, created a presumption that corporate acts
are valid if, on their face, the acts were within the corporation's
powers or purposes. This presumption was explained as early as in
1915 in Coleman v. Hotel De France,89 where this court ruled that
contracts entered into by corporations in the exercise of their
incidental powers are not ultra vires.90
Coleman involved a hotel's cancellation of an employment contract
it executed with a gymnast. One of the hotel's contentions was the
supposed ultra vires nature of the contract.- It was executed outside
its express and implied powers under the articles of
incorporation.91
In ruling in favor of the contract's validity, this court considered
the incidental powers of the hotel to include the execution of
employment contracts with entertainers for the purpose of
providing its guests entertainment and increasing patronage.92
This court ruled that a contract executed by a corporation shall be
presumed valid if on its face its execution was not beyond the
powers of the corporation to do.93
Thus:chanRoblesvirtualLawlibrary
When a contract is not on its face necessarily beyond the scope of
the power of the corporation by which it was made, it will, in the
absence of proof to the contrary, be presumed to be valid.
Corporations are presumed to contract within their powers. The
doctrine of ultra vires, when invoked for or against a corporation,
should not be allowed to prevail where it would defeat the ends of
justice or work a legal wrong.94cralawlawlibrary
However, this should not be interpreted to mean that such
presumption applies to all cases, even when the act in question is
on its face beyond the corporation's power to do or when the
evidence contradicts the presumption.
Presumptions are "inference[s] as to the existence of a fact not
actually known, arising from its usual connection with another
which is known, or a conjecture based on past experience as to
what course human affairs ordinarily take."95 Presumptions
embody values and revealed behavioral expectations under a given
set of circumstances.
Presumptions may be conclusive96 or disputable.97
Conclusive presumptions are presumptions that may not be
overturned by evidence, however strong the evidence is.98 They
are made conclusive not because there is an established uniformity
in behavior whenever identified circumstances arise. They are
conclusive because they are declared as such under the law or the
rules. Rule 131, Section 2 of the Rules of Court identifies two (2)
conclusive presumptions:chanRoblesvirtualLawlibrary
SEC. 2. Conclusive presumptions. The following are instances
of conclusive presumptions:chanRoblesvirtualLawlibrary
(a) Whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular
thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act or omission, be permitted to
falsify it;
(b) The tenant is not permitted to deny the title of his landlord at
the time of the commencement of the relation of landlord and
tenant between them.cralawlawlibrary
On the other hand, disputable, presumptions are presumptions that
may be overcome by contrary evidence.99 They are disputable in
recognition of the variability of human behavior. Presumptions are
not always true. They may be wrong under certain circumstances,
and courts are expected to apply them, keeping in mind the nuances
of every experience that may render the expectations wrong.
82
Thus, the application of disputable presumptions on a given
circumstance must be based on the existence of certain facts on
which they are meant to operate. "[Presumptions are not
allegations, nor do they supply their absence[.]"100 Presumptions
are conclusions. They do not apply when there are no facts or
allegations to support them.
If the facts exist to set in motion the operation of a disputable
presumption, courts may accept the presumption. However,
contrary evidence may be presented to rebut the presumption.
Courts cannot disregard contrary evidence offered to rebut
disputable presumptions. Disputable presumptions apply only in
the absence of contrary evidence or explanations. This court
explained in Philippine Agila Satellite Inc. v. Usec. Trinidad-
Lichauco:101chanroblesvirtuallawlibrary
We do not doubt the existence of the presumptions of "good faith"
or "regular performance of official duty," yet these presumptions
are disputable and may be contradicted and overcome by other
evidence. Many civil actions are oriented towards overcoming any
number of these presumptions, and a cause of action can certainly
be geared towards such effect. The very purpose of trial is to allow
a party to present evidence to overcome the disputable
presumptions involved. Otherwise, if trial is deemed irrelevant or
unnecessary, owing to the perceived indisputability of the
presumptions, the judicial exercise would be relegated to a mere
ascertainment of what presumptions apply in a given case, nothing
more. Consequently, the entire Rules of Court is rendered as excess
verbiage, save perhaps for the provisions laying down the legal
presumptions.
If this reasoning of the Court of Appeals were ever adopted as a
jurisprudential rule, no public officer could ever be sued for acts
executed beyond their official functions or authority, or for tortious
conduct or behavior, since such acts would "enjoy the presumption
of good faith and in the regular performance of official duty."
Indeed, few civil actions of any nature would ever reach the trial
stage, if a case can be adjudicated by a mere determination from
the complaint or answer as to which legal presumptions are
applicable. For-example, the presumption that a person is innocent
of a wrong is a disputable presumption on the same level as that of
the regular performance of official duty. A civil complaint for
damages necessarily alleges that the defendant committed a
wrongful act or omission that would serve as basis for the award of
damages. With the rationale of the Court of Appeals, such
complaint can be dismissed upon a motion to dismiss solely on the
ground that the presumption is that a person is innocent of a
wrong.102 (Emphasis supplied, citations omitted)cralawlawlibrary
In this case, the presumption that the execution of mortgage
contracts was within petitioner's corporate powers does not apply.
Securing third-party loans is not connected to petitioner's purposes
as an educational institution.
III
Respondent argues that petitioner's act of mortgaging its properties
to guarantee FISLAI's loans was consistent with petitioner's
business interests, since petitioner was presumably a FISLAI
shareholder whose officers and shareholders interlock with
FISLAI. Respondent points out that petitioner and its key officers
held substantial shares in MSLAI when DSLAI and FISLAI
merged. Therefore, it was safe to assume that when the mortgages
were executed in 1982, petitioner held substantial shares in
FISLAI.103
Parties dealing with corporations cannot simply assume that their
transaction is within the corporate powers. The acts of a
corporation are still limited by its powers and purposes as provided
in the law and its articles of incorporation.
Acquiring shares in another corporation is not a means to create
new powers for the acquiring corporation. Being a shareholder of
another corporation does not automatically change the nature and
purpose of a corporation's business. Appropriate amendments must
be made either to the law or the articles of incorporation before a
corporation can validly exercise powers outside those provided in
law or the articles of incorporation. In other words, without an
amendment, what is ultra vires before a corporation acquires shares
in other corporations is still ultra vires after such acquisition.
Thus, regardless of the number of shares that petitioner had with
FISLAI, DSLAI, or MSLAI, securing loans of third persons is still
beyond petitioner's power to do. It is still inconsistent with its
purposes under the law104 and its articles of incorporation.105
In attempting to show petitioner's interest in securing FISLAI's
loans by adverting to their interlocking, directors and shareholders,
respondent disregards petitioner's separate personality from its
officers, shareholders, and other juridical persons.
The separate personality of corporations means that they are
"vest[ed] [with] rights, powers, and attributes [of their own] as if
they were natural persons[.]"106 Their assets and liabilities are
their own and not their officers', shareholders', or another
corporation's. In the same vein, the assets and liabilities of their
officers and shareholders are not the corporations'. Obligations
incurred by corporations are not obligations of their officers and
shareholders. Obligations of officers and shareholders are not
obligations of corporations.107 In other words, corporate interests
are separate from the personal interests of the natural persons that
comprise corporations.
Corporations are given separate personalities to allow natural
persons to balance the risks of business as they accumulate capital.
They are, however, given limited competence as a means to protect
the public from fraudulent acts that may be committed using the
separate juridical personality given to corporations.
Petitioner's key officers, as shareholders of FISLAI, may have an
interest in ensuring the viability of FISLAI by obtaining a loan
from respondent and securing it by whatever means. However,
having interlocking officers and stockholders with FISLAI does
not mean that petitioner, as an educational institution, is or must
necessarily be interested in the affairs of FISLAI.
Since petitioner is an entity distinct and separate not only from its
own officers and shareholders but also from FISLAI, its interests
as an educational institution may not be consistent with FISLAI's.
Petitioner and FISLAI have different constituencies. Petitioner's
constituents comprise persons who have committed to developing
skills and acquiring knowledge in their chosen fields by availing
the formal instruction provided by petitioner. On the other hand,
FISLAI is a thrift bank, which constituencies comprise investors.
While petitioner and FISLAI exist ultimately to benefit their
stockholders, their constituencies affect the means by which they
can maintain their existence. Their interests are congruent with
sustaining their constituents' needs because their existence depends
on that. Petitioner can exist only if it continues to provide for the
kind and quality of instruction that is needed by its constituents. Its
operations and existence are placed at risk when resources are used
on activities that are not geared toward the attainment of its
purpose. Petitioner has no business in securing FISLAI, DSLAI, or
83
MSLAI's loans. This activity is not compatible with its business of
providing quality instruction to its constituents.
Indeed, there are instances when we disregard the separate
corporate personalities of the corporation and its stockholders,
directors, or officers. This is called piercing of the corporate veil.
Corporate veil is pierced when the separate personality of the
corporation is being used to perpetrate fraud, illegalities, and
injustices.108 In Lanuza, Jr. v. BF
Corporation:109chanroblesvirtuallawlibrary
Piercing the corporate veil is warranted when "[the separate
personality of a corporation] is used as a means to perpetrate fraud
or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate
issues." It is also warranted in alter ego cases "where a corporation
is merely a farce since it is a mere alter ego or business conduit of
a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another
corporation."110cralawlawlibrary
These instances have not been shown in this case. There is no
evidence pointing to the possibility that petitioner used its separate
personality to defraud third persons or commit illegal acts. Neither
is there evidence to show that petitioner was merely a farce of a
corporation. What has been shown instead was that petitioner, too,
had been victimized by fraudulent and unauthorized acts of its own
officers and directors.
In this case, instead of guarding against fraud, we perpetuate fraud
if we accept respondent's contentions.
IV
Petitioner argues that it did not authorize Saturnino Petalcorin to
mortgage its properties on its behalf. There was no board resolution
to that effect. Thus, the mortgages executed by Saturnino
Petalcorin were unenforceable.111
The mortgage contracts executed in favor of respondent do not
bind petitioner. They were executed without authority from
petitioner.
Petitioner must exercise its.powers and conduct its business
through its Board of Trustees. Section 23 of the Corporation Code
provides:chanRoblesvirtualLawlibrary
SEC. 23. The board of directors or trusteesUnless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of
the corporation, who shall hold office for one (1) year and until
their successors are elected and qualified.cralawlawlibrary
Being a juridical person, petitioner cannot conduct its business,
make decisions, or act in any manner without action from its Board
of Trustees. The Board of Trustees must act as a body in order to
exercise corporate powers. Individual trustees are not clothed with
corporate powers just by being a trustee. Hence, the individual
trustee cannot bind the corporation by himself or herself.
The corporation may, however, delegate through a board resolution
its corporate powers or functions to a representative, subject to
limitations under the law and the corporation's articles of
incorporation.112
The relationship between a corporation and its representatives is
governed by the general principles of agency.113 Article 1317 of
the Civil Code provides that there must be authority from the
principal before anyone can act in his or her
name:chanRoblesvirtualLawlibrary
ART. 1317. No one may contract in the name of another without
being authorized by the latter, or unless he has by law a right to
represent him.cralawlawlibrary
Hence, without delegation by the board of directors or trustees, acts
of a personincluding those of the corporation's directors,
trustees, shareholders, or officersexecuted on behalf of the
corporation are generally not binding on the corporation.114
Contracts entered into in another's name without authority or valid
legal representation are generally unenforceable. The Civil Code
provides:chanRoblesvirtualLawlibrary
ART. 1317. . . .
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
....
ART. 1403. The following contracts are unenforceable, unless they
are ratified:chanRoblesvirtualLawlibrary
(1) Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has
acted beyond his powers[.]cralawlawlibrary
The unenforceable status of contracts entered into by an
unauthorized person on behalf of another is based on the basic
principle that contracts must be consented to by both parties.115
There is no contract without meeting of the minds as to the subject
matter and cause of the obligations created under the contract.116
Consent of a person cannot be presumed from representations of
another, especially if obligations will be incurred as a result. Thus,
authority is required to make actions made on his or her behalf
binding on a person. Contracts entered into by persons without
authority from the corporation shall generally be considered ultra
vires and unenforceable117 against the corporation.
Two trial courts118 found that the Secretary's Certificate and the
board resolution were either non-existent or fictitious. The trial
courts based their findings on the testimony of the Corporate
Secretary, Aurora de Leon herself. She signed the Secretary's
Certificate and the excerpt of the minutes of the alleged board
meeting purporting to authorize Saturnino Petalcorin to mortgage
petitioner's properties. There was no board meeting to that effect.
Guillermo B. Torres ordered the issuance of the Secretary's
Certificate. Aurora de Leon's testimony was corroborated by
Saturnino Petalcorin.
Even the Court of Appeals, which reversed the trial courts'
decisions, recognized that "BSP failed to prove that the UM Board
84
of Trustees actually passed a Board Resolution authorizing
Petalcorin to mortgage the subject real properties[.]"119
Well-entrenched is the rule that this court, not being a trier of facts,
is bound by the findings of fact of the trial courts and the Court of
Appeals when such findings are supported by evidence on
record.120 Hence, not having the proper board resolution to
authorize Saturnino Petalcorin to execute the mortgage contracts
for petitioner, the contracts he executed are unenforceable against
petitioner. They cannot bind petitioner.
However, personal liabilities may be incurred by directors who
assented to such unauthorized act121 and by the person who
contracted in excess of the limits of his or her authority without the
corporation's knowledge.122
V
Unauthorized acts that are merely beyond the powers of the
corporation under its articles of incorporation are not void ab initio.
In Pirovano, et al, this court explained that corporate acts may be
ultra vires but not void.123 Corporate acts may be capable of
ratification:124chanroblesvirtuallawlibrary
[A] distinction should be made between corporate acts or contracts
which are illegal and those which are merely ultra vires. The
former contemplates the doing of an act which is contrary to law,
morals, or public order, or contravene some rules of public policy
or public duty, and are, like similar transactions between
individuals, void. They cannot serve as basis of a court action, nor
acquire validity by performance, ratification, or estoppel. Mere
ultra vires acts, on the other hand, or those which are not illegal
and void ab initio, but are not merely within the scope of the
articles of incorporation, are merely voidable and may become
binding and enforceable when ratified by the
stockholders.125cralawlawlibrary
Thus, even though a person did not give another person authority
to act on his or her behalf, the action may be enforced against him
or her if it is shown that he or she ratified it or allowed the other
person to act as if he or she had full authority to do so. The Civil
Code provides:chanRoblesvirtualLawlibrary
ART. 1910. The principal must comply with all the obligations
which the agent may have contracted within the scope of his
authority.
As for any obligation wherein the agent has exceeded his power,
the principal is not bound except when he ratifies it expressly or
tacitly.
ART. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed
the latter to act as though he had full powers. (Emphasis
supplied)cralawlawlibrary
Ratification is a voluntary and deliberate confirmation or adoption
of a previous unauthorized act. It.converts the unauthorized act of
an agent into an act of the principal.127 It cures the lack of consent
at the time of the execution of the contract entered into by the
representative, making the contract valid and enforceable.128 It is,
in essence, consent belatedly given through express or implied acts
that are deemed a confirmation or waiver of the right to impugn the
unauthorized act.129 Ratification has the effect of placing the
principal in a position as if he or she signed the original contract.
In Board of Liquidators v. Heirs ofM. Kalaw, et
al.:130chanroblesvirtuallawlibrary
Authorities, great in number, are one in the idea that "ratification
by a corporation of an unauthorized act or contract by its officers
or others relates back to the time of the act or contract ratified, and
is equivalent to original authority;" and that "[t]he corporation and
the other party to the transaction are in precisely the same position
as if the act or contract had been authorized at the time." The
language of one case is expressive: "The adoption or ratification of
a contract by a corporation is nothing more nor less than the
making of an original contract. The theory of corporate ratification
is predicated on the right of a corporation to contract, and any
ratification or adoption is equivalent to a grant of prior
authority."131 (Citations omitted)cralawlawlibrary
Implied ratification may take the form of silence, acquiescence,
acts consistent with approval of the act,, or acceptance or retention
of benefits.132 However, silence, acquiescence, retention of
benefits, and acts that may be interpreted as approval of the act do
not by themselves constitute implied ratification. For an act to
constitute an implied ratification, there must be no acceptable
explanation for the act-other than that there is an intention to adopt
the act as his or her own.133 "[It] cannot be inferred from acts that
a principal has a right to do independently of the unauthorized act
of the agent."134
No act by petitioner can be interpreted as anything close to
ratification. It was not shown that it issued a resolution ratifying
the execution of the mortgage contracts. It was not shown that it
received proceeds of the loans secured by the mortgage contracts.
There was also no showing that it received any consideration for
the execution of the mortgage contracts. It even appears that
petitioner was unaware of the mortgage contracts until respondent
notified it of its desire to foreclose the mortgaged properties.
Ratification must be knowingly and voluntarily done.135
Petitioner's lack of knowledge about the mortgage executed in its
name precludes an interpretation that there was any ratification on
its part.
Respondent further argues that petitioner is presumed to have
knowledge of its transactions with respondent because its officers,
the Spouses Guillermo and Dolores Torres, participated in
obtaining the loan.136
Indeed, a corporation, being a person created by mere fiction of
law, can act only through natural persons such as its directors,
officers, agents, and representatives. Hence, the general rule is that
knowledge of an officer is considered knowledge of the
corporation.
However, even though the Spouses Guillermo and Dolores Torres
were officers of both the thrift banks and petitioner, their
knowledge of the mortgage contracts cannot be considered as
knowledge of the corporation.
The rule that knowledge of an officer is considered knowledge of
the corporation applies only when the officer is acting within the
authority given to him or her by the corporation. In Francisco v.
Government Service Insurance
System:137chanroblesvirtuallawlibrary
Knowledge of facts acquired or possessed by an officer or agent of
a corporation in the course of his employment, and in relation to
matters within the scope of his authority, is notice to the
corporation, whether he communicates such knowledge or
not.138cralawlawlibrary
85
The public should be able to rely on and be protected from the
representations of a corporate representative acting within the
scope of his or her authority. This is why an authorized officer's
knowledge is considered knowledge of corporation. However, just
as the public should be able to rely on and be protected from
corporate representations, corporations should also be able to
expect that they will not be bound by unauthorized actions made
on their account.
Thus, knowledge should be actually communicated to the
corporation through its authorized representatives. A corporation
cannot be expected to act or not act on a knowledge that had not
been communicated to it through an authorized representative.
There can be no implied ratification without actual
communication. Knowledge of the existence of contract must be
brought to the corporation's representative who has authority to
ratify it. Further, "the circumstances must be shown from which
such knowledge may be presumed."139
The Spouses Guillermo and Dolores Torres' knowledge cannot be
interpreted as knowledge of petitioner. Their knowledge was not
obtained as petitioner's representatives. It was not shown that they
were acting for and within the authority given by petitioner when
they acquired knowledge of the loan transactions and the
mortgages. The knowledge was obtained in the interest of and as
representatives of the thrift banks.
VI
Respondent argues that Satnrnino Petalcorin was clothed with the
authority to transact on behalf of petitioner, based on the board
resolution dated March 30, 1982 and Aurora de Leon's notarized
Secretary's Certificate.140 According to respondent, petitioner is
bound by the mortgage contracts executed by Saturnino
Petalcorin.141
This court has recognized presumed or apparent authority or
capacity to bind corporate representatives in instances when the
corporation, through its silence or other acts of recognition,
allowed others to believe that persons, through their usual exercise
of corporate powers, were conferred with authority to deal on the
corporation's behalf.142
The doctrine of apparent authority does not go into the question of
the corporation's competence or power to do a particular act. It
involves the question of whether the officer has the power or is
clothed with the appearance of having the power to act for the
corporation. A finding that there is apparent authority is not the
same as a finding that the corporate act in question is within the
corporation's limited powers.
The rule on apparent authority is based on the principle of estoppel.
The Civil Code provides:chanRoblesvirtualLawlibrary
ART. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
....
ART, 1869. Agency may be express, or implied from the acts of
the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.
Agency may be oral, unless the law requires a specific
form.cralawlawlibrary
A corporation is estopped by its silence and acts of recognition
because we recognize that there is information asymmetry between
third persons who have little to no information as to what happens
during corporate meetings, and the corporate officers, directors,
and representatives who are insiders to corporate affairs.143
In People's Air car go and Warehousing Co. Inc. v. Court of
Appeals,144 this court held that the contract entered into by the
corporation's officer without a board resolution was binding upon
the corporation because it previously allowed the officer to
contract on its behalf despite the lack of board resolution.145
In Francisco, this court ruled that Francisco's proposal for
redemption of property was accepted by and binding upon the
Government Service Insurance System. This court did not
appreciate the Government Service Insurance System's defense
that since it was the Board Secretary and not the General Manager
who sent Francisco the acceptance telegram, it could not be made
binding upon the Government Service Insurance System. It did not
authorize the Board Secretary to sign for the General Manager.
This court appreciated the Government Service Insurance System's
failure to disown the telegram sent by the Board Secretary and its
silence while it accepted all payments made by Francisco for the
redemption of property.146
There can be no apparent authority and the corporation cannot be
estopped from denying the binding affect of an act when there is
no evidence pointing to similar acts and other circumstances that
can be interpreted as the corporation holding out a representative
as having authority to contract on its behalf. In Advance Paper
Corporation v. Arma Traders Corporation,147 this court had the
occasion to say:chanRoblesvirtualLawlibrary
The doctrine of apparent authority does not apply if the principal
did not commit any acts or conduct which a third party knew and
relied upon in good faith as a result of the exercise of reasonable
prudence. Moreover, the agent's acts or conduct must have
produced a change of position to the third party's detriment.
(Citation omitted)cralawlawlibrary
Saturnino Petalcorin's authority to transact on behalf of petitioner
cannot be presumed based on a Secretary's Certificate and excerpt
from the minutes of the alleged board meeting that were found to
have been simulated. These documents cannot be considered as the
corporate acts that held out Saturnino Petalcorin as petitioner's
authorized representative for mortgage transactions. They were not
supported by an actual board meeting.149
VII
Respondent argues that it may rely on the Secretary's Certificate
issued by Aurora de Leon because it was notarized.
The Secretary's Certificate was void whether or not it was
notarized.
Notarization creates a presumption of regularity and authenticity
on the document. This presumption may be rebutted by "strong,
complete and conclusive proof"150 to the contrary. While notarial
acknowledgment "attaches full faith and credit to the document
concerned[,]"151 it does not give the document its validity or
binding effect. When there is evidence showing that the document
is invalid, the presumption of regularity or authenticity is not
applicable.
86
In Basilio v. Court of Appeals152 this court was convinced that the
purported signatory on a deed of sale was not as represented,
despite testimony from the notary public that the signatory
appeared before him and signed the instrument.153 Apart from
finding that there was forgery,154 this court
noted:chanRoblesvirtualLawlibrary
The notary public, Atty. Ruben Silvestre, testified that he was the
one who notarized the document and that Dionisio Z. Basilio
appeared personally before him and signed the. instrument himself.
However, he admitted that he did not know Dionisio Z. Basilio
personally to ascertain if the person who signed the document was
actually Dionisio Z. Basilio himself, or another person who stood
in his place. He could not even recall whether the document had
been executed in his office or not.
Thus, considering the testimonies of various witnesses and a
comparison of the signature in question with admittedly genuine
signatures, the Court is convinced that Dionisio Z. Basilio did not
execute the questioned deed of sale. Although the questioned deed
of sale was a public document having in its favor the presumption
of regularity, such presumption was adequately refuted by
competent witnesses showing its forgery and the Court's own
visual analysis of the document. (Emphasis supplied, citations
omitted)cralawlawlibrary
In Suntay v. Court of Appeals,156 this court held that a notarized
deed of sale was void because it was a mere sham.157 It was not
intended to have any effect between the parties.158 This court
said:chanRoblesvirtualLawlibrary
[I]t is not the intention nor the function of the notary public to
validate and make binding' an instrument never, in the first place,
intended to have any binding legal effect upon the parties
thereto.159cralawlawlibrary
Since the notarized Secretary's Certificate was found to have been
issued without a supporting board resolution, it produced no effect.
It is not binding upon petitioner. It should not have been relied on
by respondent especially given its status as a bank.
VIII
The banking institution is "impressed with public interest"160 such
that the public's faith is "of paramount importance."161 Thus,
banks are required to exercise the highest degree of diligence in
their transactions.162 In China Banking Corporation v. Lagon,163
this court found that the bank was not a mortgagee in good faith
for its failure to question the due execution of a Special Power of
Attorney that was presented to it in relation to a mortgage
contract.164 This court said:chanRoblesvirtualLawlibrary
Though petitioner is not expected to conduct an exhaustive
investigation on the history of the mortgagor's title, it cannot be
excused from the duty of exercising the due diligence required of
a banking institution. Banks are expected to exercise more care and
prudence than private individuals in their dealings, even those that
involve registered lands, for their business is affected with public
interest.165 (Citations omitted) cralawlawlibrary
For its failure to exercise the degree of diligence required of banks,
respondent cannot claim good faith in the execution of the
mortgage contracts with Saturnino Petalcorin. Respondent's
witness, Daciano Paguio, Jr., testified that there was no board
resolution authorizing Saturnino Petalcorin to act on behalf of
petitioner.166 Respondent did not inquire further as to Saturnino
Petalcorin's authority.
Banks cannot rely on assumptions. This will be contrary to the high
standard of diligence required of them.
VI
According to respondent, the annotations of respondent's mortgage
interests on the certificates of titles of petitioner's properties
operated as constructive notice to petitioner of the existence of
such interests.167 Hence, petitioners are now estopped from
claiming that they did not know about the mortgage.
Annotations of adverse claims on certificates of title to properties
operate as constructive notice only to third partiesnot to the court
or the registered owner. In Sajonas v. Court of
Appeals:168chanroblesvirtuallawlibrary
[Annotation of an adverse claim is a measure designed to protect
the interest of a person over a piece of real property where the
registration of such interest or right is not otherwise provided for
by the Land Registration Act or Act 496 (now [Presidential Decree
No.] 1529 or the Property Registration Decree), and serves a
warning to third parties dealing with said property that someone is
claiming an interest on the same or a better right than that of the
registered owner thereof.169 (Emphasis supplied)cralawlawlibrary
Annotations are merely claims of interest or claims of the legal
nature and incidents of relationship between the person whose
name appears on the document and the person who caused the
annotation. It does not say anything about the validity of the claim
or convert a defective claim or document into a valid one.170
These claims may be proved or disproved during trial.
Thus, annotations are not conclusive upon courts or upon owners
who may not have reason to doubt the security of their claim as
their properties' title holders.
WHEREFORE, the Petition is GRANTED. The Court of Appeals'
Decision dated December 17, 2009 is REVERSED and SET
ASIDE. The Regional Trial Courts' Decisions of November 23,
2001 and December 7, 2001 are REINSTATED.
SO ORDERED.
G.R. No. 198434, February 29, 2016
HEIRS OF LEANDRO NATIVIDAD AND JULIANA V.
NATIVIDAD, Petitioners, v. JUANA MAURICIO-
NATIVIDAD, AND SPOUSES JEAN NATIVIDAD CRUZ
AND JERRY CRUZ, Respondents.
DECISION
PERALTA, J.:
Challenged in the present petition for review on certiorari are the
Decision1 and Resolution2 of the Court of Appeals (CA), dated
February 7, 2011 and August 25, 2011, respectively, in CA-G.R.
CV No. 92840. The assailed CA Decision modified the Decision
of the Regional Trial Court. (RTC) of San Mateo, Rizal, Branch
75, in Civil Case No. 1637-02-SM, while the CA Resolution
denied petitioners' motion for reconsideration.
87
The present petition arose from an action for specific performance
and/or recovery of sum of money filed against herein respondents
by the spouses Leandro Natividad (Leandro) and Juliana Natividad
(Juliana), who are the predecessors of herein petitioners.
In their Complaint, Leandro and Juliana alleged that sometime in
1974, Sergio Natividad (Sergio), husband of respondent Juana
Mauricio-Natividad (Juana) and father of respondent Jean
Natividad-Cruz (Jean), obtained a loan from the Development
Bank of the Philippines (DBP). As security for the loan, Sergio
mortgaged two parcels of land, one of which is co-owned and
registered in his name and that of his siblings namely, Leandro,
Domingo and Adoracion. This property is covered by Original
Certificate of Title (OCT) No. 5980. Sergio's siblings executed a
Special Power of Attorney authorizing him to mortgage the said
property. The other mortgaged parcel of land, covered by OCT No.
10271, was registered in the name of Sergio and Juana.
Subsequently, Sergio died without being able to pay his obligations
with DBP. Since the loan was nearing its maturity and the
mortgaged properties were in danger of being foreclosed, Leandro
paid Sergio's loan obligations. Considering that respondents were
unable to reimburse Leandro for the advances he made in Sergio's
favor, respondents agreed that Sergio's share in the lot which he
co-owned with his siblings and the other parcel of land in the name
of Sergio and Juana, shall be assigned in favor of Leandro and
Juliana. Leandro's and Sergio's brother, Domingo, was tasked to
facilitate the transfer of ownership of the subject properties in favor
of Leandro and Juliana. However, Domingo died without being
able to cause such transfer. Subsequently, despite demands and
several follow-ups made by petitioners, respondents failed and
refused to honor their undertaking.
Respondents filed their Answer denying the allegations in the
complaint and raising the following defenses: (1) respondents are
not parties to the contract between Sergio and DBP; (2) there is
neither verbal nor written agreement between petitioners and
respondents that the latter shall reimburse whatever payment was
made by the former or their predecessor-in-interest; (3) Jean was
only a minor during the execution of the alleged agreement and is
not a party thereto; (4) that whatever liability or obligation of
respondents is already barred by prescription, laches and estoppel;
(5) that the complaint states no cause of action as respondents are
not duty-bound to reimburse whatever alleged payments were
made by petitioners; and (6) there is no contract between the parties
to the effect that respondents are under obligation to transfer
ownership in petitioners' favor as reimbursement for the alleged
payments made by petitioners to DBP.
Respondents waived their right to present evidence and they
merely filed their memorandum. Also, during pendency' of the
trial, Leandro died and was substituted by his heirs, herein
petitioners.
On November. 4, 2008, the RTC rendered its Decision in favor of
petitioners, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered
as follows:
1. Defendants Juana Mauricio [Vda.] de Natividad and Jean
Natividad-Cruz are ordered to effect the transfer of title in OCT
No. 5980 with respect to the undivided share of the late Sergio
Natividad; and in OCT No. 10271 both of the Registry of Deeds of
the Province of Rizal in favor of plaintiff Juliana [Vda.] de
Natividad and the Heirs of the late Leandro Natividad.
2. Defendants to pay jointly and severally, attorney's fees in the
sum of Thirty Thousand Pesos (P30,000.00); and cost of suit.
SO ORDERED.3ChanRoblesVirtualawlibrary
Aggrieved by the RTC Decision, respondents filed an Appeal with
the CA.
On February 7, 2011, the C A'promulgated its questioned Decision,
disposing as follows:
WHEREFORE, the appeal is PARTLY GRANTED. The Decision
dated November 4, 2008 is hereby " MODIFIED in that
defendants-appellants Juana Mauricio-Natividad and Jean
Natividad-Cruz are ordered instead to reimburse plaintiffs-
appellees Juliana Natividad and the heirs of the late Leandro
Natividad the amount of P162,514.88 representing the amount of
the loan obligation paid to the Development Bank of the
Philippines, plus legal interest of 12% per annum computed from
June 23, 2001 until finality of the judgment, the total amount of
which shall be to the extent only of defendants-appellants'
successional rights in the mortgaged properties and Juana1 s
conjugal share in [the] property covered by OCT No. 10271. The
award of attorney's fees and cost of suit are AFFIRMED.
SO ORDERED.4ChanRoblesVirtualawlibrary
Petitioners filed a Motion 'for Partial Reconsideration, while
respondents filed their own Motion for Reconsideration, both of
which, however, were denied by the CA in its assailed Resolution
dated August 25, 2011.
Hence, the instant petition based on the following grounds:
WITH DUE RESPECT, THE HONORABLE COURT OF
APPEALS' RULING THAT THE VERBAL AGREEMENT TO
CONVEY THE PROPERTY SHARES OF SERGIO
NATIVIDAD IN THE PAYMENT OF HIS OBLIGATION IS
COVERED BY THE STATUTE OF FRAUDS DESPITE THE
FACT THAT IT HAS BEEN PARTIALLY EXECUTED, IS
CONTRARY TO EXISTING JURISPRUDENCE.
WITH DUE RESPECT THE HONORABLE COURT OF
APPEALS ERRED IN RULING THAT THE INTEREST ON
THE UNPAID LOAN OBLIGATION SHOULD BE IMPOSED
ONLY ON JUNE 23, 2001, DATE OF THE DEMAND FOR
PAYMENT INSTEAD OF SEPTEMBER 23, 1994, WHEN THE
PARTIES VERBALLY AGREED TO CONVEY THEIR
PROPERTY RIGHTS WITH THE EXECUTION OF THE
EXTRAJUDIC1AL SETTLEMENT OF ESTATE OF SERGIO
NATIVIDAD.5
Petitioners, insist that there was a verbal agreement between
respondents and Leandro, their predecessor-in-interest, wherein
the subject properties shall be assigned to the latter as
reimbursement for the payments he made in Sergio's favor. To
support this contention, petitioners relied heavily on the
Extrajudicial Settlement Among Heirs, which was executed by
respondents to prove that there was indeed such an agreement and
that such a Settlement is evidence of the partial execution of the
said agreement. The provisions of the said Settlement are as
follows:
EXTRAJUDICIAL SETTLEMENT AMONG HEIRS
KNOW ALL MEN BY THESE PRESENTS:
This EXTRAJUDICIAL SETTLEMENT, made and entered into
by and among:
88
JUAN M. NATIVIDAD, widow; JEAN N. CRUZ, married to
JERRY CRUZ; JOSELITO M. NATIVIDAD, single, all of legal
age, Filipino citizens, and residents of Malanday, San Mateo, Rizal
WITNESSETH
That the above-named parties, is the legitimate wife and children
and sole heirs of the deceased SERGIO NATIVIDAD, who died in
San Mateo, Rizal on May 31, 1981;
That the said deceased, at the time of his death, left certain real
estate properties located at San Mateo, Rizal, and Montalban,
Rizal, more particularly described as follows:
a. A whole portion of a parcel of land (Plan Psu-295655, L.R. Case
No. Q-29, L.R.C. Record No. N-295 ________ , situated in the
Barrio of Malanday, Municipality of San Mateo, Province of Rizal,
containing an area of TWO HUNDRED EIGHT (208) SQUARE
METERS, more or less, and covered by OCT NO. 10271.
b. A one-fourth (1/4) share in the parcel of land situated in
Guinayang, San Mateo, Rizal, containing an area of 2,742 square
meters, Covered by OCT No. 10493.
c. A one-fourth (1/4) share in the parcel of land situated in San
Jose, Montalban, Rizal, containing an area of 4,775 square meters,
and covered by OCT No. ON-403.
d. A one-fourth (1/4) share in the parcel of land situated in Cambal,
San Mateo, Rizal, containing an area of 13,456 square meters, and
covered by OCT No. 5980.
That no other personal properties are involved in this extrajudicial
settlement.
That to the best knowledge and information of the parties hereto,
the said deceased left certain obligations amounting to PI75,000.00
representing loan obligations with the Development Bank of the
Philippines.
That a notice of this extrajudicial settlement had been published
once a week for three consecutive weeks in____________ a
newspaper of general circulation in ___________, as certified by
the said newspaper hereto attached as Annex "A";
That the parties hereto being all of legal age and with full civil
capacity to contract, hereby by these presents, agree to divide and
adjudicate, as they hereby divide and adjudicate, among
themselves the above-described real estate property in equal shares
and interest.
IN WITNESS WHEREOF, the parties have signed this document
on this 2nd day of September, 1994 in San Mateo, Rizal,
Philippines.
x x x6ChanRoblesVirtualawlibrary
After a careful reading of the abovequoted Extrajudicial Settlement
Among Heirs, the Court agrees with the CA that there is nothing in
the said document which would indicate that respondents agreed to
the effect that the subject properties shall be transferred in the name
of Leandro as reimbursement for his payment of Sergio's loan
obligations with the DBP. On the contrary, the second to the last
paragraph of the said Settlement clearly shows that herein
respondents, as heirs of Sergio, have divided the subject properties
exclusively among themselves.
There is no competent evidence to prove the verbal agreement
being claimed by respondents. Aside from the subject Extrajudicial
Settlement Among Heirs, the self-serving claims of Leandro on the
witness stand, as well as the cash voucher,7 which supposedly
represented payment of P8,000.00 given to Atty. Domingo
Natividad for the expenses in transferring the title of the subject
properties in Leandro's favor, would hardly count as competent
evidence in the eyes of the law. Respondents' claim of the existence
of a verbal agreement between them, on one hand, and petitioners'
predecessors-in-interest, on the other, remains to be mere
allegation. It is an age-old rule in civil cases that he who alleges a
fact has the burden of proving it and a mere allegation is not
evidence.8
In relation to petitioners' contention that the subject verbal
agreement actually existed, they-reiterate their contention that the
conveyance of the subject properties in their favor is not covered
by the Statute of Frauds because they claim that respondents'
execution of the Extrajudicial Settlement Among Heirs constitutes
partial execution of their alleged agreement.
The Court does not agree.
Suffice it to say that there is no partial execution of any contract,
whatsoever, because petitioners failed to prove, in the first place,
that there was a verbal agreement that was entered into.
Even granting that such an agreement existed, the CA did not
commit any error in ruling that the assignment of the shares of
Sergio in the subject properties in petitioners' favor as payment of
Sergio's obligation cannot be enforced if there is no written
contract to such effect. Under the Statute of Frauds9, an agreement
to convey real properties shall be unenforceable by action in the
absence of a written note or memorandum thereof and subscribed
by the party charged or by his agent. As earlier discussed, the
pieces of evidence presented by petitioners, consisting of
respondents' acknowledgment of Sergio's loan obligations with
DBP as embodied in the Extrajudicial Settlement Among Heirs, as
well as the cash voucher which allegedly represents payment for
taxes and transfer of title in petitioners' name do not serve as
written notes or memoranda of the alleged verbal agreement.
The foregoing, notwithstanding, the Court finds it proper to
reiterate the CA ruling that, in any case, since respondents had
already acknowledged that Sergio had, in fact, incurred loan
obligations with the DBP, they are liable to reimburse the amount
paid by Leandro for the payment of the said obligation even if such
payment was made without their knowledge or consent.
Article 1236 of the Civil Code clearly provides that:
The creditor is not bound to accept payment or performance by a
third person who has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor. (Emphasis supplied)
Neither can respondents evade liability by arguing that they were
not parties to the contract between Sergio and the DBP. As earlier
stated, the fact remains that, in the Extrajudicial Settlement Among
Heirs, respondents clearly acknowledged Sergio's loan obligations
with the DBP. Being Sergio's heirs, they succeed not only to the
rights of Sergio but also to his obligations.
The following provisions of the Civil Code are clear on this matter,
to wit:
89
Art. 774. Succession is a mode of acquisition by virtue of which
the property, rights and obligations to the extent of the value of the
inheritance, of a person are transmitted through his death to another
or others either by will or by operation of law.
Art. 776. The inheritance includes all the property, rights and
obligations of a person which are not extinguished by his death.
Art. 781. The inheritance of a person includes not only the property
and the transmissible rights and obligations existing at the time of
his death, but also those which have accrued thereto since the
opening of the succession.
In the present case, respondents, being heirs of Sergio, are now
liable to settle his transmissible obligations, which include the
amount due to petitioners, prior to the distribution of the remainder
of Sergio's estate to them, in accordance with Section I,10 Rule 90
of the Rules of Court.
As to when the interest on the sum due from respondents should be
reckoned, the Court finds no error in the ruling of the CA that such
interest should be computed from June 23, 2001, the date when
petitioners made a written demand for the payment of respondents'
obligation.11 There is no merit in petitioners' contention that the
reckoning date should have been September 23, 1994, the date
when respondents executed the Extrajudicial Settlement Among
Heirs, because there is nothing therein to prove that petitioners, at
that time, made a demand for reimbursement.
However, the rate of interest should be modified in view of the
issuance of Circular No. 799, Series of 2013 by the Bangko Sentral
ng Pilipinas Monetary Board (BSP-MB). The said Circular
reduced the "rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest," from
twelve percent (12%) to six percent (6%) per annum. The Circular
was made effective on July 1-, 2013. Hence, under the modified
guidelines in the imposition of interest, as laid down in the case of
Nacar v. Gallery Frames,12 this Court held that:
xxxx
II. With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as well
as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the
Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion, of the court at the
rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
.actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
(Emphasis supplied)
x x x13ChanRoblesVirtualawlibrary
The Court explained that:
[F]rom the foregoing, in the absence of an express stipulation as to
the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money, goods or credits
and the rate allowed in judgments shall no longer be twelve percent
(12%) per annum -as reflected in the case of Eastern Shipping
Lines and Subsection X305.1 of the Manual of Regulations for
Btoks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual
of Regulations for Non-Bank Financial Institutions, before its
amendment by BSP-MB Circular No. 799 - but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively
and not retroactively. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 3.0, 2013. Come
July 1, 2013, the new rate of six percent (6%) per annum shall be
the prevailing rate of interest when applicable.14
Thus, in accordance with the above ruling, the rate of interest on
the principal amount due to petitioners shall be 12% from June 23,
2001, the date when petitioners made a demand for payment, to
June 30, 2013. From July 1, 2013, the effective date of BSP-MB
Circular No. 799, until full satisfaction of the monetary award, the
rate of interest shall be 6%.-
WHEREFORE, the instant petition is DENIED. The Decision and
Resolution of the Court of Appeals, dated February 7, 2011 and
August 25, 2011, respectively, in CA-G.R. CV No. 92840 are
AFFIRMED with MODIFICATION by ORDERING respondents
to pay petitioners, in addition to the principal amount of
P162,514.88, interest thereon at the rate of twelve percent (12%)
per annum, computed from June 23, 2001 to June 30, 2013, and six
percent (6%) per annum from July 1, 2013 until full satisfaction of
the judgment award.
SO ORDERED.
VOID / INEXISTENT / FICTITIOUS
CONTRACTS
[G.R. No. 109355. October 29, 1999]
SERAFIN MODINA, petitioner vs. COURT OF APPEALS
AND ERNESTO HONTARCIEGO, PAUL FIGUEROA,
TEODORO HIPALLA AND RAMON CHIANG,
MERLINDA CHIANG, respondents.
DECISION
PURISIMA, J.:
At bar is a Petition for Review on Certiorari assailing the decision
of the Court of Appeals in CA - G.R. CV No. 26051 affirming the
decision of the trial court in the case, entitled Serafin Modina vs
Ernesto Hontarciego, Paulino Figueroa and Ramon Chiang vs
Merlinda Plana Chiang, intervenors, which declared as void and
inexistent the deed of definite sale dated December 17, 1975 as
90
well as the Certificates of Title Nos. T-86912, T-86913, T-86914
in the name of Ramon Chiang.
The facts that matter are as follows:
The parcels of land in question are those under the name of Ramon
Chiang (hereinafter referred to as CHIANG ) covered by TCT Nos.
T-86912, T-86913, and T-86914. He theorized that subject
properties were sold to him by his wife, Merlinda Plana Chiang
(hereinafter referred to as MERLINDA), as evidenced by a Deed
of Absolute Sale dated December 17, 1975,[1] and were
subsequently sold by CHIANG to the petitioner Serafin Modina
(MODINA), as shown by the Deeds of Sale, dated August 3, 1979
and August 24, 1979, respectively.
MODINA brought a Complaint for Recovery of Possession with
Damages against the private respondents, Ernesto Hontarciego,
Paul Figueroa and Teodoro Hipalla, docketed as Civil Case No.
13935 before the Regional Trial Court of Iloilo City.
Upon learning the institution of the said case, MERLINDA
presented a Complaint-in-intervention, seeking the declaration of
nullity of the Deed of Sale between her husband and MODINA on
the ground that the titles of the parcels of land in dispute were never
legally transferred to her husband. Fraudulent acts were allegedly
employed by him to obtain a Torrens Title in his favor. However,
she confirmed the validity of the lease contracts with the other
private respondents.
MERLINDA also admitted that the said parcels of land were those
ordered sold by Branch 2 of the then Court of First Instance of
Iloilo in Special Proceeding No. 2469 in Intestate Estate of Nelson
Plana where she was appointed as the administratix, being the
widow of the deceased, her first husband. An Authority to Sell was
issued by the said Probate Court for the sale of the same
properties.[2]
After due hearing, the Trial Court decided in favor of MERLINDA,
disposing thus:
WHEREFORE, judgment is hereby rendered (1) declaring as void
and inexistent the sale of Lots 10063, 10088, 10085 and 10089 of
the Cadastral Survey of Sta. Barbara by Merlinda Plana in favor of
Ramon Chiang as evidenced by the deed of definite sale dated
December 17, 1975 (Exhibits H; 3-Chiang; 9 Intervenor) as well
as the Certificates of Title Nos. T-86912, T-86913, T-86914 and
T-86915 in the name of Ramon Chiang; (2) declaring as void and
inexistent the sale of the same properties by Ramon Chiang in favor
of Serafin Modina as evidenced by the deeds of sale (Exhibits A,
B, 6 Chiang and 7 Chiang) dated August 3, and 24, 1979, as well
as. Certificates of Title Nos. T-102631, 102630, 102632 and
102890 in the name of Serafin Modina; (3) ordering the Register
of Deeds of Iloilo to cancel said certificates of title in the names of
Ramon Chiang and Serafin Modina and to reinstate the Certificates
of Title Nos. T-57960, T-57962, T-57963 and T-57864 in the name
of Nelson Plana; (4) ordering Serafin Modina to vacate and restore
possession of the lots in question to Merlinda Plana Chiang; (5)
ordering Ramon Chiang to restitute and pay to Serafin Modina the
sum of P145,800.00 and; (6) ordering Serafin Modina to pay
Ernesto Hontarciego the sum of P44,500.00 as actual and
compensatory damages plus the sum of P5,000.00, for and as
attorneys fees, with costs in favor of said defendants against the
plaintiff.
On appeal, the Court of Appeals affirmed the aforesaid decision in
toto.
Dissatisfied therewith, petitioner found his way to this Court via
the present Petition for Review under Rule 45 seeking to set aside
the assailed decision of the Court of Appeals.
Raised for resolution here are: (1) whether the sale of subject lots
should be nullified, (2) whether petitioner was not a purchaser in
good faith, (3) whether the decision of the trial court was tainted
with excess of jurisdiction; and (4) whether or not only three-
fourths of subject lots should be returned to the private respondent.
Anent the first issue, petitioner theorizes that the sale in question
is null and void for being violative of Article 1490[3] of the New
Civil Code prohibiting sales between spouses. Consequently, what
is applicable is Article 1412[4] supra on the principle of in pari
delicto, which leaves both guilty parties where they are, and keeps
undisturbed the rights of third persons to whom the lots involved
were sold; petitioner stressed.
Petitioner anchors his submission on the following statements of
the Trial Court which the Court of Appeals upheld, to wit:
Furthermore, under Art. 1490, husband and wife are prohibited to
sell properties to each other. And where, as in this case, the sale is
inexistent for lack of consideration, the principle of in pari delicto
non oritur actio does not apply. (Vasquez vs Porta, 98 Phil 490).
(Emphasis ours) Thus, Art. 1490 provides:
Art. 1490. The husband and the wife cannot sell property to each
other, except:
(1) when a separation of property was agreed upon in the marriage
settlements; or
(2) when there has been a judicial separation of property under Art.
191.
The exception to the rule laid down in Art. 1490 of the New Civil
Code not having existed with respect to the property relations of
Ramon Chiang and Merlinda Plana Chiang, the sale by the latter in
favor of the former of the properties in question is invalid for being
prohibited by law. Not being the owner of subject properties,
Ramon Chiang could not have validly sold the same to plaintiff
Serafin Modina. The sale by Ramon Chiang in favor of Serafin
Modina is, likewise, void and inexistent.
xxx xxx xxx[5]
The Court of Appeals, on the other hand, adopted the following
findings a quo: that there is no sufficient evidence establishing fault
on the part of MERLINDA, and therefore, the principle of in pari
delicto is inapplicable and the sale was void for want of
consideration. In effect, MERLINDA can recover the lots sold by
her husband to petitioner MODINA. However, the Court of
Appeals ruled that the sale was void for violating Article 1490 of
the Civil Code, which prohibits sales between spouses.
The principle of in pari delicto non oritur actio[6] denies all
recovery to the guilty parties inter se. It applies to cases where the
nullity arises from the illegality of the consideration or the purpose
of the contract.[7] When two persons are equally at fault, the law
does not relieve them. The exception to this general rule is when
the principle is invoked with respect to inexistent contracts.[8]
In the petition under consideration, the Trial Court found that
subject Deed of Sale was a nullity for lack of any consideration.[9]
This finding duly supported by evidence was affirmed by the Court
of Appeals. Well-settled is the rule that this Court will not disturb
such finding absent any evidence to the contrary.[10]
91
Under Article 1409[11] of the New Civil Code, enumerating void
contracts, a contract without consideration is one such void
contract. One of the characteristics of a void or inexistent contract
is that it produces no effect. So also, inexistent contracts can be
invoked by any person whenever juridical effects founded thereon
are asserted against him. A transferor can recover the object of such
contract by accion reivindicatoria and any possessor may refuse to
deliver it to the transferee, who cannot enforce the transfer.[12]
Thus, petitioners insistence that MERLINDA cannot attack subject
contract of sale as she was a guilty party thereto is equally
unavailing.
But the pivot of inquiry here is whether MERLINDA is barred by
the principle of in pari delicto from questioning subject Deed of
Sale.
It bears emphasizing that as the contracts under controversy are
inexistent contracts within legal contemplation, Articles 1411 and
1412 of the New Civil Code are inapplicable. In pari delicto
doctrine applies only to contracts with illegal consideration or
subject matter, whether the attendant facts constitute an offense or
misdemeanor or whether the consideration involved is merely
rendered illegal.[13]
The statement below that it is likewise null and void for being
violative of Article 1490 should just be treated as a surplusage or
an obiter dictum on the part of the Trial Court as the issue of
whether the parcels of land in dispute are conjugal in nature or they
fall under the exceptions provided for by law, was neither raised
nor litigated upon before the lower Court. Whether the said lots
were ganancial properties was never brought to the fore by the
parties and it is too late to do so now.
Futhermore, if this line of argument be followed, the Trial Court
could not have declared subject contract as null and void because
only the heirs and the creditors can question its nullity and not the
spouses themselves who executed the contract with full knowledge
of the prohibition.[14]
Records show that in the complaint-in-intervention of
MERLINDA, she did not aver the same as a ground to nullify
subject Deed of Sale. In fact, she denied the existence of the Deed
of Sale in favor of her husband. In the said Complaint, her
allegations referred to the want of consideration of such Deed of
Sale. She did not put up the defense under Article 1490, to nullify
her sale to her husband CHIANG because such a defense would be
inconsistent with her claim that the same sale was inexistent.
The Trial Court debunked petitioners theory that MERLINDA
intentionally gave away the bulk of her and her late husbands estate
to defendant CHIANG as his exclusive property, for want of
evidentiary anchor. They insist on the Deed of Sale wherein
MERLINDA made the misrepresentation that she was a widow and
CHIANG was single, when at the time of execution thereof, they
were in fact already married. Petitioner insists that this document
conclusively established bad faith on the part of MERLINDA and
therefore, the principle of in pari delicto should have been applied.
These issues are factual in nature and it is not for this Court to
appreciate and evaluate the pieces of evidence introduced below.
An appellate court defers to the factual findings of the Trial Court,
unless petitioner can show a glaring mistake in the appreciation of
relevant evidence.
Since one of the characteristics of a void or inexistent contract is
that it does not produce any effect, MERLINDA can recover the
property from petitioner who never acquired title thereover.
As to the second issue, petitioner stresses that his title should have
been respected since he is a purchaser in good faith and for value.
The Court of Appeals, however, opined that he (petitioner) is not a
purchaser in good faith. It found that there were circumstances
known to MODINA which rendered their transaction fraudulent
under the attendant circumstances.
As a general rule, in a sale under the Torrens system, a void title
cannot give rise to a valid title. The exception is when the sale of a
person with a void title is to a third person who purchased it for
value and in good faith.
A purchaser in good faith is one who buys the property of another
without notice that some other person has a right to or interest in
such property and pays a full and fair price at the time of the
purchase or before he has notice of the claim or interest of some
other person in the property.
In the case under scrutiny, petitioner cannot claim that he was a
purchaser in good faith. There are circumstances which are indicia
of bad faith on his part, to wit: (1) He asked his nephew, Placido
Matta, to investigate the origin of the property and the latter learned
that the same formed part of the properties of MERLINDAs first
husband; (2) that the said sale was between the spouses; (3) that
when the property was inspected, MODINA met all the lessees
who informed that subject lands belong to MERLINDA and they
had no knowledge that the same lots were sold to the husband.
It is a well-settled rule that a purchaser cannot close his eyes to
facts which would put a reasonable man upon his guard to make
the necessary inquiries, and then claim that he acted in good faith.
His mere refusal to believe that such defect exists, or his wilful
closing of his eyes to the possibility of the existence of a defect in
his vendors title, will not make him an innocent purchaser for
value, if it afterwards develops that the title was in fact defective,
and it appears that he had such notice of the defect as would have
led to its discovery had he acted with that measure of precaution
which may reasonably be required of a prudent man in a like
situation.[15]
Thus, petitioner cannot claim that the sale between him and
MODINA falls under the exception provided for by law.
With regard to the third issue posed by petitioner - whether the
Trial Courts decision allowing recovery on the part of Merlinda
Chiang of subject properties was void - petitioners contention is
untennable. It is theorized that as the sale by MERLINDA was by
virtue of an Order to Sell issued in the Intestate Estate Proceedings
of her late husband, Nelson Plana - to allow recovery will defeat
the said order of the Probate Court. Petitioner equated the aforesaid
Order to Sell as a judgment, which another court in a regular
proceeding has no jurisdiction to reverse.
Petitioner is under the mistaken impression that as the Order to Sell
had become a judgment in itself as to the validity of the sale of the
properties involved, any question as to its nullity should have been
brought before the Court of Appeals on appeal when the said Order
was issued.
It is a well-settled rule that a Court of First Instance (now Regional
Trial Court) has jurisdiction over a case brought to rescind a sale
made upon prior authority of a Probate Court. This does not
constitute an interference or review of the order of a co-equal Court
since the Probate Court has no jurisdiction over the question of title
to subject properties. Consequently, a separate action may be
brought to determine the question of ownership.[16]
Lastly, on the issue of whether only three-fourths of the property
in question should have been returned to MERLINDA, petitioners
92
stance is equally unsustainable. It is a settled doctrine that an issue
which was neither averred in the Complaint nor raised during the
trial before the lower court cannot be raised for the first time on
appeal, as such a recourse would be offensive to the basic rules of
fair play, justice, and due process.[17]
The issue of whether only three-fourths of subject property will be
returned was never an issue before the lower court and therefore,
the petitioner cannot do it now. A final word. In a Petition for
Review, only questions of law may be raised. It is perceived by the
Court that what petitioner is trying to, albeit subtly, is for the Court
to examine the probative value or evidentiary weight of the
evidence presented below[18] The Court cannot do that unless the
appreciation of the pieces of evidence on hand is glaringly
erroneous. But this is where petitioner utterly failed.
WHEREFORE, the Petition is DENIED and the decision of the
Court of Appeals, dated September 30, 1992, in CA-G.R. CV No.
26051 AFFIRMED. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 127540. October 17, 2001]
EUGENIO DOMINGO, CRISPIN MANGABAT and
SAMUEL CAPALUNGAN, petitioners, vs. HON. COURT OF
APPEALS, FELIPE C. RIGONAN and CONCEPCION R.
RIGONAN, respondents.
EUGENIO DOMINGO, CRISPIN MANGABAT and
SAMUEL CAPALUNGAN, petitioners, vs. HON. COURT OF
APPEALS, THE DIRECTOR OF LANDS, and FELIPE C.
RIGONAN and CONCEPCION R. RIGONAN, respondents.
DECISION
QUISUMBING, J.:
This petition[1] seeks to annul the decision of the Court of Appeals
dated August 29, 1996, which set aside the decision of the Regional
Trial Court of Batac, Ilocos Norte, Branch 17, in Civil Case No.
582-17 for reinvindicacion consolidated with Cadastral Case No.
1.[2] The petition likewise seeks to annul the resolution dated
December 11, 1996, denying petitioners motion for
reconsideration.
The facts of this case, culled from the records, are as follows:
Paulina Rigonan owned three (3) parcels of land, located at Batac
and Espiritu, Ilocos Norte, including the house and warehouse on
one parcel. She allegedly sold them to private respondents, the
spouses Felipe and Concepcion Rigonan, who claim to be her
relatives. In 1966, herein petitioners Eugenio Domingo, Crispin
Mangabat and Samuel Capalungan, who claim to be her closest
surviving relatives, allegedly took possession of the properties by
means of stealth, force and intimidation, and refused to vacate the
same. Consequently, on February 2, 1976, herein respondent
Felipe Rigonan filed a complaint for reinvindicacion against
petitioners in the Regional Trial Court of Batac, Ilocos Norte. On
July 3, 1977, he amended the complaint and included his wife as
co-plaintiff. They alleged that they were the owners of the three
parcels of land through the deed of sale executed by Paulina
Rigonan on January 28, 1965; that since then, they had been in
continuous possession of the subject properties and had introduced
permanent improvements thereon; and that defendants (now
petitioners) entered the properties illegally, and they refused to
leave them when asked to do so.
Herein petitioners, as defendants below, contested plaintiffs
claims. According to defendants, the alleged deed of absolute sale
was void for being spurious as well as lacking consideration. They
said that Paulina Rigonan did not sell her properties to anyone. As
her nearest surviving kin within the fifth degree of consanguinity,
they inherited the three lots and the permanent improvements
thereon when Paulina died in 1966. They said they had been in
possession of the contested properties for more than 10 years.
Defendants asked for damages against plaintiffs.
During trial, Juan Franco, Notary Public Evaristo P. Tagatag[3]
and plaintiff Felipe Rigonan testified for plaintiffs (private
respondents now).
Franco testified that he was a witness to the execution of the
questioned deed of absolute sale. However, when cross-examined
and shown the deed he stated that the deed was not the document
he signed as a witness, but rather it was the will and testament made
by Paulina Rigonan.
Atty. Tagatag testified that he personally prepared the deed, he saw
Paulina Rigonan affix her thumbprint on it and he signed it both as
witness and notary public. He further testified that he also
notarized Paulinas last will and testament dated February 19, 1965.
The will mentioned the same lots sold to private respondents.
When asked why the subject lots were still included in the last will
and testament, he could not explain. Atty. Tagatag also mentioned
that he registered the original deed of absolute sale with the
Register of Deeds.
Plaintiff Felipe Rigonan claimed that he was Paulinas close
relative. Their fathers were first cousins. However, he could not
recall the name of Paulinas grandfather. His claim was disputed by
defendants, who lived with Paulina as their close kin. He admitted
the discrepancies between the Register of Deeds copy of the deed
and the copy in his possession. But he attributed them to the
representative from the Office of the Register of Deeds who went
to plaintiffs house after that Office received a subpoena duces
tecum. According to him, the representative showed him blanks in
the deed and then the representative filled in the blanks by copying
from his (plaintiffs) copy.
Counsel for defendants (petitioners herein) presented as witnesses
Jose Flores, the owner of the adjacent lot; Ruben Blanco, then
acting Registrar of Deeds in Ilocos Norte; and Zosima Domingo,
wife of defendant Eugenio Domingo.
Jose Flores testified that he knew defendants, herein petitioners,
who had lived on the land with Paulina Rigonan since he could
remember and continued to live there even after Paulinas death. He
said he did not receive any notice nor any offer to sell the lots from
Paulina, contrary to what was indicated in the deed of sale that the
vendor had notified all the adjacent owners of the sale. He averred
he had no knowledge of any sale between Paulina and private
respondents.
Ruben Blanco, the acting Registrar of Deeds, testified that only the
carbon copy, also called a duplicate original, of the deed of sale
was filed in his office, but he could not explain why this was so.
Zosima Domingo testified that her husband, Eugenio Domingo,
was Paulinas nephew. Paulina was a first cousin of Eugenios
father. She also said that they lived with Paulina and her husband,
Jose Guerson, since 1956. They took care of her, spent for her daily
needs and medical expenses, especially when she was hospitalized
prior to her death. She stated that Paulina was never badly in need
of money during her lifetime.
On March 23, 1994, the trial court rendered judgment in favor of
defendants (now the petitioners). It disposed:
93
WHEREFORE, premises considered, judgment is hereby rendered
in favor of defendants and against the plaintiffs, and as prayed for,
the Amended Complaint is hereby DISMISSED.
Defendants are hereby declared, by virtue of intestate succession,
the lawful owners and possessors of the house including the bodega
and the three (3) parcels of land in suit and a Decree of Registration
adjudicating the ownership of the said properties to defendants is
hereby issued.
The alleged deed of sale (Exhs. A, A-1, 1 and 1-a) is hereby
declared null and void and fake and the prayer for the issuance of
a writ of preliminary injunction is hereby denied.
Plaintiffs are hereby ordered to pay defendants:
a) P20,000.00 as moral damages;
b) P10,000.00 as exemplary damages;
c) P10,000.00 attorneys fees and other litigation expenses.
No pronouncement as to costs.[4]
Private respondents herein appealed to the Court of Appeals.
On August 29, 1996, the CA reversed the trial courts decision, thus:
WHEREFORE, the decision dated March 23, 1994 is hereby SET
ASIDE. The plaintiffs-appellants Felipe Rigonan and Concepcion
Rigonan are declared the owners of the properties under litigation
and the defendants-appellees are hereby ordered to VACATE the
subject properties and SURRENDER the possession thereof to the
heirs of the plaintiffs-appellants.
Costs against the defendants-appellees.[5]
Hence, this petition assigning the following as errors:
I deed. As a consequence, the appellate court merely relied on Atty.
THE RESPONDENT COURT OF APPEALS HAS DECIDED
QUESTIONS OF LEGAL SUBSTANCE AND SIGNIFICANCE
NOT IN ACCORDANCE WITH THE EVIDENCE, LAW AND
WITH THE APPLICABLE DECISIONS OF THIS
HONORABLE COURT.
II
THAT THE FINDINGS OF RESPONDENT COURT OF
APPEALS ARE CONTRARY TO THOSE OF THE TRIAL
COURT AND CLEARLY VIOLATES THE RULE THAT THE
FACTUAL FINDINGS OF TRIAL COURTS ARE ENTITLED
TO GREAT WEIGHT AND RESPECT ON APPEAL,
ESPECIALLY WHEN SAID FINDINGS ARE ESTABLISHED
BY UNREBUTTED TESTIMONIAL AND DOCUMENTARY
EVIDENCE.
III
THAT THE FINDINGS AND CONCLUSIONS OF
RESPONDENT COURT OF APPEALS ARE GROUNDED
ENTIRELY ON SPECULATIONS, SURMISES,
CONJECTURES, OR ON INFERENCES MANIFESTLY
MISTAKEN.
IV
THAT THE RESPONDENT COURT OF APPEALS
MANIFESTLY OVERLOOKED CERTAIN RELEVANT
FACTS NOT DISPUTED BY THE PARTIES AND WHICH, IF
PROPERLY CONSIDERED, WOULD JUSTIFY A DIFFERENT
CONCLUSION.
V
THAT THE FINDINGS OF FACT OF RESPONDENT COURT
OF APPEALS ARE PREMISED ON SUPPOSED ABSENCE OF
EVIDENCE BUT IS CONTRADICTED BY THE EVIDENCE
ON RECORD THUS CONSTITUTES GRAVE ABUSE OF
DISCRETION.[6]
The basic issue for our consideration is, did private respondents
sufficiently establish the existence and due execution of the Deed
of Absolute and Irrevocable Sale of Real Property? Marked as
Exhibits A, A-1, 1 and 1-a, this deed purportedly involved nine (9)
parcels of land, inclusive of the three (3) parcels in dispute, sold at
the price of P850 by Paulina Rigonan to private respondents on
January 28, 1965, at Batac, Ilocos Norte.[7] The trial court found
the deed fake, being a carbon copy with no typewritten original
presented; and the court concluded that the documents execution
was tainted with alterations, defects, tamperings, and irregularities
which render it null and void ab initio.[8]
Petitioners argue that the Court of Appeals erred in not applying
the doctrine that factual findings of trial courts are entitled to great
weight and respect on appeal, especially when said findings are
established by unrebutted testimonial and documentary evidence.
They add that the Court of Appeals, in reaching a different
conclusion, had decided the case contrary to the evidence presented
and the law applicable to the case. Petitioners maintain that the due
execution of the deed of sale was not sufficiently established by
private respondents, who as plaintiffs had the burden of proving it.
First, the testimonies of the two alleged instrumental witnesses of
the sale, namely, Juan Franco and Efren Sibucao, were dispensed
with and discarded when Franco retracted his oral and written
testimony that he was a witness to the execution of the subject
Tagatags (the notary public) testimony, which was incredible
because aside from taking the double role of a witness and notary
public, he was a paid witness. Further his testimony, that the
subject deed was executed in the house of Paulina Rigonan, was
rebutted by Zosima Domingo, Paulinas housekeeper, who said that
she did not see Atty. Tagatag, Juan Franco and Efren Sibucao in
Paulinas house on the alleged date of the deeds execution.
Secondly, petitioners said that private respondents failed to
account for the typewritten original of the deed of sale and that the
carbon copy filed with the Register of Deeds was only a duplicate
which contained insertions and erasures. Further, the carbon copy
was without an affidavit of explanation, in violation of the
Administrative Code as amended, which requires that if the
original deed of sale is not presented or available upon registration
of the deed, the carbon copy or so-called duplicate original must
be accompanied by an affidavit of explanation, otherwise,
registration must be denied.[9]
Thirdly, petitioners aver that the consideration of only P850 for the
parcels of land sold, together with a house and a warehouse, was
another indication that the sale was fictitious because no person
who was financially stable would sell said property at such a
grossly inadequate consideration.
Lastly, petitioners assert that there was abundant evidence that at
the time of the execution of the deed of sale, Paulina Rigonan was
already senile. She could not have consented to the sale by merely
imprinting her thumbmark on the deed.
94

In their comment, private respondents counter that at the outset the
petition must be dismissed for it lacks a certification against forum-
shopping. Nonetheless, even disregarding this requirement, the
petition must still be denied in due course for it does not present
any substantial legal issue, but factual or evidentiary ones which
were already firmly resolved by the Court of Appeals based on
records and the evidence presented by the parties. Private
respondents claim that the factual determination by the trial court
lacks credibility for it was made by the trial judge who presided
only in one hearing of the case. The trial judge could not validly
say that the deed of absolute sale was fake because no signature
was forged, according to private respondents; and indeed a
thumbmark, said to be the sellers own, appears thereon.
In their reply, petitioners said that the copy of the petition filed with
this Court was accompanied with a certification against forum
shopping. If private respondents copy did not contain same
certification, this was only due to inadvertence. Petitioners ask for
the Courts indulgence for anyway there was substantial compliance
with Revised Circular No. 28-91.
On the contention that here only factual issues had been raised,
hence not the proper subject for review by this Court, petitioners
reply that this general rule admits of exceptions, as when the
factual findings of the Court of Appeals and the trial court are
contradictory; when the findings are grounded entirely on
speculations, surmises or conjectures; and when the Court of
Appeals overlooked certain relevant facts not disputed by the
parties which if properly considered would justify a different
conclusion. All these, according to petitioners, are present in this
case.
Before proceeding to the main issue, we shall first settle procedural
issues raised by private respondents.
While the trial judge deciding the case presided over the hearings
of the case only once, this circumstance could not have an adverse
effect on his decision. The continuity of a court and the efficacy of
its proceedings are not affected by the death, resignation or
cessation from the service of the presiding judge. A judge may
validly render a decision although he has only partly heard the
testimony of the witnesses.[10] After all, he could utilize and rely
on the records of the case, including the transcripts of testimonies
heard by the former presiding judge.
On the matter of the certification against forum-shopping,
petitioners aver that they attached one in the copy intended for this
Court. This is substantial compliance. A deviation from a rigid
enforcement of the rules may be allowed to attain their prime
objective for, after all, the dispensation of justice is the core reason
for the courts existence.[11]
While the issues raised in this petition might appear to be mainly
factual, this petition is properly given due course because of the
contradictory findings of the trial court and the Court of Appeals.
Further, the latter court apparently overlooked certain relevant
facts which justify a different conclusion.[12] Moreover, a
compelling sense to make sure that justice is done, and done rightly
in the light of the issues raised herein, constrains us from relying
on technicalities alone to resolve this petition.
Now, on the main issue. Did private respondents establish the
existence and due execution of the deed of sale? Our finding is in
the negative. First, note that private respondents as plaintiffs below
presented only a carbon copy of this deed. When the Register of
Deeds was subpoenaed to produce the deed, no original typewritten
deed but only a carbon copy was presented to the trial court.
Although the Court of Appeals calls it a duplicate original, the deed
contained filled in blanks and alterations. None of the witnesses
directly testified to prove positively and convincingly Paulinas
execution of the original deed of sale. The carbon copy did not bear
her signature, but only her alleged thumbprint. Juan Franco
testified during the direct examination that he was an instrumental
witness to the deed. However, when cross-examined and shown a
copy of the subject deed, he retracted and said that said deed of sale
was not the document he signed as witness.[13] He declared
categorically he knew nothing about it.[14]
We note that another witness, Efren Sibucao, whose testimony
should have corroborated Atty. Tagatags, was not presented and
his affidavit was withdrawn from the court,[15] leaving only Atty.
Tagatags testimony, which aside from being uncorroborated, was
self-serving.
Secondly, we agree with the trial court that irregularities abound
regarding the execution and registration of the alleged deed of sale.
On record, Atty. Tagatag testified that he himself registered the
original deed with the Register of Deeds.[16] Yet, the original was
nowhere to be found and none could be presented at the trial. Also,
the carbon copy on file, which is allegedly a duplicate original,
shows intercalations and discrepancies when compared to
purported copies in existence. The intercalations were allegedly
due to blanks left unfilled by Atty. Tagatag at the time of the deeds
registration. The blanks were allegedly filled in much later by a
representative of the Register of Deeds. In addition, the alleged
other copies of the document bore different dates of entry: May 16,
1966, 10:20 A.M.[17] and June 10, 1966, 3:16 P.M.,[18] and
different entry numbers: 66246, 74389[19] and 64369.[20] The
deed was apparently registered long after its alleged date of
execution and after Paulinas death on March 20, 1966.[21]
Admittedly, the alleged vendor Paulina Rigonan was not given a
copy.[22]
Furthermore, it appears that the alleged vendor was never asked to
vacate the premises she had purportedly sold. Felipe testified that
he had agreed to let Paulina stay in the house until her death.[23]
In Alcos v. IAC, 162 SCRA 823 (1988), the buyers immediate
possession and occupation of the property was deemed
corroborative of the truthfulness and authenticity of the deed of
sale. The alleged vendors continued possession of the property in
this case throws an inverse implication, a serious doubt on the due
execution of the deed of sale. Noteworthy, the same parcels of land
involved in the alleged sale were still included in the will
subsequently executed by Paulina and notarized by the same notary
public, Atty. Tagatag.[24] These circumstances, taken together,
militate against unguarded acceptance of the due execution and
genuineness of the alleged deed of sale.
Thirdly, we have to take into account the element of consideration
for the sale. The price allegedly paid by private respondents for
nine (9) parcels, including the three parcels in dispute, a house and
a warehouse, raises further questions. Consideration is the why of
a contract, the essential reason which moves the contracting parties
to enter into the contract.[25] On record, there is unrebutted
testimony that Paulina as landowner was financially well off. She
loaned money to several people.[26] We see no apparent and
compelling reason for her to sell the subject parcels of land with a
house and warehouse at a meager price of P850 only.
In Rongavilla vs. CA, 294 SCRA 289 (1998), private respondents
were in their advanced years, and were not in dire need of money,
except for a small amount of P2,000 which they said were loaned
by petitioners for the repair of their houses roof. We ruled against
petitioners, and declared that there was no valid sale because of
lack of consideration.
95
In the present case, at the time of the execution of the alleged
contract, Paulina Rigonan was already of advanced age and senile.
She died an octogenarian on March 20, 1966, barely over a year
when the deed was allegedly executed on January 28, 1965, but
before copies of the deed were entered in the registry allegedly on
May 16 and June 10, 1966. The general rule is that a person is not
incompetent to contract merely because of advanced years or by
reason of physical infirmities.[27] However, when such age or
infirmities have impaired the mental faculties so as to prevent the
person from properly, intelligently, and firmly protecting her
property rights then she is undeniably incapacitated. The
unrebutted testimony of Zosima Domingo shows that at the time of
the alleged execution of the deed, Paulina was already
incapacitated physically and mentally. She narrated that Paulina
played with her waste and urinated in bed. Given these
circumstances, there is in our view sufficient reason to seriously
doubt that she consented to the sale of and the price for her parcels
of land. Moreover, there is no receipt to show that said price was
paid to and received by her. Thus, we are in agreement with the
trial courts finding and conclusion on the matter:
The whole evidence on record does not show clearly that the
fictitious P850.00 consideration was ever delivered to the vendor.
Undisputably, the P850.00 consideration for the nine (9) parcels of
land including the house and bodega is grossly and shockingly
inadequate, and the sale is null and void ab initio.[28]
WHEREFORE, the petition is GRANTED. The decision and
resolution of the Court of Appeals dated August 29, 1996 and
December 11, 1996, respectively, are REVERSED and SET
ASIDE. The decision of the Regional Trial Court of Batac, Ilocos
Norte, Branch 17, dated March 23, 1994, is REINSTATED.
Costs against private respondents.
SO ORDERED.
POTENCIANO RAMIREZ, G.R. No. 165088
Petitioner,
Present:
- versus - PUNO, J., Chairperson,
SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, JJ.
MA. CECILIA RAMIREZ,
Respondent. Promulgated:
March 17, 2006
x -----------------------------------------------------------------------------
----------- x
DECISION
AZCUNA, J.:
Petitioner Potenciano Ramirez filed this petition for review on
certiorari under Rule 45 of the Rules of Court against the decision
of the Court of Appeals (CA) in CA-G.R. No. 69401.
On October 8, 1996, petitioner filed a complaint against respondent
Ma. Cecilia Ramirez before the Regional Trial Court of Olongapo
City (RTC) for annulment of: 1) a Deed of Donation; 2) Waiver of
Possessory Rights; and 3) Transfer Certificates of Title (TCT) Nos.
T-5618 and T-5617.[1] Petitioner claimed that respondent caused
the execution of the Deed of Donation and Waiver of Possessory
Rights to acquire ownership over the land and improvements then
covered by TCT Nos. T-4575 and T-4576. Using the Deed of
Donation, respondent allegedly succeeded in having TCT Nos. T-
4575 and T-4576 cancelled and TCT Nos. T-5618 and T-5617
issued in her name. Furthermore, petitioner alleged that with the
Waiver of Possessory Rights, respondent was able to cause the
Office of the City Assessor to transfer to her name the tax
declarations on the improvements in the land.[2]
The Deed of Donation and Waiver of Possessory Rights were
allegedly executed by petitioner and his wife, Dolores Ramirez, on
January 29, 1993 and October 24, 1995, respectively. However, the
death certificate presented showed that Dolores died on April 5,
1991 and, consequently, could not have executed the assailed
documents. Petitioner repudiated the other signatures appearing on
the two documents that were purportedly his and insisted that he
did not intend to transfer the properties to respondent.
In her Answer, respondent alleged that her father, petitioner, would
not have filed the case were it not for the fact that he remarried
despite his age of 84 years. She further claimed that it was her
fathers idea to cause the preparation of the Deed of Donation and
Waiver of Possessory Rights to save on expenses for publication
and inheritance taxes.
After trial, the RTC ruled that the signature of Dolores on the Deed
of Donation was a forgery while her signature on the Waiver of
Possessory Rights was genuine. It also found petitioners signatures
on both documents to be genuine. It then held petitioner and
respondent in pari delicto, as participants to the forgery, and ruled
that they must bear the consequences of their acts without cause of
action against each other in accordance with Article 1412 of the
Civil Code. The RTC dismissed the complaint.[3]
Petitioner went to the CA, which held that Doloress signature on
the Deed of Donation as well as her alleged signature appearing in
the Waiver of Possessory Rights were forgeries. The petition was
denied and the CA likewise held both parties in pari delicto.[4]
The issue is simple: whether petitioner and respondent are in pari
delicto.
As one of the modes of acquiring ownership, donations are
governed by Title 3, Book III, of the Civil Code. Donations inter
vivos are additionally governed by the general provisions on
obligations and contracts in all that is not determined by the title
governing donations.[5] Hence, the rule on pari delicto under the
general provisions of contracts is applicable to the present case.
The Court agrees with the rulings of the CA and the RTC that
petitioner and respondent are in pari delicto. Nevertheless, both
courts erred on the applicable law. Article 1412 of the Civil Code,
which they applied, refers to a situation where the cause of the
contract is unlawful or forbidden but does not constitute a violation
of the criminal laws, thus:
ARTICLE 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 other's 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
96
at fault, may demand the return of what he has given without any
obligation to comply with his promise.
On the other hand, where the act involved constitutes a criminal
offense, the applicable provision is Article 1411:
ARTICLE 1411. When the nullity proceeds from the illegality of
the cause or object of the contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price
of the contract.
This rule shall be applicable when only one of the parties is guilty;
but the innocent one may claim what he has given, and shall not be
bound to comply with his promise.
Petitioner alleged that the signatures of Dolores on the Deed of
Donation and on the Waiver of Possessory Rights are a forgery.
Respondent does not deny this allegation. Forging a persons
signature corresponds to the felony of falsification under Section
4, Title IV of the Revised Penal Code. Hence, the act of forging
Doloress signature constitutes a criminal offense under the terms
of Article 1411 of the Civil Code.
The Court now proceeds to determine if there is ground to hold the
parties in pari delicto under Article 1411 of the Civil Code. Under
this article, it must be shown that the nullity of the contract
proceeds from an illegal cause or object, and the act of executing
said contract constitutes a criminal offense. The second
requirement has already been discussed and is found to be present.
On the first element, petitioner claims that the object or cause of
the Deed of Donation and of the Waiver of Possessory Rights is
the transferred real properties and that there is nothing illegal about
them. He maintains that the illegality instead stems from the act of
forgery which pertains to consent, which is not material to the
application of Article 1411. The argument is untenable. Object and
cause are two separate elements of a donation and the illegality of
either element gives rise to the application of the doctrine of pari
delicto. Object is the subject matter of the donation, while cause is
the essential reason which moves the parties to enter into the
transaction. Petitioner wrongly asserts that the donated real
properties are both the object and cause of the donation. In fact, the
donated properties pertain only to the object. Therefore, while he
is correct in stating that the object of the donation is legal, his
argument misses the point insofar as the cause is concerned. The
cause which moved the parties to execute the Deed of Donation
and the Waiver of Possessory Rights, the motive behind the
forgery, is the desire to evade the payment of publication expenses
and inheritance taxes, which became due upon the death of
Dolores.[6] Undeniably, the Deed of Donation and the Waiver of
Possessory Rights were executed for an illegal cause, thus
completing all the requisites for the application of Article 1411.
Both petitioner and respondent are, therefore, in pari delicto.
Neither one may expect positive relief from the courts from their
illegal acts and transactions. Consequently, they will be left as they
were at the time the case was filed.
WHEREFORE, the petition is DENIED. No pronouncement as to
costs.
SO ORDERED.
TEOFILO BAUTISTA, represented by FRANCISCO MUOZ,
Attorney-in-Fact,
Petitioner,
- versus -
ALEGRIA BAUTISTA, ANGELICA BAUTISTA,
PRISCILLA BAUTISTA, GILBERT BAUTISTA, JIM
BAUTISTA, GLENDA BAUTISTA, GUEN BAUTISTA,
GELACIO BAUTISTA, GRACIA BAUTISTA, PEDRO S.
TANDOC and CESAR TAMONDONG,
Respondents.
G.R. No. 160556
Present:
QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
Promulgated:
August 3, 2007
x--------------------------------------------
- - - - - - -x
DECISION
CARPIO MORALES, J.:
During her lifetime, Teodora Rosario was the owner of a 211.80-
square meter parcel of land (the property) in Poblacion, San Carlos
City, Pangasinan, covered by Transfer Certificate of Title (TCT)
No. 12951. She died intestate on January 19, 1970, leaving behind
her spouse Isidro Bautista (Isidro) and five children, namely:
Teofilo Bautista (Teofilo), Alegria Bautista (Alegria), Angelica
Bautista (Angelica), Pacita Bautista (Pacita) and Gil Bautista (Gil).
On April 21, 1981, Isidro and four of his five children Pacita, Gil,
Alegria, and Angelica executed a Deed of Extra-Judicial
Partition[1] of the property in which Isidro waived his share in
favor of his said four children. Teofilo was excluded from the
partition.
Alegria and Angelica, who, under the Deed of Extra-Judicial
Partition, acquired of the property, sold the same, by Deed of
Absolute Sale dated May 14, 1981, to their sibling Pacita and her
common-law husband Pedro Tandoc (Pedro).[2]
Pacita and Pedro soon obtained tax declarations[3] and TCT No.
18777[4] in their names over 209.85 square meters of the property
including the shares they purchased from Angelica and Alegria.
Pacita, with Pedros conformity, later conveyed via Deed of
Absolute Sale[5] dated April 13, 1993 of the property in favor of
Cesar Tamondong, Pedros nephew.
On January 24, 1994, herein petitioner Teofilo, represented by his
attorney-in-fact Francisco Muoz, filed a Complaint[6] against his
siblings Alegria and Angelica, along with Pedro (the common-law
husband of his already deceased sister Pacita), Priscilla Bautista
(wife of his already deceased brother Gil), Pricillas children
Gilbert, Jim, Glenda, Guen, and Gelacio and Cesar Tamondong
before the Regional Trial Court (RTC) of San Carlos City, for
annulment of documents, partition, recovery of ownership,
possession and damages.
In his complaint, petitioner claimed that his co-heirs defrauded him
of his rightful share of the property and that the deed of sale
97
executed by Pacita in favor of Cesar Tamondong was fictitious as
it was impossible for her to have executed the same in Manila, she
being already seriously ill at the time.[7]
In their Answer,[8] the defendants-herein respondents sisters
Alegria and Angelica, who were joined therein by their co-
defendants-respondents Priscilla, Gilbert, Jim, Glenda, Guen,
Gelacio, and Gracia, claimed that it was Pacita who caused the
execution of the Deed of Extra-Judicial Partition and because they
trusted Pacita, they signed the document without scrutinizing it;
and that they learned about the contents of the partition only upon
Teofilos filing of the Complaint.
By way of cross-claim[9] against Pedro and Cesar Tamondong, the
answering defendants-respondents claimed that a few weeks after
the partition, Pacita approached Angelica and Alegria to borrow
their share in the property on her representation that it would be
used as security for a business loan; and that agreeing to
accommodate Pacita, Angelica and Alegria signed a document
which Pacita prepared which turned out to be the deed of absolute
sale in Pacitas favor.
In their Answer with Counterclaim,[10] Pedro and Cesar
Tamondong claimed that they were buyers in good faith.[11] In
any event, they contended that prescription had set in, and that the
complaint was a mere rehash of a previous complaint for
falsification of public document which had been dismissed by the
prosecutors office.[12]
By Decision[13] of June 24, 1999, Branch 57 of the RTC of San
Carlos City rendered judgment in favor of Teofilo, disposing as
follows:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered:
1) Declaring as null and void and of no force and effect the
following documents:
a) Deed of Extra-Judicial Partition dated April 21, 1981;
b) Deed of Absolute Sale [d]ated May 14, 1981;
c) Transfer Certificate of Title No. 18777;
d) Tax Declaration Nos. 59941, 45999, and 46006;
e) Deed of Absolute Sale dated April 13, 1993;
2) Ordering the partition of the land in question among the
compulsory heirs of the late Spouses Isidro Bautista and Teodora
Rosario
3) Ordering defendants Cesar Tamondong and Pedro Tandoc to
vacate the premises.
No pronouncement[s] as to cost.[14] (Underscoring supplied)
On appeal by Pedro and Cesar Tamondong, the Court of Appeals,
by Decision[15] of February 21, 2003, reversed and set aside the
trial courts decision and dismissed Teofilos complaint on the
ground of prescription.[16] His Motion for Reconsideration[17]
having been denied,[18] Teofilo filed the present Petition for
Review on Certiorari.[19]
The petition is impressed with merit.
The Court of Appeals, in holding that prescription had set in,
reasoned:
Unquestionably, the Deed of Extra-judicial Partition is invalid
insofar as it affects the legitimate share pertaining to the defendant-
appellee in the property in question. There can be no question that
the Deed of Extra-judicial Partition was fraudulently obtained.
Hence, an action to set it aside on the ground of fraud could be
instituted. Such action for the annulment of the said partition,
however, must be brought within four years from the discovery of
the fraud. Significantly, it cannot be denied, either, that by its
registration in the manner provided by law, a transaction may be
known actually or constructively.
In the present case, defendant-appellee is deemed to have been
constructively notified of the extra-judicial settlement by reason of
its registration and annotation in the certificate of title over the
subject lot on December 21, 1981. From the time of its registration,
defendant-appellee had four (4) years or until 21 December 1985,
within which to file his objections or to demand the appropriate
settlement of the estate. Unfortunately, defendant-appellee failed
to institute the present civil action within said period, having filed
the same only on 17 January 1994 or more than twelve (12) years
from the registration of the deed of extra-judicial partition. Hence,
defendant-appellees right to question the deed of extra-judicial
partition has prescribed.
Even on the extreme assumption that defendant-appellees
complaint in Civil Case No. SC-1797 is an action for reconveyance
of a portion of the property which rightfully belongs to him based
upon an implied trust resulting from fraud, said remedy is already
barred by prescription. An action of reconveyance of land based
upon an implied or constructive trust prescribes after ten years
from the registration of the deed or from the issuance of the title.
xxxx
The complaint of defendant-appellee was filed only on 17 January
1994, while the deed of extra-judicial partition was registered and
inscribed on Transfer Certificate of Title 12951, on 21 December
1981. Clearly, the complaint was filed twelve (12) years and
twenty-seven (27) days after the inscription of the deed of extra-
judicial partition on TCT 12951. Hence, even if We consider
defendant-appellees complaint as an action for reconveyance
against plaintiff-appellants on the basis of implied trust, we find
and so hold that his remedy for reconveyance has also
prescribed.[20] (Underscoring supplied)
As gathered from the above-quoted portion of its decision, the
Court of Appeals applied the prescriptive periods for annulment on
the ground of fraud and for reconveyance of property under a
constructive trust.
The extra-judicial partition executed by Teofilos co-heirs was
invalid, however. So Segura v. Segura[21] instructs:
x x x The partition in the present case was invalid because it
excluded six of the nine heirs who were entitled to equal shares in
the partitioned property. Under the rule, no extra-judicial
settlement shall be binding upon any person who has not
participated therein or had no notice thereof. As the partition was
a total nullity and did not affect the excluded heirs, it was not
correct for the trial court to hold that their right to challenge the
partition had prescribed after two years x x x[22] (Underscoring
supplied)
The deed of extra-judicial partition in the case at bar being invalid,
the action to have it annulled does not prescribe.[23]
Since the deed of extra-judicial partition is invalid, it transmitted
no rights to Teofilos co-heirs.[24] Consequently, the subsequent
transfer by Angelica and Alegria of of the property to Pacita and
98
her husband Pedro, as well as the transfer of of the property to
Cesar Tamondong is invalid, hence, conferring no rights upon the
transferees under the principle of nemo dat quod non habet.[25]
WHEREFORE, the petition is GRANTED. The decision of the
court a quo is SET ASIDE and the Decision of the Regional Trial
Court of San Carlos City, Pangasinan, Branch 57 is
REINSTATED.
SO ORDERED.
G.R. No. 156364 September 3, 2007
JACOBUS BERNHARD HULST, petitioner,
vs.
PR BUILDERS, INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court assailing the Decision1 dated
October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No.
60981.
The facts:
Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna
Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to
Sell with PR Builders, Inc. (respondent), for the purchase of a 210-
sq m residential unit in respondent's townhouse project in
Barangay Niyugan, Laurel, Batangas.
When respondent failed to comply with its verbal promise to
complete the project by June 1995, the spouses Hulst filed before
the Housing and Land Use Regulatory Board (HLURB) a
complaint for rescission of contract with interest, damages and
attorney's fees, docketed as HLRB Case No. IV6-071196-0618.
On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino
(HLURB Arbiter) rendered a Decision2 in favor of spouses Hulst,
the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
in favor of the complainant, rescinding the Contract to Sell and
ordering respondent to:
1) Reimburse complainant the sum of P3,187,500.00, representing
the purchase price paid by the complainants to P.R. Builders, plus
interest thereon at the rate of twelve percent (12%) per annum from
the time complaint was filed;
2) Pay complainant the sum of P297,000.00 as actual damages;
3) Pay complainant the sum of P100,000.00 by way of moral
damages;
4) Pay complainant the sum of P150,000.00 as exemplary
damages;
5) P50,000.00 as attorney's fees and for other litigation expenses;
and
6) Cost of suit.
SO ORDERED.3
Meanwhile, spouses Hulst divorced. Ida assigned her rights over
the purchased property to petitioner.4 From then on, petitioner
alone pursued the case.
On August 21, 1997, the HLURB Arbiter issued a Writ of
Execution addressed to the Ex-Officio Sheriff of the Regional Trial
Court of Tanauan, Batangas directing the latter to execute its
judgment.5
On April 13, 1998, the Ex-Officio Sheriff proceeded to implement
the Writ of Execution. However, upon complaint of respondent
with the CA on a Petition for Certiorari and Prohibition, the levy
made by the Sheriff was set aside, requiring the Sheriff to levy first
on respondent's personal properties.6 Sheriff Jaime B. Ozaeta
(Sheriff) tried to implement the writ as directed but the writ was
returned unsatisfied.7
On January 26, 1999, upon petitioner's motion, the HLURB
Arbiter issued an Alias Writ of Execution.8
On March 23, 1999, the Sheriff levied on respondent's 15 parcels
of land covered by 13 Transfer Certificates of Title (TCT)9 in
Barangay Niyugan, Laurel, Batangas.10
In a Notice of Sale dated March 27, 2000, the Sheriff set the public
auction of the levied properties on April 28, 2000 at 10:00 a.m..11
Two days before the scheduled public auction or on April 26, 2000,
respondent filed an Urgent Motion to Quash Writ of Levy with the
HLURB on the ground that the Sheriff made an overlevy since the
aggregate appraised value of the levied properties at P6,500.00 per
sq m is P83,616,000.00, based on the Appraisal Report12 of Henry
Hunter Bayne Co., Inc. dated December 11, 1996, which is over
and above the judgment award.13
At 10:15 a.m. of the scheduled auction date of April 28, 2000,
respondent's counsel objected to the conduct of the public auction
on the ground that respondent's Urgent Motion to Quash Writ of
Levy was pending resolution. Absent any restraining order from
the HLURB, the Sheriff proceeded to sell the 15 parcels of land.
Holly Properties Realty Corporation was the winning bidder for all
15 parcels of land for the total amount of P5,450,653.33. The sum
of P5,313,040.00 was turned over to the petitioner in satisfaction
of the judgment award after deducting the legal fees.14
At 4:15 p.m. of the same day, while the Sheriff was at the HLURB
office to remit the legal fees relative to the auction sale and to
submit the Certificates of Sale15 for the signature of HLURB
Director Belen G. Ceniza (HLURB Director), he received the
Order dated April 28, 2000 issued by the HLURB Arbiter to
suspend the proceedings on the matter.16
Four months later, or on August 28, 2000, the HLURB Arbiter and
HLURB Director issued an Order setting aside the sheriff's levy on
respondent's real properties,17 reasoning as follows:
While we are not making a ruling that the fair market value of the
levied properties is PhP6,500.00 per square meter (or an aggregate
value of PhP83,616,000.00) as indicated in the Hunter Baynes
Appraisal Report, we definitely cannot agree with the position of
the Complainants and the Sheriff that the aggregate value of the
12,864.00-square meter levied properties is only around
PhP6,000,000.00. The disparity between the two valuations are
[sic] so egregious that the Sheriff should have looked into the
matter first before proceeding with the execution sale of the said
properties, especially when the auction sale proceedings was
seasonably objected by Respondent's counsel, Atty. Noel Mingoa.
However, instead of resolving first the objection timely posed by
Atty. Mingoa, Sheriff Ozaete totally disregarded the objection
99
raised and, posthaste, issued the corresponding Certificate of Sale
even prior to the payment of the legal fees (pars. 7 & 8, Sheriff's
Return).
While we agree with the Complainants that what is material in an
execution sale proceeding is the amount for which the properties
were bidded and sold during the public auction and that, mere
inadequacy of the price is not a sufficient ground to annul the sale,
the court is justified to intervene where the inadequacy of the price
shocks the conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The
difference between PhP83,616,000.00 and Php6,000,000.00 is
PhP77,616,000.00 and it definitely invites our attention to look into
the proceedings had especially so when there was only one bidder,
the HOLLY PROPERTIES REALTY CORPORATION
represented by Ma, Chandra Cacho (par. 7, Sheriff's Return) and
the auction sale proceedings was timely objected by Respondent's
counsel (par. 6, Sheriff's Return) due to the pendency of the Urgent
Motion to Quash the Writ of Levy which was filed prior to the
execution sale.
Besides, what is at issue is not the value of the subject properties
as determined during the auction sale, but the determination of the
value of the properties levied upon by the Sheriff taking into
consideration Section 9(b) of the 1997 Rules of Civil Procedure x
x x.
xxxx
It is very clear from the foregoing that, even during levy, the
Sheriff has to consider the fair market value of the properties levied
upon to determine whether they are sufficient to satisfy the
judgment, and any levy in excess of the judgment award is void
(Buan v. Court of Appeals, 235 SCRA 424).
x x x x18 (Emphasis supplied).
The dispositive portion of the Order reads:
WHEREFORE, the levy on the subject properties made by the Ex-
Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET
ASIDE and the said Sheriff is hereby directed to levy instead
Respondent's real properties that are reasonably sufficient to
enforce its final and executory judgment, this time, taking into
consideration not only the value of the properties as indicated in
their respective tax declarations, but also all the other determinants
at arriving at a fair market value, namely: the cost of acquisition,
the current value of like properties, its actual or potential uses, and
in the particular case of lands, their size, shape or location, and the
tax declarations thereon.
SO ORDERED.19
A motion for reconsideration being a prohibited pleading under
Section 1(h), Rule IV of the 1996 HLURB Rules and Procedure,
petitioner filed a Petition for Certiorari and Prohibition with the
CA on September 27, 2000.
On October 30, 2002, the CA rendered herein assailed Decision20
dismissing the petition. The CA held that petitioner's insistence
that Barrozo v. Macaraeg21 does not apply since said case stated
that "when there is a right to redeem inadequacy of price should
not be material" holds no water as what is obtaining in this case is
not "mere inadequacy," but an inadequacy that shocks the senses;
that Buan v. Court of Appeals22 properly applies since the
questioned levy covered 15 parcels of land posited to have an
aggregate value of P83,616,000.00 which shockingly exceeded the
judgment debt of only around P6,000,000.00.
Without filing a motion for reconsideration,23 petitioner took the
present recourse on the sole ground that:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
IN AFFIRMING THE ARBITER'S ORDER SETTING ASIDE
THE LEVY MADE BY THE SHERIFF ON THE SUBJECT
PROPERTIES.24
Before resolving the question whether the CA erred in affirming
the Order of the HLURB setting aside the levy made by the sheriff,
it behooves this Court to address a matter of public and national
importance which completely escaped the attention of the HLURB
Arbiter and the CA: petitioner and his wife are foreign nationals
who are disqualified under the Constitution from owning real
property in their names.
Section 7 of Article XII of the 1987 Constitution provides:
Sec. 7. Save in cases of hereditary succession, no private lands
shall be transferred or conveyed except to individuals,
corporations, or associations qualified to acquire or hold lands of
the public domain. (Emphasis supplied).
The capacity to acquire private land is made dependent upon the
capacity to acquire or hold lands of the public domain. Private land
may be transferred or conveyed only to individuals or entities
"qualified to acquire lands of the public domain." The 1987
Constitution reserved the right to participate in the disposition,
exploitation, development and utilization of lands of the public
domain for Filipino citizens25 or corporations at least 60 percent
of the capital of which is owned by Filipinos.26 Aliens, whether
individuals or corporations, have been disqualified from acquiring
public lands; hence, they have also been disqualified from
acquiring private lands.27
Since petitioner and his wife, being Dutch nationals, are proscribed
under the Constitution from acquiring and owning real property, it
is unequivocal that the Contract to Sell entered into by petitioner
together with his wife and respondent is void. Under Article 1409
(1) and (7) of the Civil Code, all contracts whose cause, object or
purpose is contrary to law or public policy and those expressly
prohibited or declared void by law are inexistent and void from the
beginning. Article 1410 of the same Code provides that the action
or defense for the declaration of the inexistence of a contract does
not prescribe. A void contract is equivalent to nothing; it produces
no civil effect.28 It does not create, modify or extinguish a juridical
relation.29
Generally, parties to a void agreement cannot expect the aid of the
law; the courts leave them as they are, because they are deemed in
pari delicto or "in equal fault."30 In pari delicto is "a universal
doctrine which holds that no action arises, in equity or at law, from
an illegal contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold or
delivered, or the money agreed to be paid, or damages for its
violation; and where the parties are in pari delicto, no affirmative
relief of any kind will be given to one against the other."31
This rule, however, is subject to exceptions32 that permit the return
of that which may have been given under a void contract to: (a) the
innocent party (Arts. 1411-1412, Civil Code);33 (b) the debtor who
pays usurious interest (Art. 1413, Civil Code);34 (c) the party
repudiating the void contract before the illegal purpose is
accomplished or before damage is caused to a third person and if
public interest is subserved by allowing recovery (Art. 1414, Civil
Code);35 (d) the incapacitated party if the interest of justice so
demands (Art. 1415, Civil Code);36 (e) the party for whose
protection the prohibition by law is intended if the agreement is not
illegal per se but merely prohibited and if public policy would be
100
enhanced by permitting recovery (Art. 1416, Civil Code);37 and
(f) the party for whose benefit the law has been intended such as in
price ceiling laws (Art. 1417, Civil Code)38 and labor laws (Arts.
1418-1419, Civil Code).39
It is significant to note that the agreement executed by the parties
in this case is a Contract to Sell and not a contract of sale. A
distinction between the two is material in the determination of
when ownership is deemed to have been transferred to the buyer or
vendee and, ultimately, the resolution of the question on whether
the constitutional proscription has been breached.
In a contract of sale, the title passes to the buyer upon the delivery
of the thing sold. The vendor has lost and cannot recover the
ownership of the property until and unless the contract of sale is
itself resolved and set aside.40 On the other hand, a contract to sell
is akin to a conditional sale where the efficacy or obligatory force
of the vendor's obligation to transfer title is subordinated to the
happening of a future and uncertain event, so that if the suspensive
condition does not take place, the parties would stand as if the
conditional obligation had never existed.41 In other words, in a
contract to sell, the prospective seller agrees to transfer ownership
of the property to the buyer upon the happening of an event, which
normally is the full payment of the purchase price. But even upon
the fulfillment of the suspensive condition, ownership does not
automatically transfer to the buyer. The prospective seller still has
to convey title to the prospective buyer by executing a contract of
absolute sale.42
Since the contract involved here is a Contract to Sell, ownership
has not yet transferred to the petitioner when he filed the suit for
rescission. While the intent to circumvent the constitutional
proscription on aliens owning real property was evident by virtue
of the execution of the Contract to Sell, such violation of the law
did not materialize because petitioner caused the rescission of the
contract before the execution of the final deed transferring
ownership.
Thus, exception (c) finds application in this case. Under Article
1414, one who repudiates the agreement and demands his money
before the illegal act has taken place is entitled to recover.
Petitioner is therefore entitled to recover what he has paid,
although the basis of his claim for rescission, which was granted
by the HLURB, was not the fact that he is not allowed to acquire
private land under the Philippine Constitution. But petitioner is
entitled to the recovery only of the amount of P3,187,500.00,
representing the purchase price paid to respondent. No damages
may be recovered on the basis of a void contract; being
nonexistent, the agreement produces no juridical tie between the
parties involved.43 Further, petitioner is not entitled to actual as
well as interests thereon,44 moral and exemplary damages and
attorney's fees.
The Court takes into consideration the fact that the HLURB
Decision dated April 22, 1997 has long been final and executory.
Nothing is more settled in the law than that a decision that has
acquired finality becomes immutable and unalterable and may no
longer be modified in any respect even if the modification is meant
to correct erroneous conclusions of fact or law and whether it was
made by the court that rendered it or by the highest court of the
land.45 The only recognized exceptions to the general rule are the
correction of clerical errors, the so-called nunc pro tunc entries
which cause no prejudice to any party, void judgments, and
whenever circumstances transpire after the finality of the decision
rendering its execution unjust and inequitable.46 None of the
exceptions is present in this case. The HLURB decision cannot be
considered a void judgment, as it was rendered by a tribunal with
jurisdiction over the subject matter of the complaint.47
Ineluctably, the HLURB Decision resulted in the unjust
enrichment of petitioner at the expense of respondent. Petitioner
received more than what he is entitled to recover under the
circumstances.
Article 22 of the Civil Code which embodies the maxim, nemo ex
alterius incommode 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.48 There
is unjust enrichment when a person unjustly retains a benefit at the
loss of another, or when a person retains money or property of
another against the fundamental principles of justice, equity and
good conscience.49
A sense of justice and fairness demands that petitioner should not
be allowed to benefit from his act of entering into a contract to sell
that violates the constitutional proscription.
This is not a case of equity overruling or supplanting a positive
provision of law or judicial rule. Rather, equity is exercised in this
case "as the complement of legal jurisdiction [that] seeks to reach
and to complete justice where courts of law, through the
inflexibility of their rules and want of power to adapt their
judgments to the special circumstances of cases, are incompetent
to do so."50
The purpose of the exercise of equity jurisdiction in this case is to
prevent unjust enrichment and to ensure restitution. Equity
jurisdiction aims to do complete justice in cases where a court of
law is unable to adapt its judgments to the special circumstances of
a case because of the inflexibility of its statutory or legal
jurisdiction.51
The sheriff delivered to petitioner the amount of P5,313,040.00
representing the net proceeds (bidded amount is P5,450,653.33) of
the auction sale after deducting the legal fees in the amount of
P137,613.33.52 Petitioner is only entitled to P3,187,500.00, the
amount of the purchase price of the real property paid by petitioner
to respondent under the Contract to Sell. Thus, the Court in the
exercise of its equity jurisdiction may validly order petitioner to
return the excess amount of P2,125,540.00.
The Court shall now proceed to resolve the single issue raised in
the present petition: whether the CA seriously erred in affirming
the HLURB Order setting aside the levy made by the Sheriff on the
subject properties.
Petitioner avers that the HLURB Arbiter and Director had no
factual basis for pegging the fair market value of the levied
properties at P6,500.00 per sq m or P83,616,000.00; that reliance
on the appraisal report was misplaced since the appraisal was based
on the value of land in neighboring developed subdivisions and on
the assumption that the residential unit appraised had already been
built; that the Sheriff need not determine the fair market value of
the subject properties before levying on the same since what is
material is the amount for which the properties were bidded and
101
sold during the public auction; that the pendency of any motion is
not a valid ground for the Sheriff to suspend the execution
proceedings and, by itself, does not have the effect of restraining
the Sheriff from proceeding with the execution.
Respondent, on the other hand, contends that while it is true that
the HLURB Arbiter and Director did not categorically state the
exact value of the levied properties, said properties cannot just
amount to P6,000,000.00; that the HLURB Arbiter and Director
correctly held that the value indicated in the tax declaration is not
the sole determinant of the value of the property.
The petition is impressed with merit.
If the judgment is for money, the sheriff or other authorized officer
must execute the same pursuant to the provisions of Section 9, Rule
39 of the Revised Rules of Court, viz:
Sec. 9. Execution of judgments for money, how enforced.
(a) Immediate payment on demand. - The officer shall enforce an
execution of a judgment for money by demanding from the
judgment obligor the immediate payment of the full amount stated
in the writ of execution and all lawful fees. x x x
(b) Satisfaction by levy. - If the judgment obligor cannot pay all or
part of the obligation in cash, certified bank check or other mode
of payment acceptable to the judgment obligee, the officer shall
levy upon the properties of the judgment obligor of every kind and
nature whatsoever which may be disposed of for value and not
otherwise exempt from execution, giving the latter the option to
immediately choose which property or part thereof may be levied
upon, sufficient to satisfy the judgment. If the judgment obligor
does not exercise the option, the officer shall first levy on the
personal properties, if any, and then on the real properties if the
personal properties are insufficient to answer for the judgment.
The sheriff shall sell only a sufficient portion of the personal or real
property of the judgment obligor which has been levied upon.
When there is more property of the judgment obligor than is
sufficient to satisfy the judgment and lawful fees, he must sell only
so much of the personal or real property as is sufficient to satisfy
the judgment and lawful fees.
Real property, stocks, shares, debts, credits, and other personal
property, or any interest in either real or personal property, may be
levied upon in like manner and with like effect as under a writ of
attachment (Emphasis supplied).53
Thus, under Rule 39, in executing a money judgment against the
property of the judgment debtor, the sheriff shall levy on all
property belonging to the judgment debtor as is amply sufficient to
satisfy the judgment and costs, and sell the same paying to the
judgment creditor so much of the proceeds as will satisfy the
amount of the judgment debt and costs. Any excess in the proceeds
shall be delivered to the judgment debtor unless otherwise directed
by the judgment or order of the court.54
Clearly, there are two stages in the execution of money judgments.
First, the levy and then the execution sale.
Levy has been defined as the act or acts by which an officer sets
apart or appropriates a part or the whole of a judgment debtor's
property for the purpose of satisfying the command of the writ of
execution.55 The object of a levy is to take property into the
custody of the law, and thereby render it liable to the lien of the
execution, and put it out of the power of the judgment debtor to
divert it to any other use or purpose.56
On the other hand, an execution sale is a sale by a sheriff or other
ministerial officer under the authority of a writ of execution of the
levied property of the debtor.57
In the present case, the HLURB Arbiter and Director gravely
abused their discretion in setting aside the levy conducted by the
Sheriff for the reason that the auction sale conducted by the sheriff
rendered moot and academic the motion to quash the levy. The
HLURB Arbiter lost jurisdiction to act on the motion to quash the
levy by virtue of the consummation of the auction sale. Absent any
order from the HLURB suspending the auction sale, the sheriff
rightfully proceeded with the auction sale. The winning bidder had
already paid the winning bid. The legal fees had already been
remitted to the HLURB. The judgment award had already been
turned over to the judgment creditor. What was left to be done was
only the issuance of the corresponding certificates of sale to the
winning bidder. In fact, only the signature of the HLURB Director
for that purpose was needed58 a purely ministerial act.
A purely ministerial act or duty is one which an officer or tribunal
performs in a given state of facts, in a prescribed manner, in
obedience to the mandate of a legal authority, without regard for or
the exercise of his own judgment upon the propriety or impropriety
of the act done. If the law imposes a duty upon a public officer and
gives him the right to decide how or when the duty shall be
performed, such duty is discretionary and not ministerial. The duty
is ministerial only when the discharge of the same requires neither
the exercise of official discretion nor judgment.59 In the present
case, all the requirements of auction sale under the Rules have been
fully complied with to warrant the issuance of the corresponding
certificates of sale.
And even if the Court should go into the merits of the assailed
Order, the petition is meritorious on the following grounds:
Firstly, the reliance of the HLURB Arbiter and Director, as well as
the CA, on Barrozo v. Macaraeg60 and Buan v. Court of
Appeals61 is misplaced.
The HLURB and the CA misconstrued the Court's
pronouncements in Barrozo. Barrozo involved a judgment debtor
who wanted to repurchase properties sold at execution beyond the
one-year redemption period. The statement of the Court in
Barrozo, that "only where such inadequacy shocks the conscience
the courts will intervene," is at best a mere obiter dictum. This
declaration should be taken in the context of the other declarations
of the Court in Barrozo, to wit:
Another point raised by appellant is that the price paid at the
auction sale was so inadequate as to shock the conscience of the
court. Supposing that this issue is open even after the one-year
period has expired and after the properties have passed into the
hands of third persons who may have paid a price higher than the
auction sale money, the first thing to consider is that the stipulation
contains no statement of the reasonable value of the properties; and
although defendant' answer avers that the assessed value was
P3,960 it also avers that their real market value was P2,000 only.
Anyway, mere inadequacy of price which was the complaint'
allegation is not sufficient ground to annul the sale. It is only
where such inadequacy shocks the conscience that the courts will
intervene. x x x Another consideration is that the assessed value
being P3,960 and the purchase price being in effect P1,864 (P464
sale price plus P1,400 mortgage lien which had to be discharged)
the conscience is not shocked upon examining the prices paid in
the sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero
v. Guerrero, 57 Phil., 445, sales which were left undisturbed by this
Court.
102
Furthermore, where there is the right to redeem as in this case
inadequacy of price should not be material because the judgment
debtor may re-acquire the property or else sell his right to redeem
and thus recover any loss he claims to have suffered by reason of
the price obtained at the execution sale.
x x x x (Emphasis supplied).62
In other words, gross inadequacy of price does not nullify an
execution sale. In an ordinary sale, for reason of equity, a
transaction may be invalidated on the ground of inadequacy of
price, or when such inadequacy shocks one's conscience as to
justify the courts to interfere; such does not follow when the law
gives the owner the right to redeem as when a sale is made at public
auction,63 upon the theory that the lesser the price, the easier it is
for the owner to effect redemption.64 When there is a right to
redeem, inadequacy of price should not be material because the
judgment debtor may re-acquire the property or else sell his right
to redeem and thus recover any loss he claims to have suffered by
reason of the price obtained at the execution sale.65 Thus,
respondent stood to gain rather than be harmed by the low sale
value of the auctioned properties because it possesses the right of
redemption. More importantly, the subject matter in Barrozo is the
auction sale, not the levy made by the Sheriff.
The Court does not sanction the piecemeal interpretation of a
decision. To get the true intent and meaning of a decision, no
specific portion thereof should be isolated and resorted to, but the
decision must be considered in its entirety.66
As regards Buan, it is cast under an entirely different factual milieu.
It involved the levy on two parcels of land owned by the judgment
debtor; and the sale at public auction of one was sufficient to fully
satisfy the judgment, such that the levy and attempted execution of
the second parcel of land was declared void for being in excess of
and beyond the original judgment award granted in favor of the
judgment creditor.
In the present case, the Sheriff complied with the mandate of
Section 9, Rule 39 of the Revised Rules of Court, to "sell only a
sufficient portion" of the levied properties "as is sufficient to
satisfy the judgment and the lawful fees." Each of the 15 levied
properties was successively bidded upon and sold, one after the
other until the judgment debt and the lawful fees were fully
satisfied. Holly Properties Realty Corporation successively bidded
upon and bought each of the levied properties for the total amount
of P5,450,653.33 in full satisfaction of the judgment award and
legal fees.67
Secondly, the Rules of Court do not require that the value of the
property levied be exactly the same as the judgment debt; it can be
less or more than the amount of debt. This is the contingency
addressed by Section 9, Rule 39 of the Rules of Court. In the levy
of property, the Sheriff does not determine the exact valuation of
the levied property. Under Section 9, Rule 39, in conjunction with
Section 7, Rule 57 of the Rules of Court, the sheriff is required to
do only two specific things to effect a levy upon a realty: (a) file
with the register of deeds a copy of the order of execution, together
with the description of the levied property and notice of execution;
and (b) leave with the occupant of the property copy of the same
order, description and notice.68 Records do not show that
respondent alleged non-compliance by the Sheriff of said
requisites.
Thirdly, in determining what amount of property is sufficient out
of which to secure satisfaction of the execution, the Sheriff is left
to his own judgment. He may exercise a reasonable discretion, and
must exercise the care which a reasonably prudent person would
exercise under like conditions and circumstances, endeavoring on
the one hand to obtain sufficient property to satisfy the purposes of
the writ, and on the other hand not to make an unreasonable and
unnecessary levy.69 Because it is impossible to know the precise
quantity of land or other property necessary to satisfy an execution,
the Sheriff should be allowed a reasonable margin between the
value of the property levied upon and the amount of the execution;
the fact that the Sheriff levies upon a little more than is necessary
to satisfy the execution does not render his actions improper.70
Section 9, Rule 39, provides adequate safeguards against excessive
levying. The Sheriff is mandated to sell so much only of such real
property as is sufficient to satisfy the judgment and lawful fees.
In the absence of a restraining order, no error, much less abuse of
discretion, can be imputed to the Sheriff in proceeding with the
auction sale despite the pending motion to quash the levy filed by
the respondents with the HLURB. It is elementary that sheriffs, as
officers charged with the delicate task of the enforcement and/or
implementation of judgments, must, in the absence of a restraining
order, act with considerable dispatch so as not to unduly delay the
administration of justice; otherwise, the decisions, orders, or other
processes of the courts of justice and the like would be futile.71 It
is not within the jurisdiction of the Sheriff to consider, much less
resolve, respondent's objection to the continuation of the conduct
of the auction sale. The Sheriff has no authority, on his own, to
suspend the auction sale. His duty being ministerial, he has no
discretion to postpone the conduct of the auction sale.
Finally, one who attacks a levy on the ground of excessiveness
carries the burden of sustaining that contention.72 In the
determination of whether a levy of execution is excessive, it is
proper to take into consideration encumbrances upon the property,
as well as the fact that a forced sale usually results in a sacrifice;
that is, the price demanded for the property upon a private sale is
not the standard for determining the excessiveness of the levy.73
Here, the HLURB Arbiter and Director had no sufficient factual
basis to determine the value of the levied property. Respondent
only submitted an Appraisal Report, based merely on surmises.
The Report was based on the projected value of the townhouse
project after it shall have been fully developed, that is, on the
assumption that the residential units appraised had already been
built. The Appraiser in fact made this qualification in its Appraisal
Report: "[t]he property subject of this appraisal has not been
constructed. The basis of the appraiser is on the existing model
units."74 Since it is undisputed that the townhouse project did not
push through, the projected value did not become a reality. Thus,
the appraisal value cannot be equated with the fair market value.
The Appraisal Report is not the best proof to accurately show the
value of the levied properties as it is clearly self-serving.
Therefore, the Order dated August 28, 2000 of HLURB Arbiter
Aquino and Director Ceniza in HLRB Case No. IV6-071196-0618
which set aside the sheriff's levy on respondent's real properties,
was clearly issued with grave abuse of discretion. The CA erred in
affirming said Order.
WHEREFORE, the instant petition is GRANTED. The Decision
dated October 30, 2002 of the Court of Appeals in CA-G.R. SP No.
60981 is REVERSED and SET ASIDE. The Order dated August
28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director
Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is declared
NULL and VOID. HLURB Arbiter Aquino and Director Ceniza
are directed to issue the corresponding certificates of sale in favor
of the winning bidder, Holly Properties Realty Corporation.
Petitioner is ordered to return to respondent the amount of
P2,125,540.00, without interest, in excess of the proceeds of the
auction sale delivered to petitioner. After the finality of herein
judgment, the amount of P2,125,540.00 shall earn 6% interest until
fully paid.
103
SO ORDERED.

104
JOAQUIN QUIMPO, SR., substituted In 1989, Danilo, Marites, Anita and Helen wanted to take
by Heirs of Joaquin Quimpo, Sr., possession of the portions allotted to them, but Joaquin prevented
Petitioners, them from occupying the same. Joaquin also refused to heed
- versus - respondents demand for partition of parcels I and II, prompting
CONSUELO ABAD VDA. DE respondents to file a complaint for judicial partition and/or
BELTRAN, IRENEO ABAD, recovery of possession with accounting and damages with the
DANILO ABAD, MARITES Regional Trial Court (RTC) of Camarines Sur.[3]
ABAD, ANITA and HELEN ABAD, Joaquin denied the material allegations in the complaint, and
Respondents. averred, as his special and affirmative defenses, lack of cause of
G.R. No. 160956 action and prescription. He asserted absolute ownership over
parcels III and IV, claiming that he purchased these lands from
Present: Eustaquia in 1946, evidenced by deeds of sale executed on August
23, 1946 and December 2, 1946. He, likewise, claimed continuous,
YNARES-SANTIAGO, J., peaceful and adverse possession of these lots since 1946, and
Chairperson, alleged that Consuelos occupation of the portion of the San Jose
AUSTRIA-MARTINEZ, property was by mere tolerance.[4]
CORONA,*
NACHURA, and During the pendency of the case, Joaquin died. Accordingly, he
REYES, JJ. was substituted by his wife, Estela Tena-Quimpo and his children,
namely, Jose, Adelia, Joaquin, Anita, Angelita, Amelia, Arlene,
Joy and Aleli, all surnamed Quimpo (the Quimpos).
Promulgated:
On December 12, 1996, the RTC rendered a Decision[5] in favor
February 13, 2008 of respondents, declaring them as co-owners of all the properties
x------------------------------------------------------------------------------ left by Eustaquia. It rejected Joaquins claim of absolute ownership
-----------x over parcels III and IV, and declared void the purported deeds of
sale executed by Eustaquia for lack of consideration and consent.
The court found that at the time of the execution of these deeds,
RESOLUTION Joaquin was not gainfully employed and had no known source of
income, which shows that the deeds of sale state a false and
NACHURA, J.: fictitious consideration. Likewise, Eustaquia could not have
possibly given her consent to the sale because she was already 91
This Petition for Review on Certiorari assails the July 22, 2003 years old at that time. The RTC also sustained the oral partition
Decision[1] of the Court of Appeals in CA-G.R. CV No. 56187, among the heirs in 1966. According to the trial court, the
and the October 16, 2003 Resolution denying the motion for its possession and occupation of land by respondents Consuelo and
reconsideration. Ireneo, and Joaquins acquiescence for 23 years, furnish sufficient
evidence that there was actual partition of the properties. It held
Eustaquia Perfecto-Abad (Eustaquia) was the owner of several that Joaquin and his heirs are now estopped from claiming
parcels of land in Goa, Camarines Sur, described as follows: ownership over the entire San Jose property as well as over parcel
IV.
Parcel I - Residential land situated at Abucayan, Goa, Camarines
Sur covering an area of 684 square-meters; The RTC disposed, thus:

Parcel II Coconut land situated at Abucayan, Goa, Camarines Sur
covering an area of 4.3731 hectares;
Parcel III Residential land situated at San Jose Street, Goa,
Camarines Sur covering an area of 1,395 square meters; and
Parcel IV Abaca and coconut land situated at Abucayan, Goa,
Camarines Sur covering an area 42.6127 hectares.[2]
Eustaquia died intestate in 1948 leaving these parcels of land to her
grandchild and great grandchildren, namely, Joaquin Quimpo and
respondents Consuelo, Ireneo, Danilo, Marites, Anita and Helen,
all surnamed Abad.
WHEREFORE, decision is hereby rendered in favor of the
plaintiffs Consuelo Vda. de Beltran, Ireneo Abad, Marites Abad,
Danilo Abad, Anita Abad and Helen Abad and against defendant
Joaquin Quimpo, substituted by the latters wife Estela Tena and
their children, Amparo, Jose, Amelia, Joaquin Jr., Adelia, Arlene,
Anita, Joy, Angelita and Aleli, all surnamed Quimpo, as follows:
1. Ordering the above-named substituted defendants, and the
plaintiffs to execute their written agreement of partition with
respect to parcel Nos. III and IV more particularly described in
paragraph 7 of the complaint, and for them to execute an agreement
of partition with respect to parcel Nos. I and II, both parcels are
more particularly described in paragraph 7 of the complaint;

In 1966, Joaquin and respondents undertook an oral partition of
parcel III (San Jose property) and parcel IV. Half of the properties
was given to Joaquin and the other half to the respondents.
However, no document of partition was executed, because Joaquin
refused to execute a deed. Consuelo and Ireneo occupied their
respective shares in the San Jose property, and installed several
tenants over their share in parcel IV. Joaquin, on the other hand,
became the administrator of the remaining undivided properties
and of the shares of respondents Danilo, Marites, Anita and Helen,
who were still minors at that time.
2. Declaring the plaintiffs Danilo Abad, Marites Abad, Anita
Abad and Helen Abad the owner of six (6) hectares a portion
included in parcel No. IV also described in paragraph 7 of the
complaint, and therefore, entitled to its possession and ordering the
said substituted defendants to deliver that portion to them as their
share thereto;
3. Ordering the above-named substituted defendants to pay
plaintiffs the sum of Six Thousand Pesos (P6,000.00), Philippine
Currency, as reasonable attorneys fees and the sum of One
Thousand Pesos (P1,000.00) also of Philippine Currency, as
litigation expenses and for the said defendants to pay the costs.

105

The counterclaim, not being proved, the same is hereby ordered
dismissed.
SO ORDERED.[6]
On appeal, the CA affirmed the RTC ruling. Sustaining the RTC,
the CA declared that it was plausible that Eustaquias consent was
vitiated because she was then 91 years old and sickly. It was
bolstered by the fact that the deeds of sale only surfaced 43 years
after its alleged execution and 23 years from the time of the oral
partition. The CA also rejected petitioners argument that the action
was barred by prescription and laches, explaining that prescription
does not run against the heirs so long as the heirs, for whose benefit
prescription is invoked, have not expressly or impliedly repudiated
the co-ownership. The CA found no repudiation on Joaquins part.
It, therefore, concluded that respondents action could not be barred
by prescription or laches.
The Quimpos, thus, filed the instant petition for review on
certiorari imputing the following errors to the CA:
1) THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT PETITIONERS DID NOT ACQUIRE
OWNERSHIP OVER [THE] SUBJECT PARCELS OF LAND
BY WAY OF DEEDS OF ABSOLUTE SALE EXECUTED IN
THEIR FAVOR;
2) THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT CO-OWNERSHIP EXISTS AMONG
PETITIONERS AND RESPONDENTS OVER THE SUBJECT
PARCELS OF LAND;
3) THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT RESPONDENTS HAVE PROVEN THEIR
FILIATION TO THE ORIGINAL OWNER OF THE SUBJECT
PARCELS OF LAND BY MERE SCANT EVIDENCE;
4) THE HONORABLE COURT OF APPEALS ERRED IN NOT
RULING THAT LACHES HAS TIMEBARRED THE
RESPONDENTS FROM ASSAILING THE ABSOLUTE
OWNERSHIP OF PETITIONERS OVER THE SUBJECT
PARCELS OF LAND; AND
5) THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT RESPONDENTS ARE ENTITLED TO
ATTORNEYS FEES.[7]
The Quimpos insist on the validity of the deeds of sale between
Joaquin and Eustaquia. They assail the probative value and weight
given by the RTC and the CA in favor of the respondents pieces of
evidence while refusing to give credence or value to the documents
they presented. Specifically, they contend that the notarized deeds
of sale and the tax declarations should have adequately established
Joaquins ownership of parcels III and IV.
The contention has no merit. Well-entrenched is the rule that the
Supreme Courts role in a petition under Rule 45 is limited to
reviewing or reversing errors of law allegedly committed by the
appellate court. Factual findings of the trial court, especially when
affirmed by the Court of Appeals, are conclusive on the parties.
Since such findings are generally not reviewable, this Court is not
duty-bound to analyze and weigh all over again the evidence
already considered in the proceedings below, unless the factual
findings complained of are devoid of support from the evidence on
record or the assailed judgment is based on a misapprehension of
facts.[8]
Petitioners fail to convince us that the CA committed reversible
error in affirming the trial court and in giving no weight to the
pieces of evidence they presented.
The stated consideration for the sale are P5,000.00 and P6,000.00,
respectively, an amount which was so difficult to raise in the year
1946. Respondents established that at the time of the purported sale
Joaquin Quimpo was not gainfully employed. He was studying in
Manila and Eustaquia was the one supporting him; that when
Eustaquia died two (2) years later, Joaquin was not able to continue
his studies. The Quimpos failed to override this. Except for the
incredible and unpersuasive testimony of Joaquins daughter,
Adelia Magsino, no other testimonial or documentary evidence
was offered to prove that Joaquin was duly employed and had the
financial capacity to buy the subject properties in 1946.
In Rongavilla v. Court of Appeals,[9] reiterated in Cruz v. Bancom
Finance Corp,[10] we held that a deed of sale, in which the stated
consideration has not been, in fact, paid is a false contract; that it
is void ab initio. Furthermore, Ocejo v. Flores,[11] ruled that a
contract of purchase and sale is null and void and produces no
effect whatsoever where it appears that the same is without cause
or consideration which should have been the motive thereof, or the
purchase price which appears thereon as paid but which in fact has
never been paid by the purchaser to the vendor.
Likewise, both the trial court and the CA found that Eustaquia was
91 years old, weak and senile, at the time the deeds of sale were
executed. In other words, she was already mentally incapacitated
by then, and could no longer be expected to give her consent to the
sale. The RTC and CA cannot, therefore, be faulted for not giving
credence to the deeds of sale in favor of Joaquin.
Petitioners also presented Tax Declaration Nos. 3650,[12]
3708,[13] and 3659[14] to substantiate Joaquins claim of absolute
dominion over parcels III and IV. But we note that these tax
declarations are all in the name of Eustaquia Perfecto-Abad. These
documents, therefore, do not support their claim of absolute
dominion since 1946, but enervate it instead. Besides, the fact that
the disputed property may have been declared for taxation
purposes in the name of Joaquin Quimpo does not necessarily
prove ownership for it is well settled that a tax declaration or tax
receipts are not conclusive evidence of ownership.[15] The CA,
therefore, correctly found this proof inadequate to establish
Joaquins claim of absolute dominion.
For forty-three (43) years, Consuelo and Ireneo occupied their
portions of the San Jose property and significantly, Joaquin never
disturbed their possession. They also installed tenants in parcel IV,
and Joaquin did not prevent them from doing so, nor did he assert
his ownership over the same. These unerringly point to the fact that
there was indeed an oral partition of parcels III and IV.
In Maglucot-aw v. Maglucot,[16] we held, viz.:
[P]artition may be inferred from circumstances sufficiently strong
to support the presumption. Thus, after a long possession in
severalty, a deed of partition may be presumed. It has been held
that recitals in deeds, possession and occupation of land,
improvements made thereon for a long series of years, and
acquiescence for 60 years, furnish sufficient evidence that there
was an actual partition of land either by deed or by proceedings in
the probate court, which had been lost and were not recorded.
Furthermore, in Hernandez v. Andal,[17] we explained that:
106
On general principle, independent and in spite of the statute of
frauds, courts of equity have enforced oral partition when it has
been completely or partly performed.
Regardless of whether a parol partition or agreement to partition is
valid and enforceable at law, equity will in proper cases, where the
parol partition has actually been consummated by the taking of
possession in severalty and the exercise of ownership by the parties
of the respective portions set off to each, recognize and enforce
such parol partition and the rights of the parties thereunder. Thus,
it has been held or stated in a number of cases involving an oral
partition under which the parties went into possession, exercised
acts of ownership, or otherwise partly performed the partition
agreement, that equity will confirm such partition and in a proper
case decree title in accordance with the possession in severalty.
In numerous cases it has been held or stated that parol partitions
may be sustained on the ground of estoppel of the parties to assert
the rights of a tenant in common as to parts of land divided by parol
partition as to which possession in severalty was taken and acts of
individual ownership were exercised. And a court of equity will
recognize the agreement and decree it to be valid and effectual for
the purpose of concluding the right of the parties as between each
other to hold their respective parts in severalty.
A parol partition may also be sustained on the ground that the
parties thereto have acquiesced in and ratified the partition by
taking possession in severalty, exercising acts of ownership with
respect thereto, or otherwise recognizing the existence of the
partition.
A number of cases have specifically applied the doctrine of part
performance, or have stated that a part performance is necessary,
to take a parol partition out of the operation of the statute of frauds.
It has been held that where there was a partition in fact between
tenants in common, and a part performance, a court of equity would
have regard to and enforce such partition agreed to by the parties.
The CA, therefore, committed no reversible error in sustaining the
oral partition over parcels III and IV and in invalidating the deeds
of sale between Eustaquia and Joaquin.
Similarly, we affirm the CA ruling that respondents are co-owners
of the subject four (4) parcels of land, having inherited the same
from a common ancestor Eustaquia Perfecto-Abad. Petitioners
assertion that respondents failed to prove their relationship to the
late Eustaquia deserves scant consideration.
During the pre-trial, Joaquin Quimpo admitted that:
Eustaquia Perfecto Abad and Diego Abad had two (2) children by
the names of Leon Abad and Joaquin Abad; that Leon Abad has
three (3) children namely: Anastacia, Wilfredo and Consuelo, all
surnamed Abad; that Joaquin Abad has only one (1) child, a
daughter by the name of Amparo; that Wilfredo has four (4)
children, namely, Danilo, Helen, Marites and Anita; Amparo has
one child, son Joaquin Quimpo, x x x [18]
Consuelo was the grandchild of Eustaquia, while respondents
Danilo, Helen, Marites, Anita and also Joaquin Quimpo were
Eustaquias great grandchildren. As such, respondents can
rightfully ask for the confirmation of the oral partition over parcels
III and IV, and the partition of parcels I and II. Jurisprudence is
replete with rulings that any co-owner may demand at any time the
partition of the common property unless a co-owner has repudiated
the co-ownership. This action for partition does not prescribe and
is not subject to laches.[19]
Finally, petitioners challenge the attorneys fees in favor of
respondents.
The grant of attorneys fees depends on the circumstances of each
case and lies within the discretion of the court. It may be awarded
when a party is compelled to litigate or to incur expenses to protect
its interest by reason of an unjustified act by the other,[20] as in
this case.
In fine, we find no reversible error in the assailed rulings of the
Court of Appeals.
WHEREFORE, the petition is DENIED. The Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 56187, are
AFFIRMED.
SO ORDERED.
SPOUSES ONESIFORO and G.R. No. 158040
ROSARIO ALINAS,
Petitioners, Present:
YNARES-SANTIAGO, J.
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
SPOUSES VICTOR and ELENA
ALINAS, Promulgated:
Respondents. April 14, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
-------------x
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45
of the Rules of Court, praying that the Decision[1] of the Court of
Appeals (CA) dated September 25, 2002, and the CA
Resolution[2] dated March 31, 2003, denying petitioners' motion
for reconsideration, be reversed and set aside.
The factual antecedents of the case are as follows.
Spouses Onesiforo and Rosario Alinas (petitioners) separated
sometime in 1982, with Rosario moving to Pagadian City and
Onesiforo moving to Manila. They left behind two lots identified
as Lot 896-B-9-A with a bodega standing on it and Lot 896-B-9-B
with petitioners' house. These two lots are the subject of the present
petition.
Petitioner Onesiforo Alinas (Onesiforo) and respondent Victor
Alinas (Victor) are brothers. Petitioners allege that they entrusted
their properties to Victor and Elena Alinas (respondent spouses)
with the agreement that any income from rentals of the properties
should be remitted to the Social Security System (SSS) and to the
Rural Bank of Oroquieta City (RBO), as such rentals were believed
sufficient to pay off petitioners' loans with said institutions. Lot
896-B-9-A with the bodega was mortgaged as security for the loan
obtained from the RBO, while Lot 896-B-9-B with the house was
mortgaged to the SSS. Onesiforo alleges that he left blank papers
107
with his signature on them to facilitate the administration of said
properties.
Sometime in 1993, petitioners discovered that their two lots were
already titled in the name of respondent spouses.
Records show that after Lot 896-B-9-A was extra-judicially
foreclosed, Transfer Certificate of Title (TCT) No. T-11853[3]
covering said property was issued in the name of mortgagee RBO
on November 13, 1987. On May 2, 1988, the duly authorized
representative of RBO executed a Deed of Installment Sale of
Bank's Acquired Assets[4] conveying Lot 896-B-9-A to
respondent spouses. RBO's TCT over Lot 896-B-9-A was then
cancelled and on February 22, 1989, TCT No. T-12664[5] covering
said lot was issued in the name of respondent spouses.
Lot 896-B-9-B was also foreclosed by the SSS and on November
17, 1986, the Ex-Oficio City Sheriff of Ozamis City issued a
Certificate of Sale[6] over said property in favor of the SSS.
However, pursuant to a Special Power of Attorney[7] signed by
Onesiforo in favor of Victor, dated March 10, 1989, the latter was
able to redeem, on the same date, Lot 896-B-9-B from the SSS for
the sum of P111,110.09. On June 19, 1989, a Certificate of
Redemption[8] was issued by the SSS.
Onesiforo's signature also appears in an Absolute Deed of Sale[9]
likewise dated March 10, 1989, selling Lot 896-B-9-B to
respondent spouses. The records also show a notarized document
dated March 10, 1989 and captioned Agreement[10] whereby
petitioner Onesiforo acknowledged that his brother Victor used his
own money to redeem Lot 896-B-9-B from the SSS and, thus,
Victor became the owner of said lot. In the same Agreeement,
petitioner Onesiforo waived whatever rights, claims, and interests
he or his heirs, successors and assigns have or may have over the
subject property. On March 15, 1993, by virtue of said documents,
TCT No. 17394[11] covering Lot 896-B-9-B was issued in the
name of respondent spouses.
On June 25, 1993, petitioners filed with the Regional Trial Court
(RTC) of Ozamis City a complaint for recovery of possession and
ownership of their conjugal properties with damages against
respondent spouses.
After trial, the RTC rendered its Decision dated November 13,
1995, finding that:
1. Plaintiffs have not proven that they entrusted defendant spouses
with the care and administration of their properties. It was Valeria
Alinas, their mother, whom plaintiff Onesiforo requested/directed
to take care of everything and sell everything and Teresita Nuez,
his elder sister, to whom he left a verbal authority to administer his
properties.
2. Plaintiffs have not proven their allegation that defendant spouses
agreed to pay rent of P1,500.00 a month for the occupancy of
plaintiffs' house, which rent was to be remitted to the SSS and
Rural Bank of Oroquieta to pay off plaintiffs' loan and to keep for
plaintiffs the rest of the rent after the loans would have been paid
in full.
3. Plaintiff Onesiforo's allegation that defendants concocted deeds
of conveyances (Exh. M, N & O) with the use of his signatures in
blank is not worthy of credence. Why his family would conspire to
rob him at a time when life had struck him with a cruel blow in the
form of a failed marriage that sent him plummeting to the depths
of despair is not explained and likewise defies comprehension.
That his signatures appear exactly on the spot where they ought to
be in Exhs. M, N & O belies his pretension that he affixed them on
blank paper only for the purpose of facilitating his sister Terry's
acts of administration.
This Court, therefore, does not find that defendant spouses had
schemed to obtain title to plaintiffs' properties or enriched
themselves at the expense of plaintiffs.[12]
with the following dispositive portion:
WHEREFORE, this Court renders judgment:
1. declaring [respondents] Victor Jr. and Elena Alinas
owners of Lot 896-B-9-A with the building (bodega) standing
thereon and affirming the validity of their acquisition thereof from
the Rural Bank of Oroquieta, Inc.;
2. declaring [petitioners] Onesiforo and Rosario Alinas
owners of Lot 896-B-9-B with the house standing thereon, plaintiff
Onesiforo's sale thereof to defendants spouses without the consent
of his wife being null and void and defendant spouses' redemption
thereof from the SSS not having conferred its ownership to them;
3. ordering [petitioners] to reimburse [respondents] Victor
Jr. and Elena Alinas the redemption sum of P111,100.09, paid by
them to the SSS (without interest as it shall be compensated with
the rental value of the house they occupy) within sixty days from
the finality of this judgment;
4. ordering [respondents] to vacate the subject house within
thirty days from receiving the reimbursement mentioned in No. 3
above; and
5. reinstating TCT No. T-7248 in the name of [petitioners]
and cancelling TCT No. T-17394 in the name of [respondents].
No costs.
SO ORDERED.[13]
Only respondent spouses appealed to the CA assailing the RTC's
ruling that they acquired Lot 896-B-9-B from the SSS by mere
redemption and not by purchase. They likewise question the
reimbursement by petitioners of the redemption price without
interest.
On September 25, 2002, the CA promulgated herein assailed
Decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing disquisitions, the first
paragraph of the dispositive portion of the assailed decision is
AFFIRMED and the rest MODIFIED as follows:
1. declaring [respondents] Victor Jr. and Elena Alinas
owners of Lot 896-B-9-A with the building (bodega) standing
thereon and affirming the validity of their acquisition thereof from
the Rural Bank of Oroquieta, Inc.;
2. declaring Onesiforo's sale of Lot 896-B-9-B together
with the house standing thereon to [respondents] in so far as
Rosario Alinas, his wife's share of one half thereof is concerned, of
no force and effect;
3. ordering [petitioners] Rosario Alinas to reimburse
[respondents] the redemption amount of P55,550.00 with interest
of 12% per annum from the time of redemption until fully paid.
4. ordering the [respondents] to convey and transfer one
half portion of Lot 896-B-9-B unto Rosario Alinas, which
comprises her share on the property simultaneous to the tender of
the above redemption price, both to be accomplished within sixty
(60) days from finality of this judgment.
108

5. in the event of failure of [respondents] to execute the
acts as specified above, [petitioner] Rosario Alinas may proceed
against them under Section 10, Rule 39 of the 1997 Rules of Civil
Procedure.
6. on the other hand, failure of [petitioner] Rosario Alinas
to reimburse the redemption price within sixty (60) days from the
finality of this decision will render the conveyance and sale of her
share by her husband to [respondents], of full force and effect.
No costs.
SO ORDERED.[14]
Petitioners moved for reconsideration but the CA denied said
motion per herein assailed Resolution dated March 31, 2003.
Hence, the present petition on the following grounds:
The Honorable Court of Appeals abuse [sic] its discretion in
disregarding the testimony of the Register of Deeds, Atty. Nerio
Nuez, who swore that the signatures appearing on various TCTs
were not his own;
The Honorable Court of Appeals manifestly abuse [sic] its
discretion in declaring the respondents to be the owners of Lot 896-
B-9-A with the building (bodega) standing thereon when they
merely redeemed the property and are therefore mere trustees of
the real owners of the property;
It was pure speculation and conjecture and surmise for the
Honorable Court of Appeals to impose an obligation to reimburse
upon petitioners without ordering respondents to account for the
rentals of the properties from the time they occupied the same up
to the present time and thereafter credit one against the other
whichever is higher.[15]
The first issue raised by petitioners deserves scant consideration.
By assailing the authenticity of the Registrar of Deeds' signature
on the certificates of title, they are, in effect, questioning the
validity of the certificates.
Section 48 of Presidential Decree No. 1529 provides, thus:
Sec. 48. Certificate not subject to collateral attack. - A certificate
of title shall not be subject to collateral attack. It cannot be altered,
modified, or cancelled except in a direct proceeding in accordance
with law.
Pursuant to said provision, the Court ruled in De Pedro v. Romasan
Development Corporation[16] that:
It has been held that a certificate of title, once registered, should
not thereafter be impugned, altered, changed, modified, enlarged
or diminished except in a direct proceeding permitted by law. x x
x powers do not include the powers of disposition or encumbrance
The action of the petitioners against the respondents, based on the
material allegations of the complaint, is one for recovery of
possession of the subject property and damages. However, such
action is not a direct, but a collateral attack of TCT No.
236044.[17] (Emphasis supplied)
As in De Pedro, the complaint filed by herein petitioners with the
RTC is also one for recovery of possession and ownership. Verily,
the present case is merely a collateral attack on TCT No. T-17394,
which is not allowed by law and jurisprudence.
With regard to the second issue, petitioners claim that it was the
CA which declared respondent spouses owners of Lot 896-B-9-A
(with bodega) is misleading. It was the RTC which ruled that
respondent spouses are the owners of Lot 896-B-9-A and,
therefore, since only the respondent spouses appealed to the CA,
the issue of ownership over Lot 896-B-9-A is not raised before the
appellate court. Necessarily, the CA merely reiterated in the
dispositive portion of its decision the RTC's ruling on respondent
spouses' ownership of Lot 896-B-9-A.
It is a basic principle that no modification of judgment or
affirmative relief can be granted to a party who did not appeal.[18]
Hence, not having appealed from the RTC Decision, petitioners
can no longer seek the reversal or modification of the trial court's
ruling that respondent spouses had acquired ownership of Lot 896-
B-9-A by virtue of the sale of the lot to them by RBO.
Furthermore, the CA did not commit any reversible error in
affirming the trial court's factual findings as the records are indeed
bereft of proof to support the petitioners allegations that they left
the care and administration of their properties to respondent
spouses; and that there is an agreement between petitioners and
respondent spouses regarding remittance to the SSS and the RBO
of rental income from their properties. Thus, respondent spouses
may not be held responsible for the non-payment of the loan with
RBO and the eventual foreclosure of petitioners' Lot 896-B-9-A.
Petitioners do not assail the validity of the foreclosure of said lot
but argues that respondent spouses merely redeemed the property
from RBO. This is, however, belied by evidence on record which
shows that ownership over the lot had duly passed on to the RBO,
as shown by TCT No. T-11853 registered in its name; and
subsequently, RBO sold the lot with its improvements to
respondent spouses. Needless to stress, the sale was made after the
redemption period had lapsed. The trial court, therefore, correctly
held that respondent spouses acquired their title over the lot from
RBO and definitely not from petitioners.
However, with regard to Lot 896-B-9-B (with house), the Court
finds it patently erroneous for the CA to have applied the principle
of equity in sustaining the validity of the sale of Onesiforos one-
half share in the subject property to respondent spouses.
Although petitioners were married before the enactment of the
Family Code on August 3, 1988, the sale in question occurred in
1989. Thus, their property relations are governed by Chapter IV on
Conjugal Partnership of Gains of the Family Code.
The CA ruling completely deviated from the clear dictate of Article
124 of the Family Code which provides:
Art. 124. The administration and enjoyment of the conjugal
partnership property shall belong to both spouses jointly. x x x
In the event that one spouse is incapacitated or otherwise unable to
participate in the administration of the conjugal properties, the
other spouse may assume sole powers of administration. These
which must have the authority of the court or the written consent
of the other spouse. In the absence of such authority or consent the
disposition or encumbrance shall be void. x x x (Underscoring and
emphasis supplied)
In Homeowners Savings & Loan Bank v. Dailo,[19] the Court
categorically stated thus:
In Guiang v. Court of Appeals, it was held that the sale of a
conjugal property requires the consent of both the husband and
wife. In applying Article 124 of the Family Code, this Court
declared that the absence of the consent of one renders the entire
109
sale null and void, including the portion of the conjugal property
pertaining to the husband who contracted the sale. x x x
xxxx
x x x By express provision of Article 124 of the Family Code, in
the absence of (court) authority or written consent of the other
spouse, any disposition or encumbrance of the conjugal property
shall be void. [20]
Thus, pursuant to Article 124 of the Family Code and
jurisprudence, the sale of petitioners' conjugal property made by
petitioner Onesiforo alone is void in its entirety.
It is true that in a number of cases, this Court abstained from
applying the literal import of a particular provision of law if doing
so would lead to unjust, unfair and absurd results.[21]
In the present case, the Court does not see how applying Article
124 of the Family Code would lead to injustice or absurdity. It
should be noted that respondent spouses were well aware that Lot
896-B-9-B is a conjugal property of petitioners. They also knew
that the disposition being made by Onesiforo is without the consent
of his wife, as they knew that petitioners had separated, and, the
sale documents do not bear the signature of petitioner Rosario. The
fact that Onesiforo had to execute two documents, namely: the
Absolute Deed of Sale dated March 10, 1989 and a notarized
Agreement likewise dated March 10, 1989, reveals that they had
full knowledge of the severe infirmities of the sale. As held in Heirs
of Aguilar-Reyes v. Spouses Mijares,[22] a purchaser cannot close
his eyes to facts which should put a reasonable man on his guard
and still claim he acted in good faith.[23] Such being the case, no
injustice is being foisted on respondent spouses as they risked
transacting with Onesiforo alone despite their knowledge that the
subject property is a conjugal property.
Verily, the sale of Lot 896-B-9-B to respondent spouses is entirely
null and void.
However, in consonance with the salutary principle of non-
enrichment at anothers expense, the Court agrees with the CA that
petitioners should reimburse respondent spouses the redemption
price paid for Lot 896-B-9-B in the amount of P111,110.09 with
legal interest from the time of filing of the complaint.
In Heirs of Aguilar-Reyes, the husband's sale of conjugal property
without the consent of the wife was annulled but the spouses were
ordered to refund the purchase price to the buyers, it was ruled that
an interest of 12% per annum on the purchase price to be refunded
is not proper. The Court elucidated as follows:
The trial court, however, erred in imposing 12% interest per annum
on the amount due the respondents. In Eastern Shipping Lines, Inc.
v. Court of Appeals, it was held that interest on obligations not
constituting a loan or forbearance of money is six percent (6%)
annually. If the purchase price could be established with certainty
at the time of the filing of the complaint, the six percent (6%)
interest should be computed from the date the complaint was filed
until finality of the decision. In Lui vs. Loy, involving a suit for
reconveyance and annulment of title filed by the first buyer against
the seller and the second buyer, the Court, ruling in favor of the
first buyer and annulling the second sale, ordered the seller to
refund to the second buyer (who was not a purchaser in good faith)
the purchase price of the lots. It was held therein that the 6%
interest should be computed from the date of the filing of the
complaint by the first buyer. After the judgment becomes final and
executory until the obligation is satisfied, the amount due shall earn
interest at 12% per year, the interim period being deemed
equivalent to a forbearance of credit.
Accordingly, the amount of P110,000.00 due the respondent
spouses which could be determined with certainty at the time of the
filing of the complaint shall earn 6% interest per annum from June
4, 1986 until the finality of this decision. If the adjudged principal
and the interest (or any part thereof) remain unpaid thereafter, the
interest rate shall be twelve percent (12%) per annum computed
from the time the judgment becomes final and executory until it is
fully satisfied.[24]
Thus, herein petitioners should reimburse respondent spouses the
redemption price plus interest at the rate of 6% per annum from the
date of filing of the complaint, and after the judgment becomes
final and executory, the amount due shall earn 12% interest per
annum until the obligation is satisfied.
Petitioners pray that said redemption price and interest be offset or
compensated against the rentals for the house and bodega.
The records show that the testimonial evidence for rentals was only
with regard to the bodega.[25] However, the Court has affirmed
the ruling of the RTC that Lot 896-B-9-A with the bodega had been
validly purchased by respondent spouses from the RBO and a TCT
over said property was issued in the name of respondent spouses
on February 22, 1989. Testimonial evidence shows that the bodega
was leased out by respondent spouses only beginning January of
1990 when ownership had been transferred to them.[26] Hence,
any rentals earned from the lease of said bodega rightfully belongs
to respondent spouses and cannot be offset against petitioners'
obligation to respondent spouses.
As to rentals for Lot 896-B-9-B and the house thereon, respondent
Victor testified that they never agreed to rent the house and when
they finally took over the same, it was practically inhabitable and
so they even incurred expenses to repair the house.[27] There is
absolutely no proof of the rental value for the house, considering
the condition it was in; as well as for the lot respondent spouses are
occupying.
Respondent spouses, having knowledge of the flaw in their mode
of acquisition, are deemed to be possessors in bad faith under
Article 526[28] of the Civil Code. However, they have a right to
be refunded for necessary expenses on the property as provided
under Article 546[29] of the same Code. Unfortunately, there is no
credible proof to support respondent spouses' allegation that they
spent more than P400,000.00 to repair and make the house
habitable.
Set-off or compensation is governed by Article 1279 of the Civil
Code which provides, thus:
Article 1279. In order that compensation may be proper, it is
necessary:
1. That each one of the obligors be bound principally, and
that he be at the time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention or
controversy, commenced by third persons and communicated in
due time to the debtor.
110
Therefore, under paragraph 4 of the foregoing provision,
compensation or set-off is allowed only if the debts of both parties
against each other is already liquidated and demandable. To
liquidate means to make the amount of indebtedness or an
obligation clear and settled in the form of money.[30] In the present
case, no definite amounts for rentals nor for expenses for repairs
on subject house has been determined. Thus, in the absence of
evidence upon which to base the amount of rentals, no
compensation or set-off can take place between petitioners and
respondent spouses.
While the courts are empowered to set an amount as reasonable
compensation to the owners for the use of their property, this Court
cannot set such amount based on mere surmises and conjecture
WHEREFORE, the petition is PARTLY GRANTED. The
Decision of the Court of Appeals dated September 25, 2002 is
MODIFIED to read as follows:
1. declaring respondent spouses Victor Jr. and Elena Alinas owners
of Lot 896-B-9-A with the building (bodega) standing thereon and
affirming the validity of their acquisition thereof from the Rural
Bank of Oroquieta, Inc.;
2. declaring Onesiforo's sale of Lot 896-B-9-B together with the
house standing thereon to respondent spouses null and void ab
initio;
3. ordering petitioners to jointly and severally reimburse
respondent spouses the redemption amount of P111,110.09 with
interest at 6% per annum from the date of filing of the complaint,
until finality of this decision. After this decision becomes final,
interest at the rate of 12% per annum on the principal and interest
(or any part thereof) shall be imposed until full payment;
4. ordering the respondent spouses to convey and transfer Lot 896-
B-9-B to petitioners and vacate said premises within fifteen (15)
days from finality of this Decision; and
5. in the event of failure of respondent spouses to execute the acts
as specified above, petitioners may proceed against them under
Section 10, Rule 39 of the 1997 Rules of Civil Procedure.
No costs.
SO ORDERED.
G.R. No. 196577 February 25, 2013
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
BARBARA SAMPAGA POBLETE, Respondent.
DECISION
CARPIO, J.:
The Case
This Petition for Review on Certiorari1 seeks to reverse the Court
of Appeals' Decision2 dated 28 September 20 I 0 and its
Resolution3 dated 19 April 2011 in C A-G.R. CV No. 91666. The
Court of Appeals (C A) affirmed in toto the Decision4 of the
Regional Trial Court (RTC) of San Jose, Occidental Mindoro,
Branch 46, in Civil Case No. R-1331.
The Facts
The facts, as culled from the records, are as follows:
Petitioner Land Bank of the Philippines (Land Bank) is a banking
institution organized and existing under Philippine laws.
Respondent Barbara Sampaga Poblete (Poblete) is the registered
owner of a parcel of land, known as Lot No. 29, with an area of
455 square meters, located in Buenavista, Sablayan, Occidental
Mindoro, under Original Certificate of Title (OCT) No. P-12026.
In October 1997, Poblete obtained a P300,000.00 loan from
Kabalikat ng Pamayanan ng Nagnanais Tumulong at Yumaman
Multi-Purpose Cooperative (Kapantay). Poblete mortgaged Lot
No. 29 to Kapantay to guarantee payment of the loan. Kapantay, in
turn, used OCT No. P-12026 as collateral under its Loan Account
No. 97-CC-013 with Land Bank-Sablayan Branch.
In November 1998, Poblete decided to sell Lot No. 29 to pay her
loan. She instructed her son-in-law Domingo Balen (Balen) to look
for a buyer. Balen referred Angelito Joseph Maniego (Maniego) to
Poblete. According to Poblete, Maniego agreed to buy Lot No. 29
for P900,000.00, but Maniego suggested that a deed of absolute
sale for P300,000.00 be executed instead to reduce the taxes. Thus,
Poblete executed the Deed of Absolute Sale dated 9 November
1998 (Deed dated 9 November 1998) with P300,000.00 as
consideration.5 In the Deed dated 9 November 1998, Poblete
described herself as a "widow." Poblete, then, asked Balen to
deliver the Deed dated 9 November 1998 to Maniego and to receive
the payment in her behalf. Balen testified that he delivered the
Deed dated 9 November 1998 to Maniego. However, Balen stated
that he did not receive from Maniego the agreed purchase price.
Maniego told Balen that he would pay the amount upon his return
from the United States. In an Affidavit dated 19 November 1998,
Poblete stated that she agreed to have the payment deposited in her
Land Bank Savings Account.6
Based on a Certification issued by Land Bank-Sablayan Branch
Department Manager Marcelino Pulayan on 20 August 1999,7
Maniego paid Kapantays Loan Account No. 97-CC-013 for
P448,202.08. On 8 June 2000, Maniego applied for a loan of
P1,000,000.00 with Land Bank, using OCT No. P 12026 as
collateral. Land Bank alleged that as a condition for the approval
of the loan, the title of the collateral should first be transferred to
Maniego.
On 14 August 2000, pursuant to a Deed of Absolute Sale dated 11
August 2000 (Deed dated 11 August 2000),8 the Register of Deeds
of Occidental Mindoro issued Transfer Certificate of Title (TCT)
No. T-20151 in Maniegos name. On 15 August 2000, Maniego
and Land Bank executed a Credit Line Agreement and a Real
Estate Mortgage over TCT No. T- 20151. On the same day, Land
Bank released the P1,000,000.00 loan proceeds to Maniego.
Subsequently, Maniego failed to pay the loan with Land Bank. On
4 November 2002, Land Bank filed an Application for Extra-
judicial Foreclosure of Real Estate Mortgage stating that
Maniegos total indebtedness amounted to P1,154,388.88.
On 2 December 2002, Poblete filed a Complaint for Nullification
of the Deed dated 11 August 2000 and TCT No. T-20151,
Reconveyance of Title and Damages with Prayer for Temporary
Restraining Order and/or Issuance of Writ of Preliminary
Injunction. Named defendants were Maniego, Land Bank, the
Register of Deeds of Occidental Mindoro and Elsa Z. Aguirre in
her capacity as Acting Clerk of Court of RTC San Jose, Occidental
Mindoro. In her Complaint, Poblete alleged that despite her
demands on Maniego, she did not receive the consideration of
P900,000.00 for Lot No. 29. She claimed that without her
knowledge, Maniego used the Deed dated 9 November 1998 to
acquire OCT No. P-12026 from Kapantay. Upon her verification
with the Register of Deeds, the Deed dated 11 August 2000 was
used to obtain TCT No. T-20151. Poblete claimed that the Deed
111
dated 11 August 2000 bearing her and her deceased husbands,
Primo Poblete, supposed signatures was a forgery as their
signatures were forged. As proof of the forgery, Poblete presented
the Death Certificate dated 27 April 1996 of her husband and
Report No. 294-502 of the Technical Services Department of the
National Bureau of Investigation showing that the signatures in the
Deed dated 11 August 2000 were forgeries. Accordingly, Poblete
also filed a case for estafa through falsification of public document
against Maniego and sought injunction of the impending
foreclosure proceeding.
On 7 January 2003, Land Bank filed its Answer with Compulsory
Counterclaim and Cross-claim. Land Bank claimed that it is a
mortgagee in good faith and it observed due diligence prior to
approving the loan by verifying Maniegos title with the Office of
the Register of Deeds. Land Bank likewise interposed a cross-
claim against Maniego for the payment of the loan, with interest,
penalties and other charges. Maniego, on the other hand, separately
filed his Answer. Maniego denied the allegations of Poblete and
claimed that it was Poblete who forged the Deed dated 11 August
2000. He also alleged that he paid the consideration of the sale to
Poblete and even her loans from Kapantay and Land Bank.
The Ruling of the Regional Trial Court
On 28 December 2007, the RTC of San Jose, Occidental Mindoro,
Branch 46, rendered a Decision in favor of Poblete, the dispositive
portion of which reads:
WHEREFORE, by preponderance of evidence, judgment is hereby
rendered in favor of the plaintiff and against the defendants, as
follows:
1. Declaring the Deed of Sale dated August 11, 2000 over O.C.T.
No. P-12026, as null and void;
2. Declaring Transfer of Certificate of Title No. T-20151 as null
and void, it having been issued on the basis of a spurious and
forged document;
3. The preliminary [i]njunction issued directing the defendants to
refrain from proceedings [sic] with the auction sale of the
plaintiffs properties, dated February 10, 2002, is hereby made
permanent;
4. Ordering defendant Angelito Joseph Maniego to return to the
plaintiff O.C.T. No. P-12026; and
5. Ordering defendant Angelito Joseph Maniego to pay plaintiff the
amount of P50,000.00, as and for reasonable attorneys fees.
Judgment is furthermore rendered on the cross-claim of defendant
Land Bank of the Philippines against defendant Angelito Joseph
Maniego, as follows:
A. Ordering defendant Angelito Joseph Maniego to pay his co-
defendant [L]and Bank of the Philippines his loan with a principal
of P1,000,000.00, plus interests, penalties and other charges
thereon; and
B. Ordering defendant Angelito Joseph Maniego to pay the costs
of this suit.
SO ORDERED.9
The RTC ruled that the sale between Poblete and Maniego was a
nullity. The RTC found that the agreed consideration was
P900,000.00 and Maniego failed to pay the consideration.
Furthermore, the signatures of Poblete and her deceased husband
were proven to be forgeries. The RTC also ruled that Land Bank
was not a mortgagee in good faith because it failed to exercise the
diligence required of banking institutions. The RTC explained that
had Land Bank exercised due diligence, it would have known
before approving the loan that the sale between Poblete and
Maniego had not been consummated. Nevertheless, the RTC
granted Land Banks cross-claim against Maniego.
In an Order dated 17 March 2008, the RTC denied the Motion for
Reconsideration filed by Land Bank for want of merit. Thereafter,
Land Bank and Maniego separately challenged the RTCs Decision
before the CA.
The Ruling of the Court of Appeals
On 28 September 2010, the CA promulgated its Decision affirming
in toto the Decision of the RTC.10 Both Land Bank and Maniego
filed their Motions for Reconsideration but the CA denied both
motions on 19 April 2011.11
In a Resolution dated 13 July 2011,12 the Second Division of this
Court denied the Petition for Review on Certiorari filed by
Maniego. This Resolution became final and executory on 19
January 2012.
On the other hand, Land Bank filed this petition.
The Issues
Land Bank seeks a reversal and raises the following issues for
resolution:
1. THE COURT OF APPEALS (FORMER SPECIAL
ELEVENTH DIVISION) ERRED IN UPHOLDING THE
FINDING OF THE TRIAL COURT DECLARING TCT NO. T-
20151 AS NULL AND VOID. THE COURT OF APPEALS
MISCONSTRUED AND MISAPPRECIATED THE EVIDENCE
AND THE LAW IN NOT FINDING TCT NO. T-20151
REGISTERED IN THE NAME OF ANGELITO JOSEPH
MANIEGO AS VALID.
2. THE COURT OF APPEALS (FORMER SPECIAL
ELEVENTH DIVISION) MISCONSTRUED THE EVIDENCE
AND THE LAW IN NOT FINDING LAND BANK A
MORTGAGEE IN GOOD FAITH.
3. THE COURT OF APPEALS (FORMER SPECIAL
ELEVENTH DIVISION) MISCONSTRUED THE EVIDENCE
AND THE LAW IN NOT FINDING THE RESPONDENT AND
ANGELITO JOSEPH MANIEGO AS IN PARI DELICTO.
4. THE COURT OF APPEALS (FORMER SPECIAL
ELEVENTH DIVISION) ERRED IN NOT APPLYING THE
PRINCIPLE OF ESTOPPEL OR LACHES ON RESPONDENT
IN THAT THE PROXIMATE CAUSE OF HER LOSS WAS HER
NEGLIGENCE TO SAFEGUARD HER RIGHTS OVER THE
SUBJECT PROPERTY, THEREBY ENABLING ANGELITO
JOSEPH MANIEGO TO MORTGAGE THE SAME WITH
LAND BANK.13
The Ruling of the Court
We do not find merit in the petition.
A petition for review under Rule 45 of the Rules of Court
specifically provides that only questions of law may be raised,
subject to exceptional circumstances14 which are not present in
this case. Hence, factual findings of the trial court, especially if
affirmed by the CA, are binding on us.15 In this case, both the RTC
112
and the CA found that the signatures of Poblete and her deceased
husband in the Deed dated 11 August 2000 were forged by
Maniego. In addition, the evidence is preponderant that Maniego
did not pay the consideration for the sale. Since the issue on the
genuineness of the Deed dated 11 August 2000 is essentially a
question of fact, we are not dutybound to analyze and weigh the
evidence again.16
It is a well-entrenched rule, as aptly applied by the CA, that a
forged or fraudulent deed is a nullity and conveys no title.17
Moreover, where the deed of sale states that the purchase price has
been paid but in fact has never been paid, the deed of sale is void
ab initio for lack of consideration.18 Since the Deed dated 11
August 2000 is void, the corresponding TCT No. T-20151 issued
pursuant to the same deed is likewise void. In Yu Bun Guan v.
Ong,19 the Court ruled that there was no legal basis for the
issuance of the certificate of title and the CA correctly cancelled
the same when the deed of absolute sale was completely simulated,
void and without effect. In Erea v. Querrer-Kauffman,20 the
Court held that when the instrument presented for registration is
forged, even if accompanied by the owners duplicate certificate of
title, the registered owner does not thereby lose his title, and neither
does the mortgagee acquire any right or title to the property. In
such a case, the mortgagee under the forged instrument is not a
mortgagee protected by law.21
The issue on the nullity of Maniegos title had already been
foreclosed when this Court denied Maniegos petition for review
in the Resolution dated 13 July 2011, which became final and
executory on 19 January 2012.22 It is settled that a decision that
has acquired finality becomes immutable and unalterable and may
no longer be modified in any respect, even if the modification is
meant to correct erroneous conclusions of fact or law and whether
it will be made by the court that rendered it or by the highest court
of the land.23 This is without prejudice, however, to the right of
Maniego to recover from Poblete what he paid to Kapantay for the
account of Poblete, otherwise there will be unjust enrichment by
Poblete.
Since TCT No. T-20151 has been declared void by final judgment,
the Real Estate Mortgage constituted over it is also void. In a real
estate mortgage contract, it is essential that the mortgagor be the
absolute owner of the property to be mortgaged; otherwise, the
mortgage is void.24
Land Bank insists that it is a mortgagee in good faith since it
verified Maniegos title, did a credit investigation, and inspected
Lot No. 29. The issue of being a mortgagee in good faith is a factual
matter, which cannot be raised in this petition.25 However, to settle
the issue, we carefully examined the records to determine whether
or not Land Bank is a mortgagee in good faith.1wphi1
There is indeed a situation where, despite the fact that the
mortgagor is not the owner of the mortgaged property, his title
being fraudulent, the mortgage contract and any foreclosure sale
arising therefrom are given effect by reason of public policy.26
This is the doctrine of "the mortgagee in good faith" based on the
rule that buyers or mortgagees dealing with property covered by a
Torrens Certificate of Title are not required to go beyond what
appears on the face of the title.27 However, it has been consistently
held that this rule does not apply to banks, which are required to
observe a higher standard of diligence.28 A bank whose business
is impressed with public interest is expected to exercise more care
and prudence in its dealings than a private individual, even in cases
involving registered lands.29 A bank cannot assume that, simply
because the title offered as security is on its face free of any
encumbrances or lien, it is relieved of the responsibility of taking
further steps to verify the title and inspect the properties to be
mortgaged.30
Applying the same principles, we do not find Land Bank to be a
mortgagee in good faith.
Good faith, or the lack of it, is a question of intention.31 In
ascertaining 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.32
Based on the evidence, Land Bank processed Maniegos loan
application upon his presentation of OCT No. P-12026, which was
still under the name of Poblete. Land Bank even ignored the fact
that Kapantay previously used Pobletes title as collateral in its
loan account with Land Bank.33 In Bank of Commerce v. San
Pablo, Jr.,34 we held that when "the person applying for the loan
is other than the registered owner of the real property being
mortgaged, [such fact] should have already raised a red flag and
which should have induced the Bank x x x to make inquiries into
and confirm x x x [the] authority to mortgage x x x. A person who
deliberately ignores a significant fact that could create suspicion in
an otherwise reasonable person is not an innocent purchaser for
value."
The records do not even show that Land Bank investigated and
inspected the property to ascertain its actual occupants. Land Bank
merely mentioned that it inspected Lot No. 29 to appraise the value
of the property. We take judicial notice of the standard practice of
banks, before approving a loan, to send representatives to the
premises of the land offered as collateral to investigate its real
owners.35 In Prudential Bank v. Kim Hyeun Soon,36 the Court
held that the bank failed to exercise due diligence although its
representative conducted an ocular inspection, because the
representative concentrated only on the appraisal of the property
and failed to inquire as to who were the then occupants of the
property.
Land Bank claims that it conditioned the approval of the loan upon
the transfer of title to Maniego, but admits processing the loan
based on Maniegos assurances that title would soon be his.37
Thus, only one day after Maniego obtained TCT No. T-20151
under his name, Land Bank and Maniego executed a Credit Line
Agreement and a Real Estate Mortgage. Because of Land Banks
haste in granting the loan, it appears that Maniegos loan was
already completely processed while the collateral was still in the
name of Poblete. This is also supported by the testimony of Land
Bank Customer Assistant Andresito Osano.38
Where the mortgagee acted with haste in granting the mortgage
loan and did not ascertain the ownership of the land being
mortgaged, as well as the authority of the supposed agent executing
the mortgage, it cannot be considered an innocent mortgagee.39
Since Land Bank is not a mortgagee in good faith, it is not entitled
to protection. The injunction against the foreclosure proceeding in
the present case should be made permanent. Since Lot No. 29 has
not been transferred to a third person who is an innocent purchaser
for value, ownership of the lot remains with Poblete. This is
without prejudice to the right of either party to proceed against
Maniego.
On the allegation that Poblete is in pari delicto with Maniego, we
find the principle inapplicable. The pari delicto rule provides that
"when two parties are equally at fault, the law leaves them as they
are and denies recovery by either one of them."40 We adopt the
factual finding of the RTC and the CA that only Maniego is at fault.
Finally, on the issues of estoppel and laches, such were not raised
before the trial court.1wphi1 I fence, we cannot rule upon the
same. It is settled that an issue which was neither alleged in the
113
complaint nor raised during the trial cannot be raised for the tirst
time on appeal, as such a recourse would be offensive to the basic
rules of t}1ir play, justice and due process, since the opposing party
would be deprived of the opp01iunity to introduce evidence
rebutting such new issue.41
WHEREFORE, we DENY the petition. We AFFIRM the 28
September 2010 Decision and the 19 April 2011 Resolution of the
Court of Appeals in CA-Ci.R. CV No. 91666. The injunction
against the foreclosure proceeding, issued by the Regional Trial
Court of San Jose, Occidental Mindoro, Branch 46, is made
permanent. Costs against Land Bank.
SO ORDERED.
G.R. No. 160600 January 15, 2014
DOMINGO GONZALO, Petitioner,
vs.
JOHN TARNATE, JR., Respondent.
DECISION
BERSAMIN, J.:
The doctrine of in pari delicto which stipulates that the guilty
parties to an illegal contract are not entitled to any relief, cannot
prevent a recovery if doing so violates the public policy against
unjust enrichment.
Antecedents
After the Department of Public Works and Highways (DPWH) had
awarded on July 22, 1997 the contract for the improvement of the
Sadsadan-Maba-ay Section of the Mountain Province-Benguet
Road in the total amount of 7 014 963 33 to his company, Gonzalo
Construction,1 petitioner Domingo Gonzalo (Gonzalo)
subcontracted to respondent John Tarnate, Jr. (Tarnate) on October
15, 1997, the supply of materials and labor for the project under
the latter s business known as JNT Aggregates. Their agreement
stipulated, among others, that Tarnate would pay to Gonzalo eight
percent and four percent of the contract price, respectively, upon
Tarnate s first and second billing in the project.2
In furtherance of their agreement, Gonzalo executed on April 6,
1999 a deed of assignment whereby he, as the contractor, was
assigning to Tarnate an amount equivalent to 10% of the total
collection from the DPWH for the project. This 10% retention fee
(equivalent to P233,526.13) was the rent for Tarnates equipment
that had been utilized in the project. In the deed of assignment,
Gonzalo further authorized Tarnate to use the official receipt of
Gonzalo Construction in the processing of the documents relative
to the collection of the 10% retention fee and in encashing the
check to be issued by the DPWH for that purpose.3 The deed of
assignment was submitted to the DPWH on April 15, 1999. During
the processing of the documents for the retention fee, however,
Tarnate learned that Gonzalo had unilaterally rescinded the deed
of assignment by means of an affidavit of cancellation of deed of
assignment dated April 19, 1999 filed in the DPWH on April 22,
1999;4 and that the disbursement voucher for the 10% retention fee
had then been issued in the name of Gonzalo, and the retention fee
released to him.5
Tarnate demanded the payment of the retention fee from Gonzalo,
but to no avail. Thus, he brought this suit against Gonzalo on
September 13, 1999 in the Regional Trial Court (RTC) in
Mountain Province to recover the retention fee of P233,526.13,
moral and exemplary damages for breach of contract, and
attorneys fees.6
In his answer, Gonzalo admitted the deed of assignment and the
authority given therein to Tarnate, but averred that the project had
not been fully implemented because of its cancellation by the
DPWH, and that he had then revoked the deed of assignment. He
insisted that the assignment could not stand independently due to
its being a mere product of the subcontract that had been based on
his contract with the DPWH; and that Tarnate, having been fully
aware of the illegality and ineffectuality of the deed of assignment
from the time of its execution, could not go to court with unclean
hands to invoke any right based on the invalid deed of assignment
or on the product of such deed of assignment.7
Ruling of the RTC
On January 26, 2001, the RTC, opining that the deed of assignment
was a valid and binding contract, and that Gonzalo must comply
with his obligations under the deed of assignment, rendered
judgment in favor of Tarnate as follows:
WHEREFORE, premises considered and as prayed for by the
plaintiff, John Tarnate, Jr. in his Complaint for Sum of Money,
Breach of Contract With Damages is hereby RENDERED in his
favor and against the above-named defendant Domingo Gonzalo,
the Court now hereby orders as follows:
1. Defendant Domingo Gonzalo to pay the Plaintiff, John Tarnate,
Jr., the amount of TWO HUNDRED THIRTY THREE
THOUSAND FIVE HUNDRED TWENTY SIX and 13/100
PESOS (P233,526.13) representing the rental of equipment;
2. Defendant to pay Plaintiff the sum of THIRTY THOUSAND
(P30,000.00) PESOS by way of reasonable Attorneys Fees for
having forced/compelled the plaintiff to litigate and engage the
services of a lawyer in order to protect his interest and to enforce
his right. The claim of the plaintiff for attorneys fees in the amount
of FIFTY THOUSAND PESOS (P50,000.00) plus THREE
THOUSAND PESOS (P3,000.00) clearly appears to be
unconscionable and therefore reduced to Thirty Thousand Pesos
(P30,000.00) as aforestated making the same to be reasonable;
3. Defendant to pay Plaintiff the sum of FIFTEEN THOUSAND
PESOS (P15,000.00) by way of litigation expenses;
4. Defendant to pay Plaintiff the sum of TWENTY THOUSAND
PESOS (P20,000.00) for moral damages and for the breach of
contract; and
5. To pay the cost of this suit.
Award of exemplary damages in the instant case is not warranted
for there is no showing that the defendant acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner analogous
to the case of Xentrex Automotive, Inc. vs. Court of Appeals, 291
SCRA 66.8
Gonzalo appealed to the Court of Appeals (CA).
Decision of the CA
On February 18, 2003, the CA affirmed the RTC.9
Although holding that the subcontract was an illegal agreement due
to its object being specifically prohibited by Section 6 of
Presidential Decree No. 1594; that Gonzalo and Tarnate were
guilty of entering into the illegal contract in violation of Section 6
of Presidential Decree No. 1594; and that the deed of assignment,
being a product of and dependent on the subcontract, was also
illegal and unenforceable, the CA did not apply the doctrine of in
114
pari delicto, explaining that the doctrine applied only if the fault of
one party was more or less equivalent to the fault of the other party.
It found Gonzalo to be more guilty than Tarnate, whose guilt had
been limited to the execution of the two illegal contracts while
Gonzalo had gone to the extent of violating the deed of assignment.
It declared that the crediting of the 10% retention fee equivalent to
P233,256.13 to his account had unjustly enriched Gonzalo; and
ruled, accordingly, that Gonzalo should reimburse Tarnate in that
amount because the latters equipment had been utilized in the
project.
Upon denial of his motion for reconsideration,10 Gonzalo has now
come to the Court to seek the review and reversal of the decision
of the CA.
Issues
Gonzalo contends that the CA erred in affirming the RTC because:
(1) both parties were in pari delicto; (2) the deed of assignment was
void; and (3) there was no compliance with the arbitration clause
in the subcontract.
Gonzalo submits in support of his contentions that the subcontract
and the deed of assignment, being specifically prohibited by law,
had no force and effect; that upon finding both him and Tarnate
guilty of violating the law for executing the subcontract, the RTC
and the CA should have applied the rule of in pari delicto, to the
effect that the law should not aid either party to enforce the illegal
contract but should leave them where it found them; and that it was
erroneous to accord to the parties relief from their predicament.11
Ruling
We deny the petition for review, but we delete the grant of moral
damages, attorneys fees and litigation expenses.
There is no question that every contractor is prohibited from
subcontracting with or assigning to another person any contract or
project that he has with the DPWH unless the DPWH Secretary has
approved the subcontracting or assignment. This is pursuant to
Section 6 of Presidential Decree No. 1594, which provides:
Section 6. Assignment and Subcontract. The contractor shall not
assign, transfer, pledge, subcontract or make any other disposition
of the contract or any part or interest therein except with the
approval of the Minister of Public Works, Transportation and
Communications, the Minister of Public Highways, or the Minister
of Energy, as the case may be. Approval of the subcontract shall
not relieve the main contractor from any liability or obligation
under his contract with the Government nor shall it create any
contractual relation between the subcontractor and the
Government.
Gonzalo, who was the sole contractor of the project in question,
subcontracted the implementation of the project to Tarnate in
violation of the statutory prohibition. Their subcontract was illegal,
therefore, because it did not bear the approval of the DPWH
Secretary. Necessarily, the deed of assignment was also illegal,
because it sprung from the subcontract. As aptly observed by the
CA:
x x x. The intention of the parties in executing the Deed of
Assignment was merely to cover up the illegality of the sub-
contract agreement. They knew for a fact that the DPWH will not
allow plaintiff-appellee to claim in his own name under the Sub-
Contract Agreement.
Obviously, without the Sub-Contract Agreement there will be no
Deed of Assignment to speak of. The illegality of the Sub-Contract
Agreement necessarily affects the Deed of Assignment because the
rule is that an illegal agreement cannot give birth to a valid
contract. To rule otherwise is to sanction the act of entering into
transaction the object of which is expressly prohibited by law and
thereafter execute an apparently valid contract to subterfuge the
illegality. The legal proscription in such an instance will be easily
rendered nugatory and meaningless to the prejudice of the general
public.12
Under Article 1409 (1) of the Civil Code, a contract whose cause,
object or purpose is contrary to law is a void or inexistent contract.
As such, a void contract cannot produce a valid one.13 To the same
effect is Article 1422 of the Civil Code, which declares that "a
contract, which is the direct result of a previous illegal contract, is
also void and inexistent."
We do not concur with the CAs finding that the guilt of Tarnate
for violation of Section 6 of Presidential Decree No. 1594 was
lesser than that of Gonzalo, for, as the CA itself observed, Tarnate
had voluntarily entered into the agreements with Gonzalo.14
Tarnate also admitted that he did not participate in the bidding for
the project because he knew that he was not authorized to contract
with the DPWH.15 Given that Tarnate was a businessman who had
represented himself in the subcontract as "being financially and
organizationally sound and established, with the necessary
personnel and equipment for the performance of the project,"16 he
justifiably presumed to be aware of the illegality of his agreements
with Gonzalo. For these reasons, Tarnate was not less guilty than
Gonzalo.
According to Article 1412 (1) of the Civil Code, the guilty parties
to an illegal contract cannot recover from one another and are not
entitled to an affirmative relief because they are in pari delicto or
in equal fault. The doctrine of in pari delicto is a universal doctrine
that holds that no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific performance, or
to recover the property agreed to be sold or delivered, or the money
agreed to be paid, or damages for its violation; and where the
parties are in pari delicto, no affirmative relief of any kind will be
given to one against the other.17
Nonetheless, the application of the doctrine of in pari delicto is not
always rigid.1wphi1 An accepted exception arises when its
application contravenes well-established public policy.18 In this
jurisdiction, public policy has been defined as "that principle of the
law which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or against the
public good."19
Unjust enrichment exists, according to Hulst v. PR Builders,
Inc.,20 "when a person unjustly retains a benefit at the loss of
another, or when a person retains money or property of another
against the fundamental principles of justice, equity and good
conscience." The prevention of unjust enrichment is a recognized
public policy of the State, for Article 22 of the Civil Code explicitly
provides that "[e]very 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." It is well to note that Article
22 "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."21
115
There is no question that Tarnate provided the equipment, labor
and materials for the project in compliance with his obligations
under the subcontract and the deed of assignment; and that it was
Gonzalo as the contractor who received the payment for his
contract with the DPWH as well as the 10% retention fee that
should have been paid to Tarnate pursuant to the deed of
assignment.22 Considering that Gonzalo refused despite demands
to deliver to Tarnate the stipulated 10% retention fee that would
have compensated the latter for the use of his equipment in the
project, Gonzalo would be unjustly enriched at the expense of
Tarnate if the latter was to be barred from recovering because of
the rigid application of the doctrine of in pari delicto. The
prevention of unjust enrichment called for the exception to apply
in Tarnates favor. Consequently, the RTC and the CA properly
adjudged Gonzalo liable to pay Tarnate the equivalent amount of
the 10% retention fee (i.e., P233,526.13).
Gonzalo sought to justify his refusal to turn over the P233,526.13
to Tarnate by insisting that he (Gonzalo) had a debt of P200,000.00
to Congressman Victor Dominguez; that his payment of the 10%
retention fee to Tarnate was conditioned on Tarnate paying that
debt to Congressman Dominguez; and that he refused to give the
10% retention fee to Tarnate because Tarnate did not pay to
Congressman Dominguez.23 His justification was unpersuasive,
however, because, firstly, Gonzalo presented no proof of the debt
to Congressman Dominguez; secondly, he did not competently
establish the agreement on the condition that supposedly bound
Tarnate to pay to Congressman Dominguez;24 and, thirdly,
burdening Tarnate with Gonzalos personal debt to Congressman
Dominguez to be paid first by Tarnate would constitute another
case of unjust enrichment.
The Court regards the grant of moral damages, attorneys fees and
litigation expenses to Tarnate to be inappropriate. We have ruled
that no damages may be recovered under a void contract, which,
being nonexistent, produces no juridical tie between the parties
involved.25 It is notable, too, that the RTC and the CA did not spell
out the sufficient factual and legal justifications for such damages
to be granted.
Lastly, the letter and spirit of Article 22 of the Civil Code command
Gonzalo to make a full reparation or compensation to Tarnate. The
illegality of their contract should not be allowed to deprive Tarnate
from being fully compensated through the imposition of legal
interest. Towards that end, interest of 6% per annum reckoned from
September 13, 1999, the time of the judicial demand by Tarnate, is
imposed on the amount of P233,526.13. Not to afford this relief
will make a travesty of the justice to which Tarnate was entitled for
having suffered too long from Gonzalos unjust enrichment.
WHEREFORE, we AFFIRM the decision promulgated on
February 18, 2003, but DELETE the awards of moral damages,
attorneys fees and litigation expenses; IMPOSE legal interest of
6% per annum on the principal oLP233,526.13 reckoned from
September 13, 1999; and DIRECT the petitioner to pay the costs
of suit.
SO ORDERED.
G.R. No. 193551 November 19, 2014
HEIRS OF GREGORIO LOPEZ, represented by Rogelia
Lopez, et al., Petitioners,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES [Now
substituted by Philippine Investment Two (SPVAMC), Inc.],
Respondents.
DECISION
LEONEN, J.:
This case involves the application of the doctrine on innocent
purchaser or mortgagee for value. It also involves the application
of the doctrines on sales by persons who are not owners of the
property.
This is a Rule 45 petition1 filed on October 15, 2010, assailing the
Court of Appeals May 8, 2009 decision2 and August 16, 2010
resolution.3 The Court of Appeals reversed and set aside the
Regional Trial Court's December 27, 2005 decision,4 which
ordered the nullification of the affidavit of self-adjudication
executed by Enrique Lopez, and the documents relating
to the sale and mortgage of the property to respondent
Development Bank of the Philippines.
Gregoria Lopez owned a 2,734-square-meter property in Bustos,
Bulacan.5 She died on March 19, 19226 and was survived by her
three sons: Teodoro Lopez, Francisco Lopez, and Carlos Lopez.7
Tax Declaration No. 613 was issued under the names of Teodoro,
Francisco, and Carlos.8
Teodoro, Francisco, and Carlos died.9 Only Teodoro was survived
by children: Gregorio, Enrique, Simplicio, and Severino.10
Petitioners in this case are Simplicio substituted by his daughter
Eliza Lopez, and the heirs of Gregorio and Severino.11 Enrique is
deceased.12
Petitioners discovered that on November 29, 1990, Enrique
executed an affidavit of self-adjudication declaring himself to be
Gregoria Lopezs only surviving heir, thereby adjudicating upon
himself the land in Bulacan.13 He sold the property to Marietta
Yabut.14
Petitioners demanded from Marietta the nullification of Enriques
affidavit of self-adjudication and the deed of absolute sale.15 They
also sought to redeem Enriques one-fourth share.16 Marietta, who
was already in possession of the property, refused.17
Sometime in 1993, Marietta obtained a loan from Development
Bank of the Philippines (DBP) and mortgaged the property to DBP
as security.18 At the time of the loan, the property was covered by
Tax Declaration No. 18727, with the agreement that the land shall
be brought under the Torrens system.19 On July 26, 1993, an
original certificate of title was issued in Mariettas name.20
Marietta and DBP "executed a supplemental document dated 28
February 1995 placing the subject [property]within the coverage of
the mortgage."21 The mortgage was annotated to the title.22
Sometime between 1993 and 1994, petitioners filed a complaint23
and an amended complaint24 with the Regional Trial Court for the
annulment of document, recovery of possession, and reconveyance
of the property. They prayed that judgment be rendered, ordering
the annulment of Enriques affidavit of self-adjudication, the deed
of sale executed by Enrique and Marietta, and the deed of real
estate mortgage executed by Marietta in favor of DBP.25
Petitioners also prayed for the reconveyance of their three-fourth
share in the property, their exercise of their right of redemption of
Enriques one-fourth share, as well as attorneys fees and costs of
suit.26
Petitioners caused the annotation of a notice of lis pendens at the
back of the original certificate of title.27 The annotation was
inscribed on June 27, 1994.28
Marietta failed to pay her loan to DBP.29 "DBP instituted
foreclosure proceedings on the . . . land."30 It was "awarded the
sale of the [property] as the highest bidder."31 "The Certificate of
116
Sale was registered with the Register of Deeds . . . on 11 September
1996."32 Marietta failed to redeem the property.33 The title to the
property was "consolidated in favor of DBP."34
On December 27, 2005, the Regional Trial Court ruled in favor of
petitioners.35 The Regional Trial Court found that the affidavit of
self-adjudication and the deed of absolute sale did not validly
transfer to Marietta the title to the property.36 Enrique could not
transfer three-fourths of the property since this portion belonged to
his co-heirs.37 The Regional Trial Court also found that Marietta
was not an innocent purchaser for value because when the deed of
absolute sale was executed, the property was only covered by a tax
declaration in the name of the heirs of Gregoria Lopez,38 thus:
[Marietta] should have looked further into the veracity of vendor
Enrique Lopez claim of ownership over the subject property
considering that he has not presented her any other proof of his
ownership when the said Deed of Absolute Sale was executed other
than his mere allegation of ownership thereof.39
Hence, the issuance of the original certificate of title would not
protect Marietta. Title is not vested through a certificate.40 At best,
Mariettas ownership over the subject property would cover only
Enriques share.41
The Regional Trial Court also found that DBP was not a mortgagee
in good faith because at the time of the execution of the mortgage
contract, a certificate of title was yet to be issued in favor of
Marietta.42 Mariettas title at that time was still based on a tax
declaration.43 Based on jurisprudence, a tax declaration is not a
conclusive proof of ownership.44 The DBP should have exerted
due diligence in ascertaining Mariettas title to the property.45
The Regional Trial Court ordered the nullification of Enriques
affidavit of self-adjudication, the sale of the three-fourth portion of
the subject property in favor of Marietta, the reconveyance of the
three-fourth share of the property in favor of petitioners, the
nullification of the real estate mortgage executed in favor of DBP,
and the surrender of possession of the property to petitioners.46
The trial court also ordered DBP to pay attorneys fees.
DBP, substituted by Philippine Investment Two (PI Two),
appealed to the Court of Appeals.47 The Court of Appeals reversed
the decision of the Regional Trial Court in the decision48
promulgated on May 8, 2009. It held that DBP was a mortgagee in
good faith:
[W]ith the absence of any evidence to show that the DBP was ever
privy to the fraudulent execution of the late Enrique Lopez [sic]
affidavit of Adjudication over the subject land, the right of the
former over the same must be protected and respected by reason of
public policy.49
The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, the appeal is GRANTED. The 27 December 2005
Decision of the Regional Trial Court is hereby REVERSED and
SET ASIDE as to defendant-appellant Development Bank of the
Philippines and dismissing the complaint against the latter [now
substituted by Philippine Investment Two (SPV-AMC), Inc.]50
The Court of Appeals denied petitioners motion for
reconsideration on August 16, 2010.51 Petitioners filed a Rule 45
petition52 before this court on October 15, 2010.
The issue in this case is whether the property was validly
transferred to Marietta and, eventually, to DBP.
Petitioners argued that the Court of Appeals erred in its application
of the doctrine on "innocent purchaser for value."53 DBP should
have exercised diligence in ascertaining Mariettas claim of
ownership since at the time of the mortgage, the property was only
covered by a tax declaration under Mariettas name.54 As a
financial institution of which "greater care and prudence"55 is
required, DBP should not have relied on the face of a certificate of
title to the property.56
On the other hand, DBPs position, citing Blanco v. Esquierdo,57
was that since its participation in Enriques execution of the
affidavit of self-adjudication was not shown on record, it could not
have been aware that there was any irregularity in the sale in favor
of Marietta and in her title to the property.58 Moreover, Marietta
was in possession of the property at the time of the contract with
DBP.59 Therefore, DBP should enjoy the protection accorded to
innocent purchasers for value.60
We find merit in the petition.
I
Validity of Enriques affidavit and the sale to Marietta
We have consistently upheld the principle that "no one can give
what one does not have."61 A seller can only sell what he or she
owns, or that which he or she does not own but has authority to
transfer, and a buyer can only acquire what the seller can legally
transfer.62
This principle is incorporated in our Civil Code. It provides that in
a contract of sale, the seller binds himself to transfer the ownership
of the thing sold, thus:
Art. 1458. By the contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
The seller cannot perform this obligation if he or she does not have
a right to convey ownership of the thing. Hence, Article 1459 of
the Civil Code provides:
Art. 1459. The thing must be licit and the vendor must have a right
to transfer the ownership thereof at the time it is delivered.
Title or rights to a deceased persons property are immediately
passed to his or her heirs upon death.63 The heirs rights become
vested without need for them to be declared "heirs."64 Before the
property is partitioned, the heirs are co-owners of the property.65
In this case, the rights to Gregoria Lopezs property were
automatically passed to her sons Teodoro, Francisco, and Carlos
when she died in 1922.66 Since only Teodoro was survived by
children, the rights to the property ultimately passed to them when
Gregoria Lopezs sons died.67 The children entitled to the property
were Gregorio, Simplicio, Severino, and Enrique.
Gregorio, Simplicio, Severino, and Enrique became co-owners of
the property, with each of them entitled toan undivided portion of
only a quarter of the property. Upon their deaths, their children
became the co-owners of the property, who were entitled to their
respective shares, such that the heirs of Gregorio became entitled
to Gregorios one-fourth share, and Simplicios and Severinos
respective heirs became entitled to their corresponding onefourth
shares in the property.68 The heirs cannot alienate the shares that
do not belong to them. Article 493 of the Civil Code provides:
Art. 493. Each co-owner shall have the full ownership of his part
and of the fruits and benefits pertaining thereto, and he may
117
therefore alienate, assign or mortgage it, and even substitute
another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with
respect to the co-owners, shall be limited to the portion which may
be allotted to him in the division upon the termination of the co-
ownership.
Since Enriques right to the property was limited to his one-fourth
share, he had no right to sell the undivided portions that belonged
to his siblings or their respective heirs. Any sale by one heir of the
rest of the property will not affect the rights of the other heirs who
did not consent to the sale. Such sale is void with respect to the
shares of the other heirs.
Regardless of their agreement, Enrique could only convey to
Marietta his undivided one-fourth share of the property, and
Marietta could only acquire that share. This is because Marietta
obtained her rights from Enrique who, in the first place, had no title
or interest over the rest of the property that he could convey.
This is despite Enriques execution of the affidavit of self-
adjudication wherein he declared himself to be the only surviving
heir of Gregoria Lopez. The affidavit of self-adjudication is invalid
for the simple reason that it was false. At the time of its execution,
Enriques siblings were still alive and entitled to the three-fourth
undivided share of the property. The affidavit of self-adjudication
did not have the effect of vesting upon Enrique ownership or rights
to the property.
The issuance of the original certificate of title in favor of Marietta
does not cure Enriques lack of title or authority to convey his co-
owners portions of the property. Issuance of a certificate of title is
not a grant of title over petitioners undivided portions of the
property.69 The physical certificate of title does not vest in a
person ownership or right over a property.70 It is merely an
evidence of such ownership or right.71
Marietta could acquire valid title over the whole property if she
were an innocent purchaser for value. An innocent purchaser for
value purchases a property without any notice of defect or
irregularity as to the right or interest of the seller.72 He or she is
without notice that another person holds claim to the property
being purchased.73
As a rule, an ordinary buyer may rely on the certificate of title
issued in the name of the seller.74 He or she need not look "beyond
what appears on the face [of the certificate of title]."75 However,
the ordinary buyer will not be considered an innocent purchaser for
value if there is anything on the certificate of title that arouses
suspicion, and the buyer failed to inquire or take steps to ensure
that there is no cloud on the title, right, or ownership of the property
being sold.
Marietta cannot claim the protection accorded by law to innocent
purchasers for value because the circumstances do not make this
available to her.
In this case, there was no certificate of title to rely on when she
purchased the property from Enrique. At the time of the sale, the
property was still unregistered. What was available was only a tax
declaration issued under the name of "Heirs of Lopez."
"The defense of having purchased the property in good faith may
be availed of only where registered land is involved and the buyer
had relied in good faith on the clear title of the registered owner."76
It does not apply when the land is not yet registered with the
Registry of Deeds.
At the very least, the unregistered status of the property should
have prompted Marietta to inquire further as to Enriques right over
the property. She did not. Hence, she was not an innocent purchaser
for value. She acquired no title over petitioners portions of the
property.
II
Validity of the mortgage
One of the requisites of a valid mortgage contract is ownership of
the property being mortgaged.77 Article 2085 of the Civil Code
enumerates the requisites of a mortgage contract: Art. 2085. The
following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfilment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the
free disposal of their property, and in the absence thereof, that they
be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property.
Applying this provision and having established that Marietta
acquired no valid title or ownership from Enrique over the
undivided portions of the property, this court finds that no valid
mortgage was executed over the same property in favor of DBP.
Without a valid mortgage, there was also no valid foreclosure sale
and no transfer of ownership of petitioners undivided portions to
DBP. In other words, DBP acquired no right over the undivided
portions since its predecessor-in-interest was not the owner and
held no authority to convey the property.
As in sales, an exception to this rule is if the mortgagee is a
"mortgagee in good faith."78 This exception was explained in
Torbela v. Rosario:
Under this doctrine, even if the mortgagor is not the owner of the
mortgaged property, the mortgage contract and any foreclosure
sale arising therefrom are given effect by reason of public policy.
This principle is based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on the face
of the title. This is the same rule that underlies the principle of
"innocent purchasers for value." The prevailing jurisprudence is
that a mortgagee has a right to rely in good faith on the certificate
of title of the mortgagor to the property given as security and in the
absence of any sign that might arouse suspicion, has no obligation
to undertake further investigation. Hence, even if the mortgagor is
not the rightful owner of, or does not have a valid title to, the
mortgaged property, the mortgagee in good faith is, nonetheless,
entitled to protection.79
DBP claims that it is covered by this exception. DBP is mistaken.
The exception applies when, at the time of the mortgage, the
mortgagor has already obtained a certificate of title under his or her
name.80 It does not apply when, as in this case, the mortgagor had
yet to register the property under her name.81
The facts show that DBP disregarded circumstances that should
have aroused suspicion. For instance, at the time of the mortgage
with DBP, Marietta only had a tax declaration under her name to
show that she was the owner of the property. A tax declaration, by
itself, neither proves ownership of property nor grants title. Yet,
118
DBP agreed to accept the property as security even though
Mariettas claim was supported only by the tax declaration, and a
certificate of title was yet to be issued under her name.
Granting that Marietta was in possession of the property, DBP
should have inquired further as to Mariettas rights over the
property since no certificate of title was issued to her. DBP took
the risks attendant to the absence of a certificate of title. It should
bear the burden of checking the ownership as well as the validity
of the deed of sale. This is despite the eventual issuance of a
certificate of title in favor of Marietta.
The rule on "innocent purchasers or [mortgagees] for value" is
applied more strictly when the purchaser or the mortgagee is a
bank.1wphi1 Banks are expected to exercise higher degree of
diligence in their dealings, including those involving lands. Banks
may not rely simply on the face of the certificate of title.
Thus, in Cruz v. Bancom Finance Corporation,82 this court ruled
that:
Respondent . . . is not an ordinary mortgagee; it is a mortgagee-
bank. As such, unlike private individuals, it is expected to exercise
greater care and prudence in its dealings, including those involving
registered lands. A banking institution is expected to exercise due
diligence before entering into a mortgage contract. The
ascertainment of the status or condition of a property offered to it
as security for a loan must be a standard and indispensable part of
its operations.83 (Citations omitted)
DBP failed to exercise the degree of diligence required of banks
when it accepted the unregistered property as security for
Mariettas loan despite circumstances that should have aroused its
suspicion.
Citing Blanco v. Esquierdo, DBP argued that since it did not
participate in the dealings between Enrique and Marietta, it should
be considered as an innocent mortgagee for value.
Blanco involves an alleged widow of the deceased who adjudicated
to herself the deceaseds property and thereafter mortgaged the
property to DBP.84 The brothers and sisters of the deceased filed
an action for the annulment of the affidavit executed by the alleged
widow and the cancellation of the certificate of title under her
name.85 The trial court ordered the cancellation of the certificate
of title issued to the alleged widow, including the registration of
the mortgage deed.86
In Blanco, this court declared that DBP was a mortgagee in good
faith, thus:
The trial court, in the decision complained of, made no finding that
the defendant mortgagee bank was a party to the fraudulent transfer
of the land to Fructuosa Esquierdo. Indeed, there is nothing alleged
in the complaint which may implicate said defendant mortgagee in
the fraud, or justify a finding that it acted in bad faith. On the other
hand, the certificate of title was in the name of the mortgagor
Fructuosa Esquierdo when the land was mortgaged by her to the
defendant bank. Such being the case, the said defendant bank, as
mortgagee, had the right to rely on what appeared in the certificate
and, in the absence of anything to excite suspicion, was under no
obligation to look beyond the certificate and investigate the title of
the mortgagor appearing on the face of said certificate. (De Lara,
et al. vs. Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838; Joaquin
vs. Madrid, et al., 106 Phil., 1060). Being thus an innocent
mortgagee for value, its right or lien upon the land mortgaged must
be respected and protected, even if the mortgagor obtained her title
thereto thru fraud.87
DBP's reliance on Blanco is misplaced. In Blanco, the certificate
of title had already been issued under the name of the mortgagor
when the property was mortgaged to DBP. This is not the situation
in this case.
To reiterate, the protection accorded to mortgagees in good faith
cannot be extended to mortgagees of properties that are not yet
registered or registered but not under the mortgagor's name.
Therefore, the Regional Trial Court did not err in ordering the
nullification of the documents of sale and mortgage. Contracts
involving the sale or mortgage of unregistered property by a person
who was not the owner or by an unauthorized person are void.
WHEREFORE, the petition is GRANTED. The decision of the
Court of Appeals dated May 8, 2009 and its resolution dated
August 16, 2010 are reversed and SET ASIDE. The December 27,
2005 decision of the Regional Trial Court is REINSTATED.
SO ORDERED.
G.R. No. 192629, November 25, 2015
FILINVEST LAND, INC., Petitioner, v. EDUARDO R. ADIA,
LITO M. ADIGUE, CANDIDO M. AMPARO, MARINO S.
AMPARO, RODOLFO S. AMPARO, FLORDELIZA L.
ARIAS, BALBINO M. ATIENZA, PEDRO M. ATIENZA,
DALMACIO C. AVANILLA, PASTOR M. AVANILLA,
VENACIO P. BAUTISTA, RODOLFO S. BERGADO,
ENRIQUE R. BRABANTE, EMMA D. BUBAN, JUANITO A.
CANDARE, ROMEO O. CANDARE, ANTONIO M.
CATAPANG, EDUARDO A. CATAPANG, GRACIANO C.
CATAPANG, HERMINIO V. CATAPANG, JUANA P.
CATAPANG, REYNALDO P. CATAPANG, ROMEO A.
CATAPANG, RODOLFO A. CATAPANG, VICTORIANO A.
CATAPANG, JUAN D. CENTOS, FERNANDO B.
CERNETCHEZ, EDUARDO C. CREENCIA, ARNEL N. M.
CREMA, REYNALDO B. CRISTAL, MOISES CUBCUBIN,
DELSO POBLETO, SALVADOR M. DE LEON,
MELQUIADES P. DESCALSO, GREGORIO P. DINO,
ROBERTO L. DOMINO, CELSO R. ESCALLAR, ARMAND
P. ESCUADRO, ELISA C. FELICIANO, PASTOR C.
FERRER, ERLINDO M. FORMARAN, LEONARDO D.
GARINO, RAFAEL R. GRANADO, ALMARIO IBANEZ,
CASIMIRO P. IBANEZ, CEFERINO P. IBANEZ, MIGUEL
V. IBANEZ, MONTANO V. IBANEZ, CESAR N. JECIEL,
ALFREDO B. LAURENTE, EFIGENIA B. LAURENTE,
CELSO C. MEDINA, EDUARDO A. PANGANIBAN,
ROMEO C. PASCUA, DANILO L. PAULMINO, LAURO A.
PEGA, LEONARDO M. PEREZ, FELIPE V. PETATE,
LEONARDO V. PETATE, ESTANISLAO PORTO,
MAXIMO D. PORTO, GREGORIO L. REYES, JOSE L.
REYES, LEONARDO M. SALINGYAGA, DEMETRIO A.
SALONGA, MANOLITO G. SORILLA, HERMOGENES L.
TORRES, JUANITO M. TORRES, MARIANO B. TAGLE,
MARIO D. TAGLE, AND SANCHO V. VILLA, Respondents.
DECISION
BRION, J.:**
We resolve the petition for review on certiorari challenging the
April 15, 2010 decision1 and June 17, 2010 resolution of the Court
of Appeals (CA) in CA G.R. CV No. 87424. The CA decision
affirmed the Regional Trial Court's (RTC) decision2 directing the
petitioner to vacate the properties and to return the transfer
certificates of title (TCTs) to the respondents.
FACTUAL BACKGROUND
119
The respondents were the registered owners of various parcels of
land located in Barangay Hugo Perez, Trece Martires, Cavite.
These properties were awarded to them pursuant to the
Comprehensive Land Reform Law (CARL),3 and had a total land
area of about 709,910 square meters under seventy-five (75) TCTs.
In 1995, Filinvest Land, Inc. (Filinvest) acquired possession of
these properties. Each of the respondents executed a Sinumpaang
Salaysay entitled Pagbibitaw ng Karapatan (affidavits). Based on
these affidavits, the respondents relinquished all their rights over
the properties for valuable consideration.
The respondents alleged that they surrendered possession of their
properties with the understanding that Filinvest would develop
these into a residential subdivision, pursuant to a joint venture
agreement (JVA). They also entrusted their respective owner's
duplicate original copies of the TCTs to Filinvest because they
were told that these would be used in preparing the development
plans. The respondents added that they were even given money to
find their own place while the development was taking place.
The respondents repeatedly requested Filinvest to return their
owner's TCT copies and to give them a copy of the JVA. Since
development had not yet begun, they also sent a letter to Filinvest
to allow them to temporarily return to their lands. They received
no response. Instead, Filinvest began to fence the area and
prohibited entry. To protect their rights, the respondents filed
notices of adverse claim.
In 2010, the respondents filed a complaint for recovery of
possession with damages against Filinvest.
In its answer, Filinvest argued that (a) the respondents had
relinquished their rights over the property, (b) no JVA was signed,
and (c) all of the respondents signed the affidavits under which
possession was validly transferred to Filinvest.
At trial, the respondents' witnesses initially denied that they
executed the affidavits but changed their answers when they saw
their signatures on them.
Filinvest presented two witnesses. Leilanie Faforga (Faforga), the
custodian of Filinvest's acquisition documents, testified that she
did not possess any documents on the properties other than the
respondents' affidavits. To her knowledge, no JVA had been
signed.
Lina Ferrer-De Guzman (De Guzman) testified that she was the
Head of the Land Acquisition Department at the time of the
transactions. She stated that the sale with Filinvest did not push
through because the properties were covered by the CARL. Under
its Section 27, the properties cannot be sold, transferred, or
conveyed within a period of ten (10) years. Thus, instead of a sale,
she negotiated a transfer of possession to Filinvest through the
affidavits until such time that a sale could be made.
In its decision, the RTC found the respondents to be the lawful
possessors. It then ordered Filinvest to: (a) vacate the properties;
(b) return all the TCTs to the respondents; and (c) pay two hundred
thousand pesos as attorney's fees.
The respondents challenged this ruling through a petition for
review before the CA.
THE CA RULING
The CA affirmed the RTC's decision. It ruled that the respondents
undoubtedly own the properties and are entitled to possession.
First, the CA ruled that the respondents failed to prove the JVA's
existence and due execution. They failed to produce the original
copy and any secondary evidence to prove that it exists. Thus, the
CA had no basis to conclude that Filinvest did not perform its
obligations under the alleged JVA.
Second, the CA ruled that the affidavits could not be valid sources
of Fil invest's right because their terms were contrary to law,
specifically Section 27 of the CARL. A plain reading of these
affidavits showed that all rights, not just possession, over the
properties were transferred. Without expressly mentioning transfer
of ownership, the affidavits effectively gave Filinvest indefinite
control over the properties; thus, the affidavits were void.
Third, the CA ruled that, although both parties knew that the
transfers were prohibited, the respondents may still recover the
properties based on Article 1416 of the Civil Code. This provision
is an exception to the pari delicto doctrine. This provision states
that when an agreement is not illegal per se but is merely
prohibited, and the prohibition is designed to protect the plaintiff,
he may recover what he has delivered. Section 27 of the CARL was
designed to protect the landless farmers; thus, the respondents may
still recover their properties.
Lastly, the CA removed the award of attorney's fees because the
RTC did not give any reason for granting it.
The CA denied Filinvest's motion for reconsideration; hence, this
petition.
THE PETITION
In its petition and supplemental petition, Filinvest insists
that:chanRoblesvirtualLawlibrary
First, the affidavits are valid. Section 27 of the CARL only
prohibits the sale, transfer, or conveyance of the properties. It does
not prohibit the assignment of possessory rights. When the
respondents executed the affidavits, they voluntarily assigned their
possessory rights over the properties in Filinvest's favor. Filinvest
is, therefore, the lawful possessor of the properties.
Second, assuming arguendo that the affidavits are void, the
respondents must return the consideration they received.
Otherwise, they will unjustly enrich themselves at Filinvest's
expense.
Third, both parties are in pari delicto for entering into the void
transaction. Thus, the Court should leave them as they are.
Furthermore, the pari delicto exception in Article 1416 of the Civil
Code does not apply to void contracts.
THE RESPONDENTS' CASE
On their part, the respondents argue
that:chanRoblesvirtualLawlibrary
First, the affidavits are void because they effectively transferred
ownership, not just possession, over the properties. The affidavits'
provisions require a perpetual surrender of the respondents'
ownership rights. This transfer violates Section 27 of the CARL.
In Maylem v. Ellano,4 this Court ruled that the waiver or surrender
of possession of properties awarded under CARL is a prohibited
transfer. Thus, Filinvest's contention that they validly acquired
possession through the affidavits is baseless. Since the transfer to
Filinvest is prohibited, the respondents are the properties' lawful
possessors.
120

Second, all the requisites of Article 1416 of the Civil Code are
present. Thus, the courts may return the properties to the
respondents' possession. Moreover, the respondents will not be
unjustly enriched if the properties are returned to them because
Filinvest has possessed their properties for more than fifteen years.
In sum, the CA did not commit any error in affirming the RTC's
decision.
In a manifestation in 2006, the respondents informed this Court
that while this case is pending, Filinvest was able to cancel the
TCTs in respondents' names and to obtain new ones in its name.
THE ISSUE
The core issue in an accion publiciana case is who between
Filinvest and the respondents are the properties' lawful possessors.
OUR RULING
The petition is unmeritorious.
An accion publiciana or a case for recovery of possession
determines who between the parties has the better and legal right
to possess the properties, independently of title.5
Filinvest's claim of rightful possession relies on the affidavits.
Hence, we must ascertain whether these affidavits validly
transferred possession.
The affidavits are void for violating Section 27 of the CARL.
Since the properties involved were awarded pursuant to CARL, its
provisions apply here. Section 27 of the CARL states:
"Section 27. Transferability of Awarded Lands. - Lands acquired
by the beneficiaries under this Act may not be sold, transferred or
conveyed except through hereditary succession, or to the
government, or the LBP, or to other qualified beneficiaries for a
period of ten (10) years. x x x." (Emphasis supplied)
This provision prohibits the sale, transfer, or conveyance of the
properties within ten years, subject to four exceptions6 which do
not apply to this case.
As early as 1990, the transfers of possessory rights over
landholdings awarded under agrarian laws had been declared void
in Torres v. Ventura.7
In that case, Torres tilled the subject land when Presidential Decree
No. 27 (PD 27) was promulgated in 1972. In 1978, he transferred
his rights of possession and enjoyment over the land to Ventura for
P5,000.00. Through an Affidavit of Waiver, Torres relinquished all
his rights over the property in Ventura's favor. In 1985, he offered
to redeem the property but Ventura refused. Thus, he filed a
complaint for recovery of possession.
This Court resolved the question of who has better right of
possession between the tiller and the transferee of the land, ruling
in Torres' favor based on the facts and on the constitutional
mandate to promote agrarian reform. We noted that the
fundamental policy of the law is to transfer ownership over the land
to the farmers who till them. To give effect to this policy, PD 27
prohibits the transfer of the land to third parties, subject to certain
exceptions. In a 1979 memorandum circular,8 the Minister of
Agrarian Reform acknowledged the prevalence of transactions
transferring ownership, rights, or possession over awarded lands.
The Minister emphasized that these transactions violate PD 27 and
are, thus, void.
The ruling in Torres was reiterated in Corpuz v. Grospe9 and in
Lapanday v. Estita.10 In Lapanday, the Court stated that waivers
of rights and interests over landholdings awarded by the
government are invalid for violating agrarian reform laws. Thus,
these waivers are void.
The proscription in PD 27 against transferring land awards to third
persons was carried over to Section 27 of RA 6657.11
The pronouncements in Torres were ruled to be applicable to land
awards under RA 6657 in Maylem v. Ellano,12 in Lebrudo v.
Loyola,13 and in Gua-an v. Quirino.14 In these cases, the Court
emphasized that any waiver and transfer of rights and interests
within the 10-year prohibitory period under RA 6657 is void for
violating agrarian reform law15 whose main purpose is to ensure
that the farmer-beneficiary shall continuously possess, cultivate,
and enjoy the land he tills.16 The affidavits and quitclaims signed
by the farmers to surrender possession were accordingly declared
void.
In the present case, the parties do not dispute that the transfers
occurred within the ten-year period. Filinvest contends, however,
that only transfer of ownership is prohibited, not of possession.
We now examine the affidavits' contents. The affidavits signed by
the respondents read, in part, thus:
"SINUMPAANG SALAYSAY
(PAGBIBITAW NG KARAPATAN)
xxx
1. Na pinapatunayan ko/naming (sic) na tinanggap ko/naming nang
lubos na kasiyahan ang halagang ____________ (P________)
Salaping Pilipino, mula sa FILINVEST LAND, INC. bilang
kabuuang bayad pinsala (disturbance fee) sa mga pananim
ko/naming at ng aking/aming buong pamilya at sa lahat ng iba pa
ko/naming mga pag-aari sa lupaing nabanggit at bilang karapatang
bayad sa lahat kong/naming interes, karapatan at paghahabol sa
nasabing lupain.
2. Na alang-alang sa nabanggit na tinanggap kong/naming
kabayaran, kusang-loob ko/naming pinawawalang bisa at
kabuluhan ang anumang interes, karapatan at paghahabol bilang
magsasaka at kaagad kong isasauli sa mga nasabing may-ari, sa
paglagda ko/naming nito, ang aking/aming pamumusisyon at lahat
ng kaparatan sa nasabing lupain.
3. Na ako/kami at ang aking/aming pamilya ay nangangako na
mula sa paglagda ko/naming nito ay hindi na ako/kami magtatanim
ng ano pa mang halaman sa lahat ng mga nasabing lupain o di
kaya'y makikialam pa sa anumang paraan sa nasabing lupain.
4. Na aking/aming kinikilala ang karapatan ng mga may-aring
nabanggit at ng kanilang mga kahalili na bakuran ang lahat ng
lupaing nabanggit matapos kong/aming lagdaan ang salaysay na
ito at, ako/kami ay wala nang ano pa mang karapatan na pumasok
o kaya'y makialam sa kahi't (sic) anong paraan maging sa nasabing
parselang nasasakop ng Titulong nabanggit, maging may maani
man kami o wala sa mga bunga, kung mayroon man, o ang ano pa
mang mga nalalabing pananim na matatagpuan doon pagdating ng
nasabing takdang araw na iyon.
5. Na alang-alang sa mga nakasaad sa itaas, ako/kami at ang aming
buong pamilya ay wala nang paghahabol na ano pa man ukol sa
nasabing lupain laban sa nabanggit na may-ari at sa kanilang
maaaring maging kahalili pa sa pagmamay-ari nito, at aming
pinagtitibay na ang nasabing may-ari at mga kahalili ay wala nang
magiging ano pa mang pananagutan sa akin/amin sa ilalim ng
121
anumang nakaraang kasunduan namin sa kanila o sa kanilang mga
magulang, o sa ilalim ng batas.
x x x"17 (emphases supplied)
The affidavits, as worded, totally waive or transfer the respondents'
rights and interests over the properties. The CA correctly observed
that the affidavits do not only assign possessory rights, but
perpetually surrender the respondents' ownership rights.
Furthermore, De Guzman admitted that the affidavits were
deliberately designed to circumvent the proscription under
RA6657.
Clearly, the transfers of the properties, through the affidavits,
violate Section 27 of the CARL. Under our established rulings,
these affidavits or waivers are void.
Because the transfers made to Filinvest in 1995 are void, Filinvest
cannot claim rightful possession over the properties. The
respondents are the awardees based on the CARL and should be
recognized as the lawful possessors.
The pari delicto exception does not apply here.
We now go to the issue of whether the principle of pari delicto
applies to this case. We answer in the negative.
Filinvest claims that if the affidavits are void, this Court should
consider the parties to be in pari delicto. Both parties came to court
with unclean hands because they voluntarily entered into the void
transactions. Thus, the court should leave them where they are
Filinvest possessing the properties and the respondents keeping the
money they received.
We see no merit in Filinvest's position.
In Torres, we ruled that the pari delicto doctrine does not apply in
an agrarian reform case.18 To hold otherwise would defeat the
spirit and intent of the agrarian reform to free the tillers from the
bondage of the soil.19 The policy of the law must be upheld.
To elaborate, Article 1416 of the Civil Code provides an exception
to the pari delicto doctrine. Under this article, the plaintiff may
recover what he paid or delivered pursuant to a void contract if the
following requisites are met: (a) the contract is not illegal per se
but merely prohibited; (b) the prohibition is for the plaintiffs
protection; and (c) public policy will be enhanced by his
recovery.20 These requisites are present in this case.
On the first requisite, the affidavits here are merely prohibited. A
contract is illegal per se if, by universally recognized standards, it
is inherently bad, improper, immoral, or contrary to good
conscience.21
Ordinarily, affidavits or contracts of sale are lawful. Only Section
27 of the CARL made them unlawful.
On the second requisite, the prohibition under Section 27 of the
CARL is meant to protect the farmer-beneficiaries. Section 2 of the
CARL explains that the agrarian reform program is founded on the
landless farmers' right to own land.22 Thus, their protection must
be given utmost importance.
On the third requisite, public policy will be promoted by allowing
the respondents to recover their land. The CARL distributes
agricultural land to landless farmers to improve their quality of
life.23 Returning the land to them will enhance this public policy
of agrarian reform.
Thus, the respondents may recover the subject properties.
No unjust enrichment
We find merit in the respondents' argument that no unjust
enrichment took place. We note that Filinvest had possessed the
properties since 1995 or for about twenty years. During this period,
the respondents were deprived of the productive use of their land.
The amount they paid to the respondents may serve as
compensation for Filinvest's use of the properties for this long
period.
In sum, we hold that the respondents are the lawful possessors of
the disputed properties. Their affidavits are void and did not
transfer possessory rights.
In 2006, the respondents filed a manifestation that new TCTs had
already been issued in Filinvest's name. An accion publiciana,
however, resolves only possessory rights. The revocation of TCTs,
on the other hand, requires a conclusive determination of
ownership. Thus, the respondents must file the appropriate action
to annul the TCTs issued in Filinvest's name.
So as not to frustrate our pronouncement in this case, we order the
registration of this Decision with the Register of Deeds of the place
where the disputed properties are situated, in accordance with
Section 78 of Presidential Decree (PD) No. 1529,24 which
provides:
"SEC. 78 Judgment for Plaintiff. - Whenever in an action to
recover possession or ownership of real estate or any interest
therein affecting registered land judgment is entered for the
plaintiff, such judgment shall be entitled to registration on
presentation of a certificate of the entry thereof from the clerk of
court where the action is pending to the Register of Deeds for the
province or city where the land lies, who shall enter a
memorandum upon the certificate of title of the land to which such
judgment relates. If the judgment does not apply to all the land
described in the certificate of title, the certificate of the clerk of
court where the action is pending and the memorandum entered by
the Register of Deeds shall contain a description of the land
affected by the judgment." (Emphasis supplied)
WHEREFORE, we hereby DENY the petition for lack of merit.
The April 15, 2010 decision and June 17, 2010 resolution of the
Court of Appeals in CA G.R. SP No. 100262 are hereby
AFFIRMED.
Upon finality of this Decision, the Office of the 2nd Division Clerk
of Court is directed to furnish certified copies of this Decision and
its Entry of Judgment to the appropriate Register of Deeds pursuant
to Section 78 of PD No. 1529.
Costs against petitioner.
SO ORDERED.
G.R. No. 190846, February 03, 2016
TOMAS P. TAN, JR., Petitioner, v. JOSE G. HOSANA,
Respondent.
DECISION
BRION, J.:
Before us is a petition for review on certiorari1 challenging the
August 28, 2009 decision2 and November 17, 2009 resolution3 of
the Court of Appeals (CA) in CA-G.R. CV No.
88645.chanRoblesvirtualLawlibrary
The Facts
122

The respondent Jose G. Hosana (Jose) married Milagros C. Hosana
(Milagros) on January 14, 1979.4 During their marriage, Jose and
Milagros bought a house and lot located at Tinago, Naga City,
which lot was covered by Transfer Certificate of Title (TCT) No.
21229.5chanroblesvirtuallawlibrary
On January 13, 1998, Milagros sold to the petitioner Tomas P. Tan,
Jr. (Tomas) the subject property, as evidenced by a deed of sale
executed by Milagros herself and as attorney-in-fact of Jose, by
virtue of a Special Power of Attorney (SPA) executed by Jose in
her favor.6 The Deed of Sale stated that the purchase price for the
lot was P200,000.00.7 After the sale, TCT No. 21229 was
cancelled and TCT No. 32568 was issued in the name of
Tomas.8chanroblesvirtuallawlibrary
On October 19, 2001, Jose filed a Complaint for Annulment of
Sale/Cancellation of Title/Reconveyance and Damages against
Milagros, Tomas, and the Register of Deeds of Naga City.9 The
complaint was filed before the Regional Trial Court (RTC), Branch
62, Naga City. In the complaint, Jose averred that while he was
working in Japan, Milagros, without his consent and knowledge,
conspired with Tomas to execute the SPA by forging Jose's
signature making it appear that Jose had authorized Milagros to sell
the subject property to Tomas.10chanroblesvirtuallawlibrary
In his Answer, Tomas maintained that he was a buyer in good faith
and for value.11 Before he paid the full consideration of the sale,
Tomas claimed he sought advice from his lawyer-friend who told
him that the title of the subject lot was authentic and in order.12
Furthermore, he alleged that the SPA authorizing Milagros to sell
the property was annotated at the back of the
title.13chanroblesvirtuallawlibrary
Tomas filed a cross-claim against Milagros and claimed
compensatory and moral damages, attorney's fees, and expenses,
for litigation, in the event that judgment be rendered in favor of
Jose.14chanroblesvirtuallawlibrary
The RTC declared Milagros in default for her failure to file her
answer to Jose's complaint and Tomas' cross-claim.15 On the other
hand, it dismissed Tomas' complaint against the Register of Deeds
since it was only a nominal party.16chanroblesvirtuallawlibrary
After the pre-trial conference, trial on the merits
ensued.17chanroblesvirtuallawlibrary
Jose presented his brother, Bonifacio Hosana (Bonifacio), as sole
witness. Bonifacio testified that he learned of the sale of the subject
property from Milagros' son.18 When Bonifacio confronted
Milagros that Jose would get angry because of the sale, Milagros
retorted that she sold the property because she needed the money.
Bonifacio immediately informed Jose, who was then in Japan, of
the sale.19chanroblesvirtuallawlibrary
Jose was furious when he learned of the sale and went back to the
Philippines. Jose and Bonifacio verified with the Register of Deeds
and discovered that the title covering the disputed property had
been transferred to Tomas.20chanroblesvirtuallawlibrary
Bonifacio further testified that Jose's signature in the SPA was
forged.21 Bonifacio presented documents containing the signature
of Jose for comparison: Philippine passport, complaint-affidavit,
duplicate original of SPA dated 16 February 2002, notice of lis
pendens, community tax certificate, voter's affidavit, specimen
signatures, and a handwritten letter.22chanroblesvirtuallawlibrary
On the other hand, Tomas submitted his own account of events as
corroborated by Rosana Robles (Rosana), his goddaughter.
Sometime in December 1997, Tomas directed Rosana to go to the
house of Milagros to confirm if Jose knew about the sale
transaction. Through a phone call by Milagros to Jose, Rosana was
able to talk to Jose who confirmed that he was aware of the sale
and had given his wife authority to proceed with the sale. Rosana
informed Tomas of Jose's
confirmation.23chanroblesvirtuallawlibrary
With the assurance that all the documents were in order, Tomas
made a partial payment of P350,000.00 and another P350,000.00
upon the execution of the Deed of Absolute Sale (Deed of Sale).
Tomas noticed that the consideration written by Milagros on the
Deed of Sale was only P200,000.00; he inquired why the written
consideration was lower than the actual consideration paid.
Milagros explained that it was done to save on taxes. Tomas also
learned from Milagros that she needed money badly and had to sell
the house because Jose had stopped sending her
money.24chanRoblesvirtualLawlibrary
The RTC Ruling
In its decision dated December 27, 2006,25 the RTC decided in
favor of Jose and nullified the sale of the subject property to
Tomas. The RTC held that the SPA dated June 10, 1996, wherein
Jose supposedly appointed Milagros as his attorney-in-fact, was
actually null and void.
Tomas and Milagros were ordered to jointly and severally
indemnify Jose the amount of P20,000.00 as temperate
damages.26chanRoblesvirtualLawlibrary
The CA Ruling
Tomas appealed the RTC's ruling to the CA.
In a decision dated August 28, 2009,27 the CA affirmed the RTC
ruling that the deed of sale and the SPA were void. However, the
CA modified the judgment of the RTC: first, by deleting the award
of temperate damages; and second, by directing Jose and Milagros
to reimburse Tomas the purchase price of P200,000.00, with
interest, under the principle of unjust enrichment. Despite Tomas'
allegation that he paid P700,000.00 for the subject lot, the CA
found that there was no convincing evidence that established this
claim.28chanroblesvirtuallawlibrary
Tomas filed a motion for the reconsideration of the CA decision on
the ground that the amount of P200,000.00 as reimbursement for
the purchase price of the house and lot was insufficient and not
supported by the evidence formally offered before and admitted by
the RTC. Tomas contended that the actual amount he paid as
consideration for the sale was P700,000.00, as supported by his
testimony before the RTC.29chanroblesvirtuallawlibrary
The C A denied the motion for reconsideration for lack of merit"
in a resolution dated November 17,
2009.30chanRoblesvirtualLawlibrary
The Petition
Tomas filed the present petition for review on certiorari to
challenge the CA ruling which ordered the reimbursement of
P200,000.00 only, instead of the actual purchase price he paid in
the amount of P700,000.00.31chanroblesvirtuallawlibrary
Tomas argues that, first, all matters contained in the deed of sale,
including the consideration stated, cannot be used as evidence
since it was declared null and void; second, the deed of sale was
not specifically offered to prove the actual consideration of the
sale;32third, his testimony establishing the actual purchase price of
123
P700,000.00 paid was uncontroverted;33 and, fourth, Jose must
return the full amount actually paid under the principle of solutio
indebiti.34chanroblesvirtuallawlibrary
Jose, on the other hand, argues that first, Jose is estopped from
questioning the purchase price indicated in the deed of dale for
failing to immediately raise this question; and second, the terms of
an agreement reduced into writing are deemed to include all the
terms agreed upon and no other evidence can be admitted other
than the terms of the agreement
itself.35chanRoblesvirtualLawlibrary
The Issues
The core issues are (1) whether the deed of sale can be used as the
basis for the amount of consideration paid; and (2) whether the
testimony of Tomas is sufficient to establish the actual purchase
price of the sale.chanRoblesvirtualLawlibrary
OUR RULING
We affirm the CA ruling and deny the petition.
Whether Tomas paid the purchase price of P700,000.00 is a
question of fact not proper in a petition for review on certiorari.
Appreciation of evidence and inquiry on the correctness of the
appellate court's factual findings are not the functions of this Court,
as we are not a trier of facts.36chanroblesvirtuallawlibrary
This Court does not address questions of fact which require us to
rule on "the truth or falsehood of alleged facts,"37 except in the
following cases:ChanRoblesVirtualawlibrary
(1) when the findings are grounded entirely on speculations,
surmises, or conjectures; (2) when the inference made is manifestly
mistaken, absurd, or impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on misappreciation of
facts; (5) when the findings of fact are conflicting; (6) when in
making its findings, the same are contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those
of the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioner's main and
reply briefs are not disputed by the respondent; and (10) when the
findings of fact are premised on the supposed absence of evidence
and contradicted by the evidence on
record.38chanroblesvirtuallawlibrary
The present case does not fall under any of these exceptions.
Whether Tomas sufficiently proved that he paid P700,000.00 for
the subject property is a factual question that the CA had already
resolved in the negative.39 The CA found Tomas' claim of paying
P700,000.00 for the subject property to be unsubstantiated as he
failed to tender any convincing evidence to establish his claim.
We uphold the CA's finding.
In civil cases, the basic rule is that the party making allegations has
the burden of proving them by a preponderance of evidence.40
Moreover, the parties must rely on the strength of their own
evidence, not upon the weakness of the defense offered by their
opponent.41chanroblesvirtuallawlibrary
Preponderance of evidence is the weight, credit, and value of the
aggregate evidence on either side and is usually considered to be
synonymous with the term "greater weight of the evidence" or
"greater weight of the credible evidence."42 Preponderance of
evidence is a phrase that, in the last analysis, means probability of
the truth. It is evidence that is more convincing to the court as it is
worthier of belief than that which is offered in opposition
thereto.43chanroblesvirtuallawlibrary
We agree with the CA that Tomas' bare allegation that he paid
Milagros the sum of P700,000.00 cannot be considered as proof of
payment, without any other convincing evidence to establish this
claim. Tomas' bare allegation, while uncontroverted, does not
automatically entitle it to be given weight and credence.
It is settled in jurisprudence that one who pleads payment has the
burden of proving it;44 the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove non-payment.45 A
mere allegation is not evidence,46 and the person who alleges has
the burden of proving his or her allegation with the requisite
quantum of evidence, which in civil cases is preponderance of
evidence.
The force and effect of a void contract is distinguished from its
admissibility as evidence.
The next question to be resolved is whether the CA correctly
ordered the reimbursement of P200,000.00, which is the
consideration stated in the Deed of Sale, based on the principle of
unjust enrichment.
The petitioner argues that the CA erred in relying on the
consideration stated in the deed of sale as basis for the reimbursable
amount because a null and void document cannot be used as
evidence.
We find no merit in the petitioner's argument.
A void or inexistent contract has no force and effect from the very
beginning.47 This rule applies to contracts that are declared void
by positive provision of law, as in the case of a sale of conjugal
property without the other spouse's written consent.48 A void
contract is equivalent to nothing and is absolutely wanting in civil
effects.49 It cannot be validated either by ratification or
prescription.50 When, however, any of the terms of a void contract
have been performed, an action to declare its inexistence is
necessary to allow restitution of what has been given under
it.51chanroblesvirtuallawlibrary
It is basic that if a void contract has already "been performed, the
restoration of what has been given is in order."52 This principle
springs from Article 22 of the New Civil Code which states that
"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." Hence, the restitution of what each party has given is a
consequence of a void and inexistent contract.
While the terms and provisions of a void contract cannot be
enforced since it is deemed inexistent, it does not preclude the
admissibility of the contract as evidence to prove matters that
occurred in the course of executing the contract, i.e., what each
party has given in the execution of the contract.
Evidence is the means of ascertaining in a judicial proceeding the
truth respecting a matter of fact, sanctioned by the Rules of
Court.53 The purpose of introducing documentary evidence is to
ascertain the truthfulness of a matter at issue, which can be the
entire content or a specific provision/term in the document.
The deed of sale as documentary evidence may be used as a means
to ascertain the truthfulness of the consideration stated and its
actual payment. The purpose of introducing the deed of sale as
evidence is not to enforce the terms written in the contract, which
is an obligatory force and effect of a valid contract. The deed of
124
sale, rather, is used as a means to determine matters that occurred
in the execution of such contract, i.e., the determination of what
each party has given under the void contract to allow restitution
and prevent unjust enrichment.
Evidence is admissible when it is relevant to the issue and is not
excluded by the law of these rules.54 There is no provision in the
Rules of Evidence which excludes the admissibility of a void
document. The Rules only require that the evidence is relevant and
not excluded by the Rules for its
admissibility.55chanroblesvirtuallawlibrary
Hence, a void document is admissible as evidence because the
purpose of introducing it as evidence is to ascertain the truth
respecting a matter of fact, not to enforce the terms of the document
itself.
It is also settled in jurisprudence that with respect to evidence
which appears to be of doubtful relevancy, incompetency, or
admissibility, the safer policy is to be liberal and not reject them
on doubtful or technical grounds, but admit them unless plainly
irrelevant, immaterial, or incompetent; for the reason that their
rejection places them beyond the consideration of the court, if they
are thereafter found relevant or competent. On the other hand, their
admission, if they turn out later to be irrelevant or incompetent, can
easily be remedied by completely discarding them or ignoring
them.56chanroblesvirtuallawlibrary
In the present case, the deed of sale was declared null and void by
positive provision of the law prohibiting the sale of conjugal
property without the spouse's consent. It does not, however,
preclude the possibility that Tomas paid the consideration stated
therein. The admission of the deed of sale as evidence is consistent
with the liberal policy of the court to admit the evidence: which
appears to be relevant in resolving an issue before the courts.
An offer to prove the regular execution of the deed of sale is basis
for the court to determine the presence of the essential elements of
the sale, including the consideration paid.
Tomas argues that the Deed of Sale was not specifically offered to
prove the actual consideration of the sale and, hence, cannot be
considered by the court. Tomas is incorrect.
The deed of sale in the present case was formally offered by both
parties as evidence.57 Tomas, in fact, formally offered it for the
purpose of proving its execution and the regularity of the
sale.58chanroblesvirtuallawlibrary
The offer of the deed of sale to prove its regularity necessarily
allowed the; lower courts to consider the terms written therein to
determine whether all the essential elements59 for a valid contract
of sale are present, including the consideration of the sale. The fact
that the sale was declared null and void does not prevent the court
from relying on consideration stated in the deed of sale to
determine the actual amount paid by the petitioner for the purpose
of preventing unjust enrichment.
Hence, the specific offer of the Deed of Sale to prove the actual
consideration of the sale is not necessary since it is necessarily
included in determining the regular execution of the sale.
The consideration stated in the notarized Deed of Sale is prima
facie evidence of the amount paid by the petitioner.
The notarized deed of sale is a public document and is prima facie
evidence of the truth of the facts stated
therein.60chanroblesvirtuallawlibrary
Prima facie evidence is defined as evidence good and sufficient on
its face. Such evidence as, in the judgment of the law, is sufficient
to establish a given fact, or the group or chain of facts constituting
the party's claim or defense and which if not rebutted or
contradicted, will remain sufficient.61chanroblesvirtuallawlibrary
In the present case, the consideration stated in the deed of sale
constitutes prima facie evidence of the amount paid by Tomas for
the transfer of the property to his name. Tomas failed to adduce
satisfactory evidence to rebut or contradict the consideration stated
as the actual consideration and amount paid to Milagros and Jose.
The deed of sale was declared null and void by a positive provision
of law requiring the consent of both spouses for the sale of conjugal
property. There is, however, no question on the presence of the
consideration of the sale, except with respect to the actual amount
paid. While the deed of sale has no force and effect as a contract,
it remains prima facie evidence of the actual consideration paid.
As earlier discussed, Tomas failed to substantiate his claim that he
paid to Milagros the amount of P700,000.00, instead of the amount
of P200,000.00 stated in the deed of sale. No documentary or
testimonial evidence to prove payment of the higher amount was
presented, apart from Tomas' sole testimony. Tomas' sole
testimony of payment is self-serving and insufficient to
unequivocally prove that Milagros received P700,000.00 for the
subject property.
Hence, the consideration stated in the deed of sale remains
sufficient evidence of the actual amount the petitioner paid and the
same amount which should be returned under the principle of
unjust enrichment.
Unjust enrichment exists "when a person unjustly retains a benefit
at the loss of another, or when a person retains money or property
of another against the fundamental principles of justice, equity, and
good conscience."62 The prevention of unjust enrichment is a
recognized public policy of the State and is based on Article 22 of
the Civil Code.63chanroblesvirtuallawlibrary
The principle of unjust enrichment requires Jose to return what he
or Milagros received under the void contract which presumably
benefitted their conjugal partnership.
Accordingly, the CA correctly ordered Jose to return the amount
of P200,000.00 since this the consideration stated in the Deed of
Sale and given credence by the lower court. Indeed, even Jose
expressly stated in his comment that Tomas is entitled to recover
the money paid by him in the amount of P200,000.00 as appearing
in the contract.
WHEREFORE, we hereby DENY the petition for review on
certiorari. The decision dated August 28, 2009 and the resolution
dated November 17, 2009, of the Court of Appeals in CA-G.R. CV
No. 88645 is AFFIRMED. Costs against the petitioner.
SO ORDERED.
G.R. No. 202223, March 02, 2016
JOEY R. PEA, Petitioner, v. JESUS DELOS SANTOS AND
THE HEIRS OF ROSITA DELOS SANTOS FLORES.,
Respondents.
RESOLUTION
REYES, J.:
125
This resolves the Motion for Reconsideration1 of petitioner Joey
R. Perm (Pea) of the Court's Resolution2 dated September 9, 2013
which denied his Petition for Review3 on the ground of lack of
reversible error in the assailed Decision4 dated February 20, 2012
of the Court of Appeals (CA) in CA-G.R. CEB SP No. 03886.
The Facts
Jesus Delos Santos (Jesus) and Rosita Delos Santos Flores (Rosita)
were the judgment awardees of the two-thirds portion or 9,915
square meters of four adjoining lots designated as Lots 393-A, 393-
B, 394-D and 394-E, measuring 14,771 sq m, located in Boracay
Island, Malay, Aldan.5 The award was embodied in the Decision
dated April 29, 1996 of the Regional Trial Court (RTC) of Kalibo,
Aklan in the herein Civil Case No. 3683, the fallo of which reads:
chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing considerations, judgment
is hereby rendered as follows:
(1.) Dismissing the complaint filed by the plaintiffs [Vicente Delos
Santos, et al.] as well [as] the complaint in intervention filed by the
second set of intervenors Casimeros, et al. for lack of merit;
(2.) Declaring the two deeds of sale (Exhibits 29 and 30) as null
and void insofar as they affect the two-thirds (2/3) share of
intervenors Jesus and [Rosita];
(3.) Declaring intervenors Jesus and [Rosita] as the lawful owners
of the two-thirds portion of the land in question or 9,915 square
meters on the northwest portion, representing as their shares in the
intestate estate of Leonardo delos Santos;
(4.) Declaring defendant Fred Elizalde as the rightful owner of one-
third of the land in question or 4,957 square meters on the southeast
portion, segregated by a boundary line running from the seashore
to the inland or from the southwest to northeast;
(5.) Ordering the cancellation or revision of Tax Declaration No.
4422 in the name of Fred Elizalde (Exhibit 26) and all tax
declarations issued subsequent thereto to conform to paragraphs 3
and 4 hereof as well as the issuance of a new tax declaration to
intervenors Jesus and [Rosita] covering their two-thirds (2/3)
share;
(6.) Ordering the plaintiffs or any persons claiming interest therein
to deliver complete possession of the land to [Fred and Joan
Elizalde] and Jesus and [Rosita].
No pronouncement as to costs.
SO ORDERED.6 (Citation omitted and emphasis ours)
The losing parties in the case, Vicente Delos Santos, et al.
(plaintiffs) and Spouses Fred and Joan Elizalde (appellants),
appealed the foregoing judgment to the CA thru petitions
separately docketed as CA-G.R. CV No. 54136 and CA-G.R. SP
No. 48475, respectively. Both appeals were dismissed and
considered withdrawn in the CA Resolution dated May 11, 1999
upon the appellants' motion to withdraw appeal. In the subsequent
CA Resolution dated January 31, 2000, the motion for
reconsideration and motion to reinstate appeal filed by the
plaintiffs were denied for being time-barred as it was filed nine
days late.7
The plaintiffs sought recourse with the Court via a petition for
review on certiorari docketed as G.R. Nos. 141810 and 141812.8
In a Decision dated February 2, 2007, the Court denied the petition
on the ground that the plaintiffs already lost their right of appeal to
the CA when they failed to file an appellant's brief during the more
than 180-day extension.9 The Court reiterated its ruling in a
Resolution dated April 23, 2007, which denied reconsideration. An
Entry of Judgment in the case was forthwith issued.10
The case was then remanded to the RTC of Kalibo, Aklan for the
execution proceedings during which a Motion for Substitution with
a Motion for a Writ of Execution and Demolition11 dated March
14, 2008 was filed by Pea.
Pea averred that he is the transferee of Jesus and Rosita's adjudged
allotments over the subject lots. He claimed that he bought the
same from Atty. Romeo Robiso (Atty. Robiso) who in turn,
acquired the properties from Jesus and Rosita through assignment
and sale as evidenced by the following documents, viz:
chanRoblesvirtualLawlibrary
a. Deed of Transfer or Conveyance dated May 4, 2005 transferring
2,000 sq m of Lots No. 394-PT and 393-A to Atty. Robiso;12
b. Deed of Absolute Sale dated May 4, 2005 over the 2,000 sq m
of Lots No. 394-PT and 393-A in favor of Atty. Robiso;13
c. Confirmation of Sale and Transfer dated December 5, 2006
affirming the two foregoing instruments executed by Jesus and
Rosita in favor of Atty. Robiso.14ChanRoblesVirtualawlibrary
Atty. Robiso later on sold Lots No. 393-A and 394-D to Pea on
December 15, 2006 thru a Deed of Absolute Sale.15 The tax
declarations over the said portions were subsequently registered in
Pea's name.16
The plaintiffs opposed Pea's motion claiming that the conveyance
made by Jesus and Rosita in favor of Atty. Robiso was null and
void for being a prohibited transaction because the latter was their
counsel in the case.
Apparently, Atty. Robiso was engaged by Jesus and Rosita to be
their counsel in Civil Case No. 3683 by virtue of an Attorney's
Agreement and Undertaking dated July 11, 1998.17 Under the
agreement, Atty. Robiso bound himself to render his legal services
in connection with Jesus and Rosita's involvement as party-
litigants in Civil Case No. 3683 and to any proceedings that may
arise in connection therewith before the CA and this Court. Atty.
Robiso undertook to advance his own funds for all expenses and
costs he may incur in relation to the case. In consideration thereof,
Jesus and Rosita obliged themselves to give or pay to him as
contingent professional fees, 2,000 sq m of any and all lands that
the courts will award to them in the case.
Ruling of the RTC
In an Order18 dated June 11, 2008, the RTC partially granted
Pea's motion and ruled that Jesus and Rosita lost their standing in
the case upon the conveyance of their adjudged 2,000 sq m portion
in favor of Atty. Robiso whose ownership rights were afterwards
acquired by Pea.
The RTC upheld that the conveyance made by Jesus and Rosita in
favor of Atty. Robiso is valid since it was not made during the
pendency of litigation but after judgment has been rendered. The
RTC disposed as follows:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant Motion for
Substitution and the Motion for a Writ of Execution and
Demolition is partially granted. Accordingly, it is hereby directed
that:
1. Movant Joey Pea is joined with the original party in the First
Set of Intervenors (Jesus and Rosita) in accordance with Section
19, Rule 3 of the Rules of Court; and
126
2. A Writ of Execution be issued to implement the Decision dated
April 29, 1996.
SO ORDERED.19 (Emphasis in the original)
The writ of execution was issued on July 10, 2008.20 The RTC
denied reconsideration in an Order dated September 8, 2008.21
Ruling of the CA
Jesus, together with the heirs of Rosita, elevated the matter to the
CA thru a special civil action for certiorari docketed as CA-G.R.
CEB SP No. 03886.
In its Decision22 dated February 20, 2012, the CA reversed the
RTC and ruled that the conveyance made by Jesus and Rosita in
favor of Atty. Robiso was null and void because it is a prohibited
transaction under Article 1491(5) of the Civil Code. When the two
Deeds of Sale in favor of Atty. Robiso were executed on May 4,
2005 and December 5, 2005 and the Confirmation of Sale on
December 15, 2006, the case was still pending with the Supreme
Court, before which Jesus and Rosita were still represented by
Atty. Robiso. Accordingly, the CA decision disposed as follows:
chanRoblesvirtualLawlibrary
WHEREFORE, the Order dated June 11, 2008, Order dated
September 8, 2008, and the Alias Writ of Execution dated July 10,
2008 in Civil Case No. 3683 are hereby ANNULLED and SET
ASIDE. The trial court is directed to cause the execution of the
final judgment in favor of [Jesus and the heirs of Rosita] in this
case with dispatch.
SO ORDERED.23ChanRoblesVirtualawlibrary
The CA reiterated the foregoing ruling when it denied Pea's
motion for reconsideration in a Resolution24 dated May 24, 2012.
Aggrieved, Pea filed a petition for review on certiorari before the
Court. In a Minute Resolution25 dated September 9, 2013, the
Court denied the petition for lack of reversible error in the assailed
CA judgment.
On December 23, 2013, Pea filed a Motion for Reconsideration26
insisting that the deeds of conveyance between Atty. Robiso and
Jesus and Rosita were executed long after the decision in Civil
Case No. 3683 became final and executory. Even assuming
arguendo that the deeds were void, a separate action for declaration
of their inexistence is necessary because their terms have already
been fulfilled.
Ruling of the Court
The Court denies reconsideration.
The basis of Pea's motion for substitution is infirm because the
lots were transferred to his predecessor-in-interest, Atty. Robiso,
through a prohibited sale transaction. Article 1491(5) of the Civil
Code expressly prohibits lawyers from acquiring property or rights
that may be the object of any litigation in which they may take part
by virtue of their profession, thus:
chanRoblesvirtualLawlibrary
Art. 1491. The following persons cannot acquire by purchase, even
at a public or judicial auction, either in person or through the
mediation of another:
xxxx
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with
the administration of justice, the property and rights in litigation or
levied upon an execution before the court within whose jurisdiction
or territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the
object of any litigation in which they may take part by virtue of
their profession.
xxxx
A complementary prohibition is also provided in Rule 10 of the
Canons of Professional Ethics which states:
chanRoblesvirtualLawlibrary
10. Acquiring interest in litigation.
The lawyer should not purchase any interest in the subject matter
of the litigation which he is conducting.
A property is in litigation if there is a contest or litigation over it in
court or when it is subject of a judicial action.27 Records show that
the judicial action over the subject lots was still in the appellate
proceedings stage when they were conveyed to Jesus and Rosita's
counsel, Atty. Robiso. The Deed of Transfer or Conveyance and
the Deed of Absolute Sale both dated May 4, 2005 as well as the
Confirmation of Sale and Transfer dated December 5, 2006 were
all executed long before the termination of the appellate
proceedings before this Court in G.R. Nos. 141810 and 141812 on
February 2, 2007.
Clearly then, since the property conveyed to Atty. Robiso by Jesus
and Rosita was still the object of litigation, the deeds of
conveyance executed by the latter are deemed inexistent. Under
Article 1409 of the Code, contracts which are expressly prohibited
or declared void by law are considered inexistent and void from the
beginning.28 This being so, Atty. Robiso could not have
transferred a valid title in favor of Pea over the lots awarded to
Jesus and Rosita in Civil Case No. 3683. Consequently, Pea has
no legal standing to be substituted in the stead of or joined with
Jesus and Rosita as the first set of intervenors and to move for
issuance of a writ of execution in Civil Case No. 3683.
There is no need to bring a separate action for the declaration of
the subject deeds of conveyance as void. A void or inexistent
contract is one which has no force and effect from the very
beginning. Hence, it is as if it has never been entered into and
cannot be validated either by the passage of time or by
ratification.29
The need to bring a separate action for declaration of nullity applies
only if the void contract is no longer fully executory. Contrary to
Pea's stance, the deeds of conveyance made in favor of Atty.
Robiso in 2005 cannot be considered as executory because at that
time the judgment award ceding the subject lots to Jesus and Rosita
was not yet implemented. A writ of execution30 was issued only
on July 10, 2008. "If the void contract is still fully executory, no
party need bring an action to declare its nullity; but if any party
should bring an action to enforce it, the other party can simply set
up the nullity as a defense."31
This is notwithstanding the fact that the sale to Atty. Robiso was
made pursuant to a contingency fee contract. It is true that
contingent fee agreements are recognized in this jurisdiction as a
valid exception to the prohibitions under Article 1491(5) of the
Civil Code.32 The Court cannot extend a similar recognition to the
present case, however, since the payment to Atty. Robiso of his
contingency fees was made during the pendency of litigation. "A
contingent fee contract is an agreement in writing where the fee,
often a fixed percentage of what may be recovered in the action, is
made to depend upon the success of the litigation. The payment of
the contingent fee is not made during the pendency of the litigation
involving the client's property but only after the judgment has been
rendered in the case handled by the lawyer."33
Pea cannot rely on Article 143734 by claiming that Jesus and
Rosita are already estopped from questioning the validity of their
127
deeds of conveyance with Atty. Robiso. Estoppel is a principle in
equity and pursuant to Article 1432 it is adopted insofar as it is not
in conflict with the provisions of the Civil Code and other laws.
Otherwise speaking, estoppel cannot supplant and contravene the
provision of law clearly applicable to a case.35 Conversely, it
cannot give validity to an act that is prohibited by law or one that
is against public policy.36
The rationale advanced for the prohibition in Article 1491(5) is that
public policy disallows the transactions in view of the fiduciary
relationship involved, i.e., the relation of trust and confidence and
the peculiar control exercised by these persons. It is founded on
public policy because, by virtue of his office, an attorney may
easily take advantage of the credulity and ignorance of his client
and unduly enrich himself at the expense of his client.37 The
principle of estoppel runs counter to this policy and to apply it in
this case will be tantamount to sanctioning a prohibited and void
transaction.
The other issues raised by Pea are merely procedural in nature and
are too inconsequential to override the fundamental considerations
of public policy underlying the prohibition set forth in Article
1491(5) of the Civil Code.chanrobleslaw
WHEREFORE, foregoing considered, the Motion for
Reconsideration is hereby DENIED for lack of merit.
SO ORDERED.
G.R. No. 215014, February 29, 2016
REBECCA FULLIDO, Petitioner, v. GINO GRILLI,
Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set
aside the May 31, 2013 Decision1 and the September 24, 20142
Resolution of the Court of Appeals (CA) in CA-G.R. CEB-SP No.
06946, which affirmed the April 26, 2012 Decision3 of the
Regional Trial Court, Branch 47, Tagbilaran City (RTC) in Civil
Case No. 7895, reversing the March 31, 2011 Decision4 of the
Municipal Circuit Trial Court, Dauis, Bohol (MCTC) in Civil Case
No. 244, a case for unlawful detainer filed by Gino Grilli (Grilli)
against Rebecca Fullido (Fullido).
The Facts
Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol
and courted her. In 1995, Grilli decided to build a residential house
where he and Fullido would stay whenever he would be
vacationing in the country.
Grilli financially assisted Fullido in procuring a lot located in
Biking I, Dauis, Bohol, from her parents which was registered in
her name under Transfer Certificate of Title (TCT) No. 30626.5
On the said property, they constructed a house, which was funded
by Grilli. Upon completion, they maintained a common-law
relationship and lived there whenever Grilli was on vacation in the
Philippines twice a year.
In 1998, Grilli and Fullido executed a contract of lease, 6 a
memorandum of agreement7 (MOA) and a special power of
attorney8 (SPA), to define their respective rights over the house
and lot.
The lease contract stipulated, among others, that Grilli as the
lessee, would rent the lot, registered in the name of Fullido, for a
period of fifty (50) years, to be automatically renewed for another
fifty (50) years upon its expiration in the amount of P10,000.00 for
the whole term of the lease contract; and that Fullido as the lessor,
was prohibited from selling, donating, or encumbering the said lot
without the written consent of Grilli. The pertinent provisions of
the lease contract over the house and lot are as follows:
That for and in consideration of the total amount of rental in the
amount of TEN THOUSAND (P10,000.00) PESOS, Philippine
Currency, paid by the LESSEE to the LESSOR, receipt of which
is hereby acknowledged, the latter hereby leases to the LESSEE a
house and lot, and all the furnishings found therein, land situated
at Biking I, Dauis, Bohol, Philippines, absolutely owned and
belonging to the LESSOR and particularly described as follows, to
wit:
xxxx
That the LESSOR and the LESSEE hereby agree as they have
agreed to be bound by the following terms and conditions, to wit:
l. That the term of the lease shall be FIFTY (50) YEARS from
August 16, 1998 to August 15, 2048, automatically renewed for the
same term upon the expiration thereof;
xxx
lease to any third person, without the written consent of the
LESSEES.9
The said lease contract was duly registered in the Register of Deeds
of Bohol.
The MOA, on the other hand, stated, among others, that Grilli paid
for the purchase price of the house and lot; that ownership of the
house and lot was to reside with him; and that should the common-
law relationship be terminated, Fullido could only sell the house
and lot to whomever Grilli so desired. Specifically, the pertinent
terms of the MOA read:
NOW WHEREFORE, FOR AND IN CONSIDERATION of the
foregoing premises, the parties hereto agree as they hereby
covenant to agree that the FIRST PARTY (Grilli) shall
permanently reside on the property as above-mentioned, subject to
the following terms and conditions:
1. That ownership over the above-mentioned properties shall reside
absolutely with herein FIRST PARTY, and the SECOND PARTY
(Fullido) hereby acknowledges the same;
2. That the SECOND PARTY is expressly prohibited to sell the
above-stated property, except if said sale is with the conformity of
the FIRST PARTY;
3. That the SECOND PARTY hereby grants the FIRST PARTY,
the absolute and irrevocable right, to reside in the residential
building so constructed during his lifetime, or any time said FIRST
PARTY may so desire;
4. That in the event the common-law relationship terminates, or
when the SECOND PARTY marries another, or enters into another
common-law relationship with another, said SECOND PARTY
shall be obliged to execute a DEED OF ABSOLUTE SALE over
the above-stated parcel of land and residential building, in favor of
whomsoever the FIRST PARTY may so desire, and be further
obliged to turn over the entire consideration of the said sale to the
128
FIRST PARTY , or if the law shall allow, the FIRST PARTY shall
retain ownership of the said land, as provided for in paragraph 7
below;
xxx
7. That if the cases referred to in paragraph 4 shall occur and in the
event that a future law shall be passed allowing foreigners to own
real properties in the Philippines, the ownership of the above-
described real properties shall pertain to the FIRST PARTY, and
the herein undersigned SECOND PARTY undertakes to execute
all the necessary deeds, documents, and contracts to effect the
transfer of title in favor of the FIRST PARTY;
XXX.10
Lastly, the SPA allowed Grilli to administer, manage, and transfer
the house and lot on behalf of Fullido.
Initially, their relationship was harmonious, but it turned sour after
16 years of living together. Both charged each other with infidelity.
They could not agree who should leave the common property, and
Grilli sent formal letters to Fullido demanding that she vacate the
property, but these were unheeded. On September 8, 2010, Grilli
filed a complaint for unlawful detainer with prayer for issuance of
preliminary injunction against Fullido before the MCTC, docketed
as Civil Case No. 244.
Grilli's Position
The complaint stated that the common-law relationship between
Grilli and Fullido began smoothly, until Grilli discovered that
Fullido was pregnant when he arrived in the Philippines in 2002.
At first, she told him that the child she was carrying was his. After
the delivery of the child, however, it became apparent that the child
was not his because of the discrepancy between the child's date of
birth and his physical presence in the Philippines and the difference
between the baby's physical features and those of Grilli. Later on,
she admitted that the child was indeed sired by another man.
Grilli further claimed that he was so devastated that he decided to
end their common-law relationship. Nevertheless, he allowed
Fullido to live in his house out of liberality and generosity, but this
time, using another room. He did not demand any rent from Fullido
over the use of his property.
After a year, Fullido became more hostile and difficult to handle.
Grilli had to make repairs with his house every time he arrived in
the Philippines because she was not maintaining it in good
condition. Fullido also let her two children, siblings and parents
stay in his house, which caused damage to the property. He even
lost his personal belongings inside his house on several occasions.
Grilli verbally asked Fullido to move out of his house because they
were not getting along anymore, but she refused. He could no
longer tolerate the hostile attitude shown to him by Fullido and her
family, thus, he filed the instant complaint.
Fullido's Position
Fullido countered that she met Grilli sometime in 1993 when she
was still 17 years old working as a cashier in Alturas Supermarket.
Grilli was then a tourist in Bohol who persistently courted her.
At first, Fullido was hesitant to the advances of Grilli because she
could not yet enter into a valid marriage. When he assured her and
her parents that they would eventually be married in three years,
she eventually agreed to have a relationship with him and to live as
common-law spouses. Sometime in 1995, Grilli offered to build a
house for her on a parcel of land she exclusively owned which
would become their conjugal abode. Fullido claimed that their
relationship as common-law spouses lasted for more than 18 years
until she discovered that Grilli had found a new and younger
woman in his life. Grilli began to threaten and physically hurt her
by knocking her head and choking her.
When Fullido refused to leave their house even after the unlawful
detainer case was filed, Grilli again harassed, intimidated and
threatened to hurt her and her children. Thus, she filed a petition
for Temporary Protection Order (TPO) and Permanent Protection
Order (PPO) against Grilli under Republic Act (R.A.) No. 9262
before the Regional Trial Court, Branch 3, Bohol (RTC-Branch 3).
In an Order,11 dated February 23, 2011, the RTC-Branch 3 granted
the TPO in favor of Fullido and directed that Grilli must be
excluded from their home.
Fullido finally asserted that, although it was Grilli who funded the
construction of the house, she exclusively owned the lot and she
contributed to the value of the house by supervising its construction
and maintaining their household.
The MCTC Ruling
In its decision, dated March 31, 2011, the MCTC dismissed the
case after finding that Fullido could not be ejected from their house
and lot. The MCTC opined that she was a co-owner of the house
as she contributed to it by supervising its construction. Moreover,
the MCTC respected the TPO issued by RTC-Branch 3 which
directed that Grilli be removed from Fullido's residence. The
dispositive portion of the MCTC decision reads:
WHEREFORE, judgment is hereby rendered:
Dismissing the instant case;
Ordering the Plaintiff to pay to Defendant the amount of Fifty
Thousand Pesos (P50,000.00) as moral damages, and Twenty
Thousand Pesos (P20,000.00) as exemplary damages, and Twenty
Thousand Pesos (P20,000.00) as Attorney's Fees; and
Denying the prayer for the issuance of Preliminary Mandatory
Injunction.
SO ORDERED.12ChanRoblesVirtualawlibrary
Not in conformity, Grilli elevated the matter before the RTC.
The RTC Ruling
In its decision, dated April 26, 2012, the RTC reversed and set
aside the MCTC decision. The RTC was of the view that Grilli had
the exclusive right to use and possess the house and lot by virtue
of the contract of lease executed by the parties. Since the period of
lease had not yet expired, Fullido, as lessor, had the obligation to
respect the peaceful and adequate enjoyment of the leased premises
by Grilli as lessee. The RTC opined that absent a judicial
declaration of nullity of the contract of lease, its terms and
conditions were valid and binding. As to the TPO, the RTC held
that the same had no bearing in the present case which merely
involved the possession of the leased property.
Aggrieved, Fullido instituted an appeal before the CA alleging that
her land was unlawfully transferred by Grilli to a certain Jacqueline
Guibone (Guibone), his new girlfriend, by virtue of the SPA earlier
executed by Fullido.
The CA Ruling
In its assailed decision, dated May 31, 2013, the CA upheld the
decision of the RTC emphasizing that in an ejectment case, the
only issue to be resolved would be the physical possession of the
129
property. The CA was also of the view that as Fullido executed
both the MOA and the contract of lease, which gave Grilli the
possession and use of the house and lot, the same constituted as a
judicial admission that it was Grilli who had the better right of
physical possession. The CA stressed that, if Fullido would insist
that the said documents were voidable as her consent was vitiated,
then she must institute a separate action for annulment of contracts.
Lastly, the CA stated that the TPO issued by the RTC-Branch 3
under Section 21 of R.A. No. 9262 was without prejudice to any
other action that might be filed by the parties.
Fullido filed a motion for reconsideration,13 but she failed to
attach the proofs of service of her motion. For said reason, it was
denied by the CA in its assailed resolution, dated September 24,
2014.
Hence, this present petition raising the following:
ISSUES
I under any contract, express or implied. The possession of the
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE IN DENYING THE PETITION FOR
REVIEW AND IN AFFIRMING THE DECISION OF RTC
BOHOL BRANCH 47 EJECTING PETITIONER FROM THE
SUBJECT PROPERTIES, WHICH EJECTMENT ORDER IS
ANCHORED ON PATENTLY NULL AND VOID
CONTRACTS.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED
AND DEPARTED FROM ESTABLISHED LAW IN
AFFIRMING THE DECISION OF THE RTC BOHOL BRANCH
47 EJECTING PETITIONER FROM THEIR CONJUGAL
ABODE WHERE RESPONDENT HAS BEEN EARLIER
ORDERED TO VACATE BY VIRTUE OF A PERMANENT
PROTECTION ORDER THUS EFFECTIVELY SETTING
ASIDE, NEGATING AND/OR VIOLATING AN ORDER
ISSUED BY A COURT OF CO-EQUAL JURISDICTION.
III
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED
AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE IN DENYING THE PETITIONER'S
MOTION FOR RECONSIDERATION, AMONG OTHERS, FOR
NON-COMPLIANCE WITH SECTION 1 RULE 52 VIS-A-VIS
SECTION 13, RULE 13 OF THE 1997 RULES OF CIVIL
PROCEDURE.14ChanRoblesVirtualawlibrary
Fullido argues that she could not be ejected from her own lot based
on the contract of lease and the MOA because those documents
were null and void for being contrary to the Constitution, the law,
public policy, morals and customs; that the MOA prevented her
from disposing or selling her own land, while the contract of lease
favoring Grilli, a foreigner, was contrary to the Constitution as it
was a for a period of fifty (50) years, and, upon termination, was
automatically renewable for another fifty (50) years; that the TPO,
which became a PPO by virtue of the July 5, 2011 Decision15 of
RTC-Branch 3, should not be defeated by the ejectment suit; and
that the CA should have liberally applied its procedural rules and
allowed her motion for reconsideration.
In his Comment,16 Grilli countered that he was the rightful owner
of the house because a foreigner was not prohibited from owning
residential buildings; that the lot was no longer registered in the
name of Fullido as it was transferred to Guibone, covered by TCT
No. 101-2011000335; that if Fullido wanted to assail the lease
contract, she should have first filed a separate action for annulment
of the said contract, which she did in Civil Case No. 8094, pending
before the Regional Trial Court of Bohol; and that by signing the
contracts, Fullido fully agreed with their terms and must abide by
the same.
In her Reply,17 Fullido insisted that the contract of lease and the
MOA were null and void, thus, these could not be the source of
Grilli's de facto possession.
The Court's Ruling
The Court finds the petition meritorious.
Unlawful detainer is an action to recover possession of real
property from one who unlawfully withholds possession thereof
after the expiration or termination of his right to hold possession
defendant in unlawful detainer is originally legal but became
illegal due to the expiration or termination of the right to possess.
The only issue to be resolved in an unlawful detainer case is the
physical or material possession of the property involved,
independent of any claim of ownership by any of the parties.18
In this case, Fullido chiefly asserts that Grilli had no right to
institute the action for unlawful detainer because the lease contract
and the MOA, which allegedly gave him the right of possession
over the lot, were null and void for violating the Constitution.
Contrary to the findings of the CA, Fullido was not only asserting
that the said contracts were merely voidable, but she was
consistently invoking that the same were completely void.19 Grilli,
on the other hand, contends that Fullido could not question the
validity of the said contracts in the present ejectment suit unless
she instituted a separate action for annulment of contracts. Thus,
the Court is confronted with the issue of whether a contract could
be declared void in a summary action of unlawful detainer.
Under the circumstances of the case, the Court answers in the
affirmative.
A void contract cannot be
the source of any right; it
cannot be utilized in an
ejectment suit
A void or inexistent contract may be defined as one which lacks,
absolutely either in fact or in law, one or some of the elements
which are essential for its validity.20 It is one which has no force
and effect from the very beginning, as if it had never been entered
into; it produces no effect whatsoever either against or in favor of
anyone.21Quod nullum est nullum producit effectum. Article 1409
of the New Civil Code explicitly states that void contracts also
cannot be ratified; neither can the right to set up the defense of
illegality be waived.22 Accordingly, there is no need for an action
to set aside a void or inexistent contract.23
A review of the relevant jurisprudence reveals that the Court did
not hesitate to set aside a void contract even in an action for
unlawful detainer. In Spouses Alcantara v. Nido,24 which involves
an action for unlawful detainer, the petitioners therein raised a
defense that the subject land was already sold to them by the agent
of the owner. The Court rejected their defense and held that the
contract of sale was void because the agent did not have the written
authority of the owner to sell the subject land.
130
Similarly, in Roberts v. Papio,25 a case of unlawful detainer, the
Court declared that the defense of ownership by the respondent
therein was untenable. The contract of sale invoked by the latter
was void because the agent did not have the written authority of
the owner. A void contract produces no effect either against or in
favor of anyone.
In Ballesteros v. Abion,26 which also involves an action for
unlawful detainer, the Court disallowed the defense of ownership
of the respondent therein because the seller in their contract of sale
was not the owner of the subject property. For lacking an object,
the said contract of sale was void ab initio.
Clearly, contracts may be declared void even in a summary action
for unlawful detainer because, precisely, void contracts do not
produce legal effect and cannot be the source of any rights. To
emphasize, void contracts may not be invoked as a valid action or
defense in any court proceeding, including an ejectment suit. The
next issue that must be resolved by the Court is whether the
assailed lease contract and MOA are null and void.
The lease contract and the MOA
circumvent the constitutional
restraint against foreign
ownership of lands.
Under Section 1 of Article XIII of the 1935 Constitution, natural
resources shall not be alienated, except with respect to public
agricultural lands and in such cases, the alienation is limited to
Filipino citizens. Concomitantly, Section 5 thereof states that, save
in cases of hereditary succession, no private agricultural land shall
be transferred or assigned except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain
in the Philippines. The prohibition on the transfer of lands to aliens
was adopted in the present 1987 Constitution, under Sections 2, 3
and 7 of Article XII thereof. Agricultural lands, whether public or
private, include residential, commercial and industrial lands. The
purpose of prohibiting the transfer of lands to foreigners is to
uphold the conservation of our national patrimony and ensure that
agricultural resources remain in the hands of Filipino
citizens.27cralawred
The prohibition, however, is not limited to the sale of lands to
foreigners. It also covers leases of lands amounting to the transfer
of all or substantially all the rights of dominion. In the landmark
case of Philippine Banking Corporation v. Lui She,28 the Court
struck down a lease contract of a parcel of land in favor of a
foreigner for a period of ninety-nine (99) years with an option to
buy the land for fifty (50) years. Where a scheme to circumvent the
Constitutional prohibition against the transfer of lands to aliens is
readily revealed as the purpose for the contracts, then the illicit
purpose becomes the illegal cause rendering the contracts void.
Thus, if an alien is given not only a lease of, but also an option to
buy, a piece of land by virtue of which the Filipino owner cannot
sell or otherwise dispose of his property, this to last for 50 years,
then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only of
the right to enjoy the land but also of the right to dispose of it
rights which constitute ownership. If this can be done, then the
Constitutional ban against alien landholding in the Philippines, is
indeed in grave peril.29
In Llantino v. Co Liong Chong,30 however, the Court clarified that
a lease contract in favor of aliens for a reasonable period was valid
as long as it did not have any scheme to circumvent the
constitutional prohibition, such as depriving the lessors of their
right to dispose of the land. The Court explained that "[a]liens are
not completely excluded by the Constitution from use of lands for
residential purposes. Since their residence in the Philippines is
temporary, they may be granted temporary rights such as a lease
contract which is not forbidden by the Constitution. Should they
desire to remain here forever and share our fortune and misfortune,
Filipino citizenship is not impossible to acquire."31 The lessee-
foreigner therein eventually acquired Filipino citizenship.
Consequently, Presidential Decree (P.D.) No. 471 was enacted to
regulate the lease of lands to aliens. It provides that the maximum
period allowable for the duration of leases of private lands to aliens
or alien-owned corporations, associations, or entities not qualified
to acquire private lands in the Philippines shall be twenty-five (25)
years, renewable for another period of twenty-five (25) years upon
mutual agreement of both lessor and lessee.32 It also provides that
any contract or agreement made or executed in violation thereof
shall be null and void ab initio.33
Based on the above-cited constitutional, legal and jurisprudential
limitations, the Court finds that the lease contract and the MOA in
the present case are null and void for virtually transferring the
reigns of the land to a foreigner.
As can be gleaned from the contract, the lease in favor of Grilli was
for a period of fifty (50) years, automatically extended for another
fifty (50) years upon the expiration of the original period.
Moreover, it strictly prohibited Fullido from selling, donating, or
encumbering her land to anyone without the written consent of
Grilli. For a measly consideration of PI 0,000.00, Grilli would be
able to absolutely occupy the land of Fullido for 100 years, and she
is powerless to dispose the same. The terms of lease practically
deprived Fullido of her property rights and effectively transferred
the same to Grilli.
Worse, the dominion of Grilli over the land had been firmly
cemented by the terms of the MOA as it reinforced Grilli's property
rights over the land because, first, it brazenly dictated that
ownership of the land and the residential building resided with him.
Second, Fullido was expressly prohibited from transferring the
same without Grilli's conformity. Third, Grilli would permanently
reside in the residential building. Fourth, Grilli may capriciously
dispose Fullido's property once their common-law relationship is
terminated. This right was recently exercised when the land was
transferred to Guibone. Lastly, Fullido shall be compelled to
transfer the land to Grilli if a law would be passed allowing
foreigners to own real properties in the Philippines.
Evidently, the lease contract and the MOA operated hand-in-hand
to strip Fullido of any dignified right over her own property. The
term of lease for 100 years was obviously in excess of the
allowable periods under P.D. No. 471. Even Grilli admitted that
"this is a case of an otherwise valid contract of lease that went
beyond the period of what is legally permissible."34 Grilli had
been empowered to deprive Fullido of her land's possession,
control, disposition and even its ownership. The jus possidendi, jus
utendi, jus fruendi, jus abutendi and, more importantly, the jus
disponendi - the sum of rights which composes ownership - of the
property were effectively transferred to Grilli who would safely
enjoy the same for over a century. The title of Fullido over the land
became an empty and useless vessel, visible only in paper, and was
only meant as a dummy to fulfill a foreigner's desire to own land
within our soils.
It is disturbing how these documents were methodically formulated
to circumvent the constitutional prohibition against land ownership
by foreigners. The said contracts attempted to guise themselves as
a lease, but a closer scrutiny of the same revealed that they were
intended to transfer the dominion of a land to a foreigner in
violation of Section 7, Article XII of the 1987 Constitution. Even
if Fullido voluntary executed the same, no amount of consent from
the parties could legalize an unconstitutional agreement. The lease
131
contract and the MOA do not deserve an iota of validity and must
be rightfully struck down as null and void for being repugnant to
the fundamental law. These void documents cannot be the source
of rights and must be treated as mere scraps of paper.
Grilli does not have a
cause of action for unlawful
detainer
Ultimately, the complaint filed by Grilli was an action for unlawful
detainer. Section 1 of Rule 70 of the Rules of Court lays down the
requirements for filing a complaint for unlawful detainer, to wit:
Who may institute proceedings, and when. - Subject to the
provision of the next succeeding section, a person deprived of the
possession of any land or building by force, intimidation, threat,
strategy, or stealth, or a lessor, vendor, vendee, or other person
against whom the possession of any land or building is unlawfully
withheld after the expiration or termination of the right to hold
possession, by virtue of any contract, express or implied, or the
legal representatives or assigns of any such lessor, vendor, vendee,
or other person, may, at any time within one (l) year after such
unlawful deprivation or withholding of possession, bring an action
in the proper Municipal Trial Court against the person or persons
unlawfully withholding or depriving of possession, or any person
or persons claiming under them, for the restitution of such
possession, together with damages and costs.
[Emphasis Supplied]
A complaint sufficiently alleges a cause of action for unlawful
detainer if it recites the following: (1) initially, possession of
property by the defendant was by contract with or by tolerance of
the plaintiff; (2) eventually, such possession became illegal upon
notice by plaintiff to defendant of the termination of the latter's
right of possession; (3) thereafter, the defendant remained in
possession of the property and deprived the plaintiff of the
enjoyment thereof; and (4) within one year from the last demand
on defendant to vacate the property, the plaintiff instituted the
complaint for ejectment.35
The Court rules that Grilli has no cause of action for unlawful
detainer against Fullido. As can be gleaned from the discussion
above, the complainant must either be a lessor, vendor, vendee, or
other person against whom the possession of any land or building
is unlawfully withheld. In other words, the complainant in an
unlawful detainer case must have some right of possession over the
property.
In the case at bench, the lease contract and the MOA, from which
Grilli purportedly drew his right of possession, were found to be
null and void for being unconstitutional. A contract that violates
the Constitution and the law is null and void ab initio and vests no
rights and creates no obligations. It produces no legal effect at
all.36 Hence, as void contracts could not be the source of rights,
Grilli had no possessory right over the subject land. A person who
does not have any right over a property from the beginning cannot
eject another person possessing the same. Consequently, Grilli's
complaint for unlawful detainer must be dismissed for failure to
prove his cause of action.
In Pari Delicto Doctrine
is not applicable
On a final note, the Court deems it proper to discuss the doctrine
of in pari delicto. Latin for "in equal fault," in pari delicto connotes
that two or more people are at fault or are guilty of a crime. Neither
courts of law nor equity will interpose to grant relief to the parties,
when an illegal agreement has been made, and both parties stand
in pari delicto.37
The application of the doctrine of in pari delicto is not always rigid.
An accepted exception arises when its application contravenes
well-established public policy. In this jurisdiction, public policy
has been defined as that principle of the law which holds that no
subject or citizen can lawfully do that which has a tendency to be
injurious to the public or against the public good.38 Thus,
whenever public policy is advanced by either party, they may be
allowed to sue for relief against the transaction.39
In the present case, both Grilli and Fullido were undoubtedly
parties to a void contract. Fullido, however, was not barred from
filing the present petition before the Court because the matters at
hand involved an issue of public policy, specifically the
Constitutional prohibition against land ownership by aliens. As
pronounced in Philippine Banking Corporation v. Lui She, the said
constitutional provision would be defeated and its continued
violation sanctioned if the lands continue to remain in the hands of
a foreigner.40 Thus, the doctrine of in pari delicto shall not be
applicable in this case.chanrobleslaw
WHEREFORE, the petition is GRANTED. The May 31, 2013
Decision of the Court of Appeals and its September 24, 2014
Resolution in CA-G.R. CEB-SP No. 06946 are hereby
REVERSED and SET ASIDE. The complaint filed by Gino Grilli
before the Municipal Circuit Trial Court, Dauis-Panglao, Dauis,
Bohol, docketed as Civil Case No. 244, is DISMISSED for lack of
cause of action.
SO ORDERED.
ESTOPPEL
[G.R. No. 136031. January 4, 2002]
JEFFERSON LIM, petitioner, vs. QUEENSLAND TOKYO
COMMODITIES, INC., respondent.
DECISION
QUISUMBING, J.:
Before us is a petition for review assailing the June 25, 1998,
decision[1] of the Court of Appeals in CA-G.R. CV No. 46495
which reversed and set aside the decision of the Regional Trial
Court of Cebu, Branch 24, dismissing the complaint by respondent
for a sum of money as well as petitioners counterclaim.
Private respondent Queensland Tokyo Commodities, Incorporated
(Queensland, for brevity) is a duly licensed broker engaged in the
trading of commodities futures with full membership and with a
floor trading right at the Manila Futures Exchange, Inc..[2]
Sometime in 1992, Benjamin Shia, a market analyst and trader of
Queensland, was introduced to petitioner Jefferson Lim by Marissa
Bontia,[3] one of his employees. Marissas father was a former
employee of Lims father.[4]
Shia suggested that Lim invest in the Foreign Exchange Market,
trading U.S. dollar against the Japanese yen, British pound,
Deutsche Mark and Swiss Franc.
Before investing, Lim requested Shia for proof that the foreign
exchange was really lucrative. They conducted mock tradings
without money involved. As the mock trading showed profitability,
Lim decided to invest with a marginal deposit of US$5,000 in
managers check. The marginal deposit represented the advance
capital for his future tradings. It was made to apply to any
authorized future transactions, and answered for any trading
132
account against which the deposit was made, for any loss of
whatever nature, and for all obligations, which the investor would
incur with the broker.[5]
Because respondent Queensland dealt in pesos only, it had to
convert US$5,000 in managers check to pesos, amounting to
P125,000 since the exchange rate at that time was P25 to US$1.00.
To accommodate petitioners request to trade right away, it
advanced the P125,000 from its own funds while waiting for the
managers check to clear. Thereafter, a deposit notice in the amount
of P125,000 was issued to Queensland, marked as Exhibit E. This
was sent to Lim who received it as indicated by his signature
marked as Exhibit E-1. Then, Lim signed the Customers
Agreement, marked as Exhibit F, which provides as follows:
25. Upon signing of this Agreement, I shall deposit an initial
margin either by personal check, managers check or cash. In the
case of the first, I shall not be permitted to trade until the check has
been cleared by my bank and credited to your account. In respect
of margin calls or additional deposits required, I shall likewise pay
them either by personal check, managers check or cash. In the
event my personal check is dishonored, the company has the right
without call or notice to settle/close my trading account against
which the deposit was made. In such event, any loss of whatever
nature shall be borne by me and I shall settle such loss upon
demand together with interest and reasonable cost of collection.
However, in the event such liquidation gives rise to a profit then
such amount shall be credited to the Company. The above
notwithstanding, I am not relieved of any legal responsibility as a
result of my check being dishonored by my bank.[6]
Petitioner Lim was then allowed to trade with respondent company
which was coursed through Shia by virtue of the blank order forms,
marked as Exhibits G, G-1 to G-13,[7] all signed by Lim.
Respondent furnished Lim with the daily market report and
statements of transactions as evidenced by the receiving forms,
marked as Exhibits J, J-1 to J-4,[8] some of which were received
by Lim.
During the first day of trading or on October 22, 1992, Lim made
a net profit of P6,845.57.[9] Shia went to the office of Lim and
informed him about it. He was elated. He agreed to continue
trading. During the second day of trading or on October 23, 1992,
they lost P44,465.[10]
Meanwhile, on October 22, 1992, respondent learned that it would
take seventeen (17) days to clear the managers check given by
petitioner. Hence, on October 23, 1992, at about 11:00 A.M., upon
managements request, Shia returned the check to petitioner who
informed Shia that petitioner would rather replace the managers
check with a travelers check.[11] Considering that it was 12:00
noon already, petitioner requested Shia to come back at 2:00 P.M..
Shia went with petitioner to the bank to purchase a travelers check
at the PCI Bank, Juan Luna Branch at 2:00 P.M.. Shia noticed that
the travelers check was not indorsed but Lim told Shia that
Queensland could sign the indorsee portion.[12] Because Shia
trusted the latters good credit rating, and out of ignorance, he
brought the check back to the office unsigned.[13] Inasmuch as
that was a busy Friday, the check was kept in the drawer of
respondents consultant. Later, the travelers check was deposited
with Citibank.[14]
On October 26, 1992, Shia informed petitioner that they incurred a
floating loss of P44,695[15] on October 23, 1992. He told
petitioner that they could still recover their losses. He could unlock
the floating loss on Friday. By unlocking the floating loss, the loss
on a particular day is minimized.
On October 27, 1992, Citibank informed respondent that the
travelers check could not be cleared unless it was duly signed by
Lim, the original purchaser of the travelers check. A Miss Arajo,
from the accounting staff of Queensland, returned the check to Lim
for his signature, but the latter, aware of his P44,465 loss,
demanded for a liquidation of his account and said he would get
back what was left of his investment.[16] Meanwhile, Lim signed
only one portion of the travelers check, leaving the other half blank.
He then kept it.[17] Arajo went back to the office without it.
Respondent asked Shia to talk to petitioner for a settlement of his
account but petitioner refused to talk with Shia. Shia made follow-
ups for more than a week beginning October 27, 1992. Because
petitioner disregarded this request, respondent was compelled to
engage the services of a lawyer, who sent a demand letter[18] to
petitioner. This letter went unheeded. Thus, respondent filed a
complaint[19] against petitioner, docketed as Civil Case No. CEB-
13737, for collection of a sum of money.
On April 22, 1994, the trial court rendered its decision, thus:
WHEREFORE, in view of all the foregoing, the complaint is
dismissed without pronouncement as to costs. The defendants
counterclaim is likewise dismissed.
SO ORDERED.[20]
On appeal by Queensland, the Court of Appeals reversed and set
aside the trial courts decision, with the following fallo:
WHEREFORE, the decision appealed from is hereby REVERSED
AND SET ASIDE, and another one is entered ordering appellee
[Jefferson Lim] to pay appellant the sum of P125,000.00, with
interest at the legal rate until the whole amount is fully paid,
P10,000.00 as attorneys fees, and costs.[21]
Petitioner herein filed a motion for reconsideration before the
Court of Appeals, which was denied in a resolution dated October
6, 1998.[22]
Dissatisfied, petitioner filed the instant recourse alleging that the
appellate court committed errors:
I - IN REVERSING THE DECISION OF THE RTC WHICH
DISMISSED RESPONDENTS COMPLAINT;
II - IN HOLDING THAT THE PETITIONER IS ESTOPPED IN
QUESTIONING THE VALIDITY OF THE CUSTOMERS
AGREEMENT AND FROM DENYING THE EFFECTS OF HIS
CONDUCT;
III - IN NOT TAKING JUDICIAL NOTICE OF THE LETTER
OF RESPONDENT THAT THE SEC HAS ISSUED A CEASE
AND DESIST ORDER AGAINST THE MANILA
INTERNATIONAL FUTURES EXCHANGE COMMISSION
AND ALL COMMODITY TRADERS INCLUDING THE
RESPONDENT.
Despite the petitioners formulation of alleged errors, we find that
the main issue is whether or not the appellate court erred in holding
that petitioner is estopped from questioning the validity of the
Customers Agreement that he signed.
The essential elements of estoppel are: (1) conduct of a party
amounting to false representation or concealment of material facts
or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at least expectation,
that this conduct shall be acted upon by, or at least influence, the
133
other party; and (3) knowledge, actual or constructive, of the real
facts.[23]
Here, it is uncontested that petitioner had in fact signed the
Customers Agreement in the morning of October 22, 1992,[24]
knowing fully well the nature of the contract he was entering into.
The Customers Agreement was duly notarized and as a public
document it is evidence of the fact, which gave rise to its execution
and of the date of the latter.[25] Next, petitioner paid his
investment deposit to respondent in the form of a managers check
in the amount of US$5,000 as evidenced by PCI Bank Managers
Check No. 69007, dated October 22, 1992.[26] All these are indicia
that petitioner treated the Customers Agreement as a valid and
binding contract.
Moreover, we agree that, on petitioners part, there was
misrepresentation of facts. He replaced the managers check with
an unendorsed travelers check, instead of cash, while assuring Shia
that respondent Queensland could sign the indorsee portion
thereof.[27] As it turned out, Citibank informed respondent that
only the original purchaser (i.e. the petitioner) could sign said
check. When the check was returned to petitioner for his signature,
he refused to sign. Then, as petitioner himself admitted in his
Memorandum,[28] he used the travelers check for his travel
expenses.[29]
More significantly, petitioner already availed himself of the
benefits of the Customers Agreement whose validity he now
impugns. As found by the CA, even before petitioners initial
marginal deposit (in the form of the PCI managers check dated
October 22, 1992)[30] was converted into cash, he already started
trading on October 22, 1992, thereby making a net profit of
P6,845.57. On October 23, he continued availing of said
agreement, although this time he incurred a floating loss of
P44,645.[31] While he claimed he had not authorized respondent
to trade on those dates, this claim is belied by his signature affixed
in the order forms, marked as Exhibits G, G-1 to G-13.[32]
Clearly, by his own acts, petitioner is estopped from impugning the
validity of the Customers Agreement. For a party to a contract
cannot deny the validity thereof after enjoying its benefits without
outrage to ones sense of justice and fairness.
It appears that petitioners reason to back out of the agreement is
that he began sustaining losses from the trade. However, this alone
is insufficient to nullify the contract or disregard its legal effects.
By its very nature it is already a perfected, if not a consummated,
contract. Courts have no power to relieve parties from obligations
voluntarily assumed, simply because their contracts turned out to
be disastrous or unwise investments.[33] Notably, in the
Customers Agreement, petitioner has been forewarned of the high
risk involved in the foreign currency investment as stated in the
Risk Disclosure Statement,[34] located in the same box where
petitioner signed.
Further, petitioner contends that the Customers Agreement was
rendered nugatory because: (1) the marginal deposit he gave was
in dollars and (2) respondent allowed him to trade even before the
US$5,000 managers check was cleared. This contention is
disingenuous to say the least, but hardly meritorious.
Petitioner himself was responsible for the issuance of the
US$5,000 managers check. It was he who failed to replace the
managers check with cash. He authorized Shia to start trading even
before the US$5,000 check had cleared. He could not, in fairness
to the other party concerned, now invoke his own misdeeds to
exculpate himself, conformably with the basic principle in law that
he who comes to court must come with clean hands.
Contrary to petitioners contention, we also find that respondent did
not violate paragraph 14 of the Guidelines for Spot/Futures
Currency Trading, which provides:
14. DEPOSITS & PAYMENTS
All deposits, payments and repayments, etc. will be in Philippine
Currency. When a deposit with the Company is not in cash or bank
draft, such deposit will not take effect in the account concerned
until it has been confirmed NEGOTIABLE for payment by
authorized management personnel.[35]
Respondent claims it informed petitioner of its policy not to accept
dollar investment. For this reason, it converted the petitioners
US$5,000 managers check to pesos (P125,000) out of respondents
own funds to accommodate petitioners request to trade right
away.[36] On record, it appears that petitioner agreed to the
conversion of his dollar deposit to pesos. [37]
Neither is there merit in petitioners contention that respondent
violated the Customers Agreement by allowing him to trade even
if his managers check was not yet cleared, as he had no margin
deposit as required by the Customers Agreement, viz:
5. Margin Receipt
A Margin Receipt issued by the Company shall only be for the
purpose of acknowledging receipt of an amount as margin deposit
for Spot/Futures Currency Trading. All checks received for the
purpose of margin deposits have to be cleared through such bank
account as may be opened by the Company before any order can
be accepted.[38]
But as stated earlier, respondent advanced petitioners marginal
deposit of P125,000 out of its own funds while waiting for the
US$5,000 managers check to clear, relying on the good credit
standing of petitioner. Contrary to petitioners averment now,
respondent had advanced his margin deposit with his approval.
Nowhere in the Guidelines adverted to by petitioner was such an
arrangement prohibited. Note that the advance was made with
petitioners consent, as indicated by his signature, Exhibit E-1,[39]
affixed in the deposit notice, Exhibit E,[40] sent to him by
respondent. By his failure to seasonably object to this arrangement
and by affixing his signature to the notice of deposit, petitioner is
barred from questioning said arrangement now.
Anent the last assigned error, petitioner faults the appellate court
for not taking judicial notice of the cease and desist order against
the Manila International Futures Exchange Commission and all
commodity traders including respondent. However, we find that
this issue was first raised only in petitioners motion for
reconsideration of the Court of Appeals decision. It was never
raised in the Memorandum[41] filed by petitioner before the trial
court. Hence, this Court cannot now, for the first time on appeal,
pass upon this issue. For an issue cannot be raised for the first time
on appeal. It must be raised seasonably in the proceedings before
the lower court. Questions raised on appeal must be within the
issues framed by the parties and, consequently, issues not raised in
the trial court cannot be raised for the first time on appeal.[42]
WHEREFORE, the instant petition is DENIED for lack of merit.
The decision of the Court of Appeals dated June 25, 1998, in CA-
G.R. CV No. 46495 is AFFIRMED. Costs against petitioner.
SO ORDERED.
134
HEIRS OF SALVADOR HERMOSILLA, namely:
ADELAIDA H. DOLLETON, RUBEN HERMOSILLA,
LOLITA H. DE LA VEGA, ERLINDA H. INOVIO, CELIA H.
VIVIT, ZENAIDA H. ACHOY, PRECILLA H. LIMPIAHOY,
and EDGARDO HERMOSILLA,
Petitioners,
-versus-
Spouses JAIME REMOQUILLO and LUZ REMOQUILLO,
Respondents.
G.R. No. 167320
Present:
QUISUMBING, Chairperson,
CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
Promulgated:
January 30, 2007
x--------------------------------------------
------------x
DECISION
CARPIO MORALES, J.:
Petitioners Heirs of Salvador Hermosilla, namely: Adelaida H.
Dolleton, Ruben Hermosilla, Lolita H. de la Vega, Erlinda H.
Inovio,[1] Celia[2] H. Vivit, Zenaida H. Achoy, Precilla[3] H.
Limpiahoy, and Edgardo Hermosilla, assail the Court of Appeals
Decision[4] dated September 29, 2004 which reversed the trial
courts decision in their favor and accordingly dismissed their
complaint.
Subject of the controversy is a 65-square meter portion of a lot
located in Poblacion, San Pedro, Laguna.
On August 31, 1931, the Republic of the Philippines acquired
through purchase the San Pedro Tunasan Homesite.
Apolinario Hermosilla (Apolinario), who was occupying a lot in
San Pedro Tunasan Homesite until his death in 1964, caused the
subdivision of the lot into two, Lot 12 with an area of 341 square
meters, and Lot 19 with an area of 341 square meters of which the
65 square meters subject of this controversy form part.
On April 30, 1962, Apolinario executed a Deed of Assignment
transferring possession of Lot 19 in favor of his grandson, herein
respondent Jaime Remoquillo (Jaime). As the Land Tenure
Administration (LTA) later found that Lot 19 was still available for
disposition to qualified applicants, Jaime, being its actual
occupant, applied for its acquisition before the LTA on May 10,
1963.
On July 8, 1963, Apolinario conveyed Lot 12 to his son Salvador
Hermosilla (Salvador), Jaimes uncle.
Salvador later filed an application to purchase Lot 12 which was
awarded to him by the defunct Land Authority on December 16,
1971.
On February 10, 1972, Jaime and his uncle Salvador forged a
Kasunduan ng Paglipat Ng Karapatan sa Isang Lagay na Lupang
Solar (Kasunduan) whereby Jaime transferred ownership of the 65
square meters (the questioned property) in favor of Salvador.
After Apolinario died, his daughter Angela Hermosilla filed a
protest before the Land Authority, which became the National
Housing Authority (NHA),[5] contending that as an heir of the
deceased, she is also entitled to Lots 12 and 19. By Resolution of
June 10, 1981, the NHA dismissed the protest.
The NHA later awarded on March 16, 1986 Lot 19 to Jaime for
which he and his wife were issued a title, Transfer Certificate of
Title No. T-156296, on September 15, 1987.[6]
On May 25, 1992, petitioners filed an action for Annulment of Title
on the ground of fraud with damages against Jaime and his spouse,
together with the Register of Deeds, before the Regional Trial
Court (RTC) of Bian, Laguna, alleging that by virtue of the
Kasunduan executed in 1972, Jaime had conveyed to his uncle
Salvador the questioned propertypart of Lot 19 covered by TCT
No. T-156296 which was issued in 1987.
By Decision[7] of May 11, 1999, the RTC of Bian, Laguna, Branch
25, found the Kasunduan a perfected contract of sale, there being a
meeting of the minds upon an identified object and upon a specific
price, and that ownership over the questioned property had already
been transferred and delivered to Salvador.
On the alleged failure of consideration of the Kasunduan, the trial
court held that the same did not render the contract void, but merely
allowed an action for specific performance. The dispositive portion
of the trial courts Decision reads:
WHEREFORE, judgment is hereby rendered declaring plaintiffs
as co-owners of the 65 square meters of the 341 square meters
covered by TCT T-156296, registered in the name of defendants.
The Court hereby directs the Register of Deeds of Laguna,
Calamba Branch, to cancel said Transfer Certificate of Title, and
in lieu thereof, to issue another [to] plaintiffs [as] co-owners of the
above portion.
No pronouncement as to costs.
SO ORDERED.[8] (Underscoring supplied)
The Court of Appeals, reversing the decision of the trial court, held
that the Kasunduan was void because at the time of its execution
in 1972, the Republic of the Philippines was still the owner of Lot
19, hence, no right thereover was transmitted by Jaime who was
awarded the Lot in 1986, and consequently no right was
transmitted by Salvador through succession to petitioners. And it
found no evidence of fraud in Jaimes act of having Lot 19,
including the questioned property, registered in his and his wifes
name in 1987.
At all events, the appellate court held that the action had prescribed,
it having been filed in 1992, more than four years from the issuance
to Jaime and his wife of the Transfer Certificate of Title.
Hence, the present petition for review on certiorari.
Petitioners argue that the application of the law on prescription
would perpetrate fraud and spawn injustice, they citing Cometa v.
Court of Appeals;[9] and that at any rate, prescription does not lie
against a co-owner. Cometa involves a different factual milieu
concerning the right of redemption, however. And petitioners
contention that prescription does not lie against a co-owner fails
because only the title covering the questioned property, which
petitioners claim to solely own, is being assailed.
135
While this Court finds that the action is, contrary to the appellate
courts ruling, not barred by the statute of limitations, it is still
dismissible as discussed below.
Albeit captioned as one for Annulment of Title, the Complaint
ultimately seeks the reconveyance of the property.
From the allegations of the Complaint, petitioners seek the
reconveyance of the property based on implied trust. The
prescriptive period for the reconveyance of fraudulently registered
real property is 10 years, reckoned from the date of the issuance of
the certificate of title,[10] if the plaintiff is not in possession, but
imprescriptible if he is in possession of the property.
An action for reconveyance based on an implied trust prescribes in
ten years. The ten-year prescriptive period applies only if there is
an actual need to reconvey the property as when the plaintiff is not
in possession of the property. However, if the plaintiff, as the real
owner of the property also remains in possession of the property,
the prescriptive period to recover the title and possession of the
property does not run against him. In such a case, an action for
reconveyance, if nonetheless filed, would be in the nature of a suit
for quieting of title, an action that is imprescriptible.[11]
(Emphasis and underscoring supplied)
It is undisputed that petitioners houses occupy the questioned
property and that respondents have not been in possession
thereof.[12] Since there was no actual need to reconvey the
property as petitioners remained in possession thereof, the action
took the nature of a suit for quieting of title, it having been filed to
enforce an alleged implied trust after Jaime refused to segregate
title over Lot 19. One who is in actual possession of a piece of land
claiming to be the owner thereof may wait until his possession is
disturbed or his title is attacked before taking steps to vindicate his
right.[13] From the body of the complaint, this type of action
denotes imprescriptibility.
As priorly stated, however, when the Kasunduan was executed in
1972 by Jaime in favor of Salvador petitioners predecessor-in-
interest Lot 19, of which the questioned property forms part, was
still owned by the Republic. Nemo dat quod non habet.[14]
Nobody can give what he does not possess. Jaime could not thus
have transferred anything to Salvador via the Kasunduan.
Claiming exception to the rule, petitioners posit that at the time the
Kasunduan was executed by Jaime in 1972, his application which
was filed in 1963 for the award to him of Lot 19 was still pending,
hence, the Kasunduan transferred to Salvador Jaimes vested right
to purchase the same, in support of which they cite a law on
estoppel, Art. 1434 of the Civil Code, which provides that [w]hen
a person who is not the owner of a thing sells or alienates and
delivers it and later, the seller or grantor acquires title thereto, such
title passes by operation of law to the buyer or grantee.[15]
Petitioners reliance on Article 1434 of the Civil Code does not lie.
The principles of estoppel apply insofar as they are not in conflict
with the provisions of the Civil Code, the Code of Commerce, the
Rules of Court and special laws.[16]
Land Authority Administrative Order No. 4 (1967), RULES AND
REGULATIONS GOVERNING DISPOSITION OF THE
LAGUNA SETTLEMENT PROJECT IN SAN PEDRO,
LAGUNA, proscribes the conveyance of the privilege or
preference to purchase a land from the San Pedro Tunasan project
before it is awarded to a tenant or bona fide occupant, thus:
SEC. 6. Privilege of Preference to Purchase Intransferable; Waiver
or Forfeiture Thereof. From the date of acquisition of the estate by
the Government and before issuance of the Order of Award, no
tenant or bona fide occupant in whose favor the land may be sold
shall transfer or encumber the privilege or preference to purchase
the land, and any transfer or encumbrance made in violation hereof
shall be null and void: Provided, however, That such privilege or
preference may be waived or forfeited only in favor of the Land
Authority . . .[17] (Italics in the original, emphasis and
underscoring supplied)
Petitioners insistence on any right to the property under the
Kasunduan thus fails.
[T]he transfer became one in violation of law (the rules of the
PHHC being promulgated in pursuance of law have the force of
law) and therefore void ab initio. Hence, appellant acquired no
right over the lot from a contract void ab initio, no rights are
created. Estoppel, as postulated by petitioner, will not apply for it
cannot be predicated on an illegal act. It is generally considered
that as between the parties to a contract, validity cannot be given
to it by estoppel if it is prohibited by law or is against public
policy.[18] (Emphasis and underscoring supplied)
Petitioners go on to postulate that if the Kasunduan is void, it
follows that the 1962 Deed of Assignment executed by Apolinario
in favor of Jaime is likewise void to thus deprive the latter of any
legal basis for his occupation and acquisition of Lot 19.
Petitioners position fails. Petitioners lose sight of the fact that, as
reflected above, Jaime acquired Lot 19 in his own right,
independently of the Deed of Assignment.
In another vein, since the property was previously a public land,
petitioners have no personality to impute fraud or
misrepresentation against the State or violation of the law.[19] If
the title was in fact fraudulently obtained, it is the State which
should file the suit to recover the property through the Office of the
Solicitor General. The title originated from a grant by the
government, hence, its cancellation is a matter between the grantor
and the grantee.[20]
At all events, for an action for reconveyance based on fraud to
prosper, the plaintiff must prove by clear and convincing evidence
not only his title to the property but also the fact of fraud. Fraud is
never presumed. Intentional acts to deceive and deprive another of
his right, or in some manner injure him must be specifically alleged
and proved by the plaintiff by clear and convincing evidence.[21]
Petitioners failed to discharge this burden, however.
WHEREFORE, the petition is, in light of the foregoing
ratiocination, DENIED.
SO ORDERED.
ACCESSORIES SPECIALIST INC., a.k.a. ARTS 21
CORPORATION, and TADAHIKO HASHIMOTO,
Petitioners,
Vs.
ERLINDA B. ALABANZA, for and in behalf of her deceased
husband, JONES B. ALABANZA,
Respondent.
G.R. No. 168985
Present:
QUISUMBING, J.,*
136
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
NACHURA, and
REYES, JJ.
Promulgated:
July 23, 2008
x------------------------------------------------------------------------------
------x
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule
45 of the Rules of Court assailing the Decision[1] dated April 15,
2005 and the Resolution[2] dated July 12, 2005 of the Court of
Appeals (CA) in CA-G.R. SP No. 84206.
The Facts
The facts of the case, as narrated in the Decision of the CA:
On September 27, 2002, private respondent Erlinda B. Alabanza
(Erlinda, for brevity), for and in behalf of her husband Jones B.
Alabanza (Jones, for brevity) filed a complaint against petitioners
Accessories Specialists, Inc. (ASI, for brevity) also known as
ARTS 21 Corporation, and Tadahiko Hashimoto for non-payment
of salaries, separation pay, and 13th month pay.
In her position paper, respondent Erlinda alleged, among others,
that her husband Jones was the Vice-President, Manager and
Director of ASI. Jones rendered outstanding services for the
petitioners from 1975 to October 1997. On October 17, 1997, Jones
was compelled by the owner of ASI, herein petitioner Tadahiko
Hashimoto, to file his involuntary resignation on the ground that
ASI allegedly suffered losses due to lack of market and incurred
several debts caused by a slam in the market. At the time of his
resignation, Jones had unpaid salaries for eighteen (18) months
from May 1995 to October 1997 equivalent to P396,000.00 and
US$38,880.00. He was likewise not paid his separation pay
commensurate to his 21 years of service in the amount of
P462,000.00 and US$45,360.00 and 13th month pay amounting to
P33,000.00. Jones demanded payment of his money claims upon
resignation but ASI informed him that it would just settle first the
money claims of the rank- and-file employees, and his claims will
be paid thereafter. Knowing the predicament of the company,
Jones patiently waited for his turn to be paid. Several demands
were made by Jones but ASI just kept on assuring him that he will
be paid his monetary claims. Jones died on August 5, 2002 and
failed to receive the same.
On the other hand, the petitioners contend that Jones voluntarily
resigned on October 31, 1997. Thus, Erlindas cause of action has
already prescribed and is forever barred on the ground that under
Article 291 of the Labor Code, all money claims arising from an
employer-employee relationship shall be filed within three (3)
years from the time the cause of action accrues. Since the
complaint was filed only on September 27, 2002, or almost five (5)
years from the date of the alleged illegal dismissal of her husband
Jones, Erlindas complaint is now barred.
On September 14, 2003, Labor Arbiter Reynaldo V. Abdon
rendered a decision ordering the petitioners to pay Erlinda the
amount of P693,000.00 and US$74,040.00 or its equivalent in peso
or amounting to a total of P4,765,200.00 representing her husbands
unpaid salaries, 13th month pay, and separation pay, and five
[percent] (5%) on the said total award as attorneys fees.
On October 10, 2003, the petitioners filed a notice of appeal with
motion to reduce bond and attached thereto photocopies of the
receipts for the cash bond in the amount of P290,000.00, and
appeal fee in the amount of P170.00.
On January 15, 2004, public respondent NLRC issued an order
denying the petitioners motion to reduce bond and directing the
latter to post an additional bond, and in case the petitioners opted
to post a surety bond, the latter were required to submit a joint
declaration, indemnity agreement and collateral security within ten
(10) days from receipt of the said order, otherwise their appeal shall
be dismissed. The pertinent portion of such order reads:
After a review however of respondents-appellants['] instant
motion, We find that the same does not proffer any valid or
justifiable reason that would warrant a reduction of the appeal
bond. Hence, the same must be denied.
WHEREFORE, respondents-appellants are hereby ordered to post
a cash or surety bond in the amount equivalent to the monetary
award of Four Million Seven Hundred Sixty-Five Thousand and
Two Hundred Pesos (P4,765,200.00) granted in the appealed
Decision (less the Two Hundred and Ninety Thousand Pesos
[P290,000.00] cash bond already posted), and joint declaration,
indemnity agreement and collateral security in case respondents-
appellants opted to post a surety bond, as required by Art. 223 of
the Labor Code as amended and Section 6, Rule VI of the NLRC
New Rules of Procedure as amended within an unextendible period
of ten (10) calendar days from receipt of this Order; otherwise, the
appeal shall be dismissed for non-perfection thereof.
SO ORDERED.
On February 19, 2004, the petitioners moved for a reconsideration
of the said order. However, the public respondent in its resolution
dated March 18, 2004 denied the same and dismissed the appeal of
the petitioners, thus:
The reduction of appeal bond is not a matter of right but rests upon
our sound discretion. Thus, after We denied respondents-
appellants['] Motion to Reduce [B]ond, they should have
immediately complied with our 15 January 2004 Order directing
them to post an additional cash or surety bond in the amount
equivalent to the judgment award less the cash bond already posted
within the extended period of ten (10) days. In all, respondents had
twenty (20) days, including the ten (10)-day period, prescribed
under Article 223 of the Labor Code and under Section 6, Rule VI
of the NLRC New Rules of Procedure, within which to post a cash
or surety bond. To seek a reconsideration of our 15 January 2004
order is tantamount to seeking another extension of the period
within which to perfect an appeal, which is however, not allowed
under Section 7, Rule VI of the NLRC Rule. x x x
xxxx
WHEREFORE, premises considered, the Motion for
Reconsideration filed by respondents-appellants is hereby
DENIED and the instant appeal DISMISSED for non-perfection
thereof.
SO ORDERED.
On April 22, 2004, the aforesaid resolution became final and
executory. Thus, herein private respondent Erlinda filed a motion
for execution.
137
On May 31, 2004, the petitioners filed an opposition to the said
motion for execution. On June 11, 2004, Labor Arbiter Reynaldo
Abdon issued an order directing the issuance of a writ of
execution.[3]
On May 28, 2004, petitioners filed a petition for certiorari under
Rule 65 of the Rules of Court before the CA and prayed for the
issuance of a temporary restraining order (TRO) and a writ of
preliminary injunction. On June 30, 2004, the CA issued a TRO
directing the respondents, their agents, assigns, and all persons
acting on their behalf to refrain and/or cease and desist from
executing the Decision dated September 14, 2003 and Resolution
dated March 18, 2004 of the Labor Arbiter (LA).
On April 15, 2005, the CA issued the assailed Decision dismissing
the petition. Petitioner filed a motion for reconsideration. On July
12, 2005, the CA issued the assailed Resolution denying the motion
for reconsideration for lack of merit.
On September 8, 2005, petitioners posted the instant petition
presenting the following grounds in support of their arguments: 1)
the cause of action of respondent has already prescribed; 2) the
National Labor Relations Commission (NLRC) gravely abused its
discretion when it dismissed the appeal of petitioners for failure to
post the complete amount of the appeal bond; and 3) the monetary
claim was resolved by the LA with uncertainty.
The Issues
The following are the issues that should be resolved in order to
come up with a just determination of the case:
I. Whether the cause of action of respondents has already
prescribed;
II. Whether the posting of the complete amount of the bond in an
appeal from the decision of the LA to the NLRC is an indispensable
requirement for the perfection of the appeal despite the filing of a
motion to reduce the amount of the appeal bond; and
III. Whether there were sufficient bases for the grant of the
monetary award of the LA to the respondent.
The Ruling of the Court
We resolve to deny the petition.
I of the LA involving a monetary award, an appeal by the employer
Petitioners aver that the action of the respondents for the recovery
of unpaid wages, separation pay and 13th month pay has already
prescribed since the action was filed almost five years from the
time Jones severed his employment from ASI. Jones filed his
resignation on October 31, 1997, while the complaint before the
LA was instituted on September 29, 2002. Petitioners contend that
the three-year prescriptive period under Article 291[4] of the Labor
Code had already set-in, thereby barring all of respondents money
claims arising from their employer-employee relations.
Based on the findings of facts of the LA, it was ASI which was
responsible for the delay in the institution of the complaint. When
Jones filed his resignation, he immediately asked for the payment
of his money claims. However, the management of ASI promised
him that he would be paid immediately after the claims of the rank-
and-file employees had been paid. Jones relied on this
representation. Unfortunately, the promise was never fulfilled even
until the time of Jones death.
In light of these circumstances, we can apply the principle of
promissory estoppel, which is a recognized exception to the three-
year prescriptive period enunciated in Article 291 of the Labor
Code.
Promissory estoppel may arise from the making of a promise, even
though without consideration, if it was intended that the promise
should be relied upon, as in fact it was relied upon, and if a refusal
to enforce it would virtually sanction the perpetration of fraud or
would result in other injustice.[5] Promissory estoppel presupposes
the existence of a promise on the part of one against whom estoppel
is claimed. The promise must be plain and unambiguous and
sufficiently specific so that the court can
understand the obligation assumed and enforce the promise
according to its terms.[6]
In order to make out a claim of promissory estoppel, a party bears
the burden of establishing the following elements: (1) a promise
was reasonably expected to induce action or forbearance; (2) such
promise did, in fact, induce such action or forbearance; and (3) the
party suffered detriment as a result.[7]
All the requisites of promissory estoppel are present in this case.
Jones relied on the promise of ASI that he would be paid as soon
as the claims of all the rank-and-file employees had been paid. If
not for this promise that he had held on to until the time of his
death, we see no reason why he would delay filing the complaint
before the LA. Thus, we find ample justification not to follow the
prescriptive period imposed under Article 291 of the Labor Code.
Great injustice will be committed if we will brush aside the
employees claims on a mere technicality, especially when it was
petitioners own action that prevented respondent from interposing
the claims within the required period.[8]
II
Petitioners argue that the NLRC committed grave abuse of
discretion in dismissing their appeal for failure to post the complete
amount of the bond. They assert that they cannot post an appeal
bond equivalent to the monetary award rendered by the LA due to
financial incapacity. They say that strict enforcement of the NLRC
Rules of Procedure[9] that the appeal bond shall be equivalent to
the monetary award is oppressive and would have the effect of
depriving petitioners of their right to appeal.[10]
Article 223 of the Labor Code mandates that in case of a judgment
to the NLRC may be perfected only upon the posting of a cash or
surety bond issued by a reputable bonding company duly
accredited by the Commission, in the amount equivalent to the
monetary award in the judgment appealed from.
The posting of a bond is indispensable to the perfection of an
appeal in cases involving monetary awards from the decision of the
LA.[11] The intention of the lawmakers to make the bond a
mandatory requisite for the perfection of an appeal by the employer
is clearly limned in the provision that an appeal by the employer
may be perfected "only upon the posting of a cash or surety bond."
The word "only" makes it perfectly plain that the lawmakers
intended the posting of a cash or surety bond by the employer to be
the essential and exclusive means by which an employer's appeal
may be perfected. The word "may" refers to the perfection of an
appeal as optional on the part of the defeated party, but not to the
compulsory posting of an appeal bond, if he desires to appeal. The
meaning and the intention of the legislature in enacting a statute
must be determined from the language employed; and where there
is no ambiguity in the words used, then there is no room for
construction.[12]
138
The filing of the bond is not only mandatory but also a
jurisdictional requirement that must be complied with in order to
confer jurisdiction upon the NLRC.[13] Non-compliance therewith
renders the decision of the LA final and executory.[14] This
requirement is intended to assure the workers that if they prevail in
the case, they will receive the money judgment in their favor upon
the dismissal of the employer's appeal. It is intended to discourage
employers from using an appeal to delay or evade their obligation
to satisfy their employees' just and lawful claims.[15]
In the instant case, the failure of petitioners to comply with the
requirement of posting a bond equivalent in amount to the
monetary award is fatal to their appeal. Section 6 of the New Rules
of Procedure of the NLRC mandates, among others, that no motion
to reduce bond shall be entertained except on meritorious grounds
and upon the posting of a bond in a reasonable amount in relation
to the monetary award. The NLRC has the full discretion to grant
or deny their motion to reduce the amount of the appeal bond. The
finding of the NLRC that petitioners did not present sufficient
justification for the reduction thereof is generally conclusive upon
this Court absent a showing that the denial was tainted with bad
faith.
Furthermore, we would like to reiterate that appeal is not a
constitutional right, but a mere statutory privilege. Thus, parties
who seek to avail themselves of it must comply with the statutes or
rules allowing it. Perfection of an appeal in the manner and within
the period permitted by law is mandatory and jurisdictional. The
requirements for perfecting an appeal must, as a rule, be strictly
followed. Such requirements are considered indispensable
interdictions against needless delays and are necessary for the
orderly discharge of the judicial business. Failure to perfect the
appeal renders the judgment of the court final and executory. Just
as a losing party has the privilege to file an appeal within the
prescribed period, so does the winner also have the correlative right
to enjoy the finality of the decision.[16]
III
The propriety of the monetary award of the LA is already binding
upon this Court. As we have repeatedly pointed out, petitioners
failure to perfect their appeal in the manner and period required by
the rules makes the award final and executory. Petitioners stance
that there was no sufficient basis for the award of the payment of
withheld wages, separation pay and 13th month pay must fail. Such
matters are questions of facts requiring the presentation of
evidence. Findings of facts of administrative and quasi-judicial
bodies, which have acquired expertise on specific matters, are
accorded weight and respect by the Court. They are deemed final
and conclusive, unless compelling reasons are presented for us to
digress therefrom.
WHEREFORE, in view of the foregoing, the petition is DENIED
for lack of merit. The Decision dated April 15, 2005 and the
Resolution dated July 12, 2005 of the Court of Appeals in CA-G.R.
SP No. 84206 are hereby AFFIRMED.
SO ORDERED.
G.R. Nos. 159017-18 March 9, 2011
PAULINO S. ASILO, JR., Petitioner,
vs.
THE PEOPLE OF THE PHILIPPINES and Spouses
VISITACION AND CESAR C. BOMBASI, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 159059
VICTORIA BUETA VDA. DE COMENDADOR, IN
REPRESENTATION OF DEMETRIO T. COMENDADOR,
Petitioner,
vs.
VISITACION C. BOMBASI AND CESAR C. BOMBASI,
Respondents.
DECISION
PEREZ, J.:
At bench are appeals by certiorari1 from the Decision2 of the
Fourth Division of the Sandiganbayan; (1) finding Demetrio T.
Comendador3 (Mayor Comendador) and Paulino S. Asilo, Jr.4
guilty beyond reasonable doubt of violation of Sec. 3(e) of
Republic Act No. 3019; (2) dismissing the cases against accused
Alberto S. Angeles;5 (3) ordering the defendants Municipality of
Nagcarlan, Laguna, Demetrio T. Comendador and Paulino S.
Asilo, Jr. to pay the plaintiffs now respondents Visitacion C.
Bombasi (Visitacion) and Cesar C. Bombasi damages; and (4)
dismissing the cases against the spouses Alida and Teddy Coroza6
and Benita and Isagani Coronado.7
The factual antecedents of the case are:
On 15 March 1978, Private Respondent Visitacions late mother
Marciana Vda. De Coronado (Vda. De Coronado) and the
Municipality of Nagcarlan, Laguna (represented by the then
Municipal Mayor Crisostomo P. Manalang) entered into a lease
contract whereby the Municipality allowed the use and enjoyment
of property comprising of a lot and a store located at the corner of
Coronado and E. Fernandez Sts. at Poblacion, Nagcarlan, Laguna,
in favor of the respondents mother for a period of twenty (20)
years beginning on 15 March 1978 until 15 March 1998, extendible
for another 20 years.8
The lease contract provided that the late Vda. De Coronado could
build a firewall on her rented property which must be at least as
high as the store; and in case of modification of the public market,
she or her heir/s would be given preferential rights.
Visitacion took over the store when her mother died sometime in
1984.9 From then on up to January 1993, Visitacion secured the
yearly Mayors permits.10
Sometime in 1986, a fire razed the public market of Nagcarlan.
Upon Visitacions request for inspection on 15 May 1986, District
Engineer Marcelino B. Gorospe (Engineer Gorospe) of the then
Ministry of Public Works and Highways,11 Regional Office No.
IV-A, found that the store of Visitacion remained intact and stood
strong. This finding of Engineer Gorospe was contested by the
Municipality of Nagcarlan.
The store of Visitacion continued to operate after the fire until 15
October 1993.
On 1 September 1993, Visitacion received a letter12 from Mayor
Comendador directing her to demolish her store within five (5)
days from notice. Attached to the letter were copies of
Sangguniang Bayan Resolution No. 15613 dated 30 August 1993
and a Memorandum issued by Asst. Provincial Prosecutor
Marianito Sasondoncillo of Laguna.
The relevant provisos of the Resolution No. 156 states that:
NOW THEREFORE, be it RESOLVED, as it hereby resolved to
authorize Hon. Demetrio T. Comendador to enforce and order the
139
Coronados to demolish the building constructed on the space
previously rented to them in order to give way for the construction
of a new municipal market building.
RESOLVED FURTHER, to authorize Demetrio T. Comendador,
Honorable Mayor of Nagcarlan to file an Unlawful Detainer Case
with damages for the expenses incurred due to the delay in the
completion of the project if the Coronados continuously resists the
order.
On 3 September 1993, Visitacion wrote a reply letter to Mayor
Comendador saying that: (1) the lease contract was still existing
and legally binding; (2) she was willing to vacate the store as long
as same place and area would be given to her in the new public
market; and (3) in case her proposals are not acceptable to Mayor
Comendador, for the latter to just file an unlawful detainer case
against her pursuant to Sangguniang Bayan Resolution No. 156.
Pertinent portions of the letter read:
x x x With all due respect to the resolution of the Municipal
Council and the opinion rendered by the Laguna Asst. Provincial
Prosecutor, it is my considered view, however, arrived at after
consultation with my legal counsel, that our existing lease contract
is still legally binding and in full force and effect. Lest I appear to
be defiant, let me reiterate to you and the council that we are
willing to vacate the said building provided that a new contract is
executed granting to us the same space or lot and the same area. I
believe that our proposal is most reasonable and fair under the
circumstance. If you are not amenable to the said proposal, I concur
with the position taken by the Council for you to file the
appropriate action in court for unlawful detainer to enable our court
to finally thresh out our differences.141avvphi1
On 15 September 1993, Asst. Provincial Prosecutor Florencio
Buyser sent a letter to Visitacion ordering her to vacate the portion
of the public market she was occupying within 15 days from her
receipt of the letter; else, a court action will be filed against her.
On 11 October 1993, the Sangguniang Bayan of Nagcarlan,
Laguna issued Resolution No. 183 authorizing Mayor
Comendador to demolish the store being occupied by Visitacion
using legal means. The significant portion of the Resolution reads:
Kung kaya ang Sangguniang Bayan ay buong pagkakaisang
IPINASIYA: Ang pagbibigay kapangyarihan kay Kgg. Demetrio
T. Comendador na ipagiba ang anumang istrakturang nagiging
sagabal sa mabilis at maayos na pagbabangon ng pamilihang
bayan.15
On 14 October 1993, Municipal Administrator Paulino S. Asilo, Jr.
(Asilo) also sent a letter16 to Visitacion informing her of the
impending demolition of her store the next day. Within the same
day, Visitacion wrote a reply letter17 to Asilo, alleging that there
is no legal right to demolish the store in the absence of a court order
and that the Resolutions did not sanction the demolition of her store
but only the filing of an appropriate unlawful detainer case against
her. She further replied that if the demolition will take place,
appropriate administrative, criminal and civil actions will be filed
against Mayor Comendador, Asilo and all persons who will take
part in the demolition.
On 15 October 1993, Mayor Comendador relying on the strength
of Sangguniang Bayan Resolution Nos. 183 and 156 authorized the
demolition of the store with Asilo and Angeles supervising the
work.
Engineer Winston Cabrega (Engineer Cabrega), a licensed civil
engineer, estimated the cost of the demolished property as
amounting to P437,900.0018
On 19 August 1994, Visitacion, together with her husband Cesar
Bombasi (Spouses Bombasi) filed with the Regional Trial Court of
San Pablo City, Laguna a Civil Case19 for damages with
preliminary injunction against the Municipality of Nagcarlan,
Laguna, Mayor Demetrio T. Comendador, Paulino S. Asilo, Jr.,
and Alberto S. Angeles. The complaint was soon after amended to
include the Spouses Benita and Isagani Coronado and Spouses
Alida and Teddy Coroza as formal defendants because they were
then the occupants of the contested area.
The spouses prayed for the following disposition:
1. RESTRAINING or ENJOINING defendant Municipality and
defendant Municipal Mayor from leasing the premises subject of
lease Annex "A" hereof, part of which is now occupied by PNP
Outpost and by the Municipal Collectors Office, and the
equivalent adjacent area thereof, and to cause the removal of said
stalls;
2. UPHOLDING the right of plaintiffs to occupy the equivalent
corner area of the leased areas being now assigned to other persons
by defendants Municipality and/or by defendant Municipal Mayor,
and to allow plaintiffs to construct their stalls thereon;
3. MAKING the injunction permanent, after trial;
4. ORDERING defendants to pay plaintiffs, jointly and severally,
the following
(a) P437,900.00 for loss of building/store and other items therein;
(b) P200,000.00 for exemplary damages;
(c) P200,000.00 for moral damages;
(d) P30,.00 for attorneys fees and P700.00 for every attendance of
counsel in court.
5. GRANTING further reliefs upon plaintiffs as justice and equity
may warrant in the premises.20
Spouses Bombasi, thereafter, filed a criminal complaint21 against
Mayor Comendador, Asilo and Angeles for violation of Sec. 3(e)
of Republic Act No. 3019 otherwise known as the "Anti-Graft and
Corrupt Practices Act" before the Office of the Ombudsman. On
22 February 1996, an Information22 against Mayor Comendador,
Asilo and Angeles was filed, which reads:
That on or about October 15, 1993, at Nagcarlan, Laguna,
Philippines, and within the jurisdiction of this Honorable Court, the
above-named accused, all public officers, accused Demetrio T.
Comendador, being then the Municipal Mayor, accused Paulino S.
Asilo, Jr. being then the Municipal Administrator and accused
Alberto S. Angeles being then the Municipal Planning and
Development Coordinator, all of the Municipality of Nagcarlan,
Laguna, committing the crime herein charged in relation to, while
in the performance and taking advantage of their official functions,
conspiring and confederating with each other, and with evident bad
faith, manifest partiality or through gross inexcusable negligence,
did then and there willfully, unlawfully, criminally cause the
demolition of a public market stall leased by the municipal
government in favor of one Visitacion Coronado-Bombasi without
legal or justifiable ground therefor, thus, causing undue injury to
the latter in the amount of PESOS: FOUR HUNDRED THIRTY
SEVEN THOUSAND AND NINE HUNDRED ONLY
(P437,900.00).
140
Upon their arraignments, all the accused entered their separate
pleas of "Not Guilty."
On 4 March 1997, the Sandiganbayan promulgated a Resolution
ordering the consolidation of Civil Case No. SP-4064 (94)23 with
Criminal Case No. 23267 pending before the Third Division
pursuant to Section 4, Presidential Decree No. 1606, which
pertinently reads:
Any provision of law or Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil
action for the recovery of civil liability arising from the offense
charged shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the Sandiganbayan
or the appropriate courts, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action, and
no right to reserve the filing of such civil action separately from
the criminal action shall be recognized; Provided, however, that
where the civil action had heretofore been filed separately but
judgment therein has not yet been rendered, and the criminal case
is hereafter filed with the Sandiganbayan or the appropriate court,
said civil action shall be transferred to the Sandiganbayan or the
appropriate court as the case may be, for consolidation and joint
determination with the criminal action, otherwise the separate civil
action shall be deemed abandoned.24
During the pendency of the case, Alberto S. Angeles died on 16
November 1997. Accordingly, the counsel of Angeles filed a
motion to drop accused Angeles. On 22 September 1999, the Third
Division of Sandiganbayan issued an Order25 DISMISSING the
case against Angeles. The germane portion of the Order reads:
In view of the submission of the death certificate of
accused/defendant Alberto S. Angeles, and there being no
objection on the part of the Public Prosecutor, cases against
deceased accused/defendant Angeles only, are hereby
DISMISSED.
The death of Mayor Comendador followed on 17 September 2002.
As a result, the counsel of the late Mayor filed on 3 March 2003 a
Manifestation before the Sandiganbayan informing the court of the
fact of Mayor Comendadors death.
On 28 April 2003, the Sandiganbayan rendered a decision, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered
as follows:
In Criminal Case No. 23267, the court finds accused Demetrio T.
Comendador and Paulino S. Asilo, Jr. guilty beyond reasonable
doubt of violation of Sec. 3(e) of Republic Act. No. 3019 as
amended, and in the absence of aggravating and mitigating
circumstances, applying the Indeterminate Sentence Law, said
accused are sentenced to suffer the indeterminate penalty of 6 years
and 2 months imprisonment as minimum to 10 years and 1 day as
maximum.
The order of the court dated September 22, 1999 dismissing the
cases against the accused Alberto S. Angeles, who died on
November 16, 1997 is hereby reiterated.
In Civil Case No. 4064, defendants Municipality of Nagcarlan,
Laguna, Demetrio T. Comendador and Paulino S. Asilo, Jr. are
hereby ordered jointly and severally to pay plaintiff P437,900.00
as actual damages for the destruction of the store; P100,000.00 as
moral damages; P30,000.00 as attorneys fees, and to pay the cost
of the suit. The prayer for exemplary damages is denied as the court
found no aggravating circumstances in the commission of the
crime.
In view of this courts finding that the defendant spouses Alida and
Teddy Coroza are lawful occupants of the subject market stalls
from which they cannot be validly ejected without just cause, the
complaint against them is dismissed. The complaint against
defendant spouses Benita and Isagani Coronado is likewise
dismissed, it appearing that they are similarly situated as the
spouses Coroza. Meanwhile, plaintiff Visitacion Bombasi is given
the option to accept market space being given to her by the
municipality, subject to her payment of the appropriate rental and
permit fees.
The prayer for injunctive relief is denied, the same having become
moot and academic.
The compulsory counterclaim of defendant Comendador is
likewise denied for lack of merit.26
Within the same day, Asilo, through his counsel, filed a Motion for
Reconsideration27 of the Decision alleging that there was only an
error of judgment when he complied with and implemented the
order of his superior, Mayor Comendador. He likewise alleged that
there is no liability when a public officer commits in good faith an
error of judgment. The Sandiganbayan, on its Resolution28 dated
21 July 2003 denied the Motion for Reconsideration on the ground
that good faith cannot be argued to support his cause in the face of
the courts finding that bad faith attended the commission of the
offense charged. The Court further explained that the invocation of
compliance with an order of a superior is of no moment for the
"demolition [order] cannot be described as having the semblance
of legality inasmuch as it was issued without the authority and
therefore the same was patently illegal."29
The counsel for the late Mayor also filed its Motion for
Reconsideration30 on 12 May 2003 alleging that the death of the
late Mayor had totally extinguished both his criminal and civil
liability. The Sandiganbayan on its Resolution31 granted the
Motion insofar as the extinction of the criminal liability is
concerned and denied the extinction of the civil liability holding
that the civil action is an independent civil action.
Hence, these Petitions for Review on Certiorari.32
Petitioner Asilo argues that in order to sustain conviction under
Sec. 3(e) of Republic Act No. 3019 or "The Anti-Graft and Corrupt
Practices Act," the public officer must have acted with manifest
partiality, evident bad faith or gross negligence. He also contended
that he and his co-accused acted in good faith in the demolition of
the market and, thereby, no liability was incurred.
On the other hand, Petitioner Victoria argues that the death of
Mayor Comendador prior to the promulgation of the decision
extinguished NOT ONLY Mayor Comendadors criminal liability
but also his civil liability. She also asserted good faith on the part
of the accused public officials when they performed the demolition
of the market stall. Lastly, she contended that assuming arguendo
that there was indeed liability on the part of the accused public
officials, the actual amount of damages being claimed by the
Spouses Bombasi has no basis and was not duly substantiated.
Liability of the accused public officials
under Republic Act No. 3019
Section 3(e) of Republic Act No. 3019 provides:
141
In addition to acts or omissions of public officers already penalized
by existing law, the following shall constitute corrupt practices of
any public officer and are hereby declared to be unlawful:
xxxx
(e) Causing any undue injury to any party, including the
Government, or giving any private party any unwarranted benefits,
advantage or preference in the discharge of his official,
administrative or judicial functions through manifest partiality,
evident bad faith or gross inexcusable negligence. This provision
shall apply to officers and employees of offices or government
corporations charged with the grant of licenses or permits or other
concessions.
The elements of the offense are as follows: (1) that the accused are
public officers or private persons charged in conspiracy with them;
(2) that said public officers commit the prohibited acts during the
performance of their official duties or in relation to their public
positions; (3) that they caused undue injury to any party, whether
the Government or a private party; (4) OR that such injury is
caused by giving unwarranted benefits, advantage or preference to
the other party; and (5) that the public officers have acted with
manifest partiality, evident bad faith or gross inexcusable
negligence.33
We sustain the Sandiganbayan in its finding of criminal and civil
liabilities against petitioner Asilo and petitioner Mayor
Comendador as here represented by his widow Victoria Bueta.
We agree with the Sandiganbayan that it is undisputable that the
first two requisites of the criminal offense were present at the time
of the commission of the complained acts and that, as to the
remaining elements, there is sufficient amount of evidence to
establish that there was an undue injury suffered on the part of the
Spouses Bombasi and that the public officials concerned acted with
evident bad faith when they performed the demolition of the
market stall.
Causing undue injury to any party, including the government,
could only mean actual injury or damage which must be
established by evidence.34
In jurisprudence, "undue injury" is consistently interpreted as
"actual." Undue has been defined as "more than necessary, not
proper, [or] illegal;" and injury as "any wrong or damage done to
another, either in his person, rights, reputation or property [that is,
the] invasion of any legally protected interest of another." Actual
damage, in the context of these definitions, is akin to that in civil
law.35
It is evident from the records, as correctly observed by the
Sandiganbayan, that Asilo and Mayor Comendador as accused
below did not deny that there was indeed damage caused the
Spouses Bombasi on account of the demolition. We affirm the
finding that:
xxx. Clearly, the demolition of plaintiffs store was carried out
without a court order, and notwithstanding a restraining order
which the plaintiff was able to obtain. The demolition was done in
the exercise of official duties which apparently was attended by
evident bad faith, manifest partiality or gross inexcusable
negligence as there is nothing in the two (2) resolutions which gave
the herein accused the authority to demolish plaintiffs store.
"Evident bad faith" connotes not only bad judgment but also
palpably and patently fraudulent and dishonest purpose to do moral
obliquity or conscious wrongdoing for some perverse motive or ill
will.36 [It] contemplates a state of mind affirmatively operating
with furtive design or with some motive or self-interest or ill will
or for ulterior purposes.37
It is quite evident in the case at bar that the accused public officials
committed bad faith in performing the demolition.
First, there can be no merit in the contention that respondents
structure is a public nuisance. The abatement of a nuisance without
judicial proceedings is possible if it is nuisance per se.38 Nuisance
per se is that which is nuisance at all times and under any
circumstance, regardless of location and surroundings.39 In this
case, the market stall cannot be considered as a nuisance per se
because as found out by the Court, the buildings had not been
affected by the 1986 fire. This finding was certified to by
Supervising Civil Engineer Wilfredo A. Sambrano of the Laguna
District Engineer Office.40 To quote:
An inspection has been made on the building (a commercial
establishment) cited above and found out the following:
1. It is a two-storey building, sketch of which is attached.
2. It is located within the market site.
3. The building has not been affected by the recent fire.
4. The concrete wall[s] does not even show signs of being exposed
to fire.41
Second, the Sangguniang Bayan resolutions are not enough to
justify demolition. Unlike its predecessor law,42 the present Local
Government Code43 does not expressly provide for the abatement
of nuisance.44 And even assuming that the power to abate nuisance
is provided for by the present code, the accused public officials
were under the facts of this case, still devoid of any power to
demolish the store. A closer look at the contested resolutions
reveals that Mayor Comendador was only authorized to file an
unlawful detainer case in case of resistance to obey the order or to
demolish the building using legal means. Clearly, the act of
demolition without legal order in this case was not among those
provided by the resolutions, as indeed, it is a legally impossible
provision.
Furthermore, the Municipality of Nagcarlan, Laguna, as
represented by the then Mayor Comendador, was placed in
estoppel after it granted yearly business permits45 in favor of the
Spouses Bombasi. Art. 1431 of the New Civil Code provides that,
through estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. The representation
made by the municipality that the Spouses Bombasi had the right
to continuously operate its store binds the municipality. It is utterly
unjust for the Municipality to receive the benefits of the store
operation and later on claim the illegality of the business.
The bad faith of the petitioners completes the elements of the
criminal offense of violation of Sec. 3(e) of Republic Act No. 3019.
The same bad faith serves as the source of the civil liability of
Asilo, Angeles, and Mayor Comendador.
It must be noted that when Angeles died on 16 November 1997, a
motion to drop him as an accused was filed by his counsel with no
objection on the part of the prosecution. The Sandiganbayan acted
favorably on the motion and issued an Order dismissing all the
cases filed against Angeles. On the other hand, when Mayor
Comendador died and an adverse decision was rendered against
him which resulted in the filing of a motion for reconsideration by
Mayor Comendadors counsel, the prosecution opposed the
Motion specifying the ground that the civil liability did not arise
142
from delict, hence, survived the death of the accused. The
Sandiganbayan upheld the opposition of the prosecution which
disposition was not appealed.
We note, first off, that the death of Angeles and of Mayor
Comendador during the pendency of the case extinguished their
criminal liabilities.
We now hold, as did the Sandiganbayan that the civil liability of
Mayor Comendador survived his death; and that of Angeles could
have likewise survived had it not been for the fact that the
resolution of the Sandiganbayan that his death extinguished the
civil liability was not questioned and lapsed into finality.
We laid down the following guidelines in People v. Bayotas:46
Death of the accused pending appeal of his conviction extinguishes
his criminal liability as well as the civil liability based solely
thereon. As opined by Justice Regalado, in this regard, "the death
of the accused prior to final judgment terminates his criminal
liability and only the civil liability directly arising from and based
solely on the offense committed, i.e., civil liability ex delicto in
senso strictiore."
Corollarily, the claim for civil liability survives notwithstanding
the death of (the) accused, if the same may also be predicated on a
source of obligation other than delict. Article 1157 of the Civil
Code enumerates these other sources of obligation from which the
civil liability may arise as a result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) Acts or omissions punished by law; and
e) Quasi-delicts. (Emphasis ours)
Where the civil liability survives, as explained [above], an action
for recovery therefore may be pursued but only by way of filing a
separate civil action47 and subject to Section 1, Rule 111 of the
1985 Rules on Criminal Procedure as amended. This separate civil
action may be enforced either against the executor/administrator or
the estate of the accused, depending on the source of obligation
upon which the same is based as explained above.
Finally, the private offended party need not fear a forfeiture of his
right to file this separate civil action by prescription, in cases where
during the prosecution of the criminal action and prior to its
extinction, the private-offended party instituted together therewith
the civil action. In such case, the statute of limitations on the civil
liability is deemed interrupted during the pendency of the criminal
case, conformably with provisions of Article 1155 of the New Civil
Code, which should thereby avoid any apprehension on a possible
privation of right by prescription.
Upon death of the accused pending appeal of his conviction, the
criminal action is extinguished inasmuch as there is no longer a
defendant to stand as the accused; the civil action instituted therein
for recovery of civil liability ex delicto is ipso facto extinguished,
grounded as it is on the criminal.48
The New Civil Code provisions under the Chapter, Human
Relations, were cited by the prosecution to substantiate its
argument that the civil action based therein is an independent one,
thus, will stand despite the death of the accused during the
pendency of the case.
On the other hand, the defense invoked Section 4 of Presidential
Decree No. 1606, as amended by Republic Act No. 8249, in
support of its argument that the civil action was dependent upon
the criminal action, thus, was extinguished upon the death of the
accused. The law provides that:
Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil
action for the recovery of civil liability arising from the offense
charged shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by, the Sandiganbayan,
the filing of the criminal action being deemed to necessarily carry
with it the filing of the civil action, and no right to reserve the filing
of such action shall be recognized. (Emphasis ours)
We agree with the prosecution.
Death of Mayor Comendador during the pendency of the case
could have extinguished the civil liability if the same arose directly
from the crime committed. However, in this case, the civil liability
is based on another source of obligation, the law on human
relations.49 The pertinent articles follow:
Art. 31 of the Civil Code states:
When the civil action is based on an obligation not arising from the
act or omission complained of as a felony, such civil action may
proceed independently of the criminal proceedings and regardless
of the result of the latter.
And, Art. 32(6) states:
Any public officer or employee, or any private individual, who
directly or indirectly obstructs, defeats, violates or in any manner
impedes or impairs any of the following rights and liberties of
another person shall be liable to the latter for damages:
(6) The right against deprivation of property without due process
of law;
xxxx
In any of the cases referred to in this article, whether or not the
defendant's act or omission constitutes a criminal offense, the
aggrieved party has a right to commence an entirely separate and
distinct civil action for damages, and for other relief. Such civil
action shall proceed independently of any criminal prosecution (if
the latter be instituted), and may be proved by a preponderance of
evidence.
As held in Aberca v. Ver:
It is obvious that the purpose of the above codal provision [Art. 32
of the New Civil Code] is to provide a sanction to the deeply
cherished rights and freedoms enshrined in the Constitution. Its
message is clear; no man may seek to violate those sacred rights
with impunity. x x x.50
Indeed, the basic facts of this case point squarely to the
applicability of the law on human relations. First, the complaint for
civil liability was filed way AHEAD of the information on the
Anti-Graft Law. And, the complaint for damages specifically
invoked defendant Mayor Comendadors violation of plaintiffs
right to due process. Thus:
xxxx
143
In causing or doing the forcible demolition of the store in question,
the individual natural defendants did not only act with grave abuse
of authority but usurped a power which belongs to our courts of
justice; such actuations were done with malice or in bad faith and
constitute an invasion of the property rights of plaintiff(s) without
due process of law.
xxxx
The Court is in one with the prosecution that there was a violation
of the right to private property of the Spouses Bombasi. The
accused public officials should have accorded the spouses the due
process of law guaranteed by the Constitution and New Civil Code.
The Sangguniang Bayan Resolutions as asserted by the defense
will not, as already shown, justify demolition of the store without
court order. This Court in a number of decisions51 held that even
if there is already a writ of execution, there must still be a need for
a special order for the purpose of demolition issued by the court
before the officer in charge can destroy, demolish or remove
improvements over the contested property.52 The pertinent
provisions are the following:
Before the removal of an improvement must take place, there must
be a special order, hearing and reasonable notice to remove.
Section 10(d), Rule 39 of the Rules of Court provides:
(d) Removal of improvements on property subject of execution.
When the property subject of execution contains improvements
constructed or planted by the judgment obligor or his agent, the
officer shall not destroy, demolish or remove said improvements
except upon special order of the court, issued upon motion of the
judgment obligee after due hearing and after the former has failed
to remove the same within a reasonable time fixed by the court.
The above-stated rule is clear and needs no interpretation. If
demolition is necessary, there must be a hearing on the motion filed
and with due notices to the parties for the issuance of a special
order of demolition.53
This special need for a court order even if an ejectment case has
successfully been litigated, underscores the independent basis for
civil liability, in this case, where no case was even filed by the
municipality.
The requirement of a special order of demolition is based on the
rudiments of justice and fair play. It frowns upon arbitrariness and
oppressive conduct in the execution of an otherwise legitimate act.
It is an amplification of the provision of the Civil Code that every
person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe
honesty and good faith.54
Notably, the fact that a separate civil action precisely based on due
process violations was filed even ahead of the criminal case, is
complemented by the fact that the deceased plaintiff Comendador
was substituted by his widow, herein petitioner Victoria who
specified in her petition that she has "substituted him as petitioner
in the above captioned case." Section 1, Rule III of the 1985 Rules
in Criminal Procedure mentioned in Bayotas is, therefore, not
applicable. Truly, the Sandiganbayan was correct when it
maintained the separate docketing of the civil and criminal cases
before it although their consolidation was erroneously based on
Section 4 of Presidential Decree No. 1606 which deals with civil
liability "arising from the offense charged."
We must, however, correct the amount of damages awarded to the
Spouses Bombasi.
To seek recovery of actual damages, it is necessary to prove the
actual amount of loss with a reasonable degree of certainty,
premised upon competent proof and on the best evidence
obtainable.55 In this case, the Court finds that the only evidence
presented to prove the actual damages incurred was the itemized
list of damaged and lost items56 prepared by Engineer Cabrega, an
engineer commissioned by the Spouses Bombasi to estimate the
costs.
As held by this Court in Marikina Auto Line Transport Corporation
v. People of the Philippines,57
x x x [W]e agree with the contention of petitioners that respondents
failed to prove that the damages to the terrace caused by the
incident amounted to P100,000.00. The only evidence adduced by
respondents to prove actual damages claimed by private
respondent were the summary computation of damage made by
Engr. Jesus R. Regal, Jr. amounting to P171,088.46 and the receipt
issued by the BB Construction and Steel Fabricator to private
respondent for P35,000.00 representing cost for carpentry works,
masonry, welding, and electrical works. Respondents failed to
present Regal to testify on his estimation. In its five-page decision,
the trial court awarded P150,000.00 as actual damages to private
respondent but failed to state the factual basis for such award.
Indeed, the trial court merely declared in the decretal portion of its
decision that the "sum of P150,000.00 as reasonable compensation
sustained by plaintiff for her damaged apartment." The appellate
court, for its part, failed to explain how it arrived at the amount of
P100,000.00 in its three-page decision. Thus, the appellate court
merely declared:
With respect to the civil liability of the appellants, they contend
that there was no urgent necessity to completely demolish the
apartment in question considering the nature of the damages
sustained as a result of the accident. Consequently, appellants
continue, the award of P150,000.00 as compensation sustained by
the plaintiff-appellee for her damaged apartment is an
unconscionable amount.
Further, in one case,58 this Court held that the amount claimed by
the respondent-claimants witness as to the actual amount of
damages "should be admitted with extreme caution considering
that, because it was a bare assertion, it should be supported by
independent evidence." The Court further said that whatever claim
the respondent witness would allege must be appreciated in
consideration of his particular self-interest.59 There must still be a
need for the examination of the documentary evidence presented
by the claimants to support its claim with regard to the actual
amount of damages.
The price quotation made by Engineer Cabrega presented as an
exhibit60 partakes of the nature of hearsay evidence considering
that the person who issued them was not presented as a witness.61
Any evidence, whether oral or documentary, is hearsay if its
probative value is not based on the personal knowledge of the
witness but on the knowledge of another person who is not on the
witness stand. Hearsay evidence, whether objected to or not, has
no probative value unless the proponent can show that the evidence
falls within the exceptions to the hearsay evidence rule.62 Further,
exhibits do not fall under any of the exceptions provided under
Sections 37 to 47 of Rule 130 of the Rules of Court.
Though there is no sufficient evidence to award the actual damages
claimed, this Court grants temperate damages for P200,000.00 in
view of the loss suffered by the Spouses Bombasi. Temperate
damages are awarded in accordance with Art. 2224 of the New
Civil Code when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be
proven with certainty. The amount of temperate or moderated
144
damages is usually left to the discretion of the courts but the same
should be reasonable, bearing in mind that the temperate damages
should be more than nominal but less than compensatory.63
Without a doubt, the Spouses Bombasi suffered some form of
pecuniary loss in the impairment of their store. Based on the record
of the case,64 the demolished store was housed on a two-story
building located at the markets commercial area and its concrete
walls remained strong and not affected by the fire. However, due
to the failure of the Spouses Bombasi to prove the exact amount of
damage in accordance with the Rules of Evidence,65 this court
finds that P200,000.00 is the amount just and reasonable under the
circumstances.
WHEREFORE, the instant appeal is DENIED. Accordingly, the
Decision of the Sandiganbayan dated 28 April 2003 is hereby
AFFIRMED WITH MODIFICATION. The Court affirms the
decision finding the accused Paulino S. Asilo, Jr. and Demetrio T.
Comendador guilty of violating Section 3(e) of Republic Act No.
3019. We declare the finality of the dismissal of both the criminal
and civil cases against Alberto S. Angeles as the same was not
appealed. In view of the death of Demetrio T. Comendador
pending trial, his criminal liability is extinguished; but his civil
liability survives. The Municipality of Nagcarlan, Paulino Asilo
and Demetrio T. Comendador, as substituted by Victoria Bueta
Vda. De Comendador, are hereby declared solidarily liable to the
Spouses Bombasi for temperate damages in the amount of
P200,000.00 and moral damages in the amount of P100,000.00.
Costs against the petitioners-appellants.
SO ORDERED.
PRISMA CONSTRUCTION & DEVELOPMENT
CORPORATION and ROGELIO S. PANTALEON,
Petitioners,
vs
ARTHUR F. MENCHAVEZ ,
Respondent.
G.R. No. 160545
Present:
*NACHURA, J.,
BRION, Acting Chairperson,
DEL CASTILLO,
ABAD, and
PEREZ, JJ.
Promulgated:
March 9, 2010
x------------------------------------------------------------------------------
------------x
DECISION
BRION, J.:
We resolve in this Decision the petition for review on certiorari[1]
filed by petitioners Prisma Construction & Development
Corporation (PRISMA) and Rogelio S. Pantaleon (Pantaleon)
(collectively, petitioners) who seek to reverse and set aside the
Decision[2] dated May 5, 2003 and the Resolution[3] dated
October 22, 2003 of the Former Ninth Division of the Court of
Appeals (CA) in CA-G.R. CV No. 69627. The assailed CA
Decision affirmed the Decision of the Regional Trial Court (RTC),
Branch 73, Antipolo City in Civil Case No. 97-4552 that held the
petitioners liable for payment of P3,526,117.00 to respondent
Arthur F. Menchavez (respondent), but modified the interest rate
from 4% per month to 12% per annum, computed from the filing
of the complaint to full payment. The assailed CA Resolution
denied the petitioners Motion for Reconsideration.
FACTUAL BACKGROUND
The facts of the case, gathered from the records, are briefly
summarized below.
On December 8, 1993, Pantaleon, the President and Chairman of
the Board of PRISMA, obtained a P1,000,000.00[4] loan from the
respondent, with a monthly interest of P40,000.00 payable for six
months, or a total obligation of P1,240,000.00 to be paid within six
(6) months,[5] under the following schedule of payments:
January 8, 1994 . P40,000.00
February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00[6]
Total P1,240,000.00
To secure the payment of the loan, Pantaleon issued a promissory
note[7] that states:
I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE
MILLION TWO HUNDRED FORTY THOUSAND PESOS
(P1,240,000), Philippine Currency, from Mr. Arthur F.
Menchavez, representing a six-month loan payable according to
the following schedule:
January 8, 1994 . P40,000.00
February 8, 1994 ... P40,000.00
March 8, 1994 ... P40,000.00
April 8, 1994 . P40,000.00
May 8, 1994 .. P40,000.00
June 8, 1994 P1,040,000.00
The checks corresponding to the above amounts are hereby
acknowledged.[8]
and six (6) postdated checks corresponding to the schedule of
payments. Pantaleon signed the promissory note in his personal
capacity,[9] and as duly authorized by the Board of Directors of
PRISMA.[10] The petitioners failed to completely pay the loan
within the stipulated six (6)-month period.
From September 8, 1994 to January 4, 1997, the petitioners paid
the following amounts to the respondent:
September 8, 1994 P320,000.00
October 8, 1995.P600,000.00
November 8, 1995.....P158,772.00
January 4, 1997 P30,000.00[11]
As of January 4, 1997, the petitioners had already paid a total of
P1,108,772.00. However, the respondent found that the petitioners
still had an outstanding balance of P1,364,151.00 as of January 4,
1997, to which it applied a 4% monthly interest.[12] Thus, on
August 28, 1997, the respondent filed a complaint for sum of
money with the RTC to enforce the unpaid balance, plus 4%
monthly interest, P30,000.00 in attorneys fees, P1,000.00 per court
appearance and costs of suit.[13]
In their Answer dated October 6, 1998, the petitioners admitted the
loan of P1,240,000.00, but denied the stipulation on the 4%
monthly interest, arguing that the interest was not provided in the
145
promissory note. Pantaleon also denied that he made himself
personally liable and that he made representations that the loan
would be repaid within six (6) months.[14]
THE RTC RULING
The RTC rendered a Decision on October 27, 2000 finding that the
respondent issued a check for P1,000,000.00 in favor of the
petitioners for a loan that would earn an interest of 4% or
P40,000.00 per month, or a total of P240,000.00 for a 6-month
period. It noted that the petitioners made several payments
amounting to P1,228,772.00, but they were still indebted to the
respondent for P3,526,117.00 as of February 11,[15] 1999 after
considering the 4% monthly interest. The RTC observed that
PRISMA was a one-man corporation of Pantaleon and used this
circumstance to justify the piercing of the veil of corporate fiction.
Thus, the RTC ordered the petitioners to jointly and severally pay
the respondent the amount of P3,526,117.00 plus 4% per month
interest from February 11, 1999 until fully paid.[16]
The petitioners elevated the case to the CA via an ordinary appeal
under Rule 41 of the Rules of Court, insisting that there was no
express stipulation on the 4% monthly interest.
THE CA RULING
The CA decided the appeal on May 5, 2003. The CA found that the
parties agreed to a 4% monthly interest principally based on the
board resolution that authorized Pantaleon to transact a loan with
an approved interest of not more than 4% per month. The appellate
court, however, noted that the interest of 4% per month, or 48%
per annum, was unreasonable and should be reduced to 12% per
annum. The CA affirmed the RTCs finding that PRISMA was a
mere instrumentality of Pantaleon that justified the piercing of the
veil of corporate fiction. Thus, the CA modified the RTC Decision
by imposing a 12% per annum interest, computed from the filing
of the complaint until finality of judgment, and thereafter, 12%
from finality until fully paid.[17]
After the CA's denial[18] of their motion for reconsideration,[19]
the petitioners filed the present petition for review on certiorari
under Rule 45 of the Rules of Court.
THE PETITION
The petitioners submit that the CA mistakenly relied on their board
resolution to conclude that the parties agreed to a 4% monthly
interest because the board resolution was not an evidence of a loan
or forbearance of money, but merely an authorization for Pantaleon
to perform certain acts, including the power to enter into a contract
of loan. The expressed mandate of Article 1956 of the Civil Code
is that interest due should be stipulated in writing, and no such
stipulation exists. Even assuming that the loan is subject to 4%
monthly interest, the interest covers the six (6)-month period only
and cannot be interpreted to apply beyond it. The petitioners also
point out the glaring inconsistency in the CA Decision, which
reduced the interest from 4% per month or 48% per annum to 12%
per annum, but failed to consider that the amount of P3,526,117.00
that the RTC ordered them to pay includes the compounded 4%
monthly interest.
THE CASE FOR THE RESPONDENT
The respondent counters that the CA correctly ruled that the loan
is subject to a 4% monthly interest because the board resolution is
attached to, and an integral part of, the promissory note based on
which the petitioners obtained the loan. The respondent further
contends that the petitioners are estopped from assailing the 4%
monthly interest, since they agreed to pay the 4% monthly interest
on the principal amount under the promissory note and the board
resolution.
THE ISSUE
The core issue boils down to whether the parties agreed to the 4%
monthly interest on the loan. If so, does the rate of interest apply to
the 6-month payment period only or until full payment of the loan?
OUR RULING
We find the petition meritorious.
Interest due should be stipulated in writing; otherwise, 12% per
annum
Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good
faith.[20] When the terms of a contract are clear and leave no doubt
as to the intention of the contracting parties, the literal meaning of
its stipulations governs.[21] In such cases, courts have no authority
to alter the contract by construction or to make a new contract for
the parties; a court's duty is confined to the interpretation of the
contract the parties made for themselves without regard to its
wisdom or folly, as the court cannot supply material stipulations or
read into the contract words the contract does not contain.[22] It is
only when the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to determine the
parties intent.
In the present case, the respondent issued a check for
P1,000,000.00.[23] In turn, Pantaleon, in his personal capacity and
as authorized by the Board, executed the promissory note quoted
above. Thus, the P1,000,000.00 loan shall be payable within six (6)
months, or from January 8, 1994 up to June 8, 1994. During this
period, the loan shall earn an interest of P40,000.00 per month, for
a total obligation of P1,240,000.00 for the six-month period. We
note that this agreed sum can be computed at 4% interest per
month, but no such rate of interest was stipulated in the promissory
note; rather a fixed sum equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that no
interest shall be due unless it has been expressly stipulated in
writing. Under this provision, the payment of interest in loans or
forbearance of money is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for
the payment of interest was reduced in writing. The concurrence of
the two conditions is required for the payment of interest at a
stipulated rate. Thus, we held in Tan v. Valdehueza[24] and Ching
v. Nicdao[25] that collection of interest without any stipulation in
writing is prohibited by law.
Applying this provision, we find that the interest of P40,000.00 per
month corresponds only to the six (6)-month period of the loan, or
from January 8, 1994 to June 8, 1994, as agreed upon by the parties
in the promissory note. Thereafter, the interest on the loan should
be at the legal interest rate of 12% per annum, consistent with our
ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:[26]
When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the
rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
(Emphasis supplied)
146
We reiterated this ruling in Security Bank and Trust Co. v. RTC-
Makati, Br. 61,[27] Sulit v. Court of Appeals,[28] Crismina
Garments, Inc. v. Court of Appeals,[29] Eastern Assurance and
Surety Corporation v. Court of Appeals,[30] Sps. Catungal v.
Hao,[31] Yong v. Tiu,[32] and Sps. Barrera v. Sps. Lorenzo.[33]
Thus, the RTC and the CA misappreciated the facts of the case;
they erred in finding that the parties agreed to a 4% interest,
compounded by the application of this interest beyond the
promissory notes six (6)-month period. The facts show that the
parties agreed to the payment of a specific sum of money of
P40,000.00 per month for six months, not to a 4% rate of interest
payable within a six (6)-month period.
Medel v. Court of Appeals not applicable
The CA misapplied Medel v. Court of Appeals[34] in finding that
a 4% interest per month was unconscionable.
In Medel, the debtors in a P500,000.00 loan were required to pay
an interest of 5.5% per month, a service charge of 2% per annum,
and a penalty charge of 1% per month, plus attorneys fee
equivalent to 25% of the amount due, until the loan is fully paid.
Taken in conjunction with the stipulated service charge and
penalty, we found the interest rate of 5.5% to be excessive,
iniquitous, unconscionable, exorbitant and hence, contrary to
morals, thereby rendering the stipulation null and void.
Applying Medel, we invalidated and reduced the stipulated interest
in Spouses Solangon v. Salazar[35] of 6% per month or 72% per
annum interest on a P60,000.00 loan; in Ruiz v. Court of
Appeals,[36] of 3% per month or 36% per annum interest on a
P3,000,000.00 loan; in Imperial v. Jaucian,[37] of 16% per month
or 192% per annum interest on a P320,000.00 loan; in Arrofo v.
Quio,[38] of 7% interest per month or 84% per annum interest on
a P15,000.00 loan; in Bulos, Jr. v. Yasuma,[39] of 4% per month
or 48% per annum interest on a P2,500,000.00 loan; and in Chua
v. Timan,[40] of 7% and 5% per month for loans totalling
P964,000.00. We note that in all these cases, the terms of the loans
were open-ended; the stipulated interest rates were applied for an
indefinite period.
Medel finds no application in the present case where no other
stipulation exists for the payment of any extra amount except a
specific sum of P40,000.00 per month on the principal of a loan
payable within six months. Additionally, no issue on the
excessiveness of the stipulated amount of P40,000.00 per month
was ever put in issue by the petitioners;[41] they only assailed the
application of a 4% interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties
are bound by the stipulations, clauses, terms and conditions they
have agreed to, which is the law between them, the only limitation
being that these stipulations, clauses, terms and conditions are not
contrary to law, morals, public order or public policy.[42] The
payment of the specific sum of money of P40,000.00 per month
was voluntarily agreed upon by the petitioners and the respondent.
There is nothing from the records and, in fact, there is no allegation
showing that petitioners were victims of fraud when they entered
into the agreement with the respondent.
Therefore, as agreed by the parties, the loan of P1,000,000.00 shall
earn P40,000.00 per month for a period of six (6) months, or from
December 8, 1993 to June 8, 1994, for a total principal and interest
amount of P1,240,000.00. Thereafter, interest at the rate of 12%
per annum shall apply. The amounts already paid by the petitioners
during the pendency of the suit, amounting to P1,228,772.00 as of
February 12, 1999,[43] should be deducted from the total amount
due, computed as indicated above. We remand the case to the trial
court for the actual computation of the total amount due.
Doctrine of Estoppel not applicable
The respondent submits that the petitioners are estopped from
disputing the 4% monthly interest beyond the six-month stipulated
period, since they agreed to pay this interest on the principal
amount under the promissory note and the board resolution.
We disagree with the respondents contention.
We cannot apply the doctrine of estoppel in the present case since
the facts and circumstances, as established by the record, negate its
application. Under the promissory note,[44] what the petitioners
agreed to was the payment of a specific sum of P40,000.00 per
month for six months not a 4% rate of interest per month for six (6)
months on a loan whose principal is P1,000,000.00, for the total
amount of P1,240,000.00. Thus, no reason exists to place the
petitioners in estoppel, barring them from raising their present
defenses against a 4% per month interest after the six-month period
of the agreement. The board resolution,[45] on the other hand,
simply authorizes Pantaleon to contract for a loan with a monthly
interest of not more than 4%. This resolution merely embodies the
extent of Pantaleons authority to contract and does not create any
right or obligation except as between Pantaleon and the board.
Again, no cause exists to place the petitioners in estoppel.
Piercing the corporate veil unfounded
We find it unfounded and unwarranted for the lower courts to
pierce the corporate veil of PRISMA.
The doctrine of piercing the corporate veil applies only in three (3)
basic instances, namely: a) when the separate and distinct corporate
personality defeats public convenience, as when the corporate
fiction is used as a vehicle for the evasion of an existing obligation;
b) in fraud cases, or when the corporate entity is used to justify a
wrong, protect a fraud, or defend a crime; or c) is used in alter ego
cases, i.e., where a corporation is essentially a farce, since it is a
mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency, conduit
or adjunct of another corporation.[46] In the absence of malice, bad
faith, or a specific provision of law making a corporate officer
liable, such corporate officer cannot be made personally liable for
corporate liabilities.[47]
In the present case, we see no competent and convincing evidence
of any wrongful, fraudulent or unlawful act on the part of PRISMA
to justify piercing its corporate veil. While Pantaleon denied
personal liability in his Answer, he made himself accountable in
the promissory note in his personal capacity and as authorized by
the Board Resolution of PRISMA.[48] With this statement of
personal liability and in the absence of any representation on the
part of PRISMA that the obligation is all its own because of its
separate corporate identity, we see no occasion to consider piercing
the corporate veil as material to the case.
WHEREFORE, in light of all the foregoing, we hereby REVERSE
and SET ASIDE the Decision dated May 5, 2003 of the Court of
Appeals in CA-G.R. CV No. 69627. The petitioners loan of
P1,000,000.00 shall bear interest of P40,000.00 per month for six
(6) months from December 8, 1993 as indicated in the promissory
note. Any portion of this loan, unpaid as of the end of the six-month
payment period, shall thereafter bear interest at 12% per annum.
The total amount due and unpaid, including accrued interests, shall
bear interest at 12% per annum from the finality of this Decision.
Let this case be REMANDED to the Regional Trial Court, Branch
73, Antipolo City for the proper computation of the amount due as
herein directed, with due regard to the payments the petitioners
have already remitted. Costs against the respondent.
147
SO ORDERED.
[G.R. NO. 165938 : November 25, 2009]
ROGELIO DIZON, Petitioner, v. PHILIPPINE VETERANS
BANK, Respondent.
DECISION
PERALTA, J.:
Assailed in the present Petition for Review on Certiorari under
Rule 45 of the Rules of Court is the Resolution1 of the Court of
Appeals (CA) in CA-G.R. CV No. 72856, dated August 25, 2003,
which dismissed herein petitioner's appeal, and its Resolution2
dated November 2, 2004 denying petitioner's motion for
reconsideration.
The undisputed facts are as follows:
Herein petitioner Rogelio Dizon and his wife Corazon were the
owners of three parcels of land located in Angeles City, Pampanga
covered by Transfer Certificate of Title (TCT) Nos. T-12567, T-
35788 and T-29117-R (3793). On September 26, 1979, the Spouses
Dizon mortgaged these lots to herein respondent Philippine
Veterans Bank (PVB) as security for a credit accommodation
which they obtained from PVB. The Spouses Dizon failed to pay
their obligation. As a consequence, PVB extrajudicially foreclosed
the mortgage and was able to acquire the subject properties at
public auction conducted on December 8, 1983. Subsequently, a
Certificate of Sale was issued in favor of PVB which was registered
with the Register of Deeds of Angeles City on November 22, 1984.
Sometime in June 1986, PVB filed with the Regional Trial Court
(RTC) of Angeles City a Petition for the Issuance of Owner's
Duplicate Certificate of Title covering the subject lots. The case
was docketed as L.R.C. CAD. CASE NO. A-124-91. Apparently,
for failure of PVB to prosecute the case for an unreasonable length
of time, the petition was dismissed without prejudice.
On July 26, 1999, PVB filed anew with the RTC of Angeles City
a Petition for Issuance of Owner's Duplicate Copy of Transfer
Certificate of Title over the same parcels of land. The case was
docketed as L.R.C. Case No. A-124-1024. Herein petitioner
opposed the petition.
On November 16, 1999, PVB filed with the RTC of Angeles City
an ex-parte petition for the issuance of a writ of possession. The
case was docketed as Cad. Case No. A-124-1057. On February 19,
2002, the RTC rendered judgment in favor of PVB. On appeal,
however, the CA reversed the decision of the RTC and dismissed
PVB's petition for the issuance of a writ of possession. The CA
Decision became final and executory on January 14, 2004.
Meanwhile, after due proceedings in L.R.C. Case No. A-124-1024,
the RTC rendered judgment granting the petition of PVB. The
dispositive portion of the RTC Decision, dated August 6, 2001,
reads as follows:
WHEREFORE, the Register of Deeds of Angeles City is directed
to issue another owner's duplicate copies of T.C.T. Nos. T-12567,
29117 (3793) and 35788 in favor of petitioner Philippine Veterans
Bank, which shall contain a memorandum of the fact that they be
issued in place of the lost ones but shall, in all respect, be entitled
to like faith and credit as the original duplicates and shall thereafter
be regarded as such for all purposes of Pres. Decree No. 1529, after
the petitioner shall have complied with all the mandatory
requirements of the law on the matter.
SO ORDERED.3
Feeling aggrieved, Rogelio filed an appeal with the CA. On August
25, 2003, the CA issued the presently assailed Resolution
dismissing Rogelio's appeal for his failure to file his appellant's
brief.
Rogelio filed a motion for reconsideration, but the same was
denied by the CA in a subsequent Resolution dated November 2,
2004.
Hence, the present petition based on the following grounds:
I. Whether or not the questioned second Petition for Issuance of
Owner's Duplicate copy of Transfer Certificate of Title Nos. T-
12567, 2917 (3793), 5788 in lieu of lost owner's copy filed by the
Petitioner-Appellee on July 26, 1999, after more than sixteen (16)
years after the Foreclosure Sale sometime in December 8, 1983 is
barred by prescription;
II. Whether or not the three (3) defective, fictitious and/or fake
Owner's duplicate certificates of title attached in the dismissed
original petition filed on June 1986 when it was the Respondent
Bank (petitioner therein) itself which placed the remarks on the
upper right corner of the titles the phrase: ALLEGEDLY FAKE in
our possession presented as collaterals are similar to the three (3)
certified true copies of the original certificates of title on file at the
Register of Deeds of Angeles City attached in the second Petition
and marked as Annexes "A", "B" and "C" thereof respectively;
III. Whether or not Atty. Ma. Rosario A. Sabalburo, Head of Assets
Recovery Department of the PVB, has committed the crime of
perjury in her Sworn Affidavit of Loss that she executed on July
23, 1999, by presenting as pieces of evidence the copies of the
original certificates of title secured from the Register of Deeds of
Angeles City and not the machine copies of the owner's duplicate
certificates of title that were found in their file as claimed or true
xerox copies from RTC BR. 62;
IV. Whether or not the documentary bases (the three certified
copies of title issued by the Register of Deeds of Angeles City only
last November 16, 1999 which were duly verified by Mr. Ronnie
Vergara and Mr. Herminio Manalang, the records officer and Vault
Keeper, respectively of the said Office, used in the Respondent
Bank's second Petition are the very same copies of the said
collaterals having the same annotations and encumbrances making
them as the true and faithful reproductions of the titles used in the
Bank's first Petition filed by the Petitioner on June 19, 1986.
(Emphasis supplied.)4
The petition lacks merit.
With respect to the first issue, petitioner contends that the petition
filed by respondent bank has prescribed, citing Article 1142 of the
Civil Code which states that "[a] mortgage action prescribes in ten
years."
It is true that, under Article 1142 of the Civil Code, an action to
enforce a right arising from a mortgage should be enforced within
ten (10) years from the time the right of action accrues; otherwise,
it will be barred by prescription and the mortgage creditor will lose
his rights under the mortgage.5 It is clear that the actions referred
to under Article 1142 of the Civil Code are those that necessarily
arise from a mortgage. In the present case, however, PVB's petition
for the issuance of an owner's duplicate certificate of title already
arises from its right as the owner of the subject properties and no
longer as a mortgagee. The mortgage contract respondent entered
into with petitioner had already been foreclosed, the properties sold
148
and the sale in favor of PVB registered with the Register of Deeds
of the Province of Cagayan. Hence, since the petition filed by PVB
is not a mortgage action, the provisions of Article 1142 of the Civil
Code do not apply.
In any case, Presidential Decree (PD) No. 1529, otherwise known
as the Property Registration Decree, the law that specifically
governs petitions for the replacement of lost duplicate certificates
of title, does not provide for any limitation or period for filing the
said petition. The silence of the law on this matter can only be
interpreted to mean that there is no intention to provide a
prescriptive period for filing this petition.
As to the second issue, petitioner anchors his opposition to the
petition filed by PVB on the contention that the titles, which he
presented to the bank as evidence that the subject properties were
used as security for the loan he and his wife incurred with the said
bank, were genuine but were later on altered by the bank's officials
and employees with whom he allegedly entered a deal in order to
have his loan approved. Petitioner claims that this altered and
spurious titles were the ones presented by PVB in its first petition
filed with the RTC in June 1986. However, these allegations
remain unsubstantiated. They are self-serving statements which are
not supported by any evidence whatsoever. It is settled that one
who alleges a fact has the burden of proving it and mere allegation
is not evidence.6 The established fact remains that petitioner and
his wife were the ones who submitted to PVB the authentic owner's
copy of the titles over the subject properties and that these copies
were lost.rbl r l l lbrr reverse the findings of fact of trial courts.13 This is so because trial
The Court cannot follow the logic in petitioner's arguments
considering that, in the first place, he and his wife were the ones
who submitted the titles to PVB. Now that PVB seeks to obtain a
duplicate copy of the titles covering the subject properties which it
legally acquired, petitioner has made a complete turnaround and
now assails the authenticity of these titles which he and his wife
used to obtain their loan. Nonetheless, petitioner is estopped from
doing so.
Settled is the rule that a person, who by his deed or conduct has
induced another to act in a particular manner, is barred from
adopting an inconsistent position, attitude or course of conduct that
thereby causes loss or injury to the latter.7 The doctrine of estoppel
is based upon the grounds of public policy, fair dealing, good faith
and justice, and its purpose is to forbid one to speak against his
own act, representations, or commitments to the injury of one to
whom they were directed and who reasonably relied thereon.8
Article 1431 of the Civil Code states that "[t]hrough estoppel an
admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person
relying thereon."
The essential elements of estoppel are: (1) conduct of a party
amounting to false representation or concealment of material facts
or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (2) intent, or at least expectation,
that this conduct shall be acted upon by, or at least influence, the
other party; and (3) knowledge, actual or constructive, of the real
facts.9
In the present case, petitioner may not renege on his own acts and
representations to the prejudice of respondent bank, which has
relied on them. Since petitioner entered into a binding contract on
his own volition using the titles which he now assails, he is
therefore estopped from questioning the authenticity of these
documents which paved the way for the consummation of the
contract from which he derived benefit.
Other than to harass the respondent, the Court is at a loss as to what
petitioner really desires to achieve in opposing the respondent
bank's petition. The Court agrees with respondent's observation
that petitioner's actuations are demonstrative of his desperate
attempt to cling on to the subject properties despite the fact that he
has lost them by reason of foreclosure due to his failure to pay his
obligations and his subsequent inability to redeem them during the
period allowed by law.
Coming to the third and fourth issues, petitioner calls on the Court
to resolve issues of fact. Settled is the rule that a Petition for
Review on Certiorari filed with this Court under Rule 45 of the
Revised Rules of Court shall raise only questions of law.10 This
Court is not a trier of facts. It is not its function to analyze or weigh
evidence. The jurisdiction of this Court over cases brought to it is
limited to the review and rectification of errors allegedly
committed by the lower courts.11 While there are exceptions to
this rule,12 the Court finds that the present case does not fall under
any of them.
In any case, what petitioner is trying to impress upon the Court in
the third and fourth issues is that PVB is concealing the fact that
the alleged spurious copies of the subject TCTs were not actually
lost. However, the Court gives full faith and credence to the finding
of the RTC that the owner's duplicate copies in the possession of
PVB were, in fact, lost. This is consistent with the settled rule that
appellate courts should not, unless for strong and cogent reasons,
judges are in a better position to examine real evidence and at a
vantage point to observe the actuation and the demeanor of the
witnesses.14 In the instant case, the Court finds no sufficient
reason to depart from the above findings of the RTC.
Petitioner further questions PVB's submission of the certified true
copies of the TCTs covering the subject properties, which were
taken from the files of the Register of Deeds of Angeles City.
However, PVB has sufficiently explained that it is only submitting
evidence to prove that it complied with the jurisdictional
requirement under Section 10915 of PD No. 1529, which directs a
person applying for the issuance of another duplicate certificate of
title to file a sworn statement with the concerned Register of Deeds
of the fact of loss or destruction of the original owner's duplicate
copy of the subject TCT.
It bears to emphasize that in a petition for the issuance of a second
owner's duplicate copy of a certificate of title in replacement of a
lost one, the only questions to be resolved are: whether or not the
original owner's duplicate copy has indeed been lost and whether
the petitioner seeking the issuance of a new owner's duplicate title
is the registered owner or other person in interest.16
The first question is factual and, in the present case, the RTC had
already made a finding that the original owner's duplicate copy of
the subject TCTs had indeed been lost. In this respect, the Court
finds no cogent reason to depart from the findings of the RTC as
discussed earlier.
As to the second question, there is no dispute that PVB has an
interest over the subject properties having acquired the same at
public auction.
In sum, there is no doubt as to the identity of the subject properties.
There is neither any dispute with respect to the fact that petitioner
and his wife mortgaged these properties to PVB and that they
subsequently failed to pay their obligations to the latter. Nor is
there any issue as to the validity of the foreclosure proceedings as
well as the auction sale conducted and PVB's subsequent
acquisition of the subject properties.
149

Hence, on the basis of the foregoing, the Court finds that the RTC
committed no error in granting PVB's petition for the issuance of
an owner's duplicate copy of certificates of title covering the
subject properties.
WHEREFORE, the petition is DENIED. The Resolutions dated
August 25, 2003 and November 2, 2004, respectively, of the Court
of Appeals in CA-G.R. CV No. 72856, are AFFIRMED.
SO ORDERED.
G.R. No. 193453 June 5, 2013
SPOUSES RUBIN AND PORTIA HOJAS, Petitioners,
vs.
PHILIPPINE AMANAH BANK AND RAMON KUE,
Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari assailing the July 28, 2010
Decision1 of the Court of Appeals (CA), in CA-G.R. CV No.
55722, which affirmed the May 27, 1996 Decision of the Regional
Trial Court, Branch 13, Zamboanga City (RTC), dismissing Civil
Case No. 1028 (3952), an action for "Determination of True
Balance of Mortgage, Debt, Annulment/Setting
Aside of Extrajudicial Foreclosure of Mortgage and Damages, with
Prayer for Preliminary Injunction."
The petitioners, Spouses Rubin and Portia Hojas (petitioners),
alleged that on April 11, 1980, they secured a loan from respondent
Philippine Amanah Bank (PAB) in the amount of P450,000.00;
that this loan was secured by a mortgage, covering both personal
and real properties; that from May 14, 1981 to June 27, 1986, they
made various payments amounting to P486,162.13; that PAB,
however, did not properly credit their payments; that based on the
summary of payments furnished by PAB to them on February 24,
1989, only 13 payments were credited, erroneously amounting to
P317,048.83; that PAB did not credit the payment they made
totaling P165,623.24; and that, in the statement of their account as
of October 17, 1984, PAB listed their total payment as 412,211.54
on the principal, and P138,472.09 as 30% interest, all amounting
to P550,683.63, despite the fact that at that time, petitioners had
already paid the total sum of P486,162.13.2
Petitioners further averred that for failure to pay the loan, PAB
applied for the extrajudicial foreclosure of the mortgaged real
properties of petitioners with the Ex-Officio Sheriff; that
consequently, a Notice of Extrajudicial Foreclosure was issued on
January 12, 1987 setting the foreclosure sale on April 21, 1987 and,
stating therein the mortgage debt in the sum of P450,000.00; and
that, in the public auction conducted, PAB acquired said real
property.3
It was further alleged that on March 9, 1988, through the
intervention of then Senator Aquilino Pimentel, Farouk A. Carpizo
(Carpizo), the OICPresident of PAB, wrote Roberto Hojas
(Roberto), petitioners son, informing him that although the one-
year redemption period would expire on April 21, 1988, by virtue
of the banks incentive scheme, the redemption period was
extended until December 31, 1988; that despite said letter from the
OIC-President, the OIC of the Project Development Department of
PAB wrote Rubin Hojas that the real properties acquired by PAB
would be sold in a public bidding before the end of August, 1988;
that on November 4, 1988, a public bidding was conducted; that in
the said bidding, the mortgaged properties were awarded to
respondent Ramon Kue (Kue); that subsequently, they received a
letter from the OIC of the Project Development Department, dated
January 3, 1989, informing them that they had fifteen (15) days
from receipt within which to vacate the premises; that Kue then
sent another letter, dated January 31, 1989, informing them that he
had already acquired the said property and that they were requested
to vacate the premises within fifteen (15) days from receipt
thereof;4 and that because of this development, on May 7, 1991,
petitioners filed an action for "Determination of True Balance of
Mortgage Debt, Annulment/Setting Aside of Extrajudicial
Foreclosure of Mortgage and Damages, with Prayer for
Preliminary Injunction" against PAB.5
On May 27, 1996, the RTC dismissed petitioners complaint. It
ruled, among others, that: 1) PAB was not guilty of bad faith in
conducting the extrajudicial foreclosure as it, at one time, even
suspended the conduct of the foreclosure upon the request of
petitioners, who, nevertheless, failed to exert effort to settle their
accounts; 2) because petitioners failed to redeem their properties
within the period allowed, PAB became its absolute owner and, as
such, it had the right to sell the same to Kue, who acquired the
property for value and in good faith; and 3) the subsequent
foreclosure and auction sale having been conducted above board
and in accordance with the requisite legal procedure, collusion
between PAB and Kue was certainly alien to the issue.6
Aggrieved, petitioners filed an appeal assailing the May 27, 1996
RTC Decision. They asserted that the March 9, 1988 Letter of
Carpizo to Roberto Hojas extended the redemption period from
April 21 to December 31, 1988. Considering that they had relied
on Carpizos representation, PAB violated the principle of estoppel
when it conducted the public sale on November 4, 1988.7 Their
basis was the portion of said letter which stated:
xxxx
As the Bank has adopted an incentive scheme whereby payments
are liberalized to give chances to former owners to repossess their
properties, we suggest that you advise your parents to drop by at
our Zamboanga Office so they can avail of this rare privilege which
shall be good only up to December 31, 1988. (Emphasis supplied)8
The CA was not sympathetic with petitioners position. It held that
the period of redemption was never extended. The date "December
31, 1988" was not an extension of the redemption period. It was
merely the last day for the availment of the liberalized payment for
the repossession of foreclosed assets under PABs incentive
scheme. PAB, through said letter, did not make an unqualified
representation to petitioners that it had extended the redemption
period. As such, PAB could not be said to have violated the
principle of estoppel when it conducted a public sale on November
4, 1988.9 Thus, the dispositive portion of the CA decision reads:
ACCORDINGLY, the instant appeal is DENIED. The Decision
dated May 27, 1996, of the Regional Trial Court, 9th Judicial
Region, Branch No. 13 of Zamboanga City, in Civil Case No. 1028
(3952), is AFFIRMED.
SO ORDERED.10
Undaunted, petitioners filed the present petition for review. It
postulated the sole issue:
WHETHER OR NOT THE CA ERRED IN NOT HOLDING PAB
TO HAVE VIOLATED THE PRINCIPLE OF ESTOPPEL
WHEN THE LATTER CONDUCTED THE NOVEMBER 4,
1988 PUBLIC SALE.
150

Petitioners reiterated their argument that the November 4, 1988
public sale by PAB was violative of the principle of estoppel
because said bank made it appear that the one-year redemption
period was extended. As such, when PAB sold the property before
said date, they suffered damages and were greatly prejudiced.11
They also argued that since they manifested their interest in
availing of the said "incentive scheme," PAB should have, at the
very least, waited until December 31, 1988, before it sold the
subject foreclosed property in a public auction.12
On the other hand, PAB explains that the purpose of the "incentive
scheme" was to give previous owners the chance to redeem their
properties on easy payment term basis, through condonation of
some charges and penalties and allowing payment by installment
based on their proposals which may be acceptable to PAB.
Therefore, the March 9, 1988 Letter of Carpizo was an invitation
for petitioners to submit a proposal to PAB.13 It was not meant to
extend the one-year redemption period.
As early as August 11, 1988, PAB wrote petitioners informing
them of the scheduled public bidding. After receipt of the letter,
petitioners went to PAB to signify their willingness to avail of the
said incentive scheme. They, however, failed to submit a proposal.
In fact, PAB did not hear from petitioners again. As such, the
respondent sold the subject property in a public sale on November
4, 198814 PAB cited the RTCs finding that although the
petitioners manifested their intention to avail of the incentive
scheme desire alone was not sufficient. Redemption is not a matter
of intent but involved making the proper payment or tender of the
price of the land within the specified period.15
The petition is bereft of merit.
Through estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or
disproved as against the person relying on it.16 This doctrine is
based on the grounds of public policy, fair dealing, good faith, and
justice and its purpose is to forbid one to speak against his own act,
representations or commitments to the injury of one to whom they
were directed and who reasonably relied on it.17 Thus, in order for
this doctrine to operate, a representation must have been made to
the detriment of another who relied on it. In other words, estoppel
would not lie against one who, in the first place, did not make any
representation.
In this case, a perusal of the letter, on which petitioners based their
position that the redemption period had been extended, shows
otherwise. Pertinent portions of the said letter read:
xxxx
Our records show that the above account has already been
foreclosed by the bank. However, the borrowers concerned can still
exercise the one (1) year right of redemption over the foreclosed
properties until April 21, 1988.
As the Bank has adopted an incentive scheme whereby payments
are liberalized to give chances to former owners to repossess their
properties, we suggest that you advise your parents to drop by at
our Zamboanga Office so they can avail of this rare privilege which
shall be good only up to December 31, 1988. [Emphases and
Underscoring Supplied]18
As correctly held by the RTC and upheld by the CA, the date
"December 31, 1988" refers to the last day when owners of
foreclosed properties, like petitioners, could submit their payment
proposals to the bank. The letter was very clear. It was about the
availment of the liberalized payment scheme of the bank. On the
last day for redemption, the letter was also clear. It was April 21,
1988. It was never extended.
The opportunity given to the petitioners was to avail of the
liberalized payment scheme which program would expire on
December 31, 1988. As explained by Abraham Iribani (Iribani),
the OIC of the Project Development Department of PAB, it was to
give a chance to previous owners to repossess their properties on
easy term basis, possibly by condonation of charges and penalties
and payment on instalment. The letter of Carpizo was an invitation
to the petitioners to come to the bank with their proposal. It appears
that the petitioners could not come up with a proposal acceptable
to the bank.
For said reason, the mortgaged property was included in the list of
mortgaged properties that would be sold through a scheduled
public bidding. Thus, on August 11, 1988, Iribani wrote the
petitioners about the scheduled bidding. In response, the petitioners
told Iribani that they would go Manila to explain their case. They
did not, however, return even after the public bidding. In this
regard, the CA was correct when it wrote:
Here, there is no estoppel to speak of. The letter does not show that
the Bank had unqualifiedly represented to the Hojases that it had
extended the redemption period to December 31, 1988. Thus, the
Hojases have no basis in positing that the public sale conducted on
November 4, 1988 was null and void for having been prematurely
conducted.19
Moreover, petitioners allegation that they had signified their
intention to avail of the incentive scheme (which they have equated
to their intention to redeem the property), did not amount to an
exercise of redemption precluding the bank from making the public
sale.20 In the case of China Banking Corporation v. Martir,21 this
Court expounded on what constitutes a proper exercise of the right
of redemption, to wit:
The general rule in redemption is that it is not sufficient that a
person offering to redeem manifests his desire to do so. The
statement of intention must be accompanied by an actual and
simultaneous tender of payment. This constitutes the exercise of
the right to repurchase.
In several cases decided by the Court where the right to repurchase
was held to have been properly exercised, there was an
unequivocal tender of payment for the full amount of the
repurchase price. Otherwise, the offer to redeem is ineffectual.
Bona fide redemption necessarily implies a reasonable and valid
tender of the entire repurchase price, otherwise the rule on the
redemption period fixed by law can easily be circumvented.
Moreover, jurisprudence also characterizes a valid tender of
payment as one where the full redemption price is tendered.
Consequently, in this case, the offer by respondents on July 24,
1986 to redeem the foreclosed properties for 1,872,935 and the
subsequent consignation in court of P1,500,000 on August 27,
1986, while made within the period of redemption, was ineffective
since the amount offered and actually consigned not only did not
include the interest but was in fact also way below the
P2,782,554.66 paid by the highest bidder/purchaser of the
properties during the auction sale.
In Bodiongan vs. Court of Appeals, we held:
In order to effect a redemption, the judgment debtor must pay the
purchaser the redemption price composed of the following: (1) the
price which the purchaser paid for the property; (2) interest of 1%
per month on the purchase price; (3) the amount of any assessments
or taxes which the purchaser may have paid on the property after
151
the purchase; and (4) interest of 1% per month on such assessments
and taxes x x x.

Furthermore, Article 1616 of the Civil Code of the Philippines

provides:

The vendor cannot avail himself of the right to repurchase without

returning to the vendee the price of the sale x x x.

It is not difficult to understand why the redemption price should

either be fully offered in legal tender or else validly consigned in
court. Only by such means can the auction winner be assured that
the offer to redeem is being made in good faith.1wphi1

Respondents' repeated requests for information as regards the

amount of loan availed from the credit line and the amount of
redemption, and petitioner's failure to accede to said requests do
not invalidate the foreclosure. Respondents can find other ways to
know the redemption price. For one, they can examine the
Certificate of Sale registered with the Register of Deeds to verify
the purchase price, or upon the filing of their complaint, they could
have moved for a computation of the redemption price and
consigned the same to the court. At any rate, whether or not
respondents '"were diligent in asserting their willingness to pay is
irrelevant. Redemption within the period allowed by law is not a
matter of intent but a question of payment or valid tender of the full
redemption price within said period.

Even the complaint instituted by respondents cannot aid their

plight because the institution of an action to annul a foreclosure
sale does not suspend the running of the redemption period.
(Underscoring supplied)22

In the case at bench, the record is bereft of concrete evidence that

would show that, aside from the fact that petitioners manifested
their intention to avail of the scheme, they were also ready to pay
the redemption price. Hence, as they failed to exercise their right
of redemption and failed to take advantage of the liberalized
incentive scheme, PAB was well within its right to sell its property
in a public sale.

WHEREFORE, the petition is DENIED.

SO ORDERED.

_____END___

152