CONTRACTS FINALS ACJUCO 1
CLASSIFICATION OF CONTRACTS
G.R. No. 173622 March 11, 2013
ROBERN DEVELOPMENT CORPORATION
and RODOLFO M. BERNARDO,
JR., Petitioners,
vs.
PEOPLE'S LANDLESS ASSOCIATION
represented by FLORIDA RAMOS and
NARDO LABORA, Respondent.
DECISION
DEL CASTILLO, J.:
"This Court cannot presume the existence of a
sale of land, absent any direct proof of it."1
Challenged in this Petition for Review on
Certiorari are the August 16, 2005
Decision2 and May 30, 2006 Resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No.
66071, which ordered petitioner Robern
Development Corporation (Robern) to reconvey
the 2,000-square meter lot it bought from Al-
Amanah Islamic Development Bank of the
Philippines (Al-Amanah) to respondent People's
Landless Association (PELA).
Factual Antecedents
Al-Amanah owned a 2000-square meter lot
located in Magtu-od, Davao City and covered by
Transfer Certificate of Title (TCT) No.
138914.4 On December 12, 1992, Al-Amanah
Davao Branch, thru its officer-in-charge Febe O.
Dalig (OIC Dalig), asked5 some of the members
of PELA6 to desist from building their houses on
the lot and to vacate the same, unless they are
interested to buy it. The informal settlers thus
expressed their interest to buy the lot at ₱100.00
per square meter, which Al-Amanah turned
down for being far below its asking
price.7 Consequently, Al-Amanah reiterated its
demand to the informal settlers to vacate the
lot.8
In a letter9 dated March 18, 1993, the informal
settlers together with other members comprising
PELA offered to purchase the lot for
₱300,000.00, half of which shall be paid as
down payment and the remaining half to be paid
within one year. In the lower portion of the said
letter, Al-Amanah made the following
annotation:
Note:
Subject offer has been acknowledged/received
but processing to take effect upon putting up of
the partial amt. of ₱150,000.00 on or before
April 15, 1993.
By May 3, 1993, PELA had deposited
₱150,000.00 as evidenced by four bank
receipts.10 For the first three receipts, the bank
labelled the payments as "Partial deposit on
sale of TCT No. 138914", while it noted the 4th
receipt as "Partial/Full payment on deposit on
sale of A/asset TCT No. 138914."
In the meantime, the PELA members remained
in the property and introduced further
improvements.
On November 29, 1993, Al-Amanah, thru Davao
Branch Manager Abraham D. Ututalum-Al Haj,
wrote then PELA President Bonifacio Cuizon,
Sr. informing him of the Head Office’s
disapproval of PELA’s offer to buy the said
2,000-square meter lot, viz:
Dear Mr. Cuizon, Sr.,
Please be inform[ed] that your offer to purchase
the lot covered by TCT No. T-138914,
containing an area of 2,000 square meters,
located at Bakingan, Barangay Magtuod, Davao
City for ₱300,000.00 has been turned down by
the top management, due to the reason that
your offered price is way below the selling price
of the Bank which is ₱500.00 per square meter,
or negotiate but on Cash basis only.
You had been told regarding this matter, but you
failed to counter offer since you have [conferred]

with the Bank’s local management. Despite x x
x the time given to you to counter offer or to
vacate the lot presently and illegally occupied by
you and the members of the association, still
you refrain to hear our previous notices. You
even deliberately construct more residential
structures without our permission. As such, you
are finally instructed to vacate the lot and
remove all the house structures erected on the
said lot within 15 days upon receipt of this letter.
Failure on your part including that of the
members, the Bank will be constrained to take
legal action against you.
Furthermore, you can withdraw the amount
deposited in the name of your association
anytime during banking hours.11
Subsequently, Al-Amanah sent similarly worded
letters,12 all dated December 14, 1993, to 19
PELA members demanding that they vacate the
lot.
In a letter13 dated December 20, 1993, PELA,
through Atty. Pedro S. Castillo, replied that it
had already reached an agreement with Al-
Amanah regarding the sale of the subject lot
based on their offered price:
Dear Mr. Ututalum-Al-Haj,
The People’s Landless Association, Inc.,
through Mr. Bonifacio Cuizon, Sr. has requested
us to assist them in communicating with you
anent your letter of 29 November 1993.
According to Mr. Cuizon the present occupants
of the lot covered by T.C.T. No. T-138914 with
an area of 2,000 square meters, had a definite
agreement with the Islamic Bank through its
previous Manager or
Officer-in-Charge to buy this foreclosed property
at ₱300,000.00. As a matter of fact their deposit
of ₱150,000.00 was on that basis. For this
reason, the occupants, who are members of the
association, have already made lot allocations
among themselves and have improved their
respective houses.
CONTRACTS FINALS ACJUCO 2
It would be most unfair if the Bank would now
renege on its commitment and eject these
occupants. In line with the national policy of
granting landless members of our society the
opportunity of owning land and providing shelter
to their families, it would be equitable and
socially justifiable to grant these occupants their
occupied areas pursuant to the earlier
agreement with the Bank.
For the foregoing reasons we hope that the
Islamic Bank, for legal, moral and social
grounds would reconsider.
Meanwhile, acting on Robern’s undated written
offer,14 Al-Amanah issued a Recommendation
Sheet15 dated December 27, 1993 addressed to
its Board Operations Committee, indicating
therein that Robern is interested to buy the lot
for ₱400,000.00; that it has already deposited
20% of the offered purchase price; that it is
buying the lot on "as is" basis; and, that it is
willing to shoulder the relocation of all informal
settlers therein. On December 29, 1993, the
Head Office informed the Davao Branch
Manager that the Board Operations Committee
had accepted Robern’s offer.16
Eight days later, Robern was informed of the
acceptance. Al-Amanah stressed that it is
Robern’s responsibility to eject the occupants in
the subject lot, if any, as well as the payment of
the remaining amount within 15 days; otherwise,
the ₱80,000.00 deposit shall be forfeited.17
In a letter18 dated January 13, 1994, Robern
expressed to Al-Amanah its uncertainty on the
status of the subject lot, viz.:
This is in connection with TCT No. 138914
which your bank offered to sell to us and which
we committed to buy.
A group calling itself PEOPLE’S LANDLESS
ASSOCIATION, INC. made representation with
our office bringing with them copies of official
receipts totalling ₱150,000.00 issued by your
bank which stated---"PARTIAL
PAYMENT/DEPOSIT on sale of TCT #138914".

While condition no. 6 in the sale of property to
us states that the buyer shall be responsible for
ejecting the squatters of the property, the
occupants of the said lot could hardly be
categorized as squatters considering the
supposed transaction previously entered by
your bank with them. We were greatly appalled
that we should learn about this not from the bank
but from outside sources.1âwphi1
My company is ready to finalize our transaction
provided, however, that the problem with this
group is cleared. In this connection, we are
requesting for a definite statement from your
bank on whether the official receipts being
brandished by this group are genuine or not,
and if they were, were they ever invalidated by
virtue of the return of their deposit and whether
there was a cancellation of your agreement with
them.
In the meantime, please consider the 15-day
period for us to pay the amount of ₱320,000.00
imposed by your bank suspended until such
time that the legal problem with the lot
occupants is settled.
To convince Robern that it has no existing
contract with PELA, Al-Amanah furnished it with
copies of the Head Office’s rejection letter of
PELA’s bid, the demand letters to vacate, and
the proof of consignment of PELA’s
₱150,000.00 deposit to the Regional Trial Court
(RTC) of Davao City that PELA refused to
withdraw.19 Thereafter, on February 2, 1994, it
informed Robern that should the latter fail to pay
the balance by February 9, 1994, its ₱80,000.00
deposit will be forfeited and the lot shall be up
for sale to other prospective
buyers.20 Meanwhile, Al-Amanah requested for
assistance for the removal of the houses not
only from the Office of the City Engineer of
Davao City21 but also from Mayor Rodrigo
Duterte. Gaining a favorable legal opinion from
the City Legal Officer, the matter was indorsed
to the Chief of Demolition Consensus of the
Department of Public Services for action.22
CONTRACTS FINALS ACJUCO 3
On March 4, 1994, Robern paid the balance of
the purchase price.23 The Deed of Sale24 over
the realty was executed on April 6, 1994 and
TCT No. T-21298325 was issued in Robern’s
name the following day.
A week later, PELA consigned ₱150,000.00 in
the RTC of Davao City.26 Then on April 14,
1994, it wrote27 Al-Amanah asking the latter to
withdraw the amount consigned. Part of the
letter states:
xxxx
On March 21, 1994 (almost one month before
the April 15, 1994 deadline) we came to your
bank to remit the balance and full payment [for]
the abovementioned lot. [Inasmuch] as you
refuse[d] to accept the payment, we have
decided to deposit the amount consigned to
your bank.
In our dialogue at your office in 1993, we have
agreed that documents will be processed as
soon as we pay the ₱150,000.00 initial deposit.
[Inasmuch] as we have not only paid the deposit
but have also made full payment of the account,
kindly facilitate processing of the documents to
finalize transaction.
We have not been remiss in doing our part of
the transaction; please do your share.
Thank you.
Very truly yours,
For the occupants/claimants
T.C.T. No. T-13891428
Three months later, as its members were
already facing eviction and possible demolition
of their houses, and in order to protect their
rights as vendees, PELA filed a suit for
Annulment and Cancellation of Void Deed of
Sale29against Al-Amanah, its Director Engr.
Farouk Carpizo (Engr. Carpizo), OIC Dalig,
Robern, and Robern’s President and General

Manager, petitioner Rodolfo Bernardo
(Bernardo) before the RTC of Davao City. It
insisted that as early as March 1993 it has a
perfected contract of sale with Al-Amanah.
However, in an apparent act of bad faith and in
cahoots with Robern, Al-Amanah proceeded
with the sale of the lot despite the prior sale to
PELA.
Incidentally, the trial court granted PELA’s
prayer for a temporary restraining
order.30 Subsequently, it issued on August 12,
1994 an Order31 finding merit in the issuance of
the writ of preliminary injunction, inter alia. The
RTC’s grant of injunctive relief was affirmed by
the CA in CA-G.R. SP No. 3523832 when the
factual and legal bases for its issuance were
questioned before the appellate court.
The respondents in the annulment case filed
their respective Answers.33 Al-Amanah and
Engr. Carpizo claimed that the bank has every
right to sell its lot to any interested buyer with
the best offer and thus they chose Robern. They
clarified that the ₱150,000.00 PELA handed to
them is not part of the payment but merely a
deposit in connection with its offer. They
asserted that PELA was properly apprised that
its offer to buy was subject to the approval of Al-
Amanah’s Head Office. They stressed that Al-
Amanah never entered into a sale with PELA for
there was no perfected agreement as to the
price since the Head Office rejected
PELA’s offer.
For their part, Robern and Bernardo asserted
the corporation’s standing as a purchaser in
good faith and for value in the sale of the
property, having relied on the clean title of Al-
Amanah. They also alleged that the purported
sale to PELA is violative of the Statute of
Frauds34 as there is no written agreement
covering the same.
Ruling of the Regional Trial Court
In its August 10, 1999 Decision,35 the RTC
dismissed PELA’s Complaint. It opined that the
CONTRACTS FINALS ACJUCO 4
March 18, 1993 letter PELA has been relying
upon as proof of a perfected contract of sale was
a mere offer which was already rejected.
Furthermore, the annotation appearing in the
bottom part of the said letter could not be
construed as an acceptance because the same
is a mere acknowledgment of receipt of the
letter (not the offer) which will still be subject to
processing. The RTC likewise ruled that being a
corporation, only Al-Amanah’s board of
directors can bind the bank with third persons
involving the sale of its property. Thus, the
purported offer made by Al-Amanah’s OIC, who
was never conferred authority by the board of
directors to sell the lot, cannot bind the bank. In
contrast, when the Head Office accepted
Robern’s offered price, it was duly approved by
the board of directors, giving birth to a perfected
contract of sale between Al-Amanah and
Robern.
Refusing to accept the Decision, PELA elevated
its case to the CA.36
Ruling of the Court of Appeals
Reversing the RTC in its assailed Decision37 of
August 16, 2005, the CA ruled that there was
already a perfected contract of sale between
PELA and Al-Amanah. It held that the
annotationon the lower portion of the March 18,
1993 letter could be construed to mean that for
Al-Amanah to accept PELA’s offer, the sum of
₱150,000.00 must be first put up. The CA also
observed that the subsequent receipt by Al-
Amanah of the amounts totalling ₱150,000.00,
and the annotation of "deposit on sale of TCT
No. 138914," on the receipts it issued explicitly
indicated an acceptance of the association’s
offer to buy. Consequently, the CA invalidated
the sale between Robern and Al-Amanah.
The CA also concluded that Al-Amanah is guilty
of bad faith in dealing with PELA because it took
Al-Amanah almost seven months to reject
PELA’s offer while holding on to the
₱150,000.00 deposit. The CA thus adjudged

PELA entitled to moral and exemplary damages
as well as attorney’s fees.
The dispositive portion of the CA Decision
reads:
WHEREFORE, premises considered, the
assailed Decision is SET ASIDE. Judgment is
hereby rendered:
1. DECLARING the contract of sale
between PELA and defendant Bank valid
and subsisting.
2. ORDERING the defendant Bank to
receive the balance of ₱150,000.00 of
the purchase price from PELA as
consigned in court.
3. DECLARING the deed of sale
executed by defendant Bank in favor or
Robern Development Corporation as
invalid and, therefore, void.
4. ORDERING defendant Bank to return
to Robern the full amount of ₱400,000.00
which Robern paid as the purchase price
of the subject property within ten (10)
days from finality of this decision. It shall
earn a legal interest of twelve percent
(12%) per annum from the tenth (10th)
day aforementioned if there is delay in
payment.
5. ORDERING Robern Development
Corporation to reconvey the land covered
by T.C.T. No. 212983 in favor of People’s
Landless Association within a similar
period of ten (10) days from finality of this
decision.
6. ORDERING defendant Bank to pay
plaintiffs-appellants the following:
a. The sum of ₱100,000.00 as
moral damages;
b. The sum of ₱30,000.00 as
exemplary damages;
CONTRACTS FINALS ACJUCO 5
c. The sum of ₱30,000.00 as
attorney’s fees;
d. A legal interest of SIX
PERCENT (6%) per annum on the
sums awarded in (a), (b), and (c)
from the date of this Decision up
to the time of full payment thereof.
SO ORDERED.38
Robern and Bernardo filed a Motion for
Reconsideration39 which Al-Amanah adopted.
The CA, however, was firm in its disposition and
thus denied40 the same. Aggrieved, Robern and
Al-Amanah separately filed Petitions for Review
on Certiorari before us. However, Al-Amanah’s
Petition docketed as G.R. No. 173437, was
denied on September 27, 2006 on procedural
grounds.41 Al-Amanah’s Motion for
Reconsideration of the said Resolution of
dismissal was
denied with finality on December 4, 2006.42
Hence, only the Petition of Robern and
Bernardo subsists.
Petitioners’ Arguments
Petitioners stress that there was no sale
between PELA and Al-Amanah, for neither a
deed nor any written agreement was executed.
They aver that Dalig was a mere OIC of Al-
Amanah’s Davao Branch, who was never
vested with authority by the board of directors of
Al-Amanah to sell the lot. With regard to the
notation on the March 18, 1993 letter and the
four bank receipts, Robern contends that these
are only in connection with PELA’s offer.
Petitioners likewise contend that Robern is a
purchaser in good faith. The PELA members are
mere informal settlers. The title to the lot was
clean on its face, and at the time Al-Amanah
accepted Robern’s offer, the latter was unaware
of the alleged transaction with PELA. And when
PELA later represented to Robern that it entered
into a transaction with Al-Amanah regarding the

subject lot, Robern even wrote Al-Amanah to
inquire about PELA’s claim over the property.
And when informed by Al-Amanah that it
rejected the offer of PELA and of its action of
requesting assistance from the local
government to remove the occupants from the
subject property, only then did Robern push
through with the sale.
Respondent’s Arguments
PELA, on the other hand, claims that petitioners
are not the proper parties who can assail the
contract of sale between it and the bank. It
likewise argues that the Petition should be
dismissed because the petitioners failed to
attach the material portions of the records that
would support its allegations, as required by
Section 4, Rule 45 of the Rules of Court.43
Aside from echoing the finding of the CA that Al-
Amanah has a perfected contract of sale with
PELA, the latter further invokes the reasoning of
the RTC and the CA (CA-G.R. SP No. 35238) in
finding merit in the issuance of the writ of
preliminary injunction, that is, that there was ‘an
apparent perfection of contract (of sale)
between the Bank and PELA.’44 Furthermore,
PELA claims that Al-Amanah accepted its
offered price and the ₱150,000.00, thus barring
the application of the Statute of Frauds as the
contract was already partially executed. As to
the non-existence of a written contract
evidencing the same, PELA ascribes fault on
the bank claiming that nothing happened
despite its repeated follow-ups for the OIC of Al-
Amanah to execute the deed after payment of
the ₱150,000.00 in May 1993.
Issue
At issue before us is whether there was a
perfected contract of sale between PELA and
Al-Amanah, the resolution of which will decide
whether the sale of the lot to Robern should be
sustained or not.
Our Ruling
CONTRACTS FINALS ACJUCO 6
We shall first briefly address some matters
raised by PELA.
PELA’s contention that Robern cannot assail
the alleged sale between PELA and Al-Amanah
is untenable. Robern is one of the parties who
claim title to the disputed lot. As such, it is a real
party in interest since it stands to be benefited
or injured by the judgment.45
Petitioners’ failure to attach the material portions
of the record that would support the allegations
in the Petition is not fatal. We ruled in F.A.T. Kee
Computer Systems, Inc. v. Online Networks
International, Inc.,46 thus:
x x x However, such a requirement failure to
attach material portions of the record was not
meant to be an ironclad rule such that the failure
to follow the same would merit the outright
dismissal of the petition. In accordance with
Section 7 of Rule 45, ‘the Supreme Court may
require or allow the filing of such pleadings,
briefs, memoranda or documents as it may
deem necessary within such periods and under
such conditions as it may consider appropriate.’
More importantly, Section 8 of Rule 45 declares
that ‘[i]f the petition is given due course, the
Supreme Court may require the elevation of the
complete record of the case or specified parts
thereof within fifteen (15) days from notice.’ x x
x47
Anent the statement of the courts below that
there was ‘an apparent perfection of contract (of
sale) between Al-Amanah and PELA’, we hold
that the same is strictly confined to the
resolution of whether a writ of preliminary
injunction should issue since the PELA
members were then about to be evicted. PELA
should not rely on such statement as the same
is not decisive of the rights of the parties and the
merits of this case.
We shall now delve into the crucial issue of
whether there was a perfected contract of sale
between PELA and Al-Amanah.
Essential Elements of a Contract of Sale

A contract of sale is perfected at the moment
there is a meeting of minds upon the thing which
is the object of the contract and upon the
price.48 Thus, for a contract of sale to be valid,
all of the following essential elements must
concur: "a) consent or meeting of the minds; b)
determinate subject matter; and c) price certain
in money or its equivalent."49
In the case at bench, there is no controversy
anent the determinate subject matter, i.e., the
2,000-square meter lot. This leaves us to
resolve whether there was a concurrence of the
remaining elements.
As for the price, fixing it can never be left to the
decision of only one of the contracting
parties.50 "But a price fixed by one of the
contracting parties, if accepted by the other,
gives rise to a perfected sale."51
As regards consent, "when there is merely an
offer by one party without acceptance of the
other, there is no contract."52 The decision to
accept a bidder’s proposal must be
communicated to the bidder.53 However, a
binding contract may exist between the parties
whose minds have met, although they did not
affix their signatures to any written
document,54 as acceptance may be expressed
or implied.55 It "can be inferred from the
contemporaneous and subsequent acts of the
contracting parties."56 Thus, we held:
x x x The rule is that except where a formal
acceptance is so required, although the
acceptance must be affirmatively and clearly
made and must be evidenced by some acts or
conduct communicated to the offeror, it may be
made either in a formal or an informal manner,
and may be shown by acts, conduct, or words of
the accepting party that clearly manifest a
present intention or determination to accept the
offer to buy or sell. Thus, acceptance may be
shown by the acts, conduct, or words of a party
recognizing the existence of the contract of
sale.57
CONTRACTS FINALS ACJUCO 7
There is no perfected contract of sale between
PELA and Al-Amanah for want of consent and
agreement on the price.
After scrutinizing the testimonial and
documentary evidence in the records of the
case, we find no proof of a perfected contract of
sale between Al-Amanah and PELA. The
parties did not agree on the price and no
consent was given, whether express or implied.
When PELA Secretary Florida Ramos (Ramos)
testified, she referred to the March 18, 1993
letter which PELA sent to Al-Amanah as the
document supposedly embodying the perfected
contract of sale.58 However, we find that the
March 18, 1993 letter referred to was merely an
offer to buy, viz:
March 18, 1993
The Manager
Islamic Bank
Davao Branch
Davao City
Sir/Madam:
This has reference to the offer made by Messrs.
Alejandro Padilla, Leonardo Labora, Boy
Bartiana, Francisco Paig, and Mr. Asterio Aki for
the purchase of the acquired asset of the bank
with an area of 2,000 square meters and
covered by T.C.T. No. T-138914, portions of
which are occupied by their houses. These
occupants have formed and registered a group
of x x x landless families who have occupied
shoulders of National Highways, to be able to
raise an amount that would meet the approval of
the Bank as the consideration for the purchase
of the property. The group which is known as
PELA or People’s Landless Association, is
offering the bank the amount of THREE
HUNDRED THOUSAND PESOS
(₱300,000.00) for the whole 2,000 sq. meters.
Of this amount the buyers will pay a down
payment of ONE HUNDRED FIFTY

THOUSAND PESOS (₱150,000.00) and the
balance payable in one (1) year.
According to the plan of PELA, about 24
landless families can be accommodated in the
property. We hope the Bank can help these
families own even a small plot for their shelter.
This would be in line with the government’s
program of housing which the present
administration promised to put in high gear this
year.59 (Emphasis supplied)
Neither can the note written by the bank that
"subject offer has been acknowledged/received
but processing to take effect upon putting up of
the partial amount of ₱150,000.00 on or before
April 15, 1993" be construed as acceptance of
PELA’s offer to buy. Taken at face value, the
annotation simply means that the bank merely
acknowledged receipt of PELA’s letter-offer.
Furthermore, by ‘processing,’ Al-Amanah only
meant that it will ‘act on the offer’, i.e., it still has
to evaluate whether PELA’s offer is acceptable.
Until and unless Al-Amanah accepts, there is as
yet no perfected contract of sale. Notably here,
the bank never signified its ‘approval’ or
‘acceptance’ of the offer.
We cannot agree with the CA’s ratiocination that
receipt of the amount, coupled with the phrase
written on the four receipts as "deposit on sale
of TCT No. 138914," signified a tacit acceptance
by Al-Amanah of PELA’s offer. For sure, the
money PELA gave was not in the concept of an
earnest money. Besides, as testified to by then
OIC Dalig, it is the usual practice of Al-Amanah
to require submission of a bid deposit which is
acknowledged by way of bank receipts before it
entertains offers. Thus:
Atty. Bolcan:
Now, as far as you can remember, these
receipts state that these are partial deposits,
what do you mean by that?
WITNESS:
CONTRACTS FINALS ACJUCO 8
A: x x x, we normally request an offeror to submit
or make deposit, actually the bank does not
entertain any offer without any deposit and just
like that, during my time x x x in buying the
property for those interested the bank does not
entertain any offer unless they make a deposit.
xxxx
Q: Why do you issue receipts as officer-in-
charge stating only partial deposits?
A: Because there was no sale, there was no
consu[m]mated sale, so any amount which you
will give as a deposit will be accepted by the
bank for the offer and that if their offer will be
disapproved we will return the deposit because
their offer was very low and this might be
disapproved by the head office in Manila.60
xxxx
Atty. Taasan:
Do you confirm that based on the interest of the
plaintiff to acquire the property they made a
deposit with said bank, as evidenced by the
receipts that were shown to you by your
counsel, correct?
A: Yes, sir.
Q: And according to you, the bank does not
entertain any offer to buy the property without
deposits?
A: Yes, sir.
Q: In this case since the plaintiffs made a
deposit x x x they were properly entertained,
correct?
A: Yes because it is under negotiation, now
while their offer price is below the selling price
of the bank.61
The absence of a perfected contract of sale was
further buttressed by the testimony of PELA
Secretary Ramos on cross examination, viz:

Atty. Rabor:
Since it was x x x hard earned money you did
not require the Amanah Bank when you gave
that ₱150,000.00 to reduce your agreement into
writing regarding the sale of this property?
A: I insisted but she will not issue that.62
xxxx
Atty. Bolcan:
Now, on April 15, 1993 when the deposit was
made, you were present?
A: Yes, sir.
Q: Now, after making the deposit of One
Hundred Fifty Thousand (₱150,000.00) Pesos
on April 15, 1993 did you not request for the
bank to execute a document to prove that
actually you are buying the property?
A: I even said to the OIC or the manager that
ma’am, now that you have received our money,
where is our paper that we were the ones to buy
that property, sir.
Q: To whom are you referring to?
A: Febe Dalig, the OIC, sir.
Q: And this OIC Febe Dalig informed you that
the Offer on your part to buy the property is
subject for approval by the head office in Manila,
is that correct?
A: Yes she told me that it would be subject to
approval in Manila x x x.
Q: And later on you were informed by the bank
that your offer was not accepted by the head
office in Manila, is that correct?
A: She did not inform us but we kept on following
it up with their office and she told us that it did
not arrive yet, sir.63(Emphasis supplied)
CONTRACTS FINALS ACJUCO 9
PELA Secretary Ramos’ testimony thus
corroborated OIC Dalig’s consistent stand that it
is the Head Office which will decide whether Al-
Amanah would accept PELA’s offer:
Atty. Bolcan:
And now, if there are interested persons making
offer x x x what would you do?
A: Well, we have to screen the offer before we
forward the offer to Manila for approval
because…
Court:
What would you do before you forward that to
Manila?
A: We will be screening the offer x x x.
Atty. Bolcan:
And you said that it is referred to Manila?
A: Yes, sir.
Q: Who will eventually approve the offer made
by the interested persons to buy the property?
A: We have a committee in Manila to approve
the sale of the property.
Q: Do you have any idea who will approve the
offer of the property?
A: I have no idea but the president, rather it
consists of the president I think and then signed
also by the vice-president and some officers in
the office, sir.
xxxx
Q: Now, in case of offers of the property of the
bank, x x x the officer-in-charge of the bank, Al-
Amanah Bank branch, usually refers this matter
to the head office in Manila?
A: Yes, sir.
 CONTRACTS FINALS ACJUCO 10

Q: And it is the head office that will decide the consummated sale between Al-Amanah and
whether the offer will be approved or not? Robern.

A: Yes as head of the branch, we have to
forward the offer whether it was acceptable or
not.64
It is thus undisputed, and PELA even
acknowledges, that OIC Dalig made it clear that
the acceptance of the offer, notwithstanding the
deposit, is subject to the approval of the Head
Office. Recognizing the corporate nature of the
bank and that the power to sell its real properties
is lodged in the higher authorities,65 she never
falsely represented to the bidders that she has
authority to sell the bank’s property. And
regardless of PELA’s insistence that she
execute a written agreement of the sale, she
refused and told PELA to wait for the decision of
the Head Office, making it clear that she has no
authority to execute any deed of sale.
Contracts undergo three stages: "a) negotiation
which begins from the time the prospective
contracting parties indicate interest in the
contract and ends at the moment of their
agreement[; b) perfection or birth, x x x which
takes place when the parties agree upon all the
essential elements of the contract x x x; and c)
consummation, which occurs when the parties
fulfill or perform the terms agreed upon,
culminating in the extinguishment thereof."66
At this juncture, it is well to stress that Al-
Amanah’s Petition before this Court docketed as
G.R. No. 173437 was already denied with
finality on December 4, 2006. Hence, we see no
reason to disturb paragraph 6 of the CA’s
Decision ordering Al-Amanah to pay damages
to PELA.
WHEREFORE, we PARTIALLY GRANT the
Petition. Except for paragraph 6 of the Court of
Appeals Decision which had already been long
settled,68 the rest of the judgment in the assailed
August 16, 2005 Decision and May 30, 2006
Resolution of the Court of Appeals in CA-G.R.
No. CV No. 66071 are hereby ANNULLED and
SET ASIDE. The August 10, 1999 Decision of
the Regional Trial Court of Davao City, Branch
12, dismissing the Complaint for Annulment and
Cancellation of Void Deed of Sale filed by
respondent People's Landless Association is
REINSTATED and AFFIRMED. The amount of
Pesos: Three Hundred Thousand
(₱300,000.00) consigned with the Regional Trial
Court of Davao City may now be withdrawn by
People's Landless Association.
SO ORDERED.

In the case at bench, the transaction between

Al-Amanah and PELA remained in the
negotiation stage. The offer never materialized
into a perfected sale, for no oral or documentary
evidence categorically proves that Al-Amanah
expressed amenability to the offered
₱300,000.00 purchase price. Before the lapse
of the 1-year period PELA had set to pay the
remaining ‘balance,’ Al-Amanah expressly
rejected its offered purchase price, although it
took the latter around seven months to inform
the former and this entitled PELA to award of
damages.67 Al-Amanah’s act of selling the lot to
another buyer is the final nail in the coffin of the
negotiation with PELA. Clearly, there is no
double sale, thus, we find no reason to disturb

G.R. No. L-36821 June 22, 1978
JOSE P. DIZON, petitioner,
vs.
ALFREDO G. GABORRO (Substituted by
PACITA DE GUZMAN GABORRO as Judicial
Administratrix of the Estate of Alfredo G.
Gaborro) and the DEVELOPMENT BANK OF
THE PHILIPPINES, respondents.
Leonardo Abola for petitioner.
Carlos J. Antiporda for respondents.
GUERRERO, J.:
Petition for review on certiorari of the decision of
the Court Appeals 1 in CA-G.R. No. 46975-R
entitled "Jose P. Dizon, Plaintiff-Appellant, vs.
Alfredo G. Gaborro (substituted by Pacita de
Guzman Gaborro as Judicial Administratrix of
the Estate of Alfredo G, Gaborro) trial the
Development Bank of the Philippines,
Defendants-Appellees," affirming with
modification the decision of the Court of First
Instance of Pampanga, Branch II in Civil Case
No. 2184.
The dispositive portion of the decision sought to
be reviewed reads:
IN VIEW OF THE FOREGOING, the judgment
appealed therefrom is hereby affirmed with
modification that the plaintiff-appellant has the
right to refund or reimburse the defendant-
appellees he sum of P131,831.91 with interest
at 8% per annum from October 6, 1959 until full
payment, said right to be exercised within one
year from the date this judgment becomes final,
with the understanding that, if he fails to do so
within the said period, then he is deemed to
have lost his right over the lands forever. With
costs against the appellant. 2
MODIFIED.
CONTRACTS FINALS ACJUCO 11
The basic issue to be resolved in this case is
whether the 'Deed of Sale with Assumption of
Mortgage', trial Option to Purchase Real
Estate". two instruments executed by trial
between Petitioner Jose P. Dizon trial Alfredo G.
Gaborro (defendant below) on the same day,
October 6, 1959 constitute in truth trial in fact an
absolute sale of the three parcels of land therein
described or merely an equitable mortgage or
conveyance thereof by way of security for
reimbursement, refund or repayment by
petitioner Jose P. Dizon of any trial all sums
which may have been paid to the Development
Bank of the Philippines trial the Philippine
National Bank by Alfredo G. Gaborro (later
substituted herein by his wife Pacita de Guzman
Gaborro as administratrix of the estate of
Alfredo G. Gaborro) who had died during the
pendency of the case.
A supplementary issue raised is whether or not
Gaborro or the respondent administratrix of the
estate should account for all the fruits produced
trial income received by them from the lands
mentioned trial described in the aforesaid "Deed
of Sale with Assumption of Mortgage."
The antecedent facts established in the record
are not disputed. Petitioner Jose P. Dizon was
the owner of the three (3) parcels of land,
subject matter of this litigation, situated in
Mabalacat, Pampanga with an aggregate area
of 130.58 hectares, as evidenced by Transfer
Certificate of Title No. 15679. He constituted a
first mortgage lien in favor of the Develop. ment
Bank of the Philippines in order to secure a loan
in the sum of P38,000.00 trial a second
mortgage lien in favor of the Philippine National
Bank to cure his indebtedness to said bank in
the amount of P93,831.91.
Petitioner Dizon having defaulted in the
payment of his debt, the Development Bank of
the Philippines foreclosed the mortgage
extrajudicially pursuant to the provisions of Act
No. 3135. On May 26, 1959, the hinds were sold
to the DBP for- P31,459.21, which amount
covered the loan, interest trial expenses, trial
the corresponding "Certificate of Sale," (Exhibit

A-2, Exhibit 1b was executed in favor of the said
On November 12, 1959, Dizon himself executed
the deed of sale (Exhibit Al over the properties
in favor of the DBP which deed was recorded in
the Office of the Register of Deeds on October
6, 1960.
Sometime prior to October 6, 1959 Alfredo G.
Gaborro trial Jose P. Dizon met. Gaborro
became interested in the lands of Dizon. Dizon
originally intended to lease to Gaborro the
property which had been lying idle for some
time. But as the mortgage was already
foreclosed by the DPB trial the bank in fact
purchased the lands at the foreclosure sale on
May 26, 1959, they abandoned the projected
lease. They then entered into the following
contract on October 6, 1959 captioned trial
quoted, to wit:
DEED OF SALE WITH ASSUMPTION
OF MORTGAGE
KNOW ALL MEN BY THESE PRESENTS:
This DEED OF SALE WITH ASSUMPTION OF
MORTGAGE, made trial executed at the City of
Manila, Philippines, on this 6th day of October,
1959 by trial between —
JOSE P. DIZON, of legal age, Filipino, married
to Norberta Torres, with residence trial postal
address at Mabalacat, Pampanga, hereinafter
referred to as the VENDOR.
ALFREDO G. GABORRO, likewise of legal age,
Filipino, married to Pacita de Guzman, with
residence trial postal address at 46, 7th St.,
Gilmore Avenue, Quezon City, hereinafter
referred to as the VENDEE,
W I T N E S S E T H: That —
WHEREAS, the VENDOR is the registered
owner of three (3) parcels of land covered by
Transfer Certificate of Title No. 15679 of the
land records of Pampanga. situated in the
Municipality of Mabalacat, Province of
CONTRACTS FINALS ACJUCO 12
Pampanga, trial more particularly described trial
bounded as follows:
1. A parcel of land (Lot No. 188 of the Cadastral
Survey of Mabalacat), with the improvements
thereon, situated in the Municipality of
Mabalacat, Bounded on the NE by Lot No 187:
on the SE., by Lots Nos. 183, 189, 191 trial 192;
on the SW by Lot No. 192 trial on the NW by the
unimproved provincial road to Magalang.
Containing an area of TWO HUNDRED AND
TWENTY ONE THOUSAND ONE HUNDRED
SEVENTY TWO SQUARE METERS (221,172),
more or less.
2. A parcel of land (Lot No. 193 of the Cadastral
Survey of Mabalacat), with the improvements
thereon, situated in the Municipality of
Mabalacat. Bounded on the NE., by a road trial
Lots Nos. 569,570 trial 571; on the SE., by Lot
No. 571 trial the unimproved road to Magalang,
on the SW by a road; trial on the NE., by a road
trial the Sapang Pritil Containing an area of
NINE HUNDRED SEVENTY EIGHT
THOUSAND SEVEN HUNDRED AND
SEVENTEEN SQUARE METERS (978,717),
more or less.
3. A parcel of land (Lot No. 568 of the Cadastral
Survey of Mabalacat), with the improvements
thereon, situated in the Municipality of
Mabalacat. Bounded on the NE., by Lot No. 570,
on the SE SW trial NW by roads. Containing an
area of ONE HUNDRED FIVE THOUSAND
NINE HUNDRED AND TWENTY ONE
SQUARE METERS (105,921), more or less,
WHEREAS, the above-described properties are
presently mortgaged (first mortgage) to the
Development Bank of the Philippines (,formerly
Rehabilitation Finance Corporation) to secure
the payment of a loan, plus interest, of THIRTY
EIGHT THOUSAND PESOS ONLY
(P38,000.00), Philippine currency, as evidenced
by a deed of mortgage for- P... dated ... which
deed was ratified trial acknowledged before
Notary Public of Manila, Mr. ... as Doc. No. Page
No. Reg. No. Series of 196 ... ;

WHEREAS, the aforesaid properties are
likewise mortgage (second mortgage) to the
Philippine National Bank to secure the payment
of a loan of NINETY THREE THOUSAND
EIGHT HUNDRED THIRTY ONE PESOS &
91/100 (P93,831.91), Philippine Currency, plus
interest up to August 13, 1957, as evidenced by
deed of Mortgage for P.............
dated................... which deed was ratified trial
acknowledged before Notary Public of Manila,
Mr, I . I as Doc. No............ Page No.......... Reg.
No. Series of 196........... ; WHEREAS, the
VENDOR, has offered to sell trial the VENDEE
is willing to purchase the above-described
properties for ONE HUNDRED THIRTY ONE
THOUSAND EIGHT HUNDRED THIRTY ONE
PESOS & 91 /100 (P131,831.91), Philippine
Currency, under the terms trial conditions herein
below set forth;
NOW, THEREFORE, for- trial in consideration
of the above premises trial the amount of ONE
HUNDRED THIRTY ONE THOUSAND EIGHT
HUNDRED THIRTY ONE PESOS & 91/100
(P131,831.91), Philippine Currency, in hand
paid in cash by the VENDEE unto the VENDOR,
receipt whereof is hereby acknowledged by the
VENDOR to his entire trial full satisfaction, trial
the assumption by the VENDEE of the entire
mortgage indebtedness, both with the
Development Bank of the Philippines trial the
Philippine National Bank above mentioned, the
VENDOR does by these presents, sell, transfer
trial convey, as he had sold, transferred, trial
conveyed, by way of absolute sale, perpetually
trial forever, unto the VENDEE, his heirs,
successors trial assigns. above-described
properties, with all the improvements thereon,
free from all liens trial encumbrances of
whatever nature. except the pre- existing
mortgage obligations with the Development
Bank of the Philippines trial the Philippine
National Bank aforementioned. The VENDOR
does hereby warrant title, ownership trial
possession over the properties herein sold trial
conveyed, trial binds himself to defend the same
from any trial all claimants.
CONTRACTS FINALS ACJUCO 13
That the VENDEE, does by these presents,
assume as he has assumed, under the same
terms trial conditions of the mortgage contracts
dated ... and ... of the mortgage indebtedness of
the VENDOR in favor of the Development Bank
of the Philippines trial the Philippine National
Bank, respectively, as if the aforesaid
documents were personally executed by the
VENDEE trial states trial reiterates all the terms
trial conditions stipulated in said both
documents, making them to all intent trial
purposes, parts hereof by reference.
IN WITNESS WHEREOF, the VENDOR and the
VENDEE together with their instrumental
witnesses, have signed this deed of the place,
date, month trial year first above written.
(Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G.
GABORRO
Vendor Vendee
Signed in the Presence of:
(Sgd.) (Illegible) (Sgd.) (Illegible)
(Acknowledgment Omitted)
The second contract executed the same day,
October 6, 1959 is called Option to Purchase
Real Estate, trial is in the following wise trial
manner:
OPTION TO PURCHASE REAL ESTATE
KNOW ALL MEN BY THESE PRESENTS:
That 1, ALFREDO G. GABORRO, of legal age,
Filipino, married to Pacita de Guzman, with
residence trial postal address at 46, 7th St.,
Gilmore Ave., Quezon City, for- valuable
consideration, do hereby give to JOSE P.
DIZON, of legal age, Filipino, married to
Norberta Torres, resident of Mabalacat,
Pampanga, his heirs, successors and assigns,
the option of repurchasing the following
described properties:

TRANSFER CERTIFICATE OF TITLE
NO. 15679, PROVINCE OF PAMPANGA
1. A parcel of land (Lot No. 188 of Cadastral
Survey of Mabalacat, Pampanga containing an
area of (211,172) more or less.
2. A parcel of land (Lot No. 193 of the Cadastral
Survey of Mabalacat, Pampanga), containing an
area of (978,172) more or less.
3. A parcel of land (Lot No. 568 of the Cadastral
Survey of Mabalacat, Pampanga containing an
area of (105,921), more or less. which I acquired
from the said Jose P. Dizon by purchase by
virtue of that document entitled "Deed of Sale
with Assumption of Mortgage" dated October 6,
1959, acknowledged by both of us before
Notary Public of Manila GREGORIO SUMBILIO
as DOC. No. 342, Page No. 70, Reg. No. VII
Series of 1959.
Said option shall be valid trial effective within the
period comprises from January, 1965 to
December 31, 1970, inclusive, upon payment of
the amount of ONE HUNDRED THIRTY ONE
THOUSAND EIGHT HUNDRED THIRTY ONE
PESOS & 91/100 (?131,831.91), Philippine
Currency, plus an interest of eight per centum
(8%) thereof, per annum. This is without
prejudice at any time to the payment by Mr.
Dizon of any partial amount to be applied to the
principal obligation, without any way disturbing
the possession and/or ownership of the above
properties since only full payment can effect the
necessary change.
In the event that Mr. Jose P. Dizon may be able
to find a purchaser for- the foregoing properties
on or the fifth year from the date the execution
of this document, the GRANTEE, Mr. JOSE P.
DIZON, may do so provided that the aggregate
amount which was Paid to Development Bank
of the Philippines trial to the Philippine National
Bank together with the interests thereon at the
rate of 8% shall be refunded to the undersigned.
CONTRACTS FINALS ACJUCO 14
Furthermore, in case Mr. Jose P. Dizon shall be
able to find a purchaser for- the said properties,
it shall be his duty to first notify the undersigned
of the contemplated sale, naming the price trial
the purchaser therefor, trial awarding the first
preference in the sale hereof to the
undersigned.
IN WITNESS WHEREOF, I have hereunto
signed these presents at the City of Manila, on
this 6th day of October, 1959.
(Sgd.) ALFREDO G. GABORRO
CONFORME:
(Sgd.) JOSE P. DIZON
SIGNED IN THE PRESENCE OF:
(Acknowledgment Omit)
The sum of P131,813.91 which purports to be
the consideration of the sale was not actually
paid by Alfredo G. Gaborro to the petitioner. The
said amount represents the aggregate debts of
the petitioner with the Development Bank of the
Philippines trial the Philippine National Bank.
After the execution of said contracts, Alfredo G.
Gaborro took possession of the three parcels of
land in question.
On October 7, 1959, Gaborro wrote the
Development Bank of the Philippines a letter
(Exh. J), as follows:
Sir:
This is with reference to your mortgage lien of
P38,000.00 more or less over the properties
more particularly described in TCT No. 15679 of
the land records of Pampanga in the name of
Jose P. Dizon. In this connection, we have the
honor to inform you that pursuant to a Deed of
Sale with Assumption of Mortgage executed on
October 6, 1959 by Jose P. Dizon in my favor,
copy of which is hereto attached, the ownership
of the same has been transferred to me subject

of course to your conformity to the assumption
of mortgage. As a consequence of the foregoing
document, the obligation therefore of paying
your goodselves the total amount of
indebtedness has shifted to me
Considering that these agricultural properties
have not been under cultivation for- quite a long
time, I would therefore request that, on the
premise that the assumption of mortgage would
be agreeable to you, that I be allowed to pay the
outstanding obligation, under the same terms
trial conditions as embodied in the original
contract of mortgage within ten (10) years to be
divided in 10 equal annual amortizations. I am
enclosing herewith a check in the amount of
P3,609.95 representing 10% of the
indebtedness of Jose P. Dizon to show my
honest intention in assuming the mortgage
obligation to you ...
The Board of Governors of the DBP, in its
Resolution No. 7066 dated October 21, 1959
approved the offer of Gaborro but said Board
required him to pay 20% of the purchase price
as initial payment, (Exh. D) Accordingly, on July
11, 1960, the DBP trial Gaborro executed a
conditional sale of the properties in
consideration of the sum of P36,090.95 (Exh. C)
payable 20% down trial the balance in 10 years
in the yearly amortization plan at 8% per annum.
On January 7, 1960, Dizon assigned his right of
redemption Lo Gaborro in an instrument (Exh.
9) entitled:
ASSIGNMENT OF RIGHT OF REDEMPTION
AND ASSUMPTION OF OBLIGATION
KNOW ALL MEN BY THESE PRESENTS:
This instrument, made trial executed by trial
between JOSE P. DIZON, married to Norberta
P. Torres, Filipino, of legal age, with residence
trial postal address at Mabalacat, Pampanga.
hereinafter referred to as the ASSIGNOR trial
ALFREDO G. GABORRO, married to Pacita de
Guzman, likewise of legal age, Filipino, with
CONTRACTS FINALS ACJUCO 15
residence trial postal address at 46, 7th Street,
Gilmore Ave., Quezon City, hereinafter referred
to as the ASSIGNEE,
WITNESSETH:
WHEREAS, the Assignor is the owner trial
mortgagor of three (3) parcels agricultural land
together with all the improvements existing
thereon trial more particularly described trial
bounded as follows:
TRANSFER CERTIFICATE OF TITLE NO.
1567
PROVINCE OF PAMPANGA
1. A parcel of land (Lot No. 188 of the Cadastral
Survey of Mabalacat), with the improvements
thereon, situated in the Municipality of
Mabalacat. Bounded on the NE by Lot No. 187:
on the SE. by Lots Nos. 183, 189, 191 trial 192;
on the SW. by Lot No. 192; trial on the NW by
the unimproved provincial road to Magalan.
Containing an area of two hundred twenty-one
thousand one hundred trial seventy two square
meters (221,172), more or less.
2. A parcel of land (Lot No. 193 of the Cadastral
Survey of Mabalacat), with the improvements
thereon, situated in the Municipality of
Mabalacat. Bounded on the NE. by a road trial
Lots Nos. 569, 570 trial 571; on the SE. by Lot
No. 571 trial the unimproved road to Magalan-,
on the SW. by a road; trial on the NW by a road
trial the Sapang Pritil Containing an area of nine
hundred seventy eight thousand seven hundred
and seven hundred square meters (978,717),
more or less.
3. A parcel of Land (Lot No. 568 of the Cadastral
Survey of Mabalacat), with the improvements
thereon, situated in the Municipality of
Mabalacat, Bounded on the NE. by Lot No. 570;
and on the SE., SW. and NW. by roads.
Containing an area of one hundred five
thousand nine hundred and twenty-one square
meters (105,921), more or less.

WHEREAS, the above described properties
were mortgaged with the Rehabilitation Finance
Corporation, now Development Bank of the
Philippines, which mortgage has been
foreclosed on May 26, 1959;
AND WHEREAS, the herein Assignor has still
the right to redeem the said properties from the
said Development Bank of the Philippines within
a period of one (1) year counted from the date
of foreclosure of the said mortgage.
NOW, THEREFORE, for
......................................... trial other valuable
considerations, receipt whereof is hereby
acknowledged by the Assignor from the
Assignee, The herein Assignor does hereby
transfer trial assign to the herein Assignee, his
heirs, successors trial assigns the aforesaid
right to redeem the aforementioned properties
above described.
That with this document the herein Assignor
relinquishes any and all rights to the said
properties including the improvements existing
thereon.
That the Assignee, by these presents, hereby
assumes the obligation in favor of the d
Development Bank of the Philippines, as Paying
whatever legal indebtedness the Assignor has
with the d B in connection with the transaction
regarding the hove mentioned Properties
subject to the file and conditions that the said
Bank may require and further recognizes the
second mortgage in favor Of the Philippine
National Bank.
IN WITNESS WHEREOF, the parties have
hereunto set their hands in the City of Manila,
Philippines this --------- day of - - - - - -1959.
(Sgd-) JOSE P. DIZON (Sgd.) ALFREDO G.
GABORRO
Assignor (Assignee)
(Acknowledgment Omitted)
CONTRACTS FINALS ACJUCO 16
After the execution of the conditional e to him
Gaborro made several payments to the DBP
and PNB. He introduced improvements,
cultivated the kinds raised sugarcane and other
crops and appropriated the produce to himself.
He will paid the land taxes thereon.
On July 5, 1961, Jose P. Dizon through his
lawyer, Atty. Leonardo Abola, wrote a letter to
Gaborro informing him that he is formally
offering reimburse Gaborro Of what he paid to
the banks but without, however, tendering any
cash, and demanding an accounting of the
income and of the pro contending that the
transaction they entered into was one of
antichresis. Gaborro did not accede to the
demands of the petitioner, whereupon, on JULY
30, 1962, Jose P. Dizon instituted a complaint in
the Court of First Instance of Pampanga,
Gaborro, alleging that the documents Deed of
Sale With Assumption of Mortgage and the
Option to Purchase Real Estate did not express
the true intention and agreement bet. between
the parties. Petitioner Dizon, as Plaintiff below,
contended that the two deeds constitute in fact
a single transaction that their real agreement
was not an absolute e of the d of land but merely
an equitable mortgage or conveyance by way of
security for the reimbursement or refund by
Dizon to Gaborro of any and all sums which the
latter may have paid on account of the mortgage
debts in favor of the DBP and the PNB. Plaintiff
prayed that defendant Gaborro be ordered to
accept plaintiff's offer to reimburse him of what
he paid to the banks; to surrender the
possession of the lands to plaintiff; to make an
accounting of all the fruits, produce, harvest and
other income which he had received from the
three (3) parcels of land; and to pay the plaintiff
for the loss of two barns and for damages.
In its answer, the DBP specifically denied the
material averments of the complaint and stated
that on October 6, 1959, the plaintiff Dizon was
no longer the owner of the land in question
because the DBP acquired them at the
extrajudicial foreclosure sale held on May 26,
1959, and that the only right which plaintiff

possessed was a mere right to redeem the
lands under Act 3135 as amended.
Defendant Alfredo G. Gaborro also answer,
denying the material averments of the
complaint, stating that the "Deed of Sale with
Assumption of Mortgage" expresses the true
agreement of the parties "fully, truthfully and
religiously" but the Option to Purchase Real
Estate" does not express the true intention of
the parties because it was made only to protect
the reputation of the plaintiff among his
townmates, and even in the supposition that
said option is valid, the action is premature. He
also filed a counterclaim for damages, which
plaintiff denied.
The issues having been joined, a pre-trial was
held and the following stipulation of facts
admitted by the parties was approved by the
Court in the following order dated February 22,
1963:
ORDER
At today's initial trial the following were present:
Mr. Leonardo Abola, for the plaintiff; Mr. Carlos
Antiporda, for the defendant Alfredo Gaborro;
and Mr. Virgillo Fugoso, for the Development
Bank of the Philippines:
The parties brave stipulated on the following
facts:
1. That Annex A attached to the complaint is
marked Exhibit
A- Stipulation. The parties have admitted the
due execution, authenticity and genuineness of
said Exhibit A-Stipulation. This fact has been
admitted by all the three parties.
2. That the defendant Gaborro executed Annex
B, which is marked Exhibit B-Stipulation. This
fact has been admitted only between plaintiff
and defendant Gaborro.
3. That the three parcels of land referred to in
paragraph 3 of the complaint, on or before
October 6, 1959, were subject to a first
CONTRACTS FINALS ACJUCO 17
mortgage lien in favor of the Development Bank
of the Philippines, formerly Rehabilitation
Finance Corporation, to secure payment of a
loan obtained by the plaintiff Jose P. Dizon in
the original sum of P38,000.00 plus interest,
which has been assumed by defendant Gaborro
by virtue of a document, Exhibit A-Stipulation,
and also subject to a second mortgage lien in
favor of the Philippine National Bank to secure
the payment of a loan in the sum of P93,831.91
plus interest up to August 30, 1951, which
mortgage liens were duly annotated on TCT
15679. This fact has been admitted by the
plaintiff and defendant Gaborro.
4. In respect to the foreclosure of the first
mortgage referred to above, it was admit that
the same was foreclosed on May 26, 1959, the
second mortgage has not been admitted nor
foreclosed.
5. That the Development Bank of the Philippines
admits that the first mortgage referred to above
was foreclosed on May 26, 1959 under the
provision,,; of Public Act No- 3135, as amended.
6. That subsequently the Development Bank
and the defendant Gaborro executed a
document entitled Conditional Sale over the
same parcels of land referred to in paragraph 3
of the complaint, and copy thereof will be
furnished by the Development Bank of the
Philippines and marked Exhibit C-Stipulation.
7. That on or before October 6, 1960, TCT No.
15679 of the Register of D of Pampanga in the
name of Jose P. Dizon covering the three
parcels of land referred to in the complaint was
cancelled and in lieu thereof TCT NO. 24292 of
the Register of Deeds of Pampanga was issued
in the name of the Development Bank of the
Philippines. This fact has been admitted by all
the parties.
8. That after the execution of the deed of
conditional sale, certain payments were made
by the defendant Gaborro to the Development
Bank, the exact amount to be determined later
and receipts of payments to be also exhibited

later. This fact has been admitted by all the three
parties.
9. That since October 6, 1959, the defendant
Gaborro has made several payments to the
PNB in the amounts appearing on the receipts
which will be shown later, such payments being
made on account of the sum of P38,831.91. The
payment was assumed by said - defendant
Gaborro. This fact has been admitted by plaintiff
and defendant Gaborro only.
10. That since the execution of Exhibits A and
B-Stipulation, it,, defendant Gaborro has been
and still is in the actual possession f the three
parcels of land in question and he is actually
cultivating the same and that the land taxes
thereon have been paid by said defendant
Gaborro, the amounts of said taxes appearing
on the official receipts to be shown later. This
fact has been admitted by plaintiff and
defendant Gaborro only.
11. That since defendant Gaborro took
possession of the lands in question, he has
been appropriating all the fruits produced and
income of said lands without giving to the
plaintiff any share hereof. This fact has been
admitted by plaintiff and defendant Gaborro
only.
Let a copy of this order be served upon the
plaintiff, defendant Gaborro and the
Development Bank of the Philippines with the
understanding that, if, within fifteen (15) days,
none of the parties questions the correctness of
The facts set forth above. this stipulation of facts
shall be conclusive upon the parties interested
in this case.
Set the trial on the controversial facts on April
18, 1963 at 13:00 clock in the morning.
Paragraphs 3 and 10 of the above quoted order
were deleted in an order dated July 26, 1963.
The records disclose that during the pendency
of the case in the trial court, motions were filed
by the plaintiff for the appointment of a receiver
CONTRACTS FINALS ACJUCO 18
of the properties but all were denied. plaintiff
also reiterated the same motion before the
appellate court which, however, dismissed the
same, reserving to him the right to file in the trial
court. Plaintiff did file but with the same result.
certiorari proceedings were resorted to in the
Court of Appeals in CA-G.R. No. SP-01403
entitled "Jose P. Dizon vs. Hon. Felipe
Buencamino, et al." which the respondent court
denied.
After trial the court held that the true agreement
between Jose P. Dizon, the plaintiff therein, and
the defendant Alfredo G. Gaborro is that the
defendant would assume and pay the
indebtedness of the plaintiff to the Development
Bank of the Philippines and the Philippine
National Bank, and in consideration therefor, the
defendant was given the possession and
enjoyment of the properties in question until the
plaintiff shall have reimbursed to defendant fully
the amount of P131,831.91 plus 8% interest per
annum.
Accordingly, on March 14, 1970, the lower court
rendered judgment, the dispositive part of which
reads:
IN VIEW OF THE FOREGOING, the documents
entitled 'Deed of Sale with Assumption of
Mortgage'(Exhibit A-Stipulation) and 'Option to
Purchase Real Estate' (Exhibit B-Stipulation)
are hereby reformed to the extent indicated
above. However, since this action was filed
before the period allowed the plaintiff to redeem
his property, the prematurity of this action aside
from not being principally alleged in the
complaint, deters this Court from ordering
further reliefs and remedies. The counterclaim
of the defendant is dismissed.
The plaintiff's motion for new trial and for
reconsideration and motion for admission of
supplemental complaint having been denied for
lack of merit, on June 6, 1970, plaintiff appealed
to the Court of Appeals, which. however,
affirmed the decision with the modification that
the plaintiff-appellant has the right to refund or
reimburse the defendant-appellee the sum of

P131,831.91 with interest at 8% per annum from
October 6, 1959 until full payment, said right to
be exercised within one (1) year from the date
the judgment becomes final, with the
understanding that, if he fails to do so within the
said period, then he is deemed to have lost his
right over the lands forever.
Petitioner's motion for reconsideration and/or
rehearing having been denied by the Court of
Appeals, hence the present petition for review
on certiorari. The petitioner assigns the
following errors, to wit:
I. The Court of Appeals, like the lower court,
erred in not holding that upon established facts
and undisputed documentary evidence, the
deed of sale with assumption of mortgage
(Exhibit A-Stipulation) constitutes an equitable
mortgage or conveyance to secure petitioner's
obligation to reimburse or refund to defendant
Alfredo Gaborro any and all sums to the extent
of P131,831.91, paid by said defendant in total
or partial satisfaction of petitioner's mortgage
debts to the DBP and the PNB. In this
connection, the Court of Appeals erred:
(A) In not finding that the petitioner was the
lawful owner of the lands in question:
(B) In not finding that the deed of sale in
question is not a real and unconditional sale;
and
(C) In not holding that the option to purchase
real estate (Exhibit B-Stipulation is conclusive
evidence that the transaction in question is in
fact an equitable mortgage.
II. The Court of Appeals also erred in finding that
the instrument entitled 'Assignment of Right of
Redemption and Assumption of Obligation' is
conclusive evidence that the real transaction
Evidenced by the 'Deed of Sale with Assumption
of Mortgage' is not an equitable mortgage. In
this connection the said court also erred or at
least committed a grave abuse of discretion:
CONTRACTS FINALS ACJUCO 19
(A) In not finding that the said deed of
assignment is in fact a mere reiteration of the
terms and condition of the deed of sale;
(B) In finding that the price or consideration of
The aforesaid assignment. of right of
redemption consisted of 300 cavans of palay
delivered by Mrs. Gaborro to the petitioner; and
(C) In finding that defendant Gaborro purchased
the lands in question by virtue of the
aforementioned deed of assignment.
III. The, Court of Appeals, like the trial court, also
erred in not finding that the estate of Alfredo G.
Gaborro is under obligation to render an
accounting of all the produce, fruits and other
income of the lands in question from October 6,
1959, and to reconvey the said lands to the
herein petitioner. In to connection, the said court
also erred:
(A) In not holding that as a mortgagee in
possession the Gaborro estate has the
obligation to either render an accounting of the
produce or fruits of the lands, or to pay rentals
for the occupation of said lands;
(B) In not finding that the Gaborro estate has the
obligations to reconvey the lands in controversy
to the herein petitioner, upon payment of the
balance due from him after deducting either the
net value of the produce or fruits of the Said
lands or the rentals thereof,
(C) In not finding that further reliefs or remedies
may be granted the herein petitioner; and
(D) In not ordering the admission of herein
petitioners 'Supplemental Complaint' dated April
30, 1970.
IV. The Court of Appeals finally erred in not
reversing the decision of the trial court, and in
not rendering judgment declaring that the deed
of sale with assumption of mortgage (Exhibit A
Stipulation) is in fact an equitable mortgage; and
in not ordering the Gaborro estate either to
render an accounting of all the produce or fruits

of the lands in question or to pay rentals for the
occupation thereof, from October 6, 1959; and
in not ordering the estate of Alfredo G. Gaborro
to reconvey, transfer and assign unto the
petitioner the aforementioned lands.
The two instruments sought to be reformed in
this case ap pear to stipulate rights and
obligations between the parties thereto
Pertaining to and involving parcels of land that
had already beer foreclosed and sold
extrajudicially, and purchased by the mortgage
creditor, a degree party. It becomes, therefore,
necessary to determine the legality of said rights
and obligation arising from the foreclosure and
e pro. proceedings only between the two
contracting parties to the instruments executed
between them but also in the so far a agreement
affects the rights of the degree panty, the
purchase Bank.
Act 3135, Section 6 as amended by Act 4118,
under which the Properties were extrajudicially
foreclosed and sold, provides that:
Sec. 6. In all cases in which an extrajudicial rule
is made under the special power hereinbefore
referred to, the debtor, his successors in interest
or any judicial creditor or judgment creditor of e
debtor, or any person having a lien on the
property subsequent to the mortgage or deed of
trust under which the property is sold, may
redeem the same at any time within the term or
one year from and after the date of the sale; and
such redemption shall be governed by the
provisions of sections four hundred and sixty-
four to four hundred and sixty-six, inclusive, of
the Code of Civil Procedure, in so far as these
are not consistent with the provisions of this Act.
Under the Revised Rules of Court, Rule 39,
Section 33, the judgment debtor remains in
possession of the property foreclosed and sold,
during the period of redemption. If the judgment
debtor is in possession of the property sold, he
is entitled to retain it and receive the fruits, the
purchaser not being entitled to such possession.
(Riosa v. Verzosa, 26 Phil. 86; Velasco v.
Rosenberg's Inc., 32 Phil. 72; Pabico v. Pauco
CONTRACTS FINALS ACJUCO 20
43 Phil. 572; Power v. PNB, 54 Phil. 54;
Gorospe v. Gochangco L-12735, Oct. 30, 1959).
A judgment debtor, whose property is levied on
execution, may transfer his right of redemption
to any one whom he may desire. The right to
redeem land sold under execution within 12
months is a property right and may be sold
voluntarily by its owner and may also be
attached and sold under execution (Magno v.
Viola and Sotto, 61 Phil. 80).
Upon foreclosure and sale, the purchaser is
entitled to a certificate of sale executed by the
sheriff. (Section 27, Revised Rules of Court)
After the termination of the period of redemption
and no redemption having been made, the
purchaser is entitled to a deed of conveyance
and to the possession of the properties. (Section
35, Revised Rules of Court). The weight of
authority is to the effect that the purchaser of
land sold at public auction under a writ of
execution only has an inchoate right in the
property, subject to be defeated and terminated
within the period of 12 months from the date of
sale, by a redemption on the part of the owner.
Therefore, the judgment debtor in possession of
the property is entitled to remain therein during
the period allowed for redemption. (Riosa v.
Verzosa. 26 Phil, 86; 89; Gonzales v. Calimbas,
51 Phil. 355.)
In the case before Us, after the extrajudicial
foreclosure and sale of his properties, petitioner
Dizon retained the right to redeem the lands, the
possession, use and enjoyment of the same
during the period of redemption. And these are
the only rights that Dizon could legally transfer,
cede and convey unto respondent Gaborro
under the instrument captioned Deed of Sale
with Assumption of Mortgage (Exh. A-
Stipulation), likewise the same rights that said
respondent could acquire in consideration of the
latter's promise to pay and assume the loan of
petitioner Dizon with DBP and PNB.
Such an instrument cannot be legally
considered a real and unconditional sale of the
parcels of land, firstly, because there was

absolutely no money consideration therefor, as
admittedly stipulated the sum of P131,831.91
mentioned in the document as the consideration
"receipt of which was acknowledged" was not
actually paid; and secondly, because the
properties had already been previously sold by
the sheriff at the foreclosure sale, thereby
divesting the petitioner of his full right as owner
thereof to dispose and sell the lands.
In legal consequence thereby, respondent
Gaborro as transferee of these certain limited
rights or interests under Exh. A-Stipulation,
cannot grant to petitioner Dizon more that said
rights, such ac the option Co purchase the lands
as stipulated in the document called Option to
Purchase Real Estate (Exhibit B-Stipulation),
This is necessarily so for the reason that
respondent Gaborro did not purchase or acquire
the full title and ownership of the properties by
virtue of the Deed of Sale With Assumption of
Mortgage (Exh. A Stipulation), earlier executed
between them which We have ruled out as an
absolute sale. The only legal effect of this
Option Deed is the grant to petitioner the right to
recover the properties upon reimbursing
respondent Gaborro of the total sums of money
that the latter may have paid to DBP and PNB
on account of the mortgage debts, the said right
to be exercised within the stipulated 5 years
period.
In the light of the foreclosure proceedings and
sale of the properties, a legal point of primary
importance here, as well as other relevant facts
and circumstances, We agree with the findings
of the trial and appellate courts that the true
intention of the parties is that respondent
Gaborro would assume and pay the
indebtedness of petitioner Dizon to DBP and
PNB, and in consideration therefor, respondent
Gaborro was given the possession, the
enjoyment and use of the lands until petitioner
can reimburse fully the respondent the amounts
paid by the latter to DBP and PNB, to
accomplish the following ends: (a) payment of
the bank obligations; (b) make the lands
productive for the benefit of the possessor,
respondent Gaborro, (c) assure the return of the
CONTRACTS FINALS ACJUCO 21
land to the original owner, petitioner Dizon, thus
rendering equity and fairness to all parties
concerned.
In view of all these considerations, the law and
Jurisprudence, and the facts established. We
find that the agreement between petitioner
Dizon and respondent Gaborro is one of those
inanimate contracts under Art. 1307 of the New
Civil Code whereby petitioner and respondent
agreed "to give and to do" certain rights and
obligations respecting the lands and the
mortgage debts of petitioner which would be
acceptable to the bank. but partaking of the
nature of the antichresis insofar as the principal
parties, petitioner Dizon and respondent
Gaborro, are concerned.
Mistake is a ground for the reformation of an
instrument which there having been a meeting
of the minds of The parties o a contract, their
true intention is not expressed in the instrument
purporting to embody the agreement, and one
of the parries may ask for such reformation to
the end that such true intention may be
expressed. (Art. 1359, New Civil code). When a
mutual mistake of the parties causes the failure
of the instrument to disclose their real
agreement, said instrument may be reformed.
(Art. 1361, New Civil Code.) It was a mistake for
the parties to execute the Deed of Sale With
Assumption of Mortgage and the Option to
Purchase Real Estate and stand on the literal
meaning of the file and stipulations used therein.
The instruments must, therefore, be reformed in
accordance with the intention and legal rights
and obligations of the parties — the petitioner,
the respondent and the Banks. We agree with
the reformation decreed by the trial and
appellate courts, but in the sense that petitioner
Jose P. Dizon has the right to reacquire the
three parcels of land within the one-year period
indicated below by refunding or reimbursing to
respondent Alfredo G. Gaborro or the Judicial
Administratrix of his Estate whatever amount
the latter has actually paid on account of
the principal only, of the loans of Dizon with the
DBP and PNB, excluding the interests and land

taxes that may have been paid or may have
accrued, on duly certified financial statements
issued by the said banks.
On the issue of the accounting of the fruits,
harvests and other income received from the
three parcels of land from October 6, 1959 up to
the present, prayed and demanded by Dizon of
Gaborro or the Judicial Administratrix of the
latter's estate, We hold that in fairness and
equity and in the interests of justice that since
We have ruled out the obligation of petitioner
Dizon to reimburse respondent Gaborro of any
interests and land taxes that have accrued or
been paid by the latter on the loans of Dizon with
DBP and PNB, petitioner Dizon in turn is not
entitled to an accounting of the fruits, harvests
and other income received by respondent
Gaborro from the lands, for certainly, petitioner
cannot have both benefits and the two may be
said to offset each other.
By virtue of the Option to Purchase Real Estate
(Exh. B Stipulation) which on its face granted
Dizon the option to purchase the properties
which must be exercise within the period from
January, 1960 to December 31, 1965 but which
We held to be simply the grant of the right to
petitioner Dizon to recover his properties within
the said period, although already expired by
reasons and circumstances beyond his control,
petitioner is entitled to a reconveyance of the
properties within a reasonable period The
period of one year from the date of the finality of
this judgment as laid down by the Court of
Appeals for the exercise of such right by
petitioner Dizon appears fair and reasonable
and We approve the same.
Since We are not informed of the status of
Dizon's loan of P93,831.91 with the Philippine
National Bank which appears to be on a
subsisting basis, it is proper to indicate here how
petitioner Dizon may exercise the right to a
reconveyance of the properties as herein
affirmed, as follows:
(a) Dizon is granted the right to a reconveyance
of the properties by reimbursing Gaborro (or his
CONTRACTS FINALS ACJUCO 22
estate) whatever amounts) the latter has
actually paid on account of the principal only, of
Dizon's loans of P38,000.00 and P93,831.91
which the DBP and PNB,
respectively, exclusive of the interests that may
have accrued thereon or may have been paid by
Gaborro, on the basis of duly certified
statements issued by said banks;
(b) Any outstanding balance due on Dizon's
original principal loan of P38,000.00 with the
Development Bank of the Philippines assumed
by Gaborro and on Dizon's original principal
loan of 93,831.91 with the PNB shag be
deducted from the above-fixed reconveyance
price payable to Gaborro, in order to enable
Dizon to pay off the said mortgage loans directly
to the said banks, in accordance with file
mutually agreed upon with them by Dizon;
(c) In other words, the maximum reconveyance
price that Dizon is obligated to pay is the total
sum of ?131,831.91 (the sum total of the
principals of his two original loans with the DBP
and PNB), and should the amounts due to the
said banks exceed this total of P131,831.91
(because of delinquent interests and other
charges), nothing shall be due Gaborro by way
of reimbursement and Dizon will thereupon step
into the shoes of Gaborro as owner-mortgagor
of the properties and directly arrange with the
banks for the settlement of the amounts still due
and payable to them, subject to the right of
Dizon to recover such amounts in excess of
P131,831.91 from Gaborro by writ of execution
in this case; and
(d) As already stated, Dizon is not entitled to an
accounting of the fruits, harvests and other
income received by Gaborro from the land while
Gaborro in turn is not entitled to the payment of
any interests on any amounts paid by him on
account of the principal loans to the banks nor
reimbursement of any interests paid by him to
the banks.
WHEREFORE, the judgment appealed from is
hereby affirmed with the modification that
petitioner Dizon is granted the right within one
 CONTRACTS FINALS ACJUCO 23

year from finality of this decision to a

reconveyance of the properties in litigation upon
payment and reimbursement to respondent
estate of o G. Gaborro of the amounts actually
paid by Gaborro or his estate on account of the
principal only of Dizon's original loans with the
Development Bank of the Philippines and
Philippine National Bank in and up to the total
amount of P131,831.91, under the terms and
conditions set forth in the preceding paragraph
with subparagraphs (a) to (d), which are hereby
incorporated by reference as an integral part of
this judgment, and upon the exercise of such
right, respondent estate shall forthwith execute
the corresponding deed of reconveyance in
favor of petitioner Dizon and deliver possession
of the properties to him. Without pronouncement
as to costs

G.R. No. L-47806 April 14, 1941
LEONCIO GABRIEL, petitioner,
vs.
MONTE DE PIEDAD Y CAJA DE AHARROS
and THE COURT OF APPEALS, respondents.
Vicente J. Francisco and Rody M. Jalandoni for
petitioner.
Cavanna, Jazmines and Tianco for respondent.
LAUREL, J.:
The herein petitioner was employed as
appraiser of jewels in the pawnshop of the
Monte de Piedad from 1913 up to May, 1933.
On December 13, 1932, he executed a chattel
mortgage to secure the payment of the
deficiencies which resulted from his erroneous
appraisal of the jewels pawned to the appellee,
amounting to P14,679.07, with six per cent (6%)
interest from said date. In this chattel mortgage,
the appellant promised to pay to the appellee
the sum of P300 a month until the sum of
P14,679.07, with interest is fully paid. The
document was registered on December 22,
1932 (statement, decision of Court of Appeals).
To recover the aforementioned sum less what
had been paid, amounting to P3,333.25 or the
balance of P11,345.75, and in case of default to
effectuate the chattel mortgage, an action was
instituted against the petitioner by the
respondent Monte de Piedad in the Court of
First Instance of Manila (civil case No. 50847).
The petitioner answered, denying generally and
specifically all the specifications therein, and
also denied under oath the genuiness of the
execution of the alleged chattel mortgage
attached thereto. By way of special defense, he
alleged (1) that the chattel mortgage was a part
of a scheme on the part of the management of
the Monte de Piedad to cover up supposed
losses incurred in its pawnshop department; (2)
that a criminal action had been instituted at the
instance of the plaintiff against him wherein said
chattel mortgage was presented by the
prosecution with regard his supposed
responsibility as expert appraiser of jewels of
the plaintiff entity but he was therein acquitted;
CONTRACTS FINALS ACJUCO 24
and (3) that said acquittal constituted a bar to
the civil case. By way of cross-complaint, the
petitioner alleged (1) that the chattel mortgage
was entered into by E. Marco for and in behalf
of the Monte de Piedad without being duly
authorized to do so by the latter; (2) that the
defendant was induced, through false
representation, to sign said chattel mortgage
against his will; (3) that the chattel mortgage
was based upon all non-existing subject matter
and non-existing consideration; and (4) that the
chattel mortgage was null and void ab initio. By
way of counterclaim, the petitioner alleged (1)
that the payments made by for him the account
of the chattel mortgage amounting to P3,333.25
were made through deceit and without his
consent and consisted of P300 monthly
deductions from his salary, printing job for
plaintiff done by him in his printing press, and
reimbursement made from the pocket of E.
Marco; (2) that he has received P356.25 a
month as expert appraiser of the plaintiff and
that he was separated arbitrarily at the end of
the month of May 1933, from notice and plaintiff
failed to pay him his salary for the month of May,
1933 and the month of June, 1933, in
accordance with law; and (3) that due to the
malicious and systematic prosecution brought in
criminal case No. 49078 and in the present
case, he suffered damages and losses both
materially and in his reputation in the amount of
at least P15,000. Wherefore, petitioner, among
others, prayed that the Monte de Piedad be
ordered to return the unlawful deductions from
his monthly remuneration, to pay his salary for
the months of May and June, 1933, and
damages and losses he suffered amounting to
P15,000.
The lower court rendered judgment in favor of
the Monte de Piedad against the herein
petitioner. Petitioner brought the case on appeal
to the Court of Appeals, which affirmed the
judgment of the lower court in a decision
rendered May 29, 1940. Hence, this petition for
review by certiorari.
Petitioner contends that the provisions of the
chattel mortgage contract by which he

guaranteed to pay the deficiencies amounting of
P14,679.07 are contrary to law, morals and
public policy, and hence, the chattel mortgage
contract is ineffective and the principal
obligation secured by it is void. A contract is to
be judge by its character, and courts will look to
the substances and not to the mere form of the
transaction. The freedom of contract is both a
constitutional and statutory right and to uphold
this right, courts should move with all the
necessary caution and prudence in holding
contracts void. (People vs. Pomar, 46 Phil., 440;
Ferrazzini vs. Gsell, 34 Phil., 697.) At any rate,
courts should not rashly extend the rule which
holds that a contract is void as against public
policy. The term "public policy" is vague and
uncertain in meaning, floating and changeable
in connotation. It may be said, however, that, in
general, a contract which is neither prohibited by
law nor condemned by judicial decision, nor
contrary to public morals, contravenes no public
policy. In the absence of express legislation or
constitutional prohibition, a court, in order to
declare a contract void as against public policy,
must find that the contract as to the
consideration or thing to be done, has a
tendency to injure the public, is against the
public good, or contravenes some established
interests of society, or is inconsistent with sound
policy and good morals, or tends clearly to
undermine the security of individual rights,
whether of personal liability or of private
property. Examining the contract at bar, we are
of the opinion that it does not in anyway militate
against the public good. Neither does it
contravene the policy of the law nor the
established interests of society.
Petitioner also contends that the chattel
mortgage in question is void because it lacks
consideration. A consideration, in the legal
sense of the word, is some right, interest,
benefit, or advantage conferred upon the
promisor, to which he is otherwise not lawfully
entitled, or any detriment, prejudice, loss, or
disadvantage suffered or undertaken by the
promisee other than to such as he is at the time
of consent bound to suffer. We think that there
is sufficient consideration in this contract, for
CONTRACTS FINALS ACJUCO 25
accounting to the Court of Appeals, "it has been
satisfactorily established that it was executed
voluntarily by the latter to guarantee the
deficiencies resulting from his erroneous
appraisals of the jewels." A preexisting admitted
liability is a good consideration for a promise.
The fact that the bargain is a hard one will not
deprived it of validity. The exception to this rule
in modern legislation is where the inadequacy is
so gross as to amount to fraud, oppression or
undue influence, or when statutes require the
consideration to be adequate. We are not
convinced that the instant case falls within the
exception.
Another objection raised is that the requirement
of section 5 of Act No. 1508 has not been
complied with. We think that there is substantial
compliance with the requirements of the Chattel
Mortgage Law on this point. The wording of the
affidavit under discussion, as it appears from the
record, is almost in the same language of the
statute. Likewise, it appears that it was signed
by E. Marco, who was Director-General of the
Monte de Piedad at the time of the execution of
the contract of chattel mortgage. The Court of
Appeals found that "the contention that director
Marco had no authority to enter into the
agreement is without merit. It appears that there
was confirmation of Exhibit A by the Consejo de
Administracion of the Monte de Piedad."
Statutory requirements as to forms or words of
the affidavits in chattel mortgage contracts must
be substantially, but need not be literally,
complied with.
The second assignment of error made by the
petitioner is that the Court of Appeals erred in
not holding that the acquittal of the petitioner in
criminal case No. 49078 of the Court of First
Instance of Manila bars the action to enforce
any civil liability under said chattel mortgage.
We do not need to dwell at length on this
assignment of error, for we find no reason for
distributing the conclusion reached by the Court
of Appeals on this point:
The appellant claims that his acquittal in criminal
case No. 49078 of the Court of First Instance of
 CONTRACTS FINALS ACJUCO 26

Manila is a bar to the institution of the present

case. The evidence of record does not bear out
this contention. There is no identity of subject
matter between the two cases; nor is the instant
case defendant upon the said criminal action.
We agree with the trial court that the
transactions involved in this case are different
from those involved in criminal case No. 49078.
The court's finding that the transactions involved
in the case at the bar commenced in August,
1932, can not be considered erroneous simply
because Exhibit F-32 of the plaintiff is allegedly
dated August 20, 1931. Exhibit F-22 can not be
given any probative value, it was undated during
the hearing of the case.

We do not find it necessary to discuss the last

assignment of error.

The petition is hereby dismissed and the

judgment sought to be reviewed is affirmed, with
costs against the petitioner. So ordered.

G.R. No. 61594 September 28, 1990
PAKISTAN INTERNATIONAL AIRLINES
CORPORATION, petitioner,
vs
HON. BLAS F. OPLE, in his capacity as
Minister of Labor; HON. VICENTE
LEOGARDO, JR., in his capacity as Deputy
Minister; ETHELYNNE B. FARRALES and
MARIA MOONYEEN MAMASIG, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De
los Angeles for petitioner.
Ledesma, Saludo & Associates for private
respondents.
FELICIANO, J.:
On 2 December 1978, petitioner Pakistan
International Airlines Corporation ("PIA"), a
foreign corporation licensed to do business in
the Philippines, executed in Manila two (2)
separate contracts of employment, one with
private respondent Ethelynne B. Farrales and
the other with private respondent Ma. M.C.
Mamasig. 1The contracts, which became
effective on 9 January 1979, provided in
pertinent portion as follows:
5. DURATION OF EMPLOYMENT AND
PENALTY
This agreement is for a period of three (3) years,
but can be extended by the mutual consent of
the parties.
xxx xxx xxx
6. TERMINATION
xxx xxx xxx
Notwithstanding anything to contrary as herein
provided, PIA reserves the right to terminate this
agreement at any time by giving the
EMPLOYEE notice in writing in advance one
CONTRACTS FINALS ACJUCO 27
month before the intended termination or in lieu
thereof, by paying the EMPLOYEE wages
equivalent to one month's salary.
xxx xxx xxx
10. APPLICABLE LAW:
This agreement shall be construed and
governed under and by the laws of Pakistan,
and only the Courts of Karachi, Pakistan shall
have the jurisdiction to consider any matter
arising out of or under this agreement.
Respondents then commenced training in
Pakistan. After their training period, they began
discharging their job functions as flight
attendants, with base station in Manila and
flying assignments to different parts of the
Middle East and Europe.
On 2 August 1980, roughly one (1) year and four
(4) months prior to the expiration of the
contracts of employment, PIA through Mr. Oscar
Benares, counsel for and official of the local
branch of PIA, sent separate letters both dated
1 August 1980 to private respondents Farrales
and Mamasig advising both that their services
as flight stewardesses would be terminated
"effective 1 September 1980, conformably to
clause 6 (b) of the employment agreement [they
had) executed with [PIA]."2
On 9 September 1980, private respondents
Farrales and Mamasig jointly instituted a
complaint, docketed as NCR-STF-95151-80, for
illegal dismissal and non-payment of company
benefits and bonuses, against PIA with the then
Ministry of Labor and Employment ("MOLE").
After several unfruitful attempts at conciliation,
the MOLE hearing officer Atty. Jose M. Pascual
ordered the parties to submit their position
papers and evidence supporting their respective
positions. The PIA submitted its position
paper, 3 but no evidence, and there claimed that
both private respondents were habitual
absentees; that both were in the habit of
bringing in from abroad sizeable quantities of
"personal effects"; and that PIA personnel at the

Manila International Airport had been discreetly
warned by customs officials to advise private
respondents to discontinue that practice. PIA
further claimed that the services of both private
respondents were terminated pursuant to the
provisions of the employment contract.
In his Order dated 22 January 1981, Regional
Director Francisco L. Estrella ordered the
reinstatement of private respondents with full
backwages or, in the alternative, the payment to
them of the amounts equivalent to their salaries
for the remainder of the fixed three-year period
of their employment contracts; the payment to
private respondent Mamasig of an amount
equivalent to the value of a round trip ticket
Manila-USA Manila; and payment of a bonus to
each of the private respondents equivalent to
their one-month salary. 4 The Order stated that
private respondents had attained the status of
regular employees after they had rendered
more than a year of continued service; that the
stipulation limiting the period of the employment
contract to three (3) years was null and void as
violative of the provisions of the Labor Code and
its implementing rules and regulations on
regular and casual employment; and that the
dismissal, having been carried out without the
requisite clearance from the MOLE, was illegal
and entitled private respondents to
reinstatement with full backwages.
On appeal, in an Order dated 12 August 1982,
Hon. Vicente Leogardo, Jr., Deputy Minister,
MOLE, adopted the findings of fact and
conclusions of the Regional Director and
affirmed the latter's award save for the portion
thereof giving PIA the option, in lieu of
reinstatement, "to pay each of the complainants
[private respondents] their salaries
corresponding to the unexpired portion of the
contract[s] [of employment] . . .". 5
In the instant Petition for Certiorari, petitioner
PIA assails the award of the Regional Director
and the Order of the Deputy Minister as having
been rendered without jurisdiction; for having
been rendered without support in the evidence
of record since, allegedly, no hearing was
CONTRACTS FINALS ACJUCO 28
conducted by the hearing officer, Atty. Jose M.
Pascual; and for having been issued in
disregard and in violation of petitioner's rights
under the employment contracts with private
respondents.
1. Petitioner's first contention is that the
Regional Director, MOLE, had no jurisdiction
over the subject matter of the complaint initiated
by private respondents for illegal dismissal,
jurisdiction over the same being lodged in the
Arbitration Branch of the National Labor
Relations Commission ("NLRC") It appears to
us beyond dispute, however, that both at the
time the complaint was initiated in September
1980 and at the time the Orders assailed were
rendered on January 1981 (by Regional Director
Francisco L. Estrella) and August 1982 (by
Deputy Minister Vicente Leogardo, Jr.), the
Regional Director had jurisdiction over
termination cases.
Art. 278 of the Labor Code, as it then existed,
forbade the termination of the services of
employees with at least one (1) year of service
without prior clearance from the Department of
Labor and Employment:
Art. 278. Miscellaneous Provisions — . . .
(b) With or without a collective agreement, no
employer may shut down his establishment or
dismiss or terminate the employment of
employees with at least one year of service
during the last two (2) years, whether such
service is continuous or broken, without prior
written authority issued in accordance with such
rules and regulations as the Secretary may
promulgate . . . (emphasis supplied)
Rule XIV, Book No. 5 of the Rules and
Regulations Implementing the Labor Code,
made clear that in case of a termination without
the necessary clearance, the Regional Director
was authorized to order the reinstatement of the
employee concerned and the payment of
backwages; necessarily, therefore, the
Regional Director must have been given
jurisdiction over such termination cases:

Sec. 2. Shutdown or dismissal without
clearance. — Any shutdown or dismissal
without prior clearance shall be conclusively
presumed to be termination of employment
without a just cause. The Regional Director
shall, in such case order the immediate
reinstatement of the employee and the payment
of his wages from the time of the shutdown or
dismissal until the time of reinstatement.
(emphasis supplied)
Policy Instruction No. 14 issued by the
Secretary of Labor, dated 23 April 1976, was
similarly very explicit about the jurisdiction of the
Regional Director over termination of
employment cases:
Under PD 850, termination cases — with or
without CBA — are now placed under the
original jurisdiction of the Regional Director.
Preventive suspension cases, now made
cognizable for the first time, are also placed
under the Regional Director. Before PD 850,
termination cases where there was a CBA were
under the jurisdiction of the grievance
machinery and voluntary arbitration, while
termination cases where there was no CBA
were under the jurisdiction of the Conciliation
Section.
In more details, the major innovations
introduced by PD 850 and its implementing
rules and regulations with respect to termination
and preventive suspension cases are:
1. The Regional Director is now required to rule
on every application for clearance, whether
there is opposition or not, within ten days from
receipt thereof.
xxx xxx xxx
(Emphasis supplied)
2. The second contention of petitioner PIA is
that, even if the Regional Director had
jurisdiction, still his order was null and void
because it had been issued in violation of
petitioner's right to procedural due process
CONTRACTS FINALS ACJUCO 29
.6 This claim, however, cannot be given serious
consideration. Petitioner was ordered by the
Regional Director to submit not only its position
paper but also such evidence in its favor as it
might have. Petitioner opted to rely solely upon
its position paper; we must assume it had no
evidence to sustain its assertions. Thus, even if
no formal or oral hearing was conducted,
petitioner had ample opportunity to explain its
side. Moreover, petitioner PIA was able to
appeal his case to the Ministry of Labor and
Employment. 7
There is another reason why petitioner's claim
of denial of due process must be rejected. At the
time the complaint was filed by private
respondents on 21 September 1980 and at the
time the Regional Director issued his
questioned order on 22 January 1981,
applicable regulation, as noted above, specified
that a "dismissal without prior clearance shall be
conclusively presumed to be termination of
employment without a cause", and the Regional
Director was required in such case to" order the
immediate reinstatement of the employee and
the payment of his wages from the time of the
shutdown or dismiss until . . . reinstatement." In
other words, under the then applicable rule, the
Regional Director did not even have to require
submission of position papers by the parties in
view of the conclusive (juris et de jure) character
of the presumption created by such applicable
law and regulation. In Cebu Institute of
Technology v. Minister of Labor and
Employment, 8 the Court pointed out that "under
Rule 14, Section 2, of the Implementing Rules
and Regulations, the termination of [an
employee] which was without previous
clearance from the Ministry of Labor is
conclusively presumed to be without [just] cause
. . . [a presumption which] cannot be overturned
by any contrary proof however strong."
3. In its third contention, petitioner PIA invokes
paragraphs 5 and 6 of its contract of
employment with private respondents Farrales
and Mamasig, arguing that its relationship with
them was governed by the provisions of its

contract rather than by the general provisions of
the Labor Code. 9
Paragraph 5 of that contract set a term of three
(3) years for that relationship, extendible by
agreement between the parties; while
paragraph 6 provided that, notwithstanding any
other provision in the Contract, PIA had the right
to terminate the employment agreement at any
time by giving one-month's notice to the
employee or, in lieu of such notice, one-months
salary.
A contract freely entered into should, of course,
be respected, as PIA argues, since a contract is
the law between the parties. 10 The principle of
party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of
our Civil Code is that the contracting parties may
establish such stipulations as they may deem
convenient, "provided they are not contrary to
law, morals, good customs, public order or
public policy." Thus, counter-balancing the
principle of autonomy of contracting parties is
the equally general rule that provisions of
applicable law, especially provisions relating to
matters affected with public policy, are deemed
written into the contract. 11 Put a little differently,
the governing principle is that parties may not
contract away applicable provisions of law
especially peremptory provisions dealing with
matters heavily impressed with public interest.
The law relating to labor and employment is
clearly such an area and parties are not at liberty
to insulate themselves and their relationships
from the impact of labor laws and regulations by
simply contracting with each other. It is thus
necessary to appraise the contractual
provisions invoked by petitioner PIA in terms of
their consistency with applicable Philippine law
and regulations.
As noted earlier, both the Labor Arbiter and the
Deputy Minister, MOLE, in effect held that
paragraph 5 of that employment contract was
inconsistent with Articles 280 and 281 of the
Labor Code as they existed at the time the
contract of employment was entered into, and
CONTRACTS FINALS ACJUCO 30
hence refused to give effect to said paragraph
5. These Articles read as follows:
Art. 280. Security of Tenure. — In cases of
regular employment, the employer shall not
terminate the services of an employee except
for a just cause or when authorized by this Title
An employee who is unjustly dismissed from
work shall be entitled to reinstatement without
loss of seniority rights and to his backwages
computed from the time his compensation was
withheld from him up to the time his
reinstatement.
Art. 281. Regular and Casual Employment. The
provisions of written agreement to the contrary
notwithstanding and regardless of the oral
agreements of the parties, an employment shall
be deemed to be regular where the employee
has been engaged to perform activities which
are usually necessary or desirable in the usual
business or trade of the employer, except where
the employment has been fixed for a specific
project or undertaking the completion or
termination of which has been determined at the
time of the engagement of the employee or
where the work or services to be performed is
seasonal in nature and the employment is for
the duration of the season.
An employment shall be deemed to be casual if
it is not covered by the preceding paragraph:
provided, that, any employee who has rendered
at least one year of service, whether such
service is continuous or broken, shall be
considered as regular employee with respect to
the activity in which he is employed and his
employment shall continue while such actually
exists. (Emphasis supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora,
etc., et al., 12 the Court had occasion to examine
in detail the question of whether employment for
a fixed term has been outlawed under the above
quoted provisions of the Labor Code. After an
extensive examination of the history and
development of Articles 280 and 281, the Court
reached the conclusion that a contract providing

for employment with a fixed period was not
necessarily unlawful:
There can of course be no quarrel with the
proposition that where from the circumstances it
is apparent that periods have been imposed to
preclude acquisition of tenurial security by the
employee, they should be struck down or
disregarded as contrary to public policy, morals,
etc. But where no such intent to circumvent the
law is shown, or stated otherwise, where the
reason for the law does not exist e.g. where it is
indeed the employee himself who insists upon a
period or where the nature of the engagement is
such that, without being seasonal or for a
specific project, a definite date of termination is
a sine qua non would an agreement fixing a
period be essentially evil or illicit, therefore
anathema Would such an agreement come
within the scope of Article 280 which admittedly
was enacted "to prevent the circumvention of
the right of the employee to be secured in . . .
(his) employment?"
As it is evident from even only the three
examples already given that Article 280 of the
Labor Code, under a narrow and literal
interpretation, not only fails to exhaust the
gamut of employment contracts to which the
lack of a fixed period would be an anomaly, but
would also appear to restrict, without
reasonable distinctions, the right of an
employee to freely stipulate with his employer
the duration of his engagement, it logically
follows that such a literal interpretation should
be eschewed or avoided. The law must be given
reasonable interpretation, to preclude absurdity
in its application. Outlawing the whole concept
of term employment and subverting to boot the
principle of freedom of contract to remedy the
evil of employers" using it as a means to prevent
their employees from obtaining security of
tenure is like cutting off the nose to spite the face
or, more relevantly, curing a headache by
lopping off the head.
xxx xxx xxx
CONTRACTS FINALS ACJUCO 31
Accordingly, and since the entire purpose
behind the development of legislation
culminating in the present Article 280 of the
Labor Code clearly appears to have been, as
already observed, to prevent circumvention of
the employee's right to be secure in his tenure,
the clause in said article indiscriminately and
completely ruling out all written or oral
agreements conflicting with the concept of
regular employment as defined therein should
be construed to refer to the substantive evil that
the Code itself has singled out: agreements
entered into precisely to circumvent security of
tenure. It should have no application to
instances where a fixed period of employment
was agreed upon knowingly and voluntarily by
the parties, without any force, duress or
improper pressure being brought to bear upon
the employee and absent any other
circumstances vitiating his consent, or where it
satisfactorily appears that the employer and
employee dealt with each other on more or less
equal terms with no moral dominance whatever
being exercised by the former over the
latter. Unless thus limited in its purview, the law
would be made to apply to purposes other than
those explicitly stated by its framers; it thus
becomes pointless and arbitrary, unjust in its
effects and apt to lead to absurd and unintended
consequences. (emphasis supplied)
It is apparent from Brent School that the critical
consideration is the presence or absence of a
substantial indication that the period specified in
an employment agreement was designed to
circumvent the security of tenure of regular
employees which is provided for in Articles 280
and 281 of the Labor Code. This indication must
ordinarily rest upon some aspect of the
agreement other than the mere specification of
a fixed term of the ernployment agreement, or
upon evidence aliunde of the intent to evade.
Examining the provisions of paragraphs 5 and 6
of the employment agreement between
petitioner PIA and private respondents, we
consider that those provisions must be read
together and when so read, the fixed period of
three (3) years specified in paragraph 5 will be

seen to have been effectively neutralized by the
provisions of paragraph 6 of that agreement.
Paragraph 6 in effect took back from the
employee the fixed three (3)-year period
ostensibly granted by paragraph 5 by rendering
such period in effect a facultative one at the
option of the employer PIA. For petitioner PIA
claims to be authorized to shorten that term, at
any time and for any cause satisfactory to itself,
to a one-month period, or even less by simply
paying the employee a month's salary. Because
the net effect of paragraphs 5 and 6 of the
agreement here involved is to render the
employment of private respondents Farrales
and Mamasig basically employment at the
pleasure of petitioner PIA, the Court considers
that paragraphs 5 and 6 were intended to
prevent any security of tenure from accruing in
favor of private respondents even during the
limited period of three (3) years,13 and thus to
escape completely the thrust of Articles 280 and
281 of the Labor Code.
Petitioner PIA cannot take refuge in paragraph
10 of its employment agreement which
specifies, firstly, the law of Pakistan as the
applicable law of the agreement and, secondly,
lays the venue for settlement of any dispute
arising out of or in connection with the
agreement "only [in] courts of Karachi
Pakistan". The first clause of paragraph 10
cannot be invoked to prevent the application of
Philippine labor laws and regulations to the
subject matter of this case, i.e., the employer-
employee relationship between petitioner PIA
and private respondents. We have already
pointed out that the relationship is much
affected with public interest and that the
otherwise applicable Philippine laws and
regulations cannot be rendered illusory by the
parties agreeing upon some other law to govern
their relationship. Neither may petitioner invoke
the second clause of paragraph 10, specifying
the Karachi courts as the sole venue for the
settlement of dispute; between the contracting
parties. Even a cursory scrutiny of the relevant
circumstances of this case will show the multiple
and substantive contacts between Philippine
law and Philippine courts, on the one hand, and
CONTRACTS FINALS ACJUCO 32
the relationship between the parties, upon the
other: the contract was not only executed in the
Philippines, it was also performed here, at least
partially; private respondents are Philippine
citizens and respondents, while petitioner,
although a foreign corporation, is licensed to do
business (and actually doing business) and
hence resident in the Philippines; lastly, private
respondents were based in the Philippines in
between their assigned flights to the Middle East
and Europe. All the above contacts point to the
Philippine courts and administrative agencies as
a proper forum for the resolution of contractual
disputes between the parties. Under these
circumstances, paragraph 10 of the
employment agreement cannot be given effect
so as to oust Philippine agencies and courts of
the jurisdiction vested upon them by Philippine
law. Finally, and in any event, the petitioner PIA
did not undertake to plead and prove the
contents of Pakistan law on the matter; it must
therefore be presumed that the applicable
provisions of the law of Pakistan are the same
as the applicable provisions of Philippine law.14
We conclude that private respondents Farrales
and Mamasig were illegally dismissed and that
public respondent Deputy Minister, MOLE, had
not committed any grave abuse of discretion nor
any act without or in excess of jurisdiction in
ordering their reinstatement with backwages.
Private respondents are entitled to three (3)
years backwages without qualification or
deduction. Should their reinstatement to their
former or other substantially equivalent
positions not be feasible in view of the length of
time which has gone by since their services
were unlawfully terminated, petitioner should be
required to pay separation pay to private
respondents amounting to one (1) month's
salary for every year of service rendered by
them, including the three (3) years service
putatively rendered.
ACCORDINGLY, the Petition for certiorari is
hereby DISMISSED for lack of merit, and the
Order dated 12 August 1982 of public
respondent is hereby AFFIRMED, except that
(1) private respondents are entitled to three (3)
 CONTRACTS FINALS ACJUCO 33

years backwages, without deduction or

qualification; and (2) should reinstatement of
private respondents to their former positions or
to substantially equivalent positions not be
feasible, then petitioner shall, in lieu thereof, pay
to private respondents separation pay
amounting to one (1)-month's salary for every
year of service actually rendered by them and
for the three (3) years putative service by private
respondents. The Temporary Restraining Order
issued on 13 September 1982 is hereby
LIFTED. Costs against petitioner.

SO ORDERED.