IDA C. LABAGALA, petitioner, vs. NICOLASA T. SANTIAGO, AMANDA T.

SANTIAGO and HON. COURT OF APPEALS, respondents.

DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks to annul the decision dated March 4,
1997,[1] of the Court of Appeals in CA-G.R. CV No. 32817, which reversed and set aside
the judgment dated October 17, 1990,[2] of the Regional Trial Court of Manila, Branch
54, in Civil Case No. 87-41515, finding herein petitioner to be the owner of 1/3 pro
indiviso share in a parcel of land.
The pertinent facts of the case, as borne by the records, are as follows:
Jose T. Santiago owned a parcel of land covered by TCT No. 64729, located in
Rizal Avenue Extension, Sta. Cruz, Manila. Alleging that Jose had fraudulently
registered it in his name alone, his sisters Nicolasa and Amanda (now respondents
herein), sued Jose for recovery of 2/3 share of the property. [3] On April 20, 1981, the trial
court in that case decided in favor of the sisters, recognizing their right of ownership
over portions of the property covered by TCT No. 64729. The Register of Deeds of
Manila was required to include the names of Nicolasa and Amanda in the certificate of
title to said property.[4]
Jose died intestate on February 6, 1984. On August 5, 1987, respondents filed a
complaint for recovery of title, ownership, and possession against herein petitioner, Ida
C. Labagala, before the Regional Trial Court of Manila, to recover from her the 1/3
portion of said property pertaining to Jose but which came into petitioners sole
possession upon Joses death.
Respondents alleged that Joses share in the property belongs to them by operation
of law, because they are the only legal heirs of their brother, who died intestate and
without issue. They claimed that the purported sale of the property made by their
brother to petitioner sometime in March 1979[5] was executed through petitioners
machinations and with malicious intent, to enable her to secure the corresponding
transfer certificate of title (TCT No. 172334[6]) in petitioners name alone.[7]
Respondents insisted that the deed of sale was a forgery. The deed showed that
Jose affixed his thumbmark thereon but respondents averred that, having been able to
graduate from college, Jose never put his thumbmark on documents he executed but
always signed his name in full. They claimed that Jose could not have sold the property
belonging to his poor and unschooled sisters who sacrificed for his studies and personal
welfare.[8] Respondents also pointed out that it is highly improbable for petitioner to have
paid the supposed consideration of P150,000 for the sale of the subject property
because petitioner was unemployed and without any visible means of livelihood at the
time of the alleged sale. They also stressed that it was quite unusual and questionable
that petitioner registered the deed of sale only on January 26, 1987, or almost eight
years after the execution of the sale.[9]
On the other hand, petitioner claimed that her true name is not Ida C. Labagala as
claimed by respondent but Ida C. Santiago. She claimed not to know any person by the
name of Ida C. Labagala. She claimed to be the daughter of Jose and thus entitled to
his share in the subject property. She maintained that she had always stayed on the
property, ever since she was a child. She argued that the purported sale of the property
was in fact a donation to her, and that nothing could have precluded Jose from putting
his thumbmark on the deed of sale instead of his signature. She pointed out that during
his lifetime, Jose never acknowledged respondents claim over the property such that
respondents had to sue to claim portions thereof. She lamented that respondents had to
disclaim her in their desire to obtain ownership of the whole property.
Petitioner revealed that respondents had in 1985 filed two ejectment cases against
her and other occupants of the property. The first was decided in her and the other
defendants favor, while the second was dismissed. Yet respondents persisted and
resorted to the present action.
Petitioner recognized respondents ownership of 2/3 of the property as decreed by
the RTC. But she averred that she caused the issuance of a title in her name alone,
allegedly after respondents refused to take steps that would prevent the property from
being sold by public auction for their failure to pay realty taxes thereon. She added that
with a title issued in her name she could avail of a realty tax amnesty.
On October 17, 1990, the trial court ruled in favor of petitioner, decreeing thus:

WHEREFORE, judgment is hereby rendered recognizing the plaintiffs [herein

respondents] as being entitled to the ownership and possession each of one-third
(1/3) pro indiviso share of the property originally covered by Transfer Certificate of Title
No. 64729, in the name of Jose T. Santiago and presently covered by Transfer
Certificate of Title No. 172334, in the name of herein defendant [herein petitioner] and
which is located at No. 3075-A Rizal Avenue Extension, Sta. Cruz, Manila, as per
complaint, and the adjudication to plaintiffs per decision in Civil Case No. 56226 of this
Court, Branch VI, and the remaining one-third (1/3) pro indiviso share adjudicated in
said decision to defendant Jose T. Santiago in said case, is hereby adjudged and
adjudicated to herein defendant as owner and entitled to possession of said share. The
Court does not see fit to adjudge damages, attorneys fees and costs. Upon finality of
this judgment, Transfer Certificate of Title No. 172334 is ordered cancelled and a new
title issued in the names of the two (2) plaintiffs and the defendant as owners in equal
shares, and the Register of Deeds of Manila is so directed to effect the same upon
payment of the proper fees by the parties herein.

SO ORDERED.[10]

According to the trial court, while there was indeed no consideration for the deed of
sale executed by Jose in favor of petitioner, said deed constitutes a valid donation. Even
 if it were not, petitioner would still be entitled to Joses 1/3 portion of the property as
Joses daughter. The trial court ruled that the following evidence shows petitioner to be
the daughter of Jose: (1) the decisions in the two ejectment cases filed by respondents
which stated that petitioner is Joses daughter, and (2) Joses income tax return which
listed petitioner as his daughter. It further said that respondents knew of petitioners
existence and her being the daughter of Jose, per records of the earlier ejectment cases
they filed against petitioner. According to the court, respondents were not candid with
the court in refusing to recognize petitioner as Ida C. Santiago and insisting that she
was Ida C. Labagala, thus affecting their credibility.
Respondents appealed to the Court of Appeals, which reversed the decision of the
trial court.

WHEREFORE, the appealed decision is REVERSED and one is entered declaring the
appellants Nicolasa and Amanda Santiago the co-owners in equal shares of the one-
third (1/3) pro indiviso share of the late Jose Santiago in the land and building covered
by TCT No. 172334. Accordingly, the Register of Deeds of Manila is directed to cancel
said title and issue in its place a new one reflecting this decision.

SO ORDERED.

Apart from respondents testimonies, the appellate court noted that the birth
certificate of Ida Labagala presented by respondents showed that Ida was born of
different parents, not Jose and his wife. It also took into account the statement made by
Jose in Civil Case No. 56226 that he did not have any child.
Hence, the present petition wherein the following issues are raised for
consideration:
1. Whether or not petitioner has adduced preponderant evidence to prove that she
is the daughter of the late Jose T. Santiago, and
2. Whether or not respondents could still impugn the filiation of the petitioner as the
daughter of the late Jose T. Santiago.
Petitioner contends that the trial court was correct in ruling that she had adduced
sufficient evidence to prove her filiation by Jose Santiago, making her his sole heir and
thus entitled to inherit his 1/3 portion. She points out that respondents had, before the
filing of the instant case, previously considered [11] her as the daughter of Jose who,
during his lifetime, openly regarded her as his legitimate daughter.She asserts that her
identification as Joses daughter in his ITR outweighs the strange answers he gave
when he testified in Civil Case No. 56226.
Petitioner asserts further that respondents cannot impugn her filiation collaterally,
citing the case of Sayson v. Court of Appeals[12] in which we held that (t)he legitimacy of
(a) child can be impugned only in a direct action brought for that purpose, by the proper
parties and within the period limited by law.[13] Petitioner also cites Article 263 of the Civil
Code in support of this contention.[14]
 For their part, respondents contend that petitioner is not the daughter of Jose, per
her birth certificate that indicate her parents as Leo Labagala and Cornelia Cabrigas,
instead of Jose Santiago and Esperanza Cabrigas. [15] They argue that the provisions of
Article 263 of the Civil Code do not apply to the present case since this is not an action
impugning a childs legitimacy but one for recovery of title, ownership, and possession of
property.
The issues for resolution in this case, to our mind, are (1) whether or not
respondents may impugn petitioners filiation in this action for recovery of title and
possession; and (2) whether or not petitioner is entitled to Joses 1/3 portion of the
property he co-owned with respondents, through succession, sale, or donation.
On the first issue, we find petitioners reliance on Article 263 of the Civil Code to be
misplaced. Said article provides:

Art. 263. The action to impugn the legitimacy of the child shall be brought within one
year from the recording of the birth in the Civil Register, if the husband should be in the
same place, or in a proper case, any of his heirs.

If he or his heirs are absent, the period shall be eighteen months if they should reside in
the Philippines; and two years if abroad. If the birth of the child has been concealed, the
term shall be counted from the discovery of the fraud.

This article should be read in conjunction with the other articles in the same chapter
on paternity and filiation in the Civil Code. A careful reading of said chapter would reveal
that it contemplates situations where a doubt exists that a child is indeed a mans child
by his wife, and the husband (or, in proper cases, his heirs) denies the childs filiation. It
does not refer to situations where a child is alleged not to be the child at all of a
particular couple.[16]
Article 263 refers to an action to impugn the legitimacy of a child, to assert and
prove that a person is not a mans child by his wife. However, the present case is not
one impugning petitioners legitimacy. Respondents are asserting not merely that
petitioner is not a legitimate child of Jose, but that she is not a child of Jose at all.
[17]
Moreover, the present action is one for recovery of title and possession, and thus
outside the scope of Article 263 on prescriptive periods.
Petitioners reliance on Sayson is likewise improper. The factual milieu present
in Sayson does not obtain in the instant case. What was being challenged by petitioners
in Sayson was (1) the validity of the adoption of Delia and Edmundo by the deceased
Teodoro and Isabel Sayson, and (2) the legitimate status of Doribel Sayson. While
asserting that Delia and Edmundo could not have been validly adopted since Doribel
had already been born to the Sayson couple at the time, petitioners at the same time
made the conflicting claim that Doribel was not the child of the couple. The Court ruled
in that case that it was too late to question the decree of adoption that became final
years before. Besides, such a challenge to the validity of the adoption cannot be made
collaterally but in a direct proceeding.[18]
 In this case, respondents are not assailing petitioners legitimate status but are,
instead, asserting that she is not at all their brothers child. The birth certificate
presented by respondents support this allegation.
We agree with the Court of Appeals that::

The Certificate of Record of Birth (Exhibit H)[19] plainly states that Ida was the child of the
spouses Leon Labagala and [Cornelia] Cabrigas. This document states that it was Leon
Labagala who made the report to the Local Civil Registrar and therefore the supplier of
the entries in said Certificate. Therefore, this certificate is proof of the filiation of
Ida. Appellee however denies that Exhibit H is her Birth Certificate. She insists that she
is not Ida Labagala but Ida Santiago. If Exhibit H is not her birth certificate, then where
is hers? She did not present any though it would have been the easiest thing to do
considering that according to her baptismal certificate she was born in Manila in
1969. This court rejects such denials and holds that Exhibit H is the certificate of the
record of birth of appellee Ida

Against such evidence, the appellee Ida could only present her testimony and a
baptismal certificate (Exhibit 12) stating that appellees parents were Jose Santiago and
Esperanza Cabrigas. But then, a decisional rule in evidence states that a baptismal
certificate is not a proof of the parentage of the baptized person. This document can
only prove the identity of the baptized, the date and place of her baptism, the identities
of the baptismal sponsors and the priest who administered the sacrament -- nothing
more.[20] (Citations omitted.)

At the pre-trial conducted on August 11, 1988, petitioners counsel admitted that
petitioner did not have a birth certificate indicating that she is Ida Santiago, though she
had been using this name all her life. [21]
Petitioner opted not to present her birth certificate to prove her relationship with
Jose and instead offered in evidence her baptismal certificate. [22] However, as we held
in Heirs of Pedro Cabais v. Court of Appeals:

a baptismal certificate is evidence only to prove the administration of the sacrament

on the dates therein specified, but not the veracity of the declarations therein stated
with respect to [a persons] kinsfolk.The same is conclusive only of the baptism
administered, according to the rites of the Catholic Church, by the priest who
baptized subject child, but it does not prove the veracity of the declarations and
statements contained in the certificate concerning the relationship of the person
baptized.[23]

A baptismal certificate, a private document, is not conclusive proof of filiation.

[24]
More so are the entries made in an income tax return, which only shows that income
tax has been paid and the amount thereof.[25]
We note that the trial court had asked petitioner to secure a copy of her birth
certificate but petitioner, without advancing any reason therefor, failed to do so. Neither
did petitioner obtain a certification that no record of her birth could be found in the civil
registry, if such were the case. We find petitioners silence concerning the absence of
her birth certificate telling. It raises doubt as to the existence of a birth certificate that
would show petitioner to be the daughter of Jose Santiago and Esperanza
Cabrigas. Her failure to show her birth certificate would raise the presumption that if
such evidence were presented, it would be adverse to her claim. Petitioners counsel
argued that petitioner had been using Santiago all her life. However, use of a family
name certainly does not establish pedigree.
Further, we note that petitioner, who claims to be Ida Santiago, has the same
birthdate as Ida Labagala.[26] The similarity is too uncanny to be a mere coincidence.
During her testimony before the trial court, petitioner denied knowing Cornelia
Cabrigas, who was listed as the mother in the birth certificate of Ida Labagala. In her
petition before this Court, however, she stated that Cornelia is the sister of her mother,
Esperanza. It appears that petitioner made conflicting statements that affect her
credibility and could cast a long shadow of doubt on her claims of filiation.
Thus, we are constrained to agree with the factual finding of the Court of Appeals
that petitioner is in reality the child of Leon Labagala and Cornelia Cabrigas, and
contrary to her averment, not of Jose Santiago and Esperanza Cabrigas. Not being a
child of Jose, it follows that petitioner can not inherit from him through intestate
succession. It now remains to be seen whether the property in dispute was validly
transferred to petitioner through sale or donation.
On the validity of the purported deed of sale, however, we agree with the Court of
Appeals that:

This deed is shot through and through with so many intrinsic defects that a
reasonable mind is inevitably led to the conclusion that it is fake. The intrinsic
defects are extractable from the following questions: a) If Jose Santiago intended to
donate the properties in question to Ida, what was the big idea of hiding the nature
of the contract in the faade of the sale? b) If the deed is a genuine document, how
could it have happened that Jose Santiago who was of course fully aware that he
owned only 1/3 pro indiviso of the properties covered by his title sold or donated the
whole properties to Ida? c) Why in heavens name did Jose Santiago, a college
graduate, who always signed his name in documents requiring his signature
(citation omitted) [affix] his thumbmark on this deed of sale? d) If Ida was [the] child
of Jose Santiago, what was the sense of the latter donating his properties to her
when she would inherit them anyway upon his death? e) Why did Jose Santiago
affix his thumbmark to a deed which falsely stated that: he was single (for he was
earlier married to Esperanza Cabrigas); Ida was of legal age (for [s]he was then just
15 years old); and the subject properties were free from liens and encumbrances
(for Entry No. 27261, Notice of Adverse Claim and Entry No. 6388, Notice of Lis
Pendens were already annotated in the title of said properties). If the deed was
executed in 1979, how come it surfaced only in 1984 after the death of Jose
Santiago and of all people, the one in possession was the baptismal sponsor of
Ida?[27]
 Clearly, there is no valid sale in this case. Jose did not have the right to transfer
ownership of the entire property to petitioner since 2/3 thereof belonged to his sisters.
[28]
Petitioner could not have given her consent to the contract, being a minor at the time.
[29]
Consent of the contracting parties is among the essential requisites of a contract,
[30]
including one of sale, absent which there can be no valid contract.Moreover,
petitioner admittedly did not pay any centavo for the property, [31] which makes the sale
void. Article 1471 of the Civil Code provides:

Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have
been in reality a donation, or some other act or contract.

Neither may the purported deed of sale be a valid deed of donation. Again, as
explained by the Court of Appeals:

Even assuming that the deed is genuine, it cannot be a valid donation. It lacks the
acceptance of the donee required by Art. 725 of the Civil Code. Being a minor in 1979,
the acceptance of the donation should have been made by her father, Leon Labagala or
[her] mother Cornelia Cabrigas or her legal representative pursuant to Art. 741 of the
same Code. No one of those mentioned in the law - in fact no one at all - accepted the
donation for Ida.[32]

In sum, we find no reversible error attributable to the assailed decision of the Court
of Appeals, hence it must be upheld.
WHEREFORE, the petition is DENIED, and the decision of the Court of Appeals in
CA-G.R. CV No. 32817 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and De Leon, Jr., JJ., concur.
Buena J., on official leave.
 SPS. RUDY PARAGAS and CORAZON B. PARAGAS, petitioners, vs. HRS. OF
DOMINADOR BALACANO, namely: DOMINIC, RODOLFO,
NANETTE and CYRIC, all surnamed BALACANO, represented by NANETTE
BALACANO and ALFREDO BALACANO, respondents.

RESOLUTION
CHICO-NAZARIO, J.:

This petition for review seeks to annul the Decision [1] dated 15 February 2005 of the
Court of Appeals in CA-G.R. CV No. 64048, affirming with modification the 8 March
1999 Decision[2] of the Regional Trial Court (RTC), Branch 21, of Santiago City, Isabela,
in Civil Case No. 21-2313. The petition likewise seeks to annul the Resolution [3] dated
17 May 2005 denying petitioners motion for reconsideration.
The factual antecedents were synthesized by the Court of Appeals in its decision.

Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot
1175-E and Lot 1175-F of the Subd. Plan Psd-38042 [located at Baluarte, Santiago City,
Isabela] covered by TCT No. T-103297 and TCT No. T-103298 of the Registry of Deeds
of the Province of Isabela.

Gregorio and Lorenza had three children, namely: Domingo, Catalino and Alfredo, all
surnamed Balacano. Lorenza died on December 11, 1991. Gregorio, on the other hand,
died on July 28, 1996.

Prior to his death, Gregorio was admitted at the Veterans General Hospital in
Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until July 19, 1996. He
was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in
Quezon City where he was confined until his death.

Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion
of Lot 1175-E (specifically consisting of 15,925 square meters from its total area of
22,341 square meters) and the whole Lot 1175-F to the Spouses Rudy (Rudy) and
Corazon Paragas (collectively, the Spouses Paragas) for the total consideration
of P500,000.00. This sale appeared in a deed of absolute sale notarized by Atty.
Alexander V. de Guzman, Notary Public for Santiago City, on the same date July 22,
1996 and witnessed by Antonio Agcaoili (Antonio) and Julia Garabiles (Julia). Gregorios
certificates of title over Lots 1175-E and 1175-F were consequently cancelled and new
certificates of title were issued in favor of the Spouses Paragas.

The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting
of 6,416 square meters to Catalino for the total consideration of P60,000.00.

Domingos children (Dominic, Rodolfo, Nanette and Cyric, all surnamed Balacano;) filed
on October 22, 1996 a complaint for annulment of sale and partition against Catalino
and the Spouses Paragas. They essentially alleged in asking for the nullification of the
 deed of sale that: (1) their grandfather Gregorio could not have appeared before the
notary public on July 22, 1996 at Santiago City because he was then confined at the
Veterans Memorial Hospital in Quezon City; (2) at the time of the alleged execution of
the deed of sale, Gregorio was seriously ill, in fact dying at that time, which vitiated his
consent to the disposal of the property; and (3) Catalino manipulated the execution of
the deed and prevailed upon the dying Gregorio to sign his name on a paper the
contents of which he never understood because of his serious condition. Alternatively,
they alleged that assuming Gregorio was of sound and disposing mind, he could only
transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their
grandmother Lorenza who predeceased Gregorio they claimed that Lots 1175-E and
1175-F form part of the conjugal partnership properties of Gregorio and Lorenza. Finally,
they alleged that the sale to the Spouses Paragas covers only a 5-hectare portion of
Lots 1175-E and 1175-F leaving a portion of 6,416 square meters that Catalino is
threatening to dispose. They asked for the nullification of the deed of sale executed by
Gregorio and the partition of Lots 1175-E and 1175-F. They likewise asked for damages.

Instead of filing their Answer, the defendants Catalino and the Spouses Paragas moved
to dismiss the complaint on the following grounds: (1) the plaintiffs have no legal
capacity - the Domingos children cannot file the case because Domingo is still alive,
although he has been absent for a long time; (2) an indispensable party is not
impleaded that Gregorios other son, Alfredo was not made a party to the suit; and (3)
the complaint states no cause of action that Domingos children failed to allege a ground
for the annulment of the deed of sale; they did not cite any mistake, violence,
intimidation, undue influence or fraud, but merely alleged that Gregorio was seriously ill.
Domingos children opposed this motion.

The lower court denied the motion to dismiss, but directed the plaintiffs-appellees to
amend the complaint to include Alfredo as a party. Alfredo was subsequently declared
as in default for his failure to file his Answer to the Complaint.

The defendants-appellees filed their Answer with Counterclaim on May 7, 1997, denying
the material allegations of the complaint. Additionally, they claimed that: (1) the deed of
sale was actually executed by Gregorio on July 19 (or 18), 1996 and not July 22, 1996;
(2) the Notary Public personally went to the Hospital in Bayombong, Nueva Vizcaya on
July 18, 1996 to notarize the deed of sale already subject of a previously concluded
covenant between Gregorio and the Spouses Paragas; (3) at the time Gregorio signed
the deed, he was strong and of sound and disposing mind; (4) Lots 1175-E and 1175-F
were Gregorios separate capital and the inscription of Lorenzas name in the titles was
just a description of Gregorios marital status; (5) the entire area of Lots 1175-E and
1175-F were sold to the Spouses Paragas. They interposed a counterclaim for
damages.

At the trial, the parties proceeded to prove their respective contentions.

Plaintiff-appellant Nanette Balacano testified to prove the material allegations of their

complaint. On Gregorios medical condition, she declared that: (1) Gregorio, who was
 then 81 years old, weak and sick, was brought to the hospital in Bayombong, Nueva
Vizcaya on June 28, 1996 and stayed there until the afternoon on July 19, 1996; (2)
thereafter, Gregorio, who by then was weak and could no longer talk and whose
condition had worsened, was transferred in the afternoon of July 19, 1996 to the
Veterans Memorial Hospital in Quezon City where Gregorio died. She claimed that
Gregorio could not have signed a deed of sale on July 19, 1996 because she stayed at
the hospital the whole of that day and saw no visitors. She likewise testified on their
agreement for attorneys fees with their counsel and the litigation expenses they
incurred.

Additionally, the plaintiffs-appellees presented in evidence Gregorios medical records

and his death certificate.

Defendants-appellees, on the other hand, presented as witnesses Notary Public de

Guzman and instrumental witness Antonio to prove Gregorios execution of the sale and
the circumstances under the deed was executed. They uniformly declared that: (1) on
July 18, 1996, they went to the hospital in Bayombong, Nueva Vizcaya where Gregorio
was confined with Rudy; (2) Atty. De Guzman read and explained the contents of the
deed to Gregorio; (3) Gregorio signed the deed after receiving the money from Rudy;
(4) Julia and Antonio signed the deed as witnesses. Additionally, Atty. De Guzman
explained that the execution of the deed was merely a confirmation of a previous
agreement between the Spouses Paragas and Gregorio that was concluded at least a
month prior to Gregorios death; that, in fact, Gregorio had previously asked him to
prepare a deed that Gregorio eventually signed on July 18, 1996. He also explained that
the deed, which appeared to have been executed on July 22, 1996, was actually
executed on July 18, 1996; he notarized the deed and entered it in his register only on
July 22, 1996. He claimed that he did not find it necessary to state the precise date and
place of execution (Bayombong, Nueva Vizcaya, instead of Santiago City) of the deed
of sale because the deed is merely a confirmation of a previously agreed contract
between Gregorio and the Spouses Paragas. He likewise stated that of the
stated P500,000.00 consideration in the deed, Rudy paid Gregorio P450,000.00 in the
hospital because Rudy had previously paid Gregorio P50,000.00. For his part, Antonio
added that he was asked by Rudy to take pictures of Gregorio signing the deed. He also
claimed that there was no entry on the date when he signed; nor did he remember
reading Santiago City as the place of execution of the deed. He described Gregorio as
still strong but sickly, who got up from the bed with Julias help.

Witness for defendants-appellants Luisa Agsalda testified to prove that Lot 1175-E was
Gregorios separate property. She claimed that Gregorios father (Leon) purchased a
two-hectare lot from them in 1972 while the other lot was purchased from her neighbor.
She also declared that Gregorio inherited these lands from his father Leon; she does
not know, however, Gregorios brothers share in the inheritance. Defendant-appellant
Catalino also testified to corroborate the testimony of witness Luisa Agsalda; he said
that Gregorio told him that he (Gregorio) inherited Lots 1175-E and 1175-F from his
father Leon. He also stated that a portion of Lot 1175-E consisting of 6,416 square
meters was sold to him by the Spouses Paragas and that he will pay the Spouses
 Paragas P50,000.00, not as consideration for the return of the land but for the transfer
of the title to his name.

Additionally, the defendants-appellants presented in evidence the pictures taken by

Antonio when Gregorio allegedly signed the deed. [4]

The lower court, after trial, rendered the decision declaring null and void the deed of
sale purportedly executed by Gregorio Balacano in favor of the spouses Rudy Paragas
and Corazon Paragas. In nullifying the deed of sale executed by Gregorio, the lower
court initially noted that at the time Gregorio executed the deed, Gregorio was ill. The
lower courts reasoning in declaring the deed of sale null and void and this reasonings
premises may be summarized as follows: (1) the deed of sale was improperly notarized;
thus it cannot be considered a public document that is usually accorded the
presumption of regularity; (2) as a private document, the deed of sales due execution
must be proved in accordance with Section 20, Rule 132 of the Revised Rules on
Evidence either: (a) by anyone who saw the document executed or written; or (b) by
evidence of the genuineness of the signature or handwriting of the maker; and (3) it was
incumbent upon the Spouses Paragas to prove the deed of sales due execution but
failed to do so the lower court said that witness Antonio Agcaoili is not credible while
Atty. Alexander De Guzman is not reliable.[5]
The lower court found the explanations of Atty. De Guzman regarding the erroneous
entries on the actual place and date of execution of the deed of sale as justifications for
a lie. The lower court said

The Court cannot imagine an attorney to undertake to travel to another province to

notarize a document when he must certainly know, being a lawyer and by all means, not
stupid, that he has no authority to notarize a document in that province. The only logical
thing that happened was that Rudy Paragas brought the deed of sale to him on July 22,
1996 already signed and requested him to notarize the same which he did, not knowing
that at that time the vendor was already in a hospital and [sic] Quezon City. Of course
had he known, Atty. De Guzman would not have notarized the document. But he trusted
Rudy Paragas and moreover, Gregorio Balacano already informed him previously in
June that he will sell his lands to Paragas. In addition [sic, (,) was omitted] Rudy
Paragas also told him that Balacano received an advance of P50,000.00.

The intention to sell is not actual selling. From the first week of June when, according to
Atty. De Guzman, Gregorio Balacano informed him that he will sell his land to Rudy
Paragas, enough time elapsed to the time he was brought to the hospital on June 28,
1996. Had there been a meeting of the minds between Gregorio Balacano and Rudy
Paragas regarding the sale, surely Gregorio Balacano would have immediately returned
to the office of Atty. De Guzman to execute the deed of sale. He did not until he was
brought to the hospital and diagnosed to have liver cirrhosis. Because of the
seriousness of his illness, it is not expected that Gregorio Balacano would be
negotiating a contract of sale. Thus, Rudy Paragas negotiated with Catalino
Balacano, the son of Gregorio Balacano with whom the latter was staying. [6]
 The lower court also did not consider Antonio Agcaoili, petitioner Rudy Paragass
driver, a convincing witness, concluding that he was telling a rehearsed story. The lower
court said

The only portion of his testimony that is true is that he signed the document. How could
the Court believe that he brought a camera with him just to take pictures of the signing?
If the purpose was to record the proceeding for posterity, why did he not take the picture
of Atty. De Guzman when the latter was reading and explaining the document to
Gregorio Balacano? Why did he not take the picture of both Gregorio Balacano and
Atty. de Guzman while the old man was signing the document instead of taking a picture
of Gregorio Balacano alone holding a ball pen without even showing the document
being signed? Verily there is a picture of a document but only a hand with a ball pen is
shown with it. Why? Clearly the driver Antonio Agcaoili must have only been asked by
Rudy Paragas to tell a concocted story which he himself would not dare tell in Court
under oath.[7]

The lower court likewise noted that petitioner Rudy Paragas did not testify about the
signing of the deed of sale. To the lower court, Rudys refusal or failure to testify raises a
lot of questions, such as: (1) was he (Rudy) afraid to divulge the circumstances of how
he obtained the signature of Gregorio Balacano, and (2) was he (Rudy) afraid to admit
that he did not actually pay the P500,000.00 indicated in the deed of sale as the price of
the land?[8]
The lower court also ruled that Lots 1175-E and 1175-F were Gregorios and
Lorenzas conjugal partnership properties. The lower court found that these lots were
acquired during the marriage because the certificates of title of these lots clearly stated
that the lots are registered in the name Gregorio, married to Lorenza Sumigcay. Thus,
the lower court concluded that the presumption of law (under Article 160 of the Civil
Code of the Philippines) that property acquired during the marriage is presumed to
belong to the conjugal partnership fully applies to Lots 1175-E and 1175-F. [9]
Thus, on 8 March 1999, the RTC, Branch 21, of Santiago City, Isabela, rendered a
Decision[10] in Civil Case No. 21-2313, the dispositive portion of which reads as follows:

WHEREFORE in the light of the foregoing considerations judgment is hereby rendered:

1. DECLARING as NULL and VOID the deed of sale purportedly executed

by Gregorio Balacano in favor of the spouses Rudy Paragas and
Corazon Paragas over lots 1175-E and 1175-F covered by TCT Nos. T-
103297 and T-103298, respectively;

2. ORDERING the cancellation of TCT Nos. T-258042 and T-258041 issued

in the name of the spouses Rudy and Corazon Paragas by virtue of the
deed of sale; and

DECLARING the parcel of lands, lots 1175-E and 1175-F as part of the estate of the
deceased spouses Gregorio Balacano and Lorenza Balacano. [11]
 In the assailed Decision dated 15 February 2005, the Court of Appeals affirmed the
Decision of the trial court, with the modification that Lots 1175-E and 1175-F were
adjudged as belonging to the estate of Gregorio Balacano. The appellate court disposed
as follows:

WHEREFORE, premises considered, the appeal is hereby DISMISSED. We AFFIRM

the appealed Decision for the reasons discussed above, with the MODIFICATION that
Lots 1175-E and 1175-F belong to the estate of Gregorio Balacano.

Let a copy of this Decision be furnished the Office of the Bar Confidant for whatever
action her Office may take against Atty. De Guzman.[12] (Emphasis in the original.)

Herein petitioners motion for reconsideration was met with similar lack of success
when it was denied for lack of merit by the Court of Appeals in its Resolution [13] dated 17
May 2005.
Hence, this appeal via a petition for review where petitioners assign the following
errors to the Court of Appeals, viz:
A. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY ERRED IN FINDING THAT THERE WAS NO
PERFECTED AND PARTIALLY EXECUTED CONTRACT OF SALE OVER
LOTS 1175-E AND 1175-F PRIOR TO THE SIGNING OF THE DEED OF
SALE.
B. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY FAILED TO APPRECIATE THE SIGNIFICANCE
OF THE JUDICIAL ADMISSION ON THE AUTHENTICITY AND DUE
EXECUTION OF THE DEED OF SALE MADE BY THE RESPONDENTS
DURING THE PRE-TRIAL CONFERENCE.
C. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, BASED ITS CONCLUSION THAT GREGORIOS CONSENT
TO THE SALE OF THE LOTS WAS ABSENT MERELY ON SPECULATIONS
AND SURMISES.
D. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY ERRED IN NOT RULING ON THE ISSUE OF
RESPONDENTS LACK OF LEGAL CAPACITY TO SUE FOR NOT BEING
THE PROPER PARTIES IN INTEREST.
E. THE HONORABLE COURT OF APPEALS, WITH GRAVE ABUSE OF
DISCRETION, SERIOUSLY ERRED IN DISMISSING ATTY. ALEXANDER
DE GUZMAN AND ANTONIO AGCAOILI AS NOT CREDIBLE WITNESSES.
[14]

At bottom is the issue of whether or not the Court of Appeals committed reversible
error in upholding the findings and conclusions of the trial court on the nullity of the
Deed of Sale purportedly executed between petitioners and the late Gregorio Balacano.
 To start, we held in Blanco v. Quasha[15] that this Court is not a trier of facts. As
such, it is not its function to examine and determine the weight of the evidence
supporting the assailed decision. Factual findings of the Court of Appeals, which are
supported by substantial evidence, are binding, final and conclusive upon the Supreme
Court,[16] and carry even more weight when the said court affirms the factual findings of
the trial court. Moreover, well- entrenched is the prevailing jurisprudence that only errors
of law and not of facts are reviewable by this Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court.
The foregoing tenets in the case at bar apply with greater force to the petition under
consideration because the factual findings by the Court of Appeals are in full agreement
with that of the trial court.
Specifically, the Court of Appeals, in affirming the trial court, found that there was no
prior and perfected contract of sale that remained to be fully consummated. The
appellate court explained -

In support of their position, the defendants-appellants argue that at least a month prior
to Gregorios signing of the deed, Gregorio and the Spouses Paragas already agreed on
the sale of Lots 1175-E and 1175-F; and that, in fact, this agreement was partially
executed by Rudys payment to Gregorio of P50,000.00 before Gregorio signed the
deed at the hospital. In line with this position, defendants-appellants posit that Gregorios
consent to the sale should be determined, not at the time Gregorio signed the deed of
sale on July 18, 1996, but at the time when he agreed to sell the property in June 1996
or a month prior to the deeds signing; and in June 1996, Gregorio was of sound and
disposing mind and his consent to the sale was in no wise vitiated at that time. The
defendants-appellants further argue that the execution or signing of the deed of sale,
however, irregular it might have been, does not affect the validity of the previously
agreed sale of the lots, as the execution or signing of the deed is merely a formalization
of a previously agreed oral contract.

...

In the absence of any note, memorandum or any other written instrument evidencing
the alleged perfected contract of sale, we have to rely on oral testimonies, which in this
case is that of Atty. de Guzman whose testimony on the alleged oral agreement may be
summarized as follows: (1) that sometime in the first week of June 1996, Gregorio
requested him (Atty. de Guzman) to prepare a deed of sale of two lots; (2) Gregorio
came to his firms office in the morning with a certain Doming Balacano, then returned in
the afternoon with Rudy; (3) he (Atty. de Guzman) asked Gregorio whether he really
intends to sell the lots; Gregorio confirmed his intention; (4) Gregorio and Rudy left the
law office at 5:00 p.m., leaving the certificates of title; (5) he prepared the deed a day
after Rudy and Gregorio came. With regard to the alleged partial execution of this
agreement, Atty. de Guzman said that he was told by Rudy that there was already a
partial payment of P50,000.00.
 We do not consider Atty. de Guzmans testimony sufficient evidence to establish the fact
that there was a prior agreement between Gregorio and the Spouses Paragas on the
sale of Lots 1175-E and 1175-F. This testimony does not conclusively establish the
meeting of the minds between Gregorio and the Spouses Paragas on the price or
consideration for the sale of Lots 1175-E and 1175-F Atty. de Guzman merely declared
that he was asked by Gregorio to prepare a deed; he did not clearly narrate the details
of this agreement. We cannot assume that Gregorio and the Spouses Paragas agreed
to a P500,000.00 consideration based on Atty. de Guzmans bare assertion that
Gregorio asked him to prepare a deed, as Atty. de Guzman was not personally aware of
the agreed consideration in the sale of the lots, not being privy to the parties agreement.
To us, Rudy could have been a competent witness to testify on the perfection of this
prior contract; unfortunately, the defendants-appellants did not present Rudy as their
witness.

We seriously doubt too the credibility of Atty. de Guzman as a witness. We cannot rely
on his testimony because of his tendency to commit falsity. He admitted in open court
that while Gregorio signed the deed on July 18, 1996 at Bayombong, Nueva Vizcaya,
he nevertheless did not reflect these matters when he notarized the deed; instead he
entered Santiago City and July 22, 1996, as place and date of execution, respectively.
To us, Atty. de Guzmans propensity to distort facts in the performance of his public
functions as a notary public, in utter disregard of the significance of the act of
notarization, seriously affects his credibility as a witness in the present case. In fact,
Atty. de Guzmans act in falsifying the entries in his acknowledgment of the deed of sale
could be the subject of administrative and disciplinary action, a matter that we however
do not here decide.

Similarly, there is no conclusive proof of the partial execution of the contract because
the only evidence the plaintiffs-appellants presented to prove this claim was Atty. de
Guzmans testimony, which is hearsay and thus, has no probative value. Atty. de
Guzman merely stated that Rudy told him that Rudy already gave P50,000.00 to
Gregorio as partial payment of the purchase price; Atty. de Guzman did not personally
see the payment being made.[17]

But, did Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F
when he signed the deed of sale? The trial court as well as the appellate court found in
the negative. In the Court of Appeals rationale-

It is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill,
as he in fact died a week after the deeds signing. Gregorio died of complications caused
by cirrhosis of the liver. Gregorios death was neither sudden nor immediate; he fought
at least a month-long battle against the disease until he succumbed to death on July 22,
1996. Given that Gregorio purportedly executed a deed during the last stages of his
battle against his disease, we seriously doubt whether Gregorio could have read, or fully
understood, the contents of the documents he signed or of the consequences of his act.
We note in this regard that Gregorio was brought to the Veterans Hospital at Quezon
City because his condition had worsened on or about the time the deed was allegedly
 signed. This transfer and fact of death not long after speak volumes about Gregorios
condition at that time. We likewise see no conclusive evidence that the contents of the
deed were sufficiently explained to Gregorio before he affixed his signature. The
evidence the defendants-appellants offered to prove Gregorios consent to the sale
consists of the testimonies of Atty. de Guzman and Antonio. As discussed above, we do
not find Atty. de Guzman a credible witness. Thus, we fully concur with the heretofore-
quoted lower courts evaluation of the testimonies given by Atty. de Guzman and Antonio
because this is an evaluation that the lower court was in a better position to make.

Additionally, the irregular and invalid notarization of the deed is a falsity that raises
doubts on the regularity of the transaction itself. While the deed was indeed signed on
July 18, 1996 at Bayombong, Nueva Vizcaya, the deed states otherwise, as it shows
that the deed was executed on July 22, 1996 at Santiago City. Why such falsity was
committed, and the circumstances under which this falsity was committed, speaks
volume about the regularity and the validity of the sale. We cannot but consider the
commission of this falsity, with the indispensable aid of Atty. de Guzman, an
orchestrated attempt to legitimize a transaction that Gregorio did not intend to be
binding upon him nor on his bounty.

Article 24 of the Civil Code tells us that in all contractual, property or other relations,
when one of the parties is at a disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age or other handicap, the courts must
be vigilant for his protection.[18]

Based on the foregoing, the Court of Appeals concluded that Gregorios consent to
the sale of the lots was absent, making the contract null and void. Consequently, the
spouses Paragas could not have made a subsequent transfer of the property to
Catalino Balacano. Indeed, nemo dat quod non habet. Nobody can dispose of that
which does not belong to him.[19]
We likewise find to be in accord with the evidence on record the ruling of the Court
of Appeals declaring the properties in controversy as paraphernal properties of Gregorio
in the absence of competent evidence on the exact date of Gregorios acquisition of
ownership of these lots.
On the credibility of witnesses, it is in rhyme with reason to believe the testimonies
of the witnesses for the complainants vis--vis those of the defendants. In the
assessment of the credibility of witnesses, we are guided by the following well-
entrenched rules: (1) that evidence to be believed must not only spring from the mouth
of a credible witness but must itself be credible, and (2) findings of facts and
assessment of credibility of witness are matters best left to the trial court who had the
front-line opportunity to personally evaluate the witnesses demeanor, conduct, and
behavior while testifying.[20]
In the case at bar, we agree in the trial courts conclusion that petitioners star
witness, Atty. De Guzman is far from being a credible witness. Unlike this Court, the trial
court had the unique opportunity of observing the demeanor of said witness. Thus, we
 affirm the trial court and the Court of Appeals uniform decision based on the whole
evidence in record holding the Deed of Sale in question to be null and void.
In Domingo v. Court of Appeals,[21] the Court declared as null and void the deed of
sale therein inasmuch as the seller, at the time of the execution of the alleged contract,
was already of advanced age and senile. We held

. . . She died an octogenarian on March 20, 1966, barely over a year when the deed
was allegedly executed on January 28, 1965, but before copies of the deed were
entered in the registry allegedly on May 16 and June 10, 1966. The general rule is that
a person is not incompetent to contract merely because of advanced years or by reason
of physical infirmities. However, when such age or infirmities have impaired the mental
faculties so as to prevent the person from properly, intelligently, and firmly protecting her
property rights then she is undeniably incapacitated. The unrebutted testimony of
Zosima Domingo shows that at the time of the alleged execution of the deed, Paulina
was already incapacitated physically and mentally. She narrated that Paulina played
with her waste and urinated in bed. Given these circumstances, there is in our view
sufficient reason to seriously doubt that she consented to the sale of and the price for
her parcels of land. Moreover, there is no receipt to show that said price was paid to and
received by her. Thus, we are in agreement with the trial courts finding and conclusion
on the matter: . . .

In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death
bed in the hospital. Gregorio was an octogenarian at the time of the alleged execution of
the contract and suffering from liver cirrhosis at that circumstances which raise grave
doubts on his physical and mental capacity to freely consent to the contract. Adding to
the dubiety of the purported sale and further bolstering respondents claim that their
uncle Catalino, one of the children of the decedent, had a hand in the execution of the
deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E
consisting of 6,416 square meters to Catalino for P60,000.00.[22] One need not stretch
his imagination to surmise that Catalino was in cahoots with petitioners in maneuvering
the alleged sale.
On the whole, we find no reversible error on the part of the appellate court in CA-
G.R. CV No. 64048 that would warrant the reversal thereof.
WHEREFORE, the present petition is hereby DENIED. Accordingly, the
Decision[23] and the Resolution,[24] dated 15 February 2005 and 17 May 2005,
respectively, of the Court of Appeals in CA-G.R. CV No. 64048 are hereby AFFIRMED.
No costs.
SO ORDERED.
Spouses ANTONIO and LUZVIMINDA GUIANG, petitioners, vs. COURT OF
APPEALS and GILDA CORPUZ, respondents.

DECISION
PANGANIBAN, J.:
 The sale of a conjugal property requires the consent of both the husband and the
wife. The absence of the consent of one renders the sale null and void, while the
vitiation thereof makes it merely voidable. Only in the latter case can ratification cure the
defect.

The Case

These were the principles that guided the Court in deciding this petition for review of
the Decision[1] dated January 30, 1996 and the Resolution [2] dated May 28, 1996,
promulgated by the Court of Appeals in CA-GR CV No. 41758, affirming the Decision of
the lower court and denying reconsideration, respectively.
On May 28, 1990, Private Respondent Gilda Corpuz filed an Amended
Complaint[3] against her husband Judie Corpuz and Petitioners-Spouses Antonio and
Luzviminda Guiang. The said Complaint sought the declaration of a certain deed of
sale, which involved the conjugal property of private respondent and her husband, null
and void. The case was raffled to the Regional Trial Court of Koronadal, South
Cotabato, Branch 25. In due course, the trial court rendered a Decision [4] dated
September 9, 1992, disposing as follows:[5]
ACCORDINGLY, judgment is rendered for the plaintiff and against the
defendants,

1. Declaring both the Deed of Transfer of Rights dated March 1, 1990 (Exh. A) and the
amicable settlement dated March 16, 1990 (Exh. B) as null and void and of no effect;

2. Recognizing as lawful and valid the ownership and possession of plaintiff Gilda
Corpuz over the remaining one-half portion of Lot 9, Block 8, (LRC) Psd-165409 which
has been the subject of the Deed of Transfer of Rights (Exh. A);

3. Ordering plaintiff Gilda Corpuz to reimburse defendants Luzviminda and Antonio

Guiang the amount of NINE THOUSAND (P9,000.00) PESOS corresponding to the
payment made by defendants Guiangs to Manuel Callejo for the unpaid balance of the
account of plaintiff in favor of Manuel Callejo, and another sum of P379.62 representing
one-half of the amount of realty taxes paid by defendants Guiangs on Lot 9, Block 8,
(LRC) Psd-165409, both with legal interests thereon computed from the finality of the
decision.

No pronouncement as to costs in view of the factual circumstances of the case.

Dissatisfied, petitioners-spouses filed an appeal with the Court of

Appeals. Respondent Court, in its challenged Decision, ruled as follows: [6]
WHEREFORE, the appealed decision of the lower court in Civil Case No. 204 is
hereby AFFIRMED by this Court. No costs considering plaintiff-appellees failure
to file her brief, despite notice.
 Reconsideration was similarly denied by the same court in its assailed Resolution: [7]
Finding that the issues raised in defendants-appellants motion for
reconsideration of Our decision in this case of January 30, 1996, to be a mere
rehash of the same issues which We have already passed upon in the said
decision, and there [being] no cogent reason to disturb the same, this Court
RESOLVES to DENY the instant motion for reconsideration for lack of merit.

The Facts

The facts of this case are simple. Over the objection of private respondent and while
she was in Manila seeking employment, her husband sold to the petitioners-spouses
one half of their conjugal property, consisting of their residence and the lot on which it
stood. The circumstances of this sale are set forth in the Decision of Respondent Court,
which quoted from the Decision of the trial court, as follows: [8]
1. Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married
spouses. They were married on December 24, 1968 in Bacolod City, before a
judge. This is admitted by defendants-spouses Antonio and Luzviminda Guiang
in their answer, and also admitted by defendant Judie Corpuz when he testified
in court (tsn. p..3, June 9, 1992), although the latter says that they were married
in 1967. The couple have three children, namely: Junie 18 years old, Harriet 17
years of age, and Jodie or Joji, the youngest, who was 15 years of age in
August, 1990 when her mother testified in court.
Sometime on February 14, 1983, the couple Gilda and Judie Corpuz, with
plaintiff-wife Gilda Corpuz as vendee, bought a 421 sq. meter lot located in
Barangay Gen. Paulino Santos (Bo. 1), Koronadal, South Cotabato, and
particularly known as Lot 9, Block 8, (LRC) Psd-165409 from Manuel Callejo
who signed as vendor through a conditional deed of sale for a total
consideration of P14,735.00. The consideration was payable in installment, with
right of cancellation in favor of vendor should vendee fail to pay three
successive installments (Exh. 2, tsn. p. 6, February 14, 1990).
2. Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half
portion of their Lot No. 9, Block 8, (LRC) Psd-165409 to the defendants-spouses
Antonio and Luzviminda Guiang. The latter have since then occupied the one-
half portion [and] built their house thereon (tsn. p. 4, May 22, 1992). They are
thus adjoining neighbors of the Corpuzes.
3. Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to
look for work abroad, in [the] Middle East. Unfortunately, she became a victim of
an unscrupulous illegal recruiter. She was not able to go abroad. She stayed for
sometime in Manila however, coming back to Koronadal, South Cotabato, x x x
on March 11, 1990. Plaintiffs departure for Manila to look for work in the Middle
East was with the consent of her husband Judie Corpuz (tsn. p. 16, Aug.12,
1990; p. 10, Sept. 6, 1991).
After his wifes departure for Manila, defendant Judie Corpuz seldom went home
to the conjugal dwelling. He stayed most of the time at his place of work at
Samahang Nayon Building, a hotel, restaurant, and a cooperative. Daughter
Harriet Corpuz went to school at Kings College, Bo. 1, Koronadal, South
Cotabato, but she was at the same time working as household help of, and
staying at, the house of Mr. Panes. Her brother Junie was not working. Her
younger sister Jodie (Joji) was going to school. Her mother sometimes sent
them money (tsn. p. 14, Sept. 6, 1991).
Sometime in January 1990, Harriet Corpuz learned that her father intended to
sell the remaining one-half portion including their house, of their homelot to
defendants Guiangs. She wrote a letter to her mother informing her. She [Gilda
Corpuz] replied that she was objecting to the sale. Harriet, however, did not
inform her father about this; but instead gave the letter to Mrs. Luzviminda
Guiang so that she [Guiang] would advise her father (tsn. pp. 16-17, Sept. 6,
1991).
4. However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz
pushed through the sale of the remaining one-half portion of Lot 9, Block 8,
(LRC) Psd-165409. On March 1, 1990, he sold to defendant Luzviminda Guiang
thru a document known as Deed of Transfer of Rights (Exh. A) the remaining
one-half portion of their lot and the house standing thereon for a total
consideration of P30,000.00 of which P5,000.00 was to be paid in June ,
1990. Transferor Judie Corpuzs children Junie and Harriet signed the document
as witnesses.
Four (4) days after March 1, 1990 or on March 5, 1990, obviously to cure
whatever defect in defendant Judie Corpuzs title over the lot transferred,
defendant Luzviminda Guiang as vendee executed another agreement over Lot
9, Block 8, (LRC) Psd-165408 (Exh. 3), this time with Manuela Jimenez Callejo,
a widow of the original registered owner from whom the couple Judie and Gilda
Corpuz originally bought the lot (Exh. 2), who signed as vendor for a
consideration of P9,000.00. Defendant Judie Corpuz signed as a witness to the
sale (Exh. 3-A). The new sale (Exh. 3) describes the lot sold as Lot 8, Block 9,
(LRC) Psd-165408 but it is obvious from the mass of evidence that the correct
lot is Lot 8, Block 9, (LRC) Psd-165409, the very lot earlier sold to the couple
Gilda and Judie Corpuz.
5. Sometime on March 11, 1990, plaintiff returned home. She found her children
staying with other households. Only Junie was staying in their house. Harriet
and Joji were with Mr. Panes. Gilda gathered her children together and stayed at
their house. Her husband was nowhere to be found. She was informed by her
children that their father had a wife already.
6. For staying in their house sold by her husband, plaintiff was complained
against by defendant Luzviminda Guiang and her husband Antonio Guiang
before the Barangay authorities of Barangay General Paulino Santos (Bo. 1),
Koronadal, South Cotabato, for trespassing (tsn. p. 34, Aug. 17, 1990). The case
was docketed by the barangay authorities as Barangay Case No. 38 for
 trespassing. On March 16, 1990, the parties thereat signed a document known
as amicable settlement. In full, the settlement provides for, to wit:
That respondent, Mrs. Gilda Corpuz and her three children,
namely: Junie, Hariet and Judie to leave voluntarily the house of Mr.
and Mrs. Antonio Guiang, where they are presently boarding without
any charge, on or before April 7, 1990.

FAIL NOT UNDER THE PENALTY OF THE LAW.

Believing that she had received the shorter end of the bargain, plaintiff went to
the Barangay Captain of Barangay Paulino Santos to question her signature on
the amicable settlement. She was referred however to the Officer-In-Charge at
the time, a certain Mr. de la Cruz. The latter in turn told her that he could not do
anything on the matter (tsn. p. 31, Aug. 17, 1990).
This particular point was not rebutted. The Barangay Captain who testified did
not deny that Mrs. Gilda Corpuz approached him for the annulment of the
settlement. He merely said he forgot whether Mrs. Corpuz had approached him
(tsn. p. 13, Sept. 26, 1990). We thus conclude that Mrs. Corpuz really
approached the Barangay Captain for the annulment of the
settlement. Annulment not having been made, plaintiff stayed put in her house
and lot.
7. Defendant-spouses Guiang followed thru the amicable settlement with a
motion for the execution of the amicable settlement, filing the same with the
Municipal Trial Court of Koronadal, South Cotabato. The proceedings [are] still
pending before the said court, with the filing of the instant suit.
8. As a consequence of the sale, the spouses Guiang spent P600.00 for the
preparation of the Deed of Transfer of Rights, Exh. A; P9,000.00 as the amount
they paid to Mrs. Manuela Callejo, having assumed the remaining obligation of
the Corpuzes to Mrs. Callejo (Exh. 3); P100.00 for the preparation of Exhibit 3; a
total of P759.62 basic tax and special educational fund on the lot; P127.50 as
the total documentary stamp tax on the various documents; P535.72 for the
capital gains tax; P22.50 as transfer tax; a standard fee of P17.00; certification
fee of P5.00. These expenses particularly the taxes and other expenses towards
the transfer of the title to the spouses Guiangs were incurred for the whole Lot 9,
Block 8, (LRC) Psd-165409.

Ruling of Respondent Court

Respondent Court found no reversible error in the trial courts ruling that any
alienation or encumbrance by the husband of the conjugal property without the consent
of his wife is null and void as provided under Article 124 of the Family Code. It also
rejected petitioners contention that the amicable settlement ratified said sale, citing
 Article 1409 of the Code which expressly bars ratification of the contracts specified
therein, particularly those prohibited or declared void by law.
Hence, this petition.[9]

The Issues

In their Memorandum, petitioners assign to public respondent the following errors: [10]
I
Whether or not the assailed Deed of Transfer of Rights was validly executed.
II
Whether or not the Court of Appeals erred in not declaring as voidable contract
under Art. 1390 of the Civil Code the impugned Deed of Transfer of Rights which
was validly ratified thru the execution of the amicable settlement by the
contending parties.
III
Whether or not the Court of Appeals erred in not setting aside the findings of the
Court a quo which recognized as lawful and valid the ownership and possession
of private respondent over the remaining one half (1/2) portion of the subject
property.
In a nutshell, petitioners-spouses contend that (1) the contract of sale (Deed of
Transfer of Rights) was merely voidable, and (2) such contract was ratified by private
respondent when she entered into an amicable settlement with them.

This Courts Ruling

The petition is bereft of merit.

First Issue: Void or Voidable Contract?

Petitioners insist that the questioned Deed of Transfer of Rights was validly
executed by the parties-litigants in good faith and for valuable consideration. The
absence of private respondents consent merely rendered the Deed voidable under
Article 1390 of the Civil Code, which provides:
ART. 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
xxxxxxxxx
 (2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are annulled by a proper action in
court. They are susceptible of ratification.(n)
The error in petitioners contention is evident. Article 1390, par. 2, refers to contracts
visited by vices of consent, i.e., contracts which were entered into by a person whose
consent was obtained and vitiated through mistake, violence, intimidation, undue
influence or fraud. In this instance, private respondents consent to the contract of sale
of their conjugal property was totally inexistent or absent. Gilda Corpuz, on direct
examination, testified thus:[11]
Q Now, on March 1, 1990, could you still recall where you were?
A I was still in Manila during that time.
xxxxxxxxx
ATTY. FUENTES:
Q When did you come back to Koronadal, South Cotabato?
A That was on March 11, 1990, Maam.
Q Now, when you arrived at Koronadal, was there any problem which arose
concerning the ownership of your residential house at Callejo Subdivision?
A When I arrived here in Koronadal, there was a problem which arose regarding my
residential house and lot because it was sold by my husband without my
knowledge.
This being the case, said contract properly falls within the ambit of Article 124 of the
Family Code, which was correctly applied by the two lower courts:
ART. 124. The administration and enjoyment of the conjugal partnership
property shall belong to both spouses jointly. In case of disagreement, the
husbands decision shall prevail, subject to recourse to the court by the wife for
proper remedy, which must be availed of within five years from the date of the
contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate
in the administration of the conjugal properties, the other spouse may assume
sole powers of administration. These powers do not include the powers of
disposition or encumbrance which must have the authority of the court or the
written consent of the other spouse. In the absence of such authority or consent,
the disposition or encumbrance shall be void. However, the transaction shall be
construed as a continuing offer on the part of the consenting spouse and the
third person, and may be perfected as a binding contract upon the acceptance
by the other spouse or authorization by the court before the offer is withdrawn by
either or both offerors.(165a) (Italics supplied)
 Comparing said law with its equivalent provision in the Civil Code, the trial court
adroitly explained the amendatory effect of the above provision in this wise: [12]
The legal provision is clear. The disposition or encumbrance is void. It becomes
still clearer if we compare the same with the equivalent provision of the Civil
Code of the Philippines.Under Article 166 of the Civil Code, the husband cannot
generally alienate or encumber any real property of the conjugal partnership
without the wifes consent. The alienation or encumbrance if so made however is
not null and void. It is merely voidable. The offended wife may bring an action to
annul the said alienation or encumbrance. Thus, the provision of Article 173 of
the Civil Code of the Philippines, to wit:
Art. 173. The wife may, during the marriage and within ten years from
the transaction questioned, ask the courts for the annulment of any
contract of the husband entered into without her consent, when such
consent is required, or any act or contract of the husband which tends
to defraud her or impair her interest in the conjugal partnership
property. Should the wife fail to exercise this right, she or her heirs after
the dissolution of the marriage, may demand the value of property
fraudulently alienated by the husband.(n)
This particular provision giving the wife ten (10) years x x x during [the] marriage
to annul the alienation or encumbrance was not carried over to the Family
Code. It is thus clear that any alienation or encumbrance made after August 3,
1988 when the Family Code took effect by the husband of the conjugal
partnership property without the consent of the wife is null and void.
Furthermore, it must be noted that the fraud and the intimidation referred to by
petitioners were perpetrated in the execution of the document embodying the amicable
settlement. Gilda Corpuz alleged during trial that barangay authorities made her sign
said document through misrepresentation and coercion. [13] In any event, its execution
does not alter the void character of the deed of sale between the husband and the
petitioners-spouses, as will be discussed later. The fact remains that such contract was
entered into without the wifes consent.
In sum, the nullity of the contract of sale is premised on the absence of private
respondents consent. To constitute a valid contract, the Civil Code requires the
concurrence of the following elements: (1) cause, (2) object, and (3) consent,[14] the last
element being indubitably absent in the case at bar.

Second Issue: Amicable Settlement

Insisting that the contract of sale was merely voidable, petitioners aver that it was
duly ratified by the contending parties through the amicable settlement they executed on
March 16, 1990 in Barangay Case No. 38.
The position is not well taken. The trial and the appellate courts have resolved this
issue in favor of the private respondent. The trial court correctly held:[15]
 By the specific provision of the law [Art. 1390, Civil Code] therefore, the Deed of
Transfer of Rights (Exh. A) cannot be ratified, even by an amicable
settlement. The participation by some barangay authorities in the amicable
settlement cannot otherwise validate an invalid act. Moreover, it cannot be
denied that the amicable settlement (Exh. B) entered into by plaintiff Gilda
Corpuz and defendant spouses Guiang is a contract. It is a direct offshoot of the
Deed of Transfer of Rights (Exh. A). By express provision of law, such a contract
is also void. Thus, the legal provision, to wit:
Art. 1422. A contract which is the direct result of a previous illegal
contract, is also void and inexistent. (Civil Code of the Philippines).
In summation therefore, both the Deed of Transfer of Rights (Exh. A) and the
amicable settlement (Exh. 3) are null and void.
Doctrinally and clearly, a void contract cannot be ratified. [16]
Neither can the amicable settlement be considered a continuing offer that was
accepted and perfected by the parties, following the last sentence of Article 124. The
order of the pertinent events is clear: after the sale, petitioners filed a complaint for
trespassing against private respondent, after which the barangay authorities secured an
amicable settlement and petitioners filed before the MTC a motion for its execution. The
settlement, however, does not mention a continuing offer to sell the property or an
acceptance of such a continuing offer. Its tenor was to the effect that private respondent
would vacate the property. By no stretch of the imagination, can the Court interpret this
document as the acceptance mentioned in Article 124.
WHEREFORE, the Court hereby DENIES the petition and AFFIRMS the challenged
Decision and Resolution. Costs against petitioners.
SO ORDERED.

PELAYO vs. PEREZ

David Pelayo (Pelayo),by a Deed of Absolute Sale executed on

January 11, 1988, conveyed to Melki Perez (Perez) two parcels of
agricultural land (the lots) situated in Panabo, Davao which are portions of
Lot 4192, Cad. 276 covered by OCT P-16873.

Loreza Pelayo (Loreza), wife of Pelayo, and another one whose

signature is illegible witnessed the execution of the deed.

Loreza, however, signed only on the third page in the space

provided for witnesses on account of which Perez application for
registration of the deed with the Office of the Register of Deeds in Tagum,
Davao was denied.

Perez thereupon asked Loreza to sign on the first and second

pages of the deed but she refused, hence, he instituted on August 8, 1991
the instant complaint for specific performance against her and her
husband Pelayo (defendants).

The defendants moved to dismiss the complaint on the ground that

it stated no cause of action, citing Section 6 of RA 6656 otherwise known
as the Comprehensive Agrarian Reform Law which took effect on June 10,
1988 and which provides that contracts executed prior thereto shall be
valid only when registered with the Register of Deeds within a period of
three (3) months after the effectivity of this Act.

The questioned deed having been executed on January 10, 1988,

the defendants claimed that Perez had at least up to September 10, 1988
within which to register the same, but as they failed to, it is not valid and,
therefore, unenforceable.

The trial court thus dismissed the complaint. On appeal to this

Court, the dismissal was set aside and the case was remanded to the
lower court for further proceedings.

In their Answer, the defendants claimed that as the lots were

occupied illegally by some persons against whom they filed an ejectment
case, they and Perez who is their friend and known at the time as an
activist/leftist, hence feared by many, just made it appear in the deed that
the lots were sold to him in order to frighten said illegal occupants, with the
intentional omission of Lorezas signature so that the deed could not be
registered; and that the deed being simulated and bereft of consideration
is void/inexistent.

Perez countered that the lots were given to him by defendant

Pelayo in consideration of his services as his attorney-in-fact to make the
necessary representation and negotiation with the illegal occupants-
defendants in the ejectment suit; and that after his relationship with
defendant Pelayo became sour, the latter sent a letter to the Register of
 Deeds of Tagum requesting him not to entertain any transaction
concerning the lots title to which was entrusted to Perez who misplaced
and could [not] locate it.

Defendant Pelayo claimed in any event, in his Pre-trial brief filed on

March 19, 1996, that the deed was without his wife Lorezas consent,
hence, in light of Art. 166 of the Civil Code which provides:

Article 166. Unless the wife has been declared a non

compos mentis or a spendthrift, or is under civil interdiction
or is confined in a leprosarium, the husband cannot alienate
or encumber any real property of the conjugal partnership
without the wifes consent . . .

it is null and void.

The trial court, finding, among others, that Perez did not possess,
nor pay the taxes on the lots, that defendant Pelayo was indebted to
Perez for services rendered and, therefore, the deed could only be
considered as evidence of debt, and that in any event, there was no
marital consent to nor actual consideration for the deed, held that the deed
was null and void and accordingly rendered judgment the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered ordering

and directing the defendants to pay plaintiff Melki Perez the
sum of TEN THOUSAND (P10,000.00) Pesos as principal
with 12% interest per annum starting from the date of filing of
the complaint on August 1, 1991 until plaintiff is fully paid.

The defendants shall likewise pay to plaintiff the sum

of THREE THOUSAND (P3,000.00) as attorneys fees.

The court further orders that the Deed of Absolute

Sale, (Annex A) of the complaint and (Annex C) of the
plaintiffs Motion for Summary Judgment is declared null and
void and without force and it is likewise removed as a cloud
over defendants title and property in suit. . . . [2]

The RTC Decision was appealed by herein respondent Perez to the CA.
Petitioners failed to file their appellees brief. The CA then promulgated its Decision on
April 20, 1999 whereby it ruled that by Lorenzas signing as witness to the execution of
the deed, she had knowledge of the transaction and is deemed to have given her
 consent to the same; that herein petitioners failed to adduce sufficient proof to
overthrow the presumption that there was consideration for the deed, and that petitioner
David Pelayo, being a lawyer, is presumed to have acted with due care and to have
signed the deed with full knowledge of its contents and import. The CA reversed and set
aside the RTC Decision, declaring as valid and enforceable the questioned deed of sale
and ordering herein petitioner Lorenza Pelayo to affix her signature on all pages of said
document.

Petitioners moved for reconsideration of the decision but the same was denied
per Resolution dated December 17, 1999. The CA found said motion to have been filed
out of time and ruled that even putting aside technicality, petitioners failed to present
any ground bearing on the merits of the case to justify a reversal or setting aside of the
decision.

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

1. The CA erred in ignoring the specific provision of Section 6, in relation to

Section 4 of R.A. No. 6657 otherwise known as the Comprehensive Agrarian Reform
Law of 1988 which took effect on June 15, 1988 and which provides that contracts
executed prior thereto shall be valid only when registered with the Register of Deeds
within a period of three (3) months after the effectivity of this Act.

2. The CA erred in holding that the deed of sale was valid and considering
the P10,000.00 adjudged by the trial court as Perezs remuneration as the consideration
for the deed of sale, instead of declaring the same as null and void for being fictitious or
simulated and on the basis of Art. 491, Par. 2 of the New Civil Code which prohibits
agents from acquiring by purchase properties from his principal under his charge.

3. The CA made a novel ruling that there was implied marital consent of the wife
of petitioner David Pelayo.
 4. Petitioners should have been allowed to file their appellees brief to ventilate
their side, considering the existence of peculiar circumstances which prevented
petitioners from filing said brief.

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

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

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

The issues boil down to the question of whether or not the deed of sale was null
and void on the following grounds: (a) for not complying with the provision in R.A. No.
6657 that such document must be registered with the Register of Deeds within three
months after the effectivity of said law; (b) for lack of marital consent; (c) for being
prohibited under Article 1491 (2) of the Civil Code; and (d) for lack of consideration.
 We rule against petitioners.

The issue of whether or not the deed of sale is null and void under R.A. No.
6657, for respondents failure to register said document with the Register of Deeds
within three months after the effectivity of R.A. No. 6657, had been resolved with finality
by the CA in its Decision dated November 24, 1994 in CA-G.R. SP No. 38700. [4] Herein
petitioners no longer elevated said CA Decision to this Court and the same became final
and executory on January 7, 1995.[5]

In said decision, the CA interpreted Section 4, in relation to Section 70 of R.A.

No. 6657, to mean thus:

. . . the proper interpretation of both sections is that under R.A. No.

6657, the sale or transfer of a private agricultural land is allowed only
when said land area constitutes or is a part of the landowner-seller
retained area and only when the total landholdings of the purchaser-
transferee, including the property sold does not exceed five (5) hectares.

Aside from declaring that the failure of respondent to register the deed was not of his
own fault or negligence, the CA ruled that respondents failure to register the deed of
sale within three months after effectivity of The Comprehensive Agrarian Reform Law
did not invalidate the deed of sale as the transaction over said property is not proscribed
by R.A. No. 6657.

Thus, under the principle of law of the case, said ruling of the CA is now binding
on petitioners. Such principle was elucidated in Cucueco vs. Court of Appeals,[6] to wit:

Law of the case has been defined as the opinion delivered on a

former appeal. It is a term applied to an established rule that when an
appellate court passes on a question and remands the case to the lower
court for further proceedings, the question there settled becomes the law
of the case upon subsequent appeal. It means that whatever is once
irrevocably established as the controlling legal rule or decision between
the same parties in the same case continues to be the law of the
case, whether correct on general principles or not, so long as the facts on
which such decision was predicated continue to be the facts of the case
before the court.
 Petitioners not having questioned the Decision of the CA dated November 24, 1994
which then attained finality, the ruling that the deed of sale subject of this case is not
among the transactions deemed as invalid under R.A. No. 6657, is now immutable.

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

Sale is a consensual contract that is perfected by mere consent, which may

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

In their Pre-Trial Brief,[9] petitioners admitted that even prior to 1988, they have
been having serious problems, including threats to the life of petitioner David Pelayo,
due to conflicts with the illegal occupants of the property in question, so that
respondent, whom many feared for being a leftist/activist, offered his help in driving out
said illegal occupants.

Human experience tells us that a wife would surely be aware of serious problems
such as threats to her husbands life and the reasons for such threats. As they
themselves stated, petitioners problems over the subject property had been going on for
quite some time, so it is highly improbable for Lorenza not to be aware of what her
husband was doing to remedy such problems. Petitioners do not deny that Lorenza
Pelayo was present during the execution of the deed of sale as her signature appears
thereon. Neither do they claim that Lorenza Pelayo had no knowledge whatsoever
about the contents of the subject document. Thus, it is quite
 certain that she knew of the sale of their conjugal property between her husband and
respondent.

Under the rules of evidence, it is presumed that a person takes ordinary care of
his concerns.[10] Petitioners did not even attempt to overcome the aforementioned
presumption as no evidence was ever presented to show that Lorenza was in any way
lacking in her mental faculties and, hence, could not have fully understood the
ramifications of signing the deed of sale. Neither did petitioners present any evidence
that Lorenza had been defrauded, forced, intimidated or threatened either by her own
husband or by respondent into affixing her signature on the subject document. If
Lorenza had any objections over the conveyance of the disputed property, she could
have totally refrained from having any part in the execution of the deed of sale. Instead,
Lorenza even affixed her signature thereto.

Moreover, under Article 173, in relation to Article 166, both of the New Civil Code,
which was still in effect on January 11, 1988 when the deed in question was executed,
the lack of marital consent to the disposition of conjugal property does not make the
contract void ab initio but merely voidable. Said provisions of law provide:

Art. 166. Unless the wife has been declared a non compos
mentis or a spendthrift, or is under civil interdiction or is confined in a
leprosarium, the husband cannot alienate or encumber any real property
of the conjugal property without the wifes consent. If she refuses
unreasonably to give her consent, the court may compel her to grant the
same.

...

Art. 173. The wife may, during the marriage, and within ten years
from the transaction questioned, ask the courts for the annulment of any
contract of the husband entered into without her consent, when such
consent is required, or any act or contract of the husband which tends to
defraud her or impair her interest in the conjugal partnership property.
Should the wife fail to exercise this right, she or her heirs, after the
dissolution of the marriage, may demand the value of property fraudulently
alienated by the husband.
 Hence, it has been held that the contract is valid until the court annuls the same
and only upon an action brought by the wife whose consent was not obtained. [11] In the
present case, despite respondents repeated demands for Lorenza to affix her signature
on all the pages of the deed of sale, showing respondents insistence on enforcing said
contract, Lorenza still did not file a case for annulment of the deed of sale. It was only
when respondent filed a complaint for specific performance on August 8, 1991 when
petitioners brought up Lorenzas alleged lack of consent as an affirmative defense. Thus,
if the transaction was indeed entered into without Lorenzas consent, we find it quite
puzzling why for more than three and a half years, Lorenza did absolutely nothing to
seek the nullification of the assailed contract.

The foregoing circumstances lead the Court to believe that Lorenza knew of the
full import of the transaction between respondent and her

husband; and, by affixing her signature on the deed of sale, she, in effect, signified her
consent to the disposition of their conjugal property.

With regard to petitioners asseveration that the deed of sale is invalid under
Article 1491, paragraph 2 of the New Civil Code, we find such argument unmeritorious.
Article 1491 (2) provides:

Art. 1491. The following persons cannot acquire by purchase, even at a

public or judicial auction, either in person or through the mediation of
another:

...

(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;

...

In Distajo vs. Court of Appeals,[12] a landowner, Iluminada Abiertas, designated

one of her sons as the administrator of several parcels of her land. The landowner
subsequently executed a Deed of Certification of Sale of Unregistered Land, conveying
some of said land to her son/administrator. Therein, we held that:

Under paragraph (2) of the above article, the prohibition against

agents purchasing property in their hands for sale or management is not
absolute. It does not apply if the principal consents to the sale of the
property in the hands of the agent or administrator. In this case, the deeds
of sale signed by Iluminada Abiertas shows that she gave consent to the
sale of the properties in favor of her son, Rufo, who was the administrator
of the properties. Thus, the consent of the principal Iluminada Abiertas
removes the transaction out of the prohibition contained in Article 1491(2).
[13]

The above-quoted ruling is exactly in point with this case before us. Petitioners,
by signing the Deed of Sale in favor of respondent, are also deemed to have given their
consent to the sale of the subject property in favor of respondent, thereby making the
transaction an exception to the general rule that agents are prohibited from purchasing
the property of their principals.

Petitioners also argue that the CA erred in ruling that there was consideration for
the sale. We find no error in said appellate courts ruling. The element of consideration
for the sale is indeed present. Petitioners, in adopting the trial courts narration of
antecedent facts in their petition,[14] thereby admitted that they authorized respondent to
represent them in negotiations with the squatters occupying the disputed property and,
in consideration of respondents services, they executed the subject deed of sale. Aside
from such services rendered by respondent, petitioners also acknowledged in the deed
of sale that they received in full the amount of Ten Thousand Pesos. Evidently, the
consideration for the sale is respondents services plus the aforementioned cash money.

Petitioners contend that the consideration stated in the deed of sale is

excessively inadequate, indicating that the deed of sale was merely simulated. We are
not persuaded. Our ruling in Buenaventura vs. Court of Appeals[15] is pertinent, to wit:

. . . Indeed, there is no requirement that the price be equal to the

exact value of the subject matter of sale. . . . As we stated in Vales vs.
Villa:
 Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise
investments, relieve him from one-sided contracts, or annul
the effects of foolish acts. Courts cannot constitute
themselves guardians of persons who are not legally
incompetent. Courts operate not because one person has
been defeated or overcome by another, but because he has
been defeated or overcome illegally. Men may do foolish
things, make ridiculous contracts, use miserable judgment,
and lose money by them indeed, all they have in the world;
but not for that alone can the law intervene and restore.
There must be, in addition, a violation of the law, the
commission of what the law knows as an actionable wrong,
before the courts are authorized to lay hold of the situation
and remedy it.[16]

Verily, in the present case, petitioners have not presented proof that there has been
fraud, mistake or undue influence exercised upon them by respondent. It is highly
unlikely and contrary to human experience that a layman like respondent would be able
to defraud, exert undue influence, or in any way vitiate the consent of a lawyer like
petitioner David Pelayo who is expected to be more knowledgeable in the ways of
drafting contracts and other legal transactions.

Furthermore, in their Reply to Respondents Memorandum, [17] petitioners adopted

the CAs narration of fact that petitioners stated in a letter they sent to the Register of
Deeds of Tagum that they have entrusted the titles over subject lots to herein
respondent. Such act is a clear indication that they intended to convey the subject
property to herein respondent and the deed of sale was not merely simulated or
fictitious.

Lastly, petitioners claim that they were not able to fully ventilate their defense
before the CA as their lawyer, who was then suffering from cancer of the liver, failed to
file their appellees brief. Thus, in their motion for reconsideration of the CA Decision,
they prayed that they be allowed to submit such appellees brief. The CA, in its
Resolution dated December 17, 1999, stated thus:
 By movant-defendant-appellees own information, his counsel
received a copy of the decision on May 5, 1999. He, therefore, had fifteen
(15) days from said date or up to May 20, 1999 to file the motion. The
motion, however, was sent through a private courier and, therefore,
considered to have been filed on the date of actual receipt on June 17,
1999 by the addressee Court of Appeals, was filed beyond the
reglementary period.

Technicality aside, movant has not proffered any ground bearing on

the merits of the case why the decision should be set aside.

Petitioners never denied the CA finding that their motion for reconsideration was
filed beyond the fifteen-day reglementary period. On that point alone, the CA is correct
in denying due course to said motion. The motion having been belatedly filed, the CA
Decision had then attained finality. Thus, in Abalos vs. Philex Mining Corporation,[18] we
held that:

. . . Nothing is more settled in law than that once a judgment attains

finality it thereby becomes immutable and unalterable. It may no longer be
modified in any respect, even if the modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and regardless of
whether the modification is attempted to be made by the court rendering it
or by the highest court of the land.

Moreover, it is pointed out by the CA that said motion did not present any
defense or argument on the merits of the case that could have convinced the CA to
reverse or modify its Decision.

We have consistently held that a petitioners right to due process is not violated
where he was able to move for reconsideration of the order or decision in question. [19] In
this case, petitioners had the opportunity to fully expound on their defenses through a
motion for reconsideration. Petitioners did file such motion but they wasted such
opportunity by failing to present therein whatever errors they believed the CA had
committed in its Decision. Definitely, therefore, the denial of petitioners motion for
reconsideration, praying that they be allowed to file appellees brief, did not infringe
petitioners right to due process as any issue that petitioners wanted to raise could and
should have been contained in said motion for reconsideration.

IN VIEW OF THE FOREGOING, the petition is DENIED and the Decision of the
Court of Appeals dated April 20, 1999 and its Resolution dated December 17, 1999 are
hereby AFFIRMED.

SO ORDERED.
ARTURO R. ABALOS, petitioner, vs. DR. GALICANO S. MACATANGAY,
JR., respondent.

DECISION
TINGA, J.:

The instant petition seeks a reversal of the Decision of the Court of Appeals in CA-
G.R. CV No. 48355 entitled Dr. Galicano S. Macatangay, Jr. v. Arturo R. Abalos and
Esther Palisoc-Abalos, promulgated on March 14, 2002. The appellate court reversed
the trial courts decision which dismissed the action for specific performance filed by
respondent, and ordered petitioner and his wife to execute in favor of herein respondent
a deed of sale over the subject property.
Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with
improvements located at Azucena St., Makati City consisting of about three hundred
twenty-seven (327) square meters, covered by Transfer Certificate of Title (TCT) No.
145316 of the Registry of Deeds of Makati.
Armed with a Special Power of Attorney dated June 2, 1988, purportedly issued by
his wife, Arturo executed a Receipt and Memorandum of Agreement (RMOA) dated
October 17, 1989, in favor of respondent, binding himself to sell to respondent the
subject property and not to offer the same to any other party within thirty (30) days from
date. Arturo acknowledged receipt of a check from respondent in the amount of Five
Thousand Pesos (P5,000.00), representing earnest money for the subject property, the
amount of which would be deducted from the purchase price of One Million Three
Hundred Three Hundred Thousand Pesos (P1,300,000.00). Further, the RMOA stated
that full payment would be effected as soon as possession of the property shall have
been turned over to respondent.
Subsequently, Arturos wife, Esther, executed a Special Power of Attorney dated
October 25, 1989, appointing her sister, Bernadette Ramos, to act for and in her behalf
relative to the transfer of the property to respondent. Ostensibly, a marital squabble was
brewing between Arturo and Esther at the time and to protect his interest, respondent
caused the annotation of his adverse claim on the title of the spouses to the property on
November 14, 1989.
 On November 16, 1989, respondent sent a letter to Arturo and Esther informing
them of his readiness and willingness to pay the full amount of the purchase price. The
letter contained a demand upon the spouses to comply with their obligation to turn over
possession of the property to him. On the same date, Esther, through her attorney-in-
fact, executed in favor of respondent, a Contract to Sell the property to the extent of her
conjugal interest therein for the sum of six hundred fifty thousand pesos (P650,000.00)
less the sum already received by her and Arturo. Esther agreed to surrender possession
of the property to respondent within twenty (20) days from November 16, 1989, while
the latter promised to pay the balance of the purchase price in the amount of one million
two hundred ninety thousand pesos (P1,290,000.00) after being placed in possession of
the property. Esther also obligated herself to execute and deliver to respondent a deed
of absolute sale upon full payment.
In a letter dated December 7, 1989, respondent informed the spouses that he had
set aside the amount of One Million Two Hundred Ninety Thousand Pesos
(P1,290,000.00) as evidenced by Citibank Check No. 278107 as full payment of the
purchase price. He reiterated his demand upon them to comply with their obligation to
turn over possession of the property.Arturo and Esther failed to deliver the property
which prompted respondent to cause the annotation of another adverse claim on TCT
No. 145316. On January 12, 1990, respondent filed a complaint for specific
performance with damages against petitioners. Arturo filed his answer to the complaint
while his wife was declared in default.
The Regional Trial Court (RTC) dismissed the complaint for specific performance. It
ruled that the Special Power of Attorney (SPA) ostensibly issued by Esther in favor of
Arturo was void as it was falsified. Hence, the court concluded that the SPA could not
have authorized Arturo to sell the property to respondent. The trial court also noted that
the check issued by respondent to cover the earnest money was dishonored due to
insufficiency of funds and while it was replaced with another check by respondent, there
is no showing that the second check was issued as payment for the earnest money on
the property.
On appeal taken by respondent, the Court of Appeals reversed the decision of the
trial court. It ruled that the SPA in favor of Arturo, assuming that it was void, cannot
affect the transaction between Esther and respondent. The appellate court ratiocinated
that it was by virtue of the SPA executed by Esther, in favor of her sister, that the sale of
the property to respondent was effected. On the other hand, the appellate court
considered the RMOA executed by Arturo in favor of respondent valid to effect the sale
of Arturos conjugal share in the property.
Dissatisfied with the appellate courts disposition of the case, petitioner seeks a
reversal of its decision alleging that:
I.

The Court of Appeals committed serious and manifest error when it decided on the
appeal without affording petitioner his right to due process.

II.
 The Court of Appeals committed serious and manifest error in reversing and setting
aside the findings of fact by the trial court.

III.

The Court of Appeals erred in ruling that a contract to sell is a contract of sale, and in
ordering petitioner to execute a registrable form of deed of sale over the property in
favor of respondent.[1]

Petitioner contends that he was not personally served with copies of summons,
pleadings, and processes in the appeal proceedings nor was he given an opportunity to
submit an appellees brief. He alleges that his counsel was in the United States from
1994 to June 2000, and he never received any news or communication from him after
the proceedings in the trial court were terminated. Petitioner submits that he was denied
due process because he was not informed of the appeal proceedings, nor given the
chance to have legal representation before the appellate court.
We are not convinced. The essence of due process is an opportunity to be
heard. Petitioners failure to participate in the appeal proceedings is not due to a cause
imputable to the appellate court but because of petitioners own neglect in ascertaining
the status of his case. Petitioners counsel is equally negligent in failing to inform his
client about the recent developments in the appeal proceedings. Settled is the rule that
a party is bound by the conduct, negligence and mistakes of his counsel. [2] Thus,
petitioners plea of denial of due process is downright baseless.
Petitioner also blames the appellate court for setting aside the factual findings of the
trial court and argues that factual findings of the trial court are given much weight and
respect when supported by substantial evidence. He asserts that the sale between him
and respondent is void for lack of consent because the SPA purportedly executed by his
wife Esther is a forgery and therefore, he could not have validly sold the subject
property to respondent.
Next, petitioner theorizes that the RMOA he executed in favor of respondent was
not perfected because the check representing the earnest money was dishonored. He
adds that there is no evidence on record that the second check issued by respondent
was intended to replace the first check representing payment of earnest money.
Respondent admits that the subject property is co-owned by petitioner and his wife,
but he objects to the allegations in the petition bearing a relation to the supposed date
of the marriage of the vendors. He contends that the alleged date of marriage between
petitioner and his wife is a new factual issue which was not raised nor established in the
court a quo.Respondent claims that there is no basis to annul the sale freely and
voluntarily entered into by the husband and the wife.
The focal issue in the instant petition is whether petitioner may be compelled to
convey the property to respondent under the terms of the RMOA and the Contract to
Sell. At bottom, the resolution of the issue entails the ascertainment of the contractual
nature of the two documents and the status of the contracts contained therein.
 Contracts, in general, require the presence of three essential elements: (1) consent
of the contracting parties; (2) object certain which is the subject matter of the contract;
and (3) cause of the obligation which is established. [3]
Until the contract is perfected, it cannot, as an independent source of obligation,
serve as a binding juridical relation.[4] In a contract of sale, the seller must consent to
transfer ownership in exchange for the price, the subject matter must be determinate,
and the price must be certain in money or its equivalent. [5] Being essentially consensual,
a contract of sale is perfected at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the price. [6] However, ownership of the
thing sold shall not be transferred to the vendee until actual or constructive delivery of
the property.[7]
On the other hand, an accepted unilateral promise which specifies the thing to be
sold and the price to be paid, when coupled with a valuable consideration distinct
and separate fromthe price, is what may properly be termed a perfected contract of
option.[8] An option merely grants a privilege to buy or sell within an agreed time and at a
determined price. It is separate and distinct from that which the parties may enter into
upon the consummation of the option. [9] A perfected contract of option does not result in
the perfection or consummation of the sale; only when the option is exercised may a
sale be perfected.[10] The option must, however, be supported by a consideration distinct
from the price.[11]
Perusing the RMOA, it signifies a unilateral offer of Arturo to sell the property to
respondent for a price certain within a period of thirty days. The RMOA does not impose
upon respondent an obligation to buy petitioners property, as in fact it does not even
bear his signature thereon. It is quite clear that after the lapse of the thirty-day period,
without respondent having exercised his option, Arturo is free to sell the property to
another. This shows that the intent of Arturo is merely to grant respondent the privilege
to buy the property within the period therein stated. There is nothing in the RMOA which
indicates that Arturo agreed therein to transfer ownership of the land which is an
essential element in a contract of sale. Unfortunately, the option is not binding upon the
promissory since it is not supported by a consideration distinct from the price. [12]
As a rule, the holder of the option, after accepting the promise and before he
exercises his option, is not bound to buy. He is free either to buy or not to buy
later. In Sanchez v. Rigos[13]we ruled that in an accepted unilateral promise to sell, the
promissor is not bound by his promise and may, accordingly, withdraw it, since there
may be no valid contract without a cause or consideration. Pending notice of its
withdrawal, his accepted promise partakes of the nature of an offer to sell which, if
acceded or consented to, results in a perfected contract of sale.
Even conceding for the nonce that respondent had accepted the offer within the
period stated and, as a consequence, a bilateral contract of purchase and sale was
perfected, the outcome would be the same. To benefit from such situation, respondent
would have to pay or at least make a valid tender of payment of the price for only then
could he exact compliance with the undertaking of the other party. [14] This respondent
failed to do. By his own admission, he merely informed respondent spouses of his
readiness and willingness to pay. The fact that he had set aside a check in the amount
 of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) representing the
balance of the purchase price could not help his cause.Settled is the rule that tender of
payment must be made in legal tender. A check is not legal tender, and therefore cannot
constitute a valid tender of payment.[15] Not having made a valid tender of payment,
respondents action for specific performance must fail.
With regard to the payment of Five Thousand Pesos (P5,000.00), the Court is of the
view that the amount is not earnest money as the term is understood in Article 1482
which signifies proof of the perfection of the contract of sale, but merely a guarantee
that respondent is really interested to buy the property. It is not the giving of earnest
money, but the proof of the concurrence of all the essential elements of the contract of
sale which establishes the existence of a perfected sale. [16] No reservation of ownership
on the part of Arturo is necessary since, as previously stated, he has never agreed to
transfer ownership of the property to respondent.
Granting for the sake of argument that the RMOA is a contract of sale, the same
would still be void not only for want of consideration and absence of respondents
signature thereon, but also for lack of Esthers conformity thereto. Quite glaring is the
absence of the signature of Esther in the RMOA, which proves that she did not give her
consent to the transaction initiated by Arturo. The husband cannot alienate any real
property of the conjugal partnership without the wifes consent. [17]
However, it was the Contract to Sell executed by Esther through her attorney-in-fact
which the Court of Appeals made full use of. Holding that the contract is valid, the
appellate court explained that while Esther did not authorize Arturo to sell the property,
her execution of the SPA authorizing her sister to sell the land to respondent clearly
shows her intention to convey her interest in favor of respondent. In effect, the court
declared that the lack of Esthers consent to the sale made by Arturo was cured by her
subsequent conveyance of her interest in the property through her attorney-in-fact.
We do not share the ruling.
The nullity of the RMOA as a contract of sale emanates not only from lack of
Esthers consent thereto but also from want of consideration and absence of
respondents signature thereon. Such nullity cannot be obliterated by Esthers
subsequent confirmation of the putative transaction as expressed in the Contract to
Sell. Under the law, a void contract cannot be ratified [18] and the action or defense for the
declaration of the inexistence of a contract does not prescribe. [19] A void contract
produces no effect either against or in favor of anyoneit cannot create, modify or
extinguish the juridical relation to which it refers. [20]
True, in the Contract to Sell, Esther made reference to the earlier RMOA executed
by Arturo in favor of respondent. However, the RMOA which Arturo signed is different
from the deed which Esther executed through her attorney-in-fact. For one, the first is
sought to be enforced as a contract of sale while the second is purportedly a contract to
sell only. For another, the terms and conditions as to the issuance of title and delivery of
possession are divergent.
The congruence of the wills of the spouses is essential for the valid disposition of
conjugal property. Where the conveyance is contained in the same document which
 bears the conformity of both husband and wife, there could be no question on the
validity of the transaction. But when there are two documents on which the signatures of
the spouses separately appear, textual concordance of the documents is indispensable.
Hence, in this case where the wifes putative consent to the sale of conjugal property
appears in a separate document which does not, however, contain the same terms and
conditions as in the first document signed by the husband, a valid transaction could not
have arisen.
Quite a bit of elucidation on the conjugal partnership of gains is in order.
Arturo and Esther appear to have been married before the effectivity of the Family
Code. There being no indication that they have adopted a different property regime,
their property relations would automatically be governed by the regime of conjugal
partnership of gains.[21]
The subject land which had been admittedly acquired during the marriage of the
spouses forms part of their conjugal partnership. [22]
Under the Civil Code, the husband is the administrator of the conjugal
partnership. This right is clearly granted to him by law.[23] More, the husband is the sole
administrator. The wife is not entitled as of right to joint administration. [24]
The husband, even if he is statutorily designated as administrator of the conjugal
partnership, cannot validly alienate or encumber any real property of the conjugal
partnership without the wifes consent. [25] Similarly, the wife cannot dispose of any
property belonging to the conjugal partnership without the conformity of the husband.
The law is explicit that the wife cannot bind the conjugal partnership without the
husbands consent, except in cases provided by law.[26]
More significantly, it has been held that prior to the liquidation of the conjugal
partnership, the interest of each spouse in the conjugal assets is inchoate, a mere
expectancy, which constitutes neither a legal nor an equitable estate, and does not
ripen into title until it appears that there are assets in the community as a result of the
liquidation and settlement. The interest of each spouse is limited to the net remainder
or remanente liquido (haber ganancial) resulting from the liquidation of the affairs of the
partnership after its dissolution.[27] Thus, the right of the husband or wife to one-half of
the conjugal assets does not vest until the dissolution and liquidation of the conjugal
partnership, or after dissolution of the marriage, when it is finally determined that, after
settlement of conjugal obligations, there are net assets left which can be divided
between the spouses or their respective heirs. [28]
In not a few cases, we ruled that the sale by the husband of property belonging to
the conjugal partnership without the consent of the wife when there is no showing that
the latter is incapacitated is void ab initio because it is in contravention of the mandatory
requirements of Article 166 of the Civil Code.[29] Since Article 166 of the Civil Code
requires the consent of the wife before the husband may alienate or encumber any real
property of the conjugal partnership, it follows that acts or transactions executed against
this mandatory provision are void except when the law itself authorizes their validity. [30]
 Quite recently, in San Juan Structural and Steel Fabricators, Inc. v. Court of
Appeals,[31] we ruled that neither spouse could alienate in favor of another, his or her
interest in the partnership or in any property belonging to it, or ask for partition of the
properties before the partnership itself had been legally dissolved. Nonetheless,
alienation of the share of each spouse in the conjugal partnership could be had after
separation of property of the spouses during the marriage had been judicially decreed,
upon their petition for any of the causes specified in Article 191 [32] of the Civil Code in
relation to Article 214[33] thereof.
As an exception, the husband may dispose of conjugal property without the wifes
consent if such sale is necessary to answer for conjugal liabilities mentioned in Articles
161 and 162 of the Civil Code.[34] In Tinitigan v. Tinitigan, Sr.,[35] the Court ruled that the
husband may sell property belonging to the conjugal partnership even without the
consent of the wife if the sale is necessary to answer for a big conjugal liability which
might endanger the familys economic standing. This is one instance where the wifes
consent is not required and, impliedly, no judicial intervention is necessary.
Significantly, the Family Code has introduced some changes particularly on the
aspect of the administration of the conjugal partnership. The new law provides that the
administration of the conjugal partnership is now a joint undertaking of the husband and
the wife. In the event that one spouse is incapacitated or otherwise unable to participate
in the administration of the conjugal partnership, the other spouse may assume sole
powers of administration. However, the power of administration does not include the
power to dispose or encumber property belonging to the conjugal partnership. [36] In all
instances, the present law specifically requires the written consent of the other spouse,
or authority of the court for the disposition or encumbrance of conjugal partnership
property without which, the disposition or encumbrance shall be void. [37]
Inescapably, herein petitioners action for specific performance must fail. Even on
the supposition that the parties only disposed of their respective shares in the property,
the sale, assuming that it exists, is still void for as previously stated, the right of the
husband or the wife to one-half of the conjugal assets does not vest until the liquidation
of the conjugal partnership. Nemo dat qui non habet. No one can give what he has not.
WHEREFORE, the appealed Decision is hereby REVERSED and SET ASIDE. The
complaint in Civil Case No. 90-106 of the Regional Trial Court of Makati is ordered
DISMISSED. No pronouncement as to costs.
SO ORDERED.

MERCEDES CALIMLIM- CANULLAS, petitioner,

vs.
HON. WILLELMO FORTUN,

Judge, Court of First instance of Pangasinan, Branch I, and CORAZON

DAGUINES, respondents.
 Fernandez Law Offices for petitioner.

Francisco Pulido for respondents.

MELENCIO-HERRERA, J.:

Petition for Review on certiorari assailing the Decision, dated October 6, 1980, and the
Resolution on the Motion for Reconsideration, dated November 27, 1980, of the then
Court of First Instance of Pangasinan, Branch I, in Civil Case No. 15620 entitled
"Corazon DAGUINES vs. MERCEDES Calimlim-Canullas," upholding the sale of a
parcel of land in favor of DAGUINES but not of the conjugal house thereon'

The background facts may be summarized as follows: Petitioner MERCEDES Calimlim-

Canullas and FERNANDO Canullas were married on December 19, 1962. They begot
five children. They lived in a small house on the residential land in question with an area
of approximately 891 square meters, located at Bacabac, Bugallon, Pangasinan. After
FERNANDO's father died in 1965, FERNANDO inherited the land.

In 1978, FERNANDO abandoned his family and was living with private respondent
Corazon DAGUINES. During the pendency of this appeal, they were convicted of
concubinage in a judgment rendered on October 27, 1981 by the then Court of First
Instance of Pangasinan, Branch II, which judgment has become final.

On April 15, 1980, FERNANDO sold the subject property with the house thereon to
DAGUINES for the sum of P2,000.00. In the document of sale, FERNANDO described
the house as "also inherited by me from my deceased parents."

Unable to take possession of the lot and house, DAGUINES initiated a complaint on
June 19, 1980 for quieting of title and damages against MERCEDES. The latter resisted
and claimed that the house in dispute where she and her children were residing,
including the coconut trees on the land, were built and planted with conjugal funds and
through her industry; that the sale of the land together with the house and
improvements to DAGUINES was null and void because they are conjugal properties
and she had not given her consent to the sale,

In its original judgment, respondent Court principally declared DAGUINES "as the lawful
owner of the land in question as well as the one-half () of the house erected on said
land." Upon reconsideration prayed for by MERCEDES, however, respondent Court
resolved:

WHEREFORE, the dispositive portion of the Decision of this Court,

promulgated on October 6, 1980, is hereby amended to read as follows:
 (1) Declaring plaintiff as the true and lawful owner of the land in question
and the 10 coconut trees;

(2) Declaring as null and void the sale of the conjugal house to plaintiff on
April 15, 1980 (Exhibit A) including the 3 coconut trees and other crops
planted during the conjugal relation between Fernando Canullas (vendor)
and his legitimate wife, herein defendant Mercedes Calimlim- Canullas;

xxx xxx xxx

The issues posed for resolution are (1) whether or not the construction of a conjugal
house on the exclusive property of the husband ipso facto gave the land the character
of conjugal property; and (2) whether or not the sale of the lot together with the house
and improvements thereon was valid under the circumstances surrounding the
transaction.

The determination of the first issue revolves around the interpretation to be given to the
second paragraph of Article 158 of the Civil Code, which reads:

xxx xxx xxx

Buildings constructed at the expense of the partnership during the

marriage on land belonging to one of the spouses also pertain to the
partnership, but the value of the land shall be reimbursed to the spouse
who owns the same.

We hold that pursuant to the foregoing provision both the land and the building belong
to the conjugal partnership but the conjugal partnership is indebted to the husband for
the value of the land. The spouse owning the lot becomes a creditor of the conjugal
partnership for the value of the lot, 1 which value would be reimbursed at the liquidation
of the conjugal partnership. 2

In his commentary on the corresponding provision in the Spanish Civil Code (Art. 1404),
Manresa stated:

El articulo cambia la doctrine; los edificios construidos durante el

matrimonio en suelo propio de uno de los conjuges son gananciales,
abonandose el valor del suelo al conj uge a quien pertenezca.

It is true that in the case of Maramba vs. Lozano, 3 relied upon by respondent Judge, it
was held that the land belonging to one of the spouses, upon which the spouses have
built a house, becomes conjugal property only when the conjugal partnership is
liquidated and indemnity paid to the owner of the land. We believe that the better rule is
that enunciated by Mr. Justice J.B.L. Reyes in Padilla vs. Paterno, 3 SCRA 678, 691
(1961), where the following was explained:
 As to the above properties, their conversion from paraphernal to conjugal
assets should be deemed to retroact to the time the conjugal buildings
were first constructed thereon or at the very latest, to the time immediately
before the death of Narciso A. Padilla that ended the conjugal partnership.
They can not be considered to have become conjugal property only as of
the time their values were paid to the estate of the widow Concepcion
Paterno because by that time the conjugal partnership no longer existed
and it could not acquire the ownership of said properties. The acquisition
by the partnership of these properties was, under the 1943 decision,
subject to the suspensive condition that their values would be reimbursed
to the widow at the liquidation of the conjugal partnership; once paid, the
effects of the fulfillment of the condition should be deemed to retroact to
the date the obligation was constituted (Art. 1187, New Civil Code) ...

The foregoing premises considered, it follows that FERNANDO could not have
alienated the house and lot to DAGUINES since MERCEDES had not given her consent
to said sale. 4

Anent the second issue, we find that the contract of sale was null and void for being
contrary to morals and public policy. The sale was made by a husband in favor of a
concubine after he had abandoned his family and left the conjugal home where his wife
and children lived and from whence they derived their support. That sale was
subversive of the stability of the family, a basic social institution which public policy
cherishes and protects. 5

Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or
purpose is contrary to law, morals, good customs, public order, or public policy
are void and inexistent from the very beginning.

Article 1352 also provides that: "Contracts without cause, or with unlawful cause,
produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good
customs, public order, or public policy."

Additionally, the law emphatically prohibits the spouses from selling property to each
other subject to certain exceptions.6 Similarly, donations between spouses during
marriage are prohibited. 7 And this is so because if transfers or con conveyances
between spouses were allowed during marriage, that would destroy the system of
conjugal partnership, a basic policy in civil law. It was also designed to prevent the
exercise of undue influence by one spouse over the other, 8 as well as to protect the
institution of marriage, which is the cornerstone of family law. The prohibitions apply to a
couple living as husband and wife without benefit of marriage, otherwise, "the condition
of those who incurred guilt would turn out to be better than those in legal union." Those
provisions are dictated by public interest and their criterion must be imposed upon the
wig of the parties. That was the ruling in Buenaventura vs. Bautista, also penned by
Justice JBL Reyes (CA) 50 O.G. 3679, and cited in Matabuena vs. Cervantes. 9 We
quote hereunder the pertinent dissertation on this point:
 We reach a different conclusion. While Art. 133 of the Civil Code considers
as void a donation between the spouses during the marriage, policy
considerations of the most exigent character as wen as the dictates
of morality require that the same prohibition should apply to a common-
law relationship.

As announced in the outset of this opinion, a 1954 Court of Appeals

decision, Buenaventura vs. Bautista, 50 OG 3679, interpreting a similar
provision of the old Civil Code speaks unequivocally. If the policy of the
law is, in the language of the opinion of the then Justice J.B.L. Reyes of
that Court, 'to prohibit donations in favor of the other consort and his
descendants because of fear of undue influence and improper
pressure upon the donor, a prejudice deeply rooted in our ancient law, ...,
then there is every reason to apply the same prohibitive policy to persons
living together as husband and wife without benefit of nuptials. For it is not
to be doubted that assent to such irregular connection for thirty years
bespeaks greater influence of one party over the other, so that the danger
that the law seeks to avoid is correspondingly increased'. Moreover, as
pointed out by Ulpian (in his lib 32 ad Sabinum, fr. 1), "It would not be just
that such donations — should subsist, lest the conditions of those who
incurred guilt should turn out to be better." So long as marriage remains
the cornerstone of our family law, reason and morality alike demand that
the disabilities attached to marriage should likewise attach
to concubinage (Emphasis supplied),

WHEREFORE, the Decision of respondent Judge, dated October 6, 1980, and his
Resolution of November 27, 1980 on petitioner's Motion for Reconsideration, are hereby
set aside and the sale of the lot, house and improvements in question, is hereby
declared null and void. No costs.

SO ORDERED

G.R. No. L-35702 May 29, 1973

DOMINGO D. RUBIAS, plaintiff-appellant,

vs.
ISAIAS BATILLER, defendant-appellee.

Gregorio M. Rubias for plaintiff-appellant.

Vicente R. Acsay for defendant-appellee.

TEEHANKEE, J.:
 In this appeal certified by the Court of Appeals to this Court as involving purely legal
questions, we affirm the dismissal order rendered by the Iloilo court of first instance after
pre-trial and submittal of the pertinent documentary exhibits.

Such dismissal was proper, plaintiff having no cause of action, since it was duly
established in the record that the application for registration of the land in question filed
by Francisco Militante, plaintiff's vendor and predecessor interest, had been dismissed
by decision of 1952 of the land registration court as affirmed by final judgment in 1958
of the Court of Appeals and hence, there was no title or right to the land that could be
transmitted by the purported sale to plaintiff.

As late as 1964, the Iloilo court of first instance had in another case of ejectment
likewise upheld by final judgment defendant's "better right to possess the land in
question . having been in the actual possession thereof under a claim of title many
years before Francisco Militante sold the land to the plaintiff."

Furthermore, even assuming that Militante had anything to sell, the deed of sale
executed in 1956 by him in favor of plaintiff at a time when plaintiff was concededly his
counsel of record in the land registration case involving the very land in dispute
(ultimately decided adversely against Militante by the Court of Appeals' 1958 judgment
affirming the lower court's dismissal of Militante's application for registration) was
properly declared inexistent and void by the lower court, as decreed by Article 1409 in
relation to Article 1491 of the Civil Code.

The appellate court, in its resolution of certification of 25 July 1972, gave the following
backgrounder of the appeal at bar:

On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to

recover the ownership and possession of certain portions of lot under Psu-
99791 located in Barrio General Luna, Barotac Viejo, Iloilo which he
bought from his father-in-law, Francisco Militante in 1956 against its
present occupant defendant, Isaias Batiller, who illegally entered said
portions of the lot on two occasions — in 1945 and in 1959. Plaintiff
prayed also for damages and attorneys fees. (pp. 1-7, Record on Appeal).
In his answer with counter-claim defendant claims the complaint of the
plaintiff does not state a cause of action, the truth of the matter being that
he and his predecessors-in-interest have always been in actual, open and
continuous possession since time immemorial under claim of ownership of
the portions of the lot in question and for the alleged malicious institution
of the complaint he claims he has suffered moral damages in the amount
of P 2,000.00, as well as the sum of P500.00 for attorney's fees. ...

On December 9, 1964, the trial court issued a pre-trial order, after a pre-
trial conference between the parties and their counsel which order reads
as follows..
 'When this case was called for a pre-trial conference today,
the plaintiff appeared assisted by himself and Atty. Gregorio
M. Rubias. The defendant also appeared, assisted by his
counsel Atty. Vicente R. Acsay.

A. During the pre-trial conference, the parties have agreed

that the following facts are attendant in this case and that
they will no longer introduced any evidence, testimonial or
documentary to prove them:

1. That Francisco Militante claimed ownership of a parcel of land located

in the Barrio of General Luna, municipality of Barotac Viejo province of
Iloilo, which he caused to be surveyed on July 18-31, 1934, whereby he
was issued a plan Psu-99791 (Exhibit "B"). (The land claimed contained
an area of 171:3561 hectares.)

2. Before the war with Japan, Francisco Militante filed with the Court of
First Instance of Iloilo an application for the registration of the title of the
land technically described in psu-99791 (Exh. "B") opposed by the
Director of Lands, the Director of Forestry and other oppositors. However,
during the war with Japan, the record of the case was lost before it was
heard, so after the war Francisco Militante petitioned this court to
reconstitute the record of the case. The record was reconstituted on the
Court of the First Instance of Iloilo and docketed as Land Case No. R-695,
GLRO Rec. No. 54852. The Court of First Instance heard the land
registration case on November 14, 1952, and after the trial this court
dismissed the application for registration. The appellant, Francisco
Militante, appealed from the decision of this Court to the Court of Appeals
where the case was docketed as CA-GR No. 13497-R..

3. Pending the disposal of the appeal in CA-GR No. 13497-R and more
particularly on June 18, 1956, Francisco Militante sold to the plaintiff,
Domingo Rubias the land technically described in psu-99791 (Exh. "A").
The sale was duly recorded in the Office of the Register of Deeds for the
province of Iloilo as Entry No. 13609 on July 11, 1960 (Exh. "A-1").

(NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to

plaintiff-appellant, his son-in-law,for the sum of P2,000.00 was "a parcel
of untitled land having an area Of 144.9072 hectares ... surveyed under
Psu 99791 ... (and) subject to the exclusions made by me, under
(case) CA-i3497, Land Registration Case No. R-695, G.L.R.O. No. 54852,
Court of First Instance of the province of Iloilo. These exclusions referred
to portions of the original area of over 171 hectares originally claimed by
Militante as applicant, but which he expressly recognized during the trial to
pertain to some oppositors, such as the Bureau of Public Works and
Bureau of Forestry and several other individual occupants and accordingly
withdrew his application over the same. This is expressly made of record
in Exh. A, which is the Court of Appeals' decision of 22 September 1958
confirming the land registration court's dismissal of Militante's application
for registration.)

4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R

promulgated its judgment confirming the decision of this Court in Land
Case No. R-695, GLRO Rec. No. 54852 which dismissed the application
for Registration filed by Francisco Militante (Exh. "I").

5. Domingo Rubias declared the land described in Exh. 'B' for taxation
purposes under Tax Dec. No. 8585 (Exh. "C") for 1957; Tax Dec. Nos.
9533 (Exh. "C-1") and 10019 (Exh. "C-3")for the year 1961; Tax Dec. No.
9868 (Exh. "C-2") for the year 1964, paying the land taxes under Tax Dec.
No. 8585 and 9533 (Exh. "D", "D-1", "G-6").

6. Francisco Militante immediate predecessor-in-interest of the plaintiff,

has also declared the land for taxation purposes under Tax Dec. No. 5172
in 1940 (Exh. "E") for 1945; under Tax Dec. No. T-86 (Exh. "E-1") for 1948;
under Tax Dec. No. 7122 (Exh. "2"), and paid the land taxes for 1940
(Exhs. "G" and "G-7"), for 1945 46 (Exh. "G-1") for 1947 (Exh. "G-2"), for
1947 & 1948 (Exh. "G-3"), for 1948 (Exh. "G-4"), and for 1948 and 1949
(Exh. "G-5").

7. Tax Declaration No. 2434 in the name of Liberato Demontaño for the
land described therein (Exh. "F") was cancelled by Tax. Dec. No. 5172 of
Francisco Militante (Exh. "E"). Liberato Demontaño paid the land tax
under Tax Dec. No. 2434 on Dec. 20, 1939 for the years 1938 (50%) and
1959 (Exh. "H").

8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-
155241 under Tax Dec. Not. 8583 for 1957 and a portion of Lot No. 2,
Psu-155241, for 1945 under Tax Dec. No. 8584 (Exh. "2-A" Tax No. 8583
(Exh. "2") was revised by Tax Dec. No. 9498 in the name of the defendant
(Exh. "2-B") and Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax
Dec. No. 9584 also in the name of the defendant (Exh. "2-C"). The
defendant paid the land taxes for Lot 2, Psu-155241, on Nov. 9, 1960 for
the years 1945 and 1946, for the year 1950, and for the year 1960 as
shown by the certificate of the treasurer (Exh. "3"). The defendant may
present to the Court other land taxes receipts for the payment of taxes for
this lot.

9. The land claimed by the defendant as his own was surveyed on June 6
and 7,1956, and a plan approved by Director of Land on November 15,
1956 was issued, identified as Psu 155241 (Exh. "5").
 10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer
case against Isaias Batiller in the Justice of the Peace Court of Barotac
Viejo Province of Iloilo (Exh. "4") to which the defendant Isaias Batiller
riled his answer on August 29, 1960 (Exh. "4-A"). The Municipal Court of
Barotac Viejo after trial, decided the case on May 10, 1961 in favor of the
defendant and against the plaintiff (Exh. "4-B"). The plaintiff appealed from
the decision of the Municipal Court of Barotac Viejo which was docketed in
this Court as Civil Case No. 5750 on June 3, 1961, to which the
defendant, Isaias Batiller, on June 13, 1961 filed his answer (Exh. "4-C").
And this Court after the trial. decided the case on November 26, 1964, in
favor of the defendant, Isaias Batiller and against the plaintiff (Exh. "4-D").

(NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision
of 26 November 1964 dismissing plaintiff's therein complaint for ejectment
against defendant, the iloilo court expressly found "that plaintiff's complaint
is unjustified, intended to harass the defendant" and "that the defendant,
Isaias Batiller, has a better right to possess the land in question described
in Psu 155241 (Exh. "3"), Isaias Batiller having been in the actual physical
possession thereof under a claim of title many years before Francisco
Militante sold the land to the plaintiff-hereby dismissing plaintiff's complaint
and ordering the plaintiff to pay the defendant attorney's fees ....")

B. During the trial of this case on the merit, the plaintiff will prove by competent
evidence the following:

1. That the land he purchased from Francisco Militante under Exh. "A" was
formerly owned and possessed by Liberato Demontaño but that on
September 6, 1919 the land was sold at public auction by virtue of a
judgment in a Civil Case entitled "Edw J. Pflieder plaintiff vs. Liberato
Demontaño Francisco Balladeros and Gregorio Yulo, defendants", of
which Yap Pongco was the purchaser (Exh. "1-3"). The sale was
registered in the Office of the Register of Deeds of Iloilo on August 4,
1920, under Primary Entry No. 69 (Exh. "1"), and a definite Deed of Sale
was executed by Constantino A. Canto, provincial Sheriff of Iloilo, on Jan.
19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been registered
in the Office of the Register of Deeds of Iloilo on February 10, 1934 (Exh.
"1-1").

2. On September 22, 1934, Yap Pongco sold this land to Francisco

Militante as evidenced by a notarial deed (Exh. "J") which was registered
in the Registry of Deeds on May 13, 1940 (Exh. "J-1").

3. That plaintiff suffered damages alleged in his complaint.

C. Defendants, on the other hand will prove by competent evidence during the trial of
this case the following facts:
 1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and
possessed by Felipe Batiller, grandfather of the defendant Basilio Batiller,
on the death of the former in 1920, as his sole heir. Isaias Batiller
succeeded his father , Basilio Batiller, in the ownership and possession of
the land in the year 1930, and since then up to the present, the land
remains in the possession of the defendant, his possession being actual,
open, public, peaceful and continuous in the concept of an owner,
exclusive of any other rights and adverse to all other claimants.

2. That the alleged predecessors in interest of the plaintiff have never

been in the actual possession of the land and that they never had any title
thereto.

3. That Lot No. 2, Psu 155241, the subject of Free Patent application of
the defendant has been approved.

4. The damages suffered by the defendant, as alleged in his

counterclaim."'1

The appellate court further related the developments of the case, as follows:

On August 17, 1965, defendant's counsel manifested in open court that

before any trial on the merit of the case could proceed he would file
a motion to dismiss plaintiff's complaint which he did, alleging thatplaintiff
does not have cause of action against him because the property in dispute
which he (plaintiff) allegedly bought from his father-in-law, Francisco
Militante was the subject matter of LRC No. 695 filed in the CFI of Iloilo,
which case was brought on appeal to this Court and docketed as CA-G.R.
No. 13497-R in which aforesaid case plaintiff was the counsel on record of
his father-in-law, Francisco Militante. Invoking Arts. 1409 and 1491 of the
Civil Code which reads:

'Art. 1409. The following contracts are inexistent and void

from the beginning:

xxx xxx xxx

(7) Those expressly prohibited by law.

'ART. 1491. The following persons cannot acquire any

purchase, even at a public auction, either in person of
through the mediation of another: .

xxx xxx xxx

 (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the
administration of justice, the property and rights of in litigation or levied
upon an execution before the court within whose jurisdiction or territory
they exercise their respective functions; this prohibition includes the act of
acquiring an assignment and shall apply to lawyers, with respect to the
property and rights which may be the object of any litigation in which they
may take part by virtue of their profession.'

defendant claims that plaintiff could not have acquired any interest in the
property in dispute as the contract he (plaintiff) had with Francisco
Militante was inexistent and void. (See pp. 22-31, Record on Appeal).
Plaintiff strongly opposed defendant's motion to dismiss claiming that
defendant can not invoke Articles 1409 and 1491 of the Civil Code as
Article 1422 of the same Code provides that 'The defense of illegality of
contracts is not available to third persons whose interests are not directly
affected' (See pp. 32-35 Record on Appeal).

On October 18, 1965, the lower court issued an order disclaiming plaintiffs
complaint (pp. 42-49, Record on Appeal.) In the aforesaid order of
dismissal the lower court practically agreed with defendant's contention
that the contract (Exh. A) between plaintiff and Francism Militante was null
and void. In due season plaintiff filed a motion for reconsideration (pp. 50-
56 Record on Appeal) which was denied by the lower court on January 14,
1966 (p. 57, Record on Appeal).

Hence, this appeal by plaintiff from the orders of October 18, 1965 and
January 14, 1966.

Plaintiff-appellant imputes to the lower court the following errors:

'1. The lower court erred in holding that the contract of sale
between the plaintiff-appellant and his father-in-law,
Francisco Militante, Sr., now deceased, of the property
covered by Plan Psu-99791, (Exh. "A") was void, not
voidable because it was made when plaintiff-appellant was
the counsel of the latter in the Land Registration case.

'2. The lower court erred in holding that the defendant-

appellee is an interested person to question the validity of
the contract of sale between plaintiff-appellant and the
deceased, Francisco Militante, Sr.

'3. The lower court erred in entertaining the motion to

dismiss of the defendant-appellee after he had already filed
 his answer, and after the termination of the pre-trial, when
the said motion to dismiss raised a collateral question.

'4. The lower court erred in dismissing the complaint of the

plaintiff-appellant.'

The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2)
legal posers — (1) whether or not the contract of sale between appellant and his father-
in-law, the late Francisco Militante over the property subject of Plan Psu-99791 was void
because it was made when plaintiff was counsel of his father-in-law in a land
registration case involving the property in dispute; and (2) whether or not the lower court
was correct in entertaining defendant-appellee's motion to dismiss after the latter had
already filed his answer and after he (defendant) and plaintiff-appellant had agreed on
some matters in a pre-trial conference. Hence, its elevation of the appeal to this Court
as involving pure questions of law.

It is at once evident from the foregoing narration that the pre-trial conference held by the
trial court at which the parties with their counsel agreed and stipulated on the material
and relevant facts and submitted their respective documentary exhibits as referred to in
the pre-trial order, supra,2 practically amounted to a fulldress trial which placed on
record all the facts and exhibits necessary for adjudication of the case.

The three points on which plaintiff reserved the presentation of evidence at the-trial
dealing with the source of the alleged right and title of Francisco Militante's
predecessors, supra,3 actually are already made of record in the stipulated
facts and admitted exhibits. The chain of Militante's alleged title and right to the land as
supposedly traced back to Liberato Demontaño was actually asserted by Militante (and
his vendee, lawyer and son-in-law, herein plaintiff) in the land registration case
and rejected by the Iloilo land registration court which dismissed Militante's application
for registration of the land. Such dismissal, as already stated, was affirmed by the final
judgment in 1958 of the Court of Appeals.4

The four points on which defendant on his part reserved the presentation of evidence at
the trial dealing with his and his ancestors' continuous, open, public and peaceful
possession in the concept of owner of the land and the Director of Lands' approval of
his survey plan thereof, supra,5 are likewise already duly established facts of record, in
the land registration case as well as in the ejectment case wherein the Iloilo court of first
instance recognized the superiority of defendant's right to the land as against plaintiff.

No error was therefore committed by the lower court in dismissing plaintiff's complaint
upon defendant's motion after the pre-trial.

1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of
cause of action and justified the outright dismissal of the complaint. Plaintiff's claim of
ownership to the land in question was predicated on the sale thereof for P2,000.00
made in 1956 by his father-in- law, Francisco Militante, in his favor, at a time when
 Militante's application for registration thereof had already been dismissed by the Iloilo
land registration court and was pending appeal in the Court of Appeals.

With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's
application for registration, the lack of any rightful claim or title of Militante to the land
was conclusively and decisively judicially determined. Hence, there was no right or
title to the land that could be transferred or sold by Militante's purported sale in 1956 in
favor of plaintiff.

Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of

the land and to be restored to possession thereof with damages was bereft of any
factual or legal basis.

2. No error could be attributed either to the lower court's holding that the purchase by a
lawyer of the property in litigation from his client is categorically prohibited by Article
1491, paragraph (5) of the Philippine Civil Code, reproduced supra;6 and that
consequently, plaintiff's purchase of the property in litigation from his client (assuming
that his client could sell the same since as already shown above, his client's claim to the
property was defeated and rejected) was void and could produce no legal effect, by
virtue of Article 1409, paragraph (7) of our Civil Code which provides that contracts
"expressly prohibited or declared void by law' are "inexistent and that "(T)hese contracts
cannot be ratified. Neither can the right to set up the defense of illegality be waived."

The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that
a sale of property in litigation to the party litigant's lawyer "is not void but voidable at the
election of the vendor" was correctly held by the lower court to have been superseded
by the later 1929 case of Director of Lands vs. Abagat.8 In this later case of Abagat, the
Court expressly cited two antecedent cases involving the same transaction of purchase
of property in litigation by the lawyer which was expressly declared invalid under Article
1459 of the Civil Code of Spain (of which Article 1491 of our Civil Code of the
Philippines is the counterpart) upon challenge thereof not by the vendor-client but by the
adverse parties against whom the lawyer was to enforce his rights as vendee thus
acquired.

These two antecedent cases thus cited in Abagat clearly superseded (without so
expressly stating the previous ruling in Wolfson:

The spouses, Juan Soriano and Vicente Macaraeg, were the owners of
twelve parcels of land. Vicenta Macaraeg died in November, 1909, leaving
a large number of collateral heirs but no descendants. Litigation between
the surviving husband, Juan Soriano, and the heirs of Vicenta immediately
arose, and the herein appellant Sisenando Palarca acted as Soriano's
lawyer. On May 2, 1918, Soriano executed a deed for the aforesaid twelve
parcels of land in favor of Sisenando Palarca and on the following day,
May 3, 1918, Palarca filed an application for the registration of the land in
the deed. After hearing, the Court of First Instance declared that the deed
 was invalid by virtue of the provisions of article 1459 of the Civil Code,
which prohibits lawyers and solicitors from purchasing property rights
involved in any litigation in which they take part by virtue of their
profession. The application for registration was consequently denied, and
upon appeal by Palarca to the Supreme Court, the judgement of the lower
court was affirmed by a decision promulgated November 16,1925. (G.R.
No. 24329, Palarca vs. Director of Lands, not reported.)

In the meantime cadastral case No. 30 of the Province of Tarlac was

instituted, and on August 21, 1923, Eleuteria Macaraeg, as administratrix
of the estate of Vicente Macaraeg, filed claims for the parcels in question.
Buenaventura Lavitoria administrator of the estate of Juan Soriano, did
likewise and so did Sisenando Palarca. In a decision dated June 21, 1927,
the Court of First Instance, Judge Carballo presiding, rendered judgment
in favor of Palarea and ordered the registration of the land in his
name. Upon appeal to this court by the administration of the estates of
Juan Soriano and Vicente Macaraeg, the judgment of the court below was
reversed and the land adjudicated to the two estates as conjugal property
of the deceased spouses. (G.R. No. 28226, Director of Lands vs. Abagat,
promulgated May 21, 1928, not reported.)9

In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of
the lawyer's purchase of the land in litigation from his client, ordered the issuance of a
writ of possession for the return of the land by the lawyer to the adverse parties without
reimbursement of the price paid by him and other expenses, and ruled that "the
appellant Palarca is a lawyer and is presumed to know the law. He must, therefore, from
the beginning, have been well aware of the defect in his title and is, consequently, a
possessor in bad faith."

As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the
Civil Code of Spain then adopted here, until it was superseded on August 30, 1950 by
the Civil Code of the Philippines whose counterpart provision is Article 1491.

Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its
six paragraphs certain persons, by reason of the relation of trust or their peculiar control
over the property, from acquiring such property in their trust or control either directly or
indirectly and "even at a public or judicial auction," as follows: (1) guardians; (2) agents;
(3) administrators; (4) public officers and employees; judicial officers and employees,
prosecuting attorneys, and lawyers; and (6) others especially disqualified by law.

In Wolfson which involved the sale and assignment of a money judgment by the client to
the lawyer, Wolfson, whose right to so purchase the judgment was being challenged by
the judgment debtor, the Court, through Justice Moreland, then expressly reserved
decision on "whether or not the judgment in question actually falls within the prohibition
of the article" and held only that the sale's "voidability can not be asserted by one not a
party to the transaction or his representative," citing from Manresa 10 that "(C)onsidering
the question from the point of view of the civil law, the view taken by the code, we must
limit ourselves to classifying as void all acts done contrary to the express prohibition of
the statute. Now then: As the code does not recognize such nullity by the mere
operation of law, the nullity of the acts hereinbefore referred to must be asserted by the
person having the necessary legal capacity to do so and decreed by a competent
court." 11

The reason thus given by Manresa in considering such prohibited acquisitions under
Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of
the vendor and not void — "that the Code does not recognize such nullity de pleno
derecho" — is no longer true and applicable to our own Philippine Civil Code
which does recognize the absolute nullity of contracts "whose cause, object, or purpose
is contrary to law, morals, good customs, public order or public policy" or which are
"expressly prohibited or declared void by law" and declares such contracts "inexistent
and void from the beginning." 12

The Supreme Court of Spain and modern authors have likewise veered from Manresa's
view of the Spanish codal provision itself. In its sentencia of 11 June 1966, the Supreme
Court of Spain ruled that the prohibition of Article 1459 of the Spanish Civil Code is
based on public policy, that violation of the prohibition contract cannot be validated by
confirmation or ratification, holding that:

... la prohibicion que el articulo 1459 del C.C. establece respecto a los
administradores y apoderados, la cual tiene conforme a la doctrina de
esta Sala, contendia entre otras, en S. de 27-5-1959, un fundamento
de orden moral lugar la violacion de esta a la nulidad de pleno
derecho del acto o negocio celebrado, ... y prohibicion legal,
afectante orden publico, no cabe con efecto alguno la
aludida retification ... 13

The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish
Civil Code (Article 1491 of our Civil Code) as a matter of public order and policy as
applied by the Supreme Court of Spain to administrators and agents in its above cited
decision should certainly apply with greater reason to judges, judicial officers, fiscals
and lawyers under paragraph 5 of the codal article.

Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his "Curso
de Derecho Civil, (Contratos Especiales)" (Madrid, 1968) p. 18, affirms that, with
respect to Article 1459, Spanish Civil Code:.

Que caracter tendra la compra que se realice por estas personas?

Porsupuesto no cabe duda de que el caso (art.) 1459, 40 y 50, la nulidad
esabsoluta porque el motivo de la prohibicion es de orden publico. 14

Perez Gonzales in such view, stating that "Dado el caracter prohibitivo delprecepto, la
consequencia de la infraccion es la nulidad radical y ex lege." 15
 Castan, quoting Manresa's own observation that.

"El fundamento do esta prohibicion es clarisimo. No sa trata con este precepto tan solo
de guitar la ocasion al fraude; persiguese, ademasel proposito de rodear a las
personas que intervienen en la administrcionde justicia de todos los retigios que
necesitan pora ejercer su ministerio librandolos de toda suspecha, que aunque fuere in
fundada, redundura endescredito de la institucion." 16 arrives at the contrary and now
accepted view that "Puede considerace en nuestro derecho inexistente 'o radicalmente
nulo el contrato en los siguentes cases: a) ...; b) cuando el contrato se ha celebrado en
violacion de una prescripcion 'o prohibicion legal, fundada sobre motivos de orden
publico (hipotesis del art. 4 del codigo) ..." 17

It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration
of public policy render void and inexistent such expressly prohibited purchase (e.g. by
public officers and employees of government property intrusted to them and by justices,
judges, fiscals and lawyers of property and rights in litigation and submitted to or
handled by them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been
adopted in a new article of our Civil Code, viz, Article 1409 declaring such prohibited
contracts as "inexistent and void from the beginning." 18

Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be
cured by ratification. The public interest and public policy remain paramount and do not
permit of compromise or ratification. In his aspect, the permanent disqualification of
public and judicial officers and lawyers grounded on public policy differs from the first
three cases of guardians, agents and administrators (Article 1491, Civil Code), as to
whose transactions it had been opined that they may be "ratified" by means of and in
"the form of a new contact, in which cases its validity shall be determined only by the
circumstances at the time the execution of such new contract. The causes of nullity
which have ceased to exist cannot impair the validity of the new contract. Thus, the
object which was illegal at the time of the first contract, may have already become lawful
at the time of the ratification or second contract; or the service which was impossible
may have become possible; or the intention which could not be ascertained may have
been clarified by the parties. The ratification or second contract would then be valid
from its execution; however, it does not retroact to the date of the first contract." 19

As applied to the case at bar, the lower court therefore properly acted upon defendant-
appellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of
the land, since its juridical effects and plaintiff's alleged cause of action founded thereon
were being asserted against defendant-appellant. The principles governing the nullity of
such prohibited contracts and judicial declaration of their nullity have been well restated
by Tolentino in his treatise on our Civil Code, as follows:

Parties Affected. — Any person may invoke the in existence of the

contract whenever juridical effects founded thereon are asserted against
him. Thus, if there has been a void transfer of property, the transferor can
recover it by the accion reinvindicatoria; and any prossessor may refuse to
 deliver it to the transferee, who cannot enforce the contract. Creditors may
attach property of the debtor which has been alienated by the latter under
a void contract; a mortgagee can allege the inexistence of a prior
encumbrance; a debtor can assert the nullity of an assignment of credit as
a defense to an action by the assignee.

Action On Contract. — Even when the contract is void or inexistent, an

action is necessary to declare its inexistence, when it has already been
fulfilled. Nobody can take the law into his own hands; hence, the
intervention of the competent court is necessary to declare the absolute
nullity of the contract and to decree the restitution of what has been given
under it. The judgment, however, will retroact to the very day when the
contract was entered into.

If the void contract is still fully executory, no party need bring an action to
declare its nullity; but if any party should bring an action to enforce it, the
other party can simply set up the nullity as a defense. 20

ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in
all instances against plaintiff-appellant. So ordered.

RICARDO DISTAJO, ERNESTO DISTAJO, RAUL DISTAJO, FEDERICO DISTAJO,

ZACARIAS A. DISTAJO, EDUARDO DISTAJO, and PILAR DISTAJO
TAPAR, petitioners, vs. COURT OF APPEALS and LAGRIMAS SORIANO
DISTAJO, respondents.

DECISION
PARDO, J.:

The case under consideration is a petition for review on certiorari of a decision of

the Court of Appeals[1], which modified the ruling of the Regional Trial Court, Roxas City
regarding seven parcels of land located in Barangay Hipona, Pontevedra, Capiz. [2]
During the lifetime of Iluminada Abiertas, she designated one of her sons, Rufo
Distajo, to be the administrator of her parcels of land denoted as Lot Nos. 1018, 1046,
1047, and 1057 situated in Barangay Hipona, Pontevedra, Capiz.
On May 21, 1954, Iluminada Abiertas sold a portion of Lot No. 1018 (1018-A) to her
other children, namely, Raul Distajo, Ricardo Distajo, Ernesto Distajo, Federico Distajo,
and Eduardo Distajo.[3]
On May 29, 1963, Iluminada Abiertas certified to the sale of Lot Nos. 1046 and 1047
in favor of Rufo Distajo.[4]
On June 4, 1969, Iluminada Abiertas sold Lot No. 1057 to Rhodora Distajo, the
daughter of Rufo Distajo.[5]
On July 12, 1969, Iluminada Abiertas sold Lot No. 1018 to Rufo Distajo. [6]
 Meanwhile, Justo Abiertas, Jr., the brother of Iluminada Abiertas, died leaving
behind his children, Teresita, Alicia, Josefa and Luis Abiertas. Teresita paid for the real
estate taxes of the following properties, which she inherited from her father: Lot Nos.
1001, 1048, 1049, and a portion of Lot No. 1047, all located in Capiz. On May 26, 1954,
Teresita Abiertas sold Lot No. 1001 in favor of Rufo Distajo. [7] On June 2, 1965, Teresita
Abiertas, for herself and representing her sisters and brother, sold Lot Nos. 1048, 1049,
and a portion of Lot No. 1047 to Rufo Distajo. [8]
After purchasing the above-mentioned parcels of land, Rufo Distajo took possession
of the property and paid the corresponding real estate taxes thereon. Rhodora Distajo
likewise paid for the real estate taxes of Lot No. 1057.
When Iluminada Abiertas died in 1971, Zacarias Distajo, Pilar Distajo-Tapar, and
Rizaldo Distajo,[9] demanded possession of the seven parcels of land from Lagrimas S.
Distajo, and her husband, Rufo Distajo. The latter refused.
Consequently, on June 5, 1986, Ricardo Distajo, with the other heirs of Iluminada
Abiertas, namely, Ernesto Distajo, Raul Distajo, Federico Distajo, Zacarias Distajo,
Eduardo Distajo, and Pilar Distajo, filed with the Regional Trial Court, Roxas City a
complaint for recovery of possession and ownership of Lot No. 1018, partition of Lot
Nos. 1001, 1018-B, 1046, 1047, 1048, 1049, 1057, and damages.
On September 4, 1986, private respondent Lagrimas Distajo [10] filed an answer with
counterclaim.
On April 9, 1990, the trial court dismissed the complaint for lack of cause of action,
laches and prescription. The counterclaim was likewise dismissed. The parties
appealed to the Court of Appeals.[11]
On August 21, 1992, the Court of Appeals rendered its decision, [12] the dispositive
portion of which states as follows:

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE and a
new judgment rendered, as follows:

WHEREFORE, the Court decides the case in favor of the defendant and dismisses the
plaintiffs complaint for lack of cause of action except with regard to the plaintiffs claim
over a 238 sq. m. portion of Lot No. 1018 (the portion adjoining the market site and
measuring seventeen meters and that adjoining the property of E. Rodriguez measuring
14 meters). The Court hereby Orders the partition of Lot No. 1018 to conform to the
following: 238 sq. m. as above specified to belong to the plaintiffs as prayed for by them
while the rest is declared property of the defendant.

Upon partition of Lot No. 1018 in accordance with this Courts Order, the City Assessor
of Roxas City is hereby Ordered to cancel Tax Declaration 2813 in the name of Rufo
Distajo (or any subsequent tax declaration/s issued relative to the above-cited Tax
Declaration No. 2813) and forthwith to issue the corresponding tax declarations in the
names of the respective parties herein.
 SO ORDERED.

On September 10, 1992, Ricardo Distajo filed a motion for reconsideration. [13] On
December 9, 1993, the Court of Appeals denied the motion. [14]
Hence, this petition.[15]
Petitioner alleges that Iluminada Abiertas exclusively owns the seven parcels of
land delineated as Lot Nos. 1001, 1018, 1046, 1047, 1048, 1049, and 1057, all of which
should be partitioned among all her heirs. Furthermore, Rufo Distajo cannot acquire the
subject parcels of land owned by Iluminada Abiertas because the Civil Code prohibits
the administrator from acquiring properties under his administration. [16] Rufo Distajo
merely employed fraudulent machinations in order to obtain the consent of his mother to
the sale, and may have even forged her signature on the deeds of sale of the parcels of
land.
In her comment dated May 13, 1994, private respondent Lagrimas S. Distajo
contends that Rufo Distajo rightfully owns the subject parcels of land because of various
deeds of sale executed by Iluminada Abiertas selling Lot Nos. 1018-B, 1047 and 1046
in favor of Rufo Distajo and Lot No. 1057 in favor of Rhodora Distajo. Private
respondent also avers that petitioner cannot claim any right over Lot Nos. 1001, 1048
and 1049, considering that such lands belong to the brother of Iluminada Abiertas,
namely, Justo Abiertas, Jr., whose heirs sold said parcels of land to Rufo Distajo.
The petition lacks merit.
Factual findings of the trial court will not be disturbed on appeal unless the court has
overlooked or ignored some fact or circumstance of sufficient weight or significance,
which, if considered, would alter the result of the case. [17] When there is no conflict
between the findings of the trial and appellate courts, a review of the facts found by the
appellate court is unnecessary.[18]
Since the trial court and the Court of Appeals agree that Iluminada Abiertas owned
Lot Nos. 1046, 1057 and a portion of Lot No. 1047, and that Justo Abiertas Jr. owned
Lot Nos. 1001, 1048, and 1049, such findings are binding on this Court, which is not a
trier of facts.[19] However, the record shows that Lot No. 1018 should be divided into Lot
No. 1018-A and 1018-B, the delineation of which the Court of Appeals clarified in its
decision.
The issues in this case, therefore, are limited to those properties which were owned
by Iluminada Abiertas, ascendant of petitioner, consisting of Lot Nos. 1018-A, 1046,
1057, and a portion of 1047.
In his petition, Ricardo Distajo assails the genuineness of the signatures of
Iluminada Abiertas in the deeds of sale of the parcels of land, and claims that Rufo
Distajo forged the signature of Iluminada Abiertas. However, no handwriting expert was
presented to corroborate the claim of forgery. Petitioner even failed to present a witness
who was familiar with the signature of Iluminada Abiertas. Forgery should be proved by
clear and convincing evidence, and whoever alleges it has the burden of proving the
same.[20]
 Petitioner likewise contends that the sale transactions are void for having been
entered into by the administrator of the properties. We disagree. The pertinent Civil
Code provision provides:

Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under
guardianship;
(2) Agents, the property whose administration or sale may have been entrusted
to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration; x x x
Under paragraph (2) of the above article, the prohibition against agents purchasing
property in their hands for sale or management is not absolute. It does not apply if the
principal consents to the sale of the property in the hands of the agent or
administrator. In this case, the deeds of sale signed by Iluminada Abiertas shows that
she gave consent to the sale of the properties in favor of her son, Rufo, who was the
administrator of the properties. Thus, the consent of the principal Iluminada Abiertas
removes the transaction out of the prohibition contained in Article 1491(2).
Petitioner also alleges that Rufo Distajo employed fraudulent machinations to obtain
the consent of Iluminada Abiertas to the sale of the parcels of land. However, petitioner
failed to adduce convincing evidence to substantiate his allegations.
In the absence of any showing of lack of basis for the conclusions made by the
Court of Appeals, this Court finds no cogent reason to reverse the ruling of the appellate
court.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the
Court of Appeals in CA-G.R. CV No. 30063.
SO ORDERED.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT OF
APPEALS, THE COURT OF TAX APPEALS and ATENEO DE MANILA
UNIVERSITY, respondents.

DECISION

PANGANIBAN, J.:
In conducting researches and studies of social organizations and cultural values
thru its Institute of Philippine Culture, is the Ateneo de Manila University performing the
work of an independent contractor and thus taxable within the purview of then Section
205 of the National Internal Revenue Code levying a three percent contractors tax? This
question is answered by the Court in the negative as it resolves this petition assailing
the Decision[1] of the Respondent Court of Appeals[2] in CA-G.R. SP No. 31790
promulgated on April 27, 1994 affirming that of the Court of Tax Appeals. [3]
The Antecedent Facts
The antecedents as found by the Court of Appeals are reproduced hereinbelow, the
same being largely undisputed by the parties.
Private respondent is a non-stock, non-profit educational institution with auxiliary
units and branches all over the Philippines. One such auxiliary unit is the
Institute of Philippine Culture (IPC), which has no legal personality separate and
distinct from that of private respondent. The IPC is a Philippine unit engaged in
social science studies of Philippine society and culture. Occasionally, it accepts
sponsorships for its research activities from international organizations, private
foundations and government agencies.
On July 8, 1983, private respondent received from petitioner Commissioner of
Internal Revenue a demand letter dated June 3, 1983, assessing private
respondent the sum of P174,043.97 for alleged deficiency contractors tax, and
an assessment dated June 27, 1983 in the sum of P1,141,837 for alleged
deficiency income tax, both for the fiscal year ended March 31, 1978. Denying
said tax liabilities, private respondent sent petitioner a letter-protest and
subsequently filed with the latter a memorandum contesting the validity of the
assessments.
On March 17, 1988, petitioner rendered a letter-decision canceling the
assessment for deficiency income tax but modifying the assessment for
deficiency contractors tax by increasing the amount due
to P193,475.55. Unsatisfied, private respondent requested for a reconsideration
or reinvestigation of the modified assessment. At the same time, it filed in the
respondent court a petition for review of the said letter-decision of the
petitioner. While the petition was pending before the respondent court, petitioner
issued a final decision dated August 3, 1988 reducing the assessment for
deficiency contractors tax from P193,475.55 to P46,516.41, exclusive of
surcharge and interest.
On July 12, 1993, the respondent court rendered the questioned decision which
dispositively reads:
WHEREFORE, in view of the foregoing, respondents decision is SET
ASIDE. The deficiency contractors tax assessment in the amount
of P46,516.41 exclusive of surcharge and interest for the fiscal year
ended March 31, 1978 is hereby CANCELED. No pronouncement as to
cost.
SO ORDERED.
Not in accord with said decision, petitioner has come to this Court via the
present petition for review raising the following issues:
 1)WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER
THE PURVIEW OF INDEPENDENT CONTRACTOR
PURSUANT TO SECTION 205 OF THE TAX CODE; and
2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO
3% CONTRACTORS TAX UNDER SECTION 205 OF THE TAX
CODE.
The pertinent portions of Section 205 of the National Internal Revenue Code, as
amended, provide:
Sec. 205. Contractor, proprietors or operators of dockyards, and
others. - A contractors tax of three per centum of the gross receipts is
hereby imposed on the following:
xxxxxxxxx

(16) Business agents and other independent contractors except persons,

associations and corporations under contract for embroidery and apparel for
export, as well as their agents and contractors and except gross receipts of or
from a pioneer industry registered with the Board of Investments under
Republic Act No. 5186:

The term independent contractors include persons (juridical or natural) not

enumerated above (but not including individuals subject to the occupation tax
under Section 12 of the Local Tax Code) whose activity consists essentially of
the sale of all kinds of services for a fee regardless of whether or not the
performance of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees.

Petitioner contends that the respondent court erred in holding that private
respondent is not an independent contractor within the purview of Section 205
of the Tax Code. To petitioner, the term independent contractor, as defined by
the Code, encompasses all kinds of services rendered for a fee and that the
only exceptions are the following:
a. Persons, association and corporations under contract for embroidery
and apparel for export and gross receipts of or from pioneer industry
registered with the Board of Investment under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of the Local Tax Code
(under the old Section 182 [b] of the Tax Code); and
c. Regional or area headquarters established in the Philippines by
multinational corporations, including their alien executives, and which
headquarters do not earn or derive income from the Philippines and
which act as supervisory, communication and coordinating centers for
their affiliates, subsidiaries or branches in the Asia Pacific Region
(Section 205 of the Tax Code).
 Petitioner thus submits that since private respondent falls under the definition of
an independent contractor and is not among the aforementioned exceptions,
private respondent is therefore subject to the 3% contractors tax imposed under
the same Code.[4]
The Court of Appeals disagreed with the Petitioner Commissioner of Internal
Revenue and affirmed the assailed decision of the Court of Tax Appeals. Unfazed,
petitioner now asks us to reverse the CA through this petition for review.

The Issues

Petitioner submits before us the following issues:

1) Whether or not private respondent falls under the purview of independent
contractor pursuant to Section 205 of the Tax Code
2) Whether or not private respondent is subject to 3% contractors tax under
Section 205 of the Tax Code.[5]
In fine, these may be reduced to a single issue: Is Ateneo de Manila University,
through its auxiliary unit or branch -- the Institute of Philippine Culture -- performing the
work of an independent contractor and, thus, subject to the three percent contractors
tax levied by then Section 205 of the National Internal Revenue Code?

The Courts Ruling

The petition is unmeritorious.

Interpretation of Tax Laws

The parts of then Section 205 of the National Internal Revenue Code germane to
the case before us read:
SEC. 205. Contractors, proprietors or operators of dockyards, and others. -- A
contractors tax of three per centum of the gross receipts is hereby imposed on
the following:
xxxxxxxxx
(16) Business agents and other independent contractors, except
persons, associations and corporations under contract for embroidery
and apparel for export, as well as their agents and contractors, and
except gross receipts of or from a pioneer industry registered with the
Board of Investments under the provisions of Republic Act No. 5186;
 xxxxxxxxx
The term independent contractors include persons (juridical or natural)
not enumerated above (but not including individuals subject to the
occupation tax under Section 12 of the Local Tax Code) whose activity
consists essentially of the sale of all kinds of services for a fee
regardless of whether or not the performance of the service calls for the
exercise or use of the physical or mental faculties of such contractors or
their employees.
The term independent contractor shall not include regional or area
headquarters established in the Philippines by multinational
corporations, including their alien executives, and which headquarters
do not earn or derive income from the Philippines and which act as
supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region.
The term gross receipts means all amounts received by the prime or
principal contractor as the total contract price, undiminished by amount
paid to the subcontractor, shall be excluded from the taxable gross
receipts of the subcontractor.
Petitioner Commissioner of Internal Revenue contends that Private Respondent
Ateneo de Manila University falls within the definition of an independent contractor and
is not one of those mentioned as excepted; hence, it is properly a subject of the three
percent contractors tax levied by the foregoing provision of law. [6] Petitioner states that
the term independent contractor is not specifically defined so as to delimit the scope
thereof, so much so that any person who x x x renders physical and mental service for a
fee, is now indubitably considered an independent contractor liable to 3% contractors
tax.[7] according to petitioner, Ateneo has the burden of proof to show its exemption from
the coverage of the law.
We disagree. Petitioner Commissioner of Internal Revenue erred in applying the
principles of tax exemption without first applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is obviously both illogical and impractical to
determine who are exempted without first determining who are covered by the aforesaid
provision. The Commissioner should have determined first if private respondent was
covered by Section 205, applying the rule of strict interpretation of laws imposing taxes
and other burdens on the populace, before asking Ateneo to prove its exemption
therefrom. The Court takes this occasion to reiterate the hornbook doctrine in the
interpretation of tax laws that (a) statute will not be construed as imposing a tax unless it
does so clearly, expressly, and unambiguously. x x x (A) tax cannot be imposed without
clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to
tax laws and the provisions of a taxing act are not to be extended by implication.
[8]
Parenthetically, in answering the question of who is subject to tax statutes, it is basic
that in case of doubt, such statutes are to be construed most strongly against the
government and in favor of the subjects or citizens because burdens are not to be
 imposed nor presumed to be imposed beyond what statutes expressly and clearly
import.[9]
To fall under its coverage, Section 205 of the National Internal Revenue Code
requires that the independent contractor be engaged in the business of selling its
services. Hence, to impose the three percent contractors tax on Ateneos Institute of
Philippine Culture, it should be sufficiently proven that the private respondent is indeed
selling its services for a fee in pursuit of an independent business. And it is only after
private respondent has been found clearly to be subject to the provisions of Sec. 205
that the question of exemption therefrom would arise.Only after such coverage is shown
does the rule of construction -- that tax exemptions are to be strictly construed against
the taxpayer -- come into play, contrary to petitioners position. This is the main line of
reasoning of the Court of Tax Appeals in its decision, [10] which was affirmed by the CA.

The Ateneo de Manila University Did Not Contract

for the Sale of the Services of its Institute of Philippine Culture

After reviewing the records of this case, we find no evidence that Ateneos Institute
of Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a
business apart from and independently of the academic purposes of the university.
Stressing that it is not the Ateneo de Manila University per se which is being taxed,
Petitioner Commissioner of Internal Revenue contends that the tax is due on its activity
of conducting researches for a fee. The tax is due on the gross receipts made in favor of
IPC pursuant to the contracts the latter entered to conduct researches for the benefit
primarily of its clients. The tax is imposed on the exercise of a taxable activity. x x x
[T]he sale of services of private respondent is made under a contract and the various
contracts entered into between private respondent and its clients are almost of the
same terms, showing, among others, the compensation and terms of payment.
[11]
(Underscoring supplied.)
In theory, the Commissioner of Internal Revenue may be correct. However, the
records do not show that Ateneos IPC in fact contracted to sell its research services for
a fee. Clearly then, as found by the Court of Appeals and the Court of Tax
Appeals, petitioners theory is inapplicable to the established factual milieu obtaining in
the instant case.
In the first place, the petitioner has presented no evidence to prove its bare
contention that, indeed, contracts for sale of services were ever entered into by the
private respondent. As appropriately pointed out by the latter:
An examination of the Commissioners Written Formal Offer of Evidence in the
Court of Tax Appeals shows that only the following documentary evidence was
presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiners Field Audit Report
3 Adjustments to Sales/Receipts
 4 Letter-decision of BIR Commissioner
Bienvenido A. Tan Jr.

None of the foregoing evidence even comes close to purport to be contracts between
private respondent and third parties.[12]

Moreover, the Court of Tax Appeals accurately and correctly declared that the funds
received by the Ateneo de Manila University are technically not a fee. They may
however fall as gifts or donations which are tax-exempt as shown by private
respondents compliance with the requirement of Section 123 of the National Internal
Revenue Code providing for the exemption of such gifts to an educational institution. [13]
Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals:
To our mind, private respondent hardly fits into the definition of an independent
contractor.
For one, the established facts show that IPC, as a unit of the private
respondent, is not engaged in business. Undisputedly, private respondent is
mandated by law to undertake research activities to maintain its university
status. In fact, the research activities being carried out by the IPC is focused not
on business or profit but on social sciences studies of Philippine society and
culture. Since it can only finance a limited number of IPCs research projects,
private respondent occasionally accepts sponsorship for unfunded IPC research
projects from international organizations, private foundations and governmental
agencies. However, such sponsorships are subject to private respondents terms
and conditions, among which are, that the research is confined to topics
consistent with the private respondents academic agenda; that no proprietary or
commercial purpose research is done; and that private respondent retains not
only the absolute right to publish but also the ownership of the results of the
research conducted by the IPC. Quite clearly, the aforementioned terms and
conditions belie the allegation that private respondent is a contractor or is
engaged in business.
For another, it bears stressing that private respondent is a non-stock, non-profit
educational corporation. The fact that it accepted sponsorship for IPCs
unfunded projects is merely incidental. For, the main function of the IPC is to
undertake research projects under the academic agenda of the private
respondent. Moreover, the records do not show that in accepting sponsorship of
research work, IPC realized profits from such work. On the contrary, the
evidence shows that for about 30 years, IPC had continuously operated at a
loss, which means that sponsored funds are less than actual expenses for its
research projects. That IPC has been operating at a loss loudly bespeaks of the
fact that education and not profit is the motive for undertaking the research
projects.
Then, too, granting arguendo that IPC made profits from the sponsored
research projects, the fact still remains that there is no proof that part of such
earnings or profits was ever distributed as dividends to any stockholder, as in
 fact none was so distributed because they accrued to the benefit of the private
respondent which is a non-profit educational institution. [14]
Therefore, it is clear that the funds received by Ateneos Institute of Philippine
Culture are not given in the concept of a fee or price in exchange for the performance of
a service or delivery of an object. Rather, the amounts are in the nature of an
endowment or donation given by IPCs benefactors solely for the purpose of sponsoring
or funding the research with no strings attached. As found by the two courts below, such
sponsorships are subject to IPCs terms and conditions. No proprietary or commercial
research is done, and IPC retains the ownership of the results of the research, including
the absolute right to publish the same. The copyrights over the results of the research
are owned by Ateneo and, consequently, no portion thereof may be reproduced without
its permission.[15] The amounts given to IPC, therefore, may not be deemed, it bears
stressing, as fees or gross receipts that can be subjected to the three percent
contractors tax.
It is also well to stress that the questioned transactions of Ateneos Institute of
Philippine Culture cannot be deemed either as a contract of sale or a contract for a
piece of work. By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent. [16] By its very nature, a contract of
sale requires a transfer of ownership. Thus, Article 1458 of the Civil Code expressly
makes the obligation to transfer ownership as an essential element of the contract of
sale, following modern codes, such as the German and the Swiss. Even in the absence
of this express requirement, however, most writers, including Sanchez Roman, Gayoso,
Valverde, Ruggiero, Colin and Capitant, have considered such transfer of ownership as
the primary purpose of sale. Perez and Alguer follow the same view, stating that the
delivery of the thing does not mean a mere physical transfer, but is a means of
transmitting ownership. Transfer of title or an agreement to transfer it for a price paid or
promised to be paid is the essence of sale.[17] In the case of a contract for a piece of
work, the contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. x x x If the contractor agrees to
produce the work from materials furnished by him, he shall deliver the thing produced to
the employer and transfer dominion over the thing. x x x. [18] Ineludably, whether the
contract be one of sale or one for a piece of work, a transfer of ownership is involved
and a party necessarily walks away with an object. [19] In the case at bench, it is clear
from the evidence on record that there was no sale either of objects or services
because, as adverted to earlier, there was no transfer of ownership over the research
data obtained or the results of research projects undertaken by the Institute of Philippine
Culture.
Furthermore, it is clear that the research activity of the Institute of Philippine Culture
is done in pursuance of maintaining Ateneos university status and not in the course of
an independent business of selling such research with profit in mind. This is clear from a
reading of the regulations governing universities:
 31.In addition to the legal requisites an institution must meet, among others, the
following requirements before an application for university status shall be
considered:
xxxxxxxxx
(e) The institution must undertake research and operate with a
competent qualified staff at least three graduate departments in
accordance with the rules and standards for graduate education.One of
the departments shall be science and technology. The competence of
the staff shall be judged by their effective teaching, scholarly
publications and research activities published in its school journal as
well as their leadership activities in the profession.
(f) The institution must show evidence of adequate and stable financial
resources and support, a reasonable portion of which should be
devoted to institutional development and research.(underscoring
supplied)
xxxxxxxxx
32. University status may be withdrawn, after due notice and hearing, for failure
to maintain satisfactorily the standards and requirements therefor. [20]
Petitioners contention that it is the Institute of Philippine Culture that is being taxed
and not the Ateneo is patently erroneous because the former is not an independent
juridical entity that is separate and distinct from the latter.

Factual Findings and Conclusions of the Court of Tax Appeals

Affirmed by the Court of Appeals Generally Conclusive

In addition, we reiterate that the Court of Tax Appeals is a highly specialized body
specifically created for the purpose of reviewing tax cases. Through its expertise, it is
undeniably competent to determine the issue of whether [21] Ateneo de Manila University
may be deemed a subject of the three percent contractors tax through the evidence
presented before it.Consequently, as a matter of principle, this Court will not set aside
the conclusion reached by x x x the Court of Tax Appeals which is, by the very nature of
its function, dedicated exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject unless there has been an abuse
or improvident exercise of authority x x x.[22] This point becomes more evident in the
case before us where the findings and conclusions of both the Court of Tax Appeals and
the Court of Appeals appear untainted by any abuse of authority, much
less grave abuse of discretion. Thus, we find the decision of the latter affirming that of
the former free from any palpable error.

Public Service, Not Profit, is the Motive

 The records show that the Institute of Philippine Culture conducted its research
activities at a huge deficit of P1,624,014.00 as shown in its statements of fund and
disbursements for the period 1972 to 1985.[23] In fact, it was Ateneo de Manila University
itself that had funded the research projects of the institute, and it was only when Ateneo
could no longer produce the needed funds that the institute sought funding from
outside. The testimony of Ateneos Director for Accounting Services, Ms. Leonor
Wijangco, provides significant insight on the academic and nonprofit nature of the
institutes research activities done in furtherance of the universitys purposes, as follows:
Q Now it was testified to earlier by Miss Thelma Padero (Office Manager of the
Institute of Philippine Culture) that as far as grants from sponsored research
it is possible that the grant sometimes is less than the actual cost. Will you
please tell us in this case when the actual cost is a lot less than the grant
who shoulders the additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a university, because a
university has to have its own research institute.[24]
So, why is it that Ateneo continues to operate and conduct researches through its
Institute of Philippine Culture when it undisputedly loses not an insignificant amount in
the process?The plain and simple answer is that private respondent is not a contractor
selling its services for a fee but an academic institution conducting these researches
pursuant to its commitments to education and, ultimately, to public service. For the
institute to have tenaciously continued operating for so long despite its accumulation of
significant losses, we can only agree with both the Court of Tax Appeals and the Court
of Appeals that education and not profit is [IPCs] motive for undertaking the research
projects.[25]
WHEREFORE, premises considered, the petition is DENIED and the assailed
Decision of the Court of Appeals is hereby AFFIRMED in full.
SO ORDERED.
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner, vs. COURT OF
APPEALS and FIRESTONE CERAMICS, INC., respondents.

[G.R. No. 143590. November 14, 2001]

NATIONAL DEVELOPMENT CORPORATION, petitioner, vs. FIRESTONE

CERAMICS, INC., respondents.

DECISION
BELLOSILLO, J.:
 A litigation is not simply a contest of litigants before the bar of public opinion; more
than that, it is a pursuit of justice through legal and equitable means. To prevent the
search for justice from evolving into a competition for public approval, society invests
the judiciary with complete independence thereby insulating it from demands expressed
through any medium, the press not excluded. Thus, if the court would merely reflect,
and worse, succumb to the great pressures of the day, the end result, it is feared, would
be a travesty of justice.
In the early sixties, petitioner National Development Corporation (NDC), a
government owned and controlled corporation created under CA 182 as amended by
CA 311 and PD No. 668, had in its disposal a ten (10)-hectare property located along
Pureza St., Sta. Mesa, Manila. The estate was popularly known as the NDC compound
and covered by Transfer Certificates of Title Nos. 92885, 110301 and 145470.
Sometime in May 1965 private respondent Firestone Ceramics Inc. (FIRESTONE)
manifested its desire to lease a portion of the property for its ceramic manufacturing
business. On 24 August 1965 NDC and FIRESTONE entered into a contract of lease
denominated as Contract No. C-30-65 covering a portion of the property measured at
2.90118 hectares for use as a manufacturing plant for a term of ten (10) years,
renewable for another ten (10) years under the same terms and conditions. [1] In
consequence of the agreement, FIRESTONE constructed on the leased premises
several warehouses and other improvements needed for the fabrication of ceramic
products.
Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE entered into
a second contract of lease with NDC over the latter's four (4)-unit pre-fabricated
reparation steel warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the
warehouse to Manila for eventual assembly within the NDC compound. The second
contract, denominated as Contract No. C-26-68, was for similar use as a ceramic
manufacturing plant and was agreed expressly to be "co-extensive with the lease of
LESSEE with LESSOR on the 2.60 hectare-lot." [2]
On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre-
fabricated steel warehouse which, as agreed upon by the parties, would expire on 2
December 1978.[3] Prior to the expiration of the aforementioned contract, FIRESTONE
wrote NDC requesting for an extension of their lease agreement. Consequently on 29
November 1978 the Board of Directors of NDC adopted Resolution No. 11-78-117
extending the term of the lease, subject to several conditions among which was that in
the event NDC "with the approval of higher authorities, decide to dispose and sell these
properties including the lot, priority should be given to the LESSEE"[4] (underscoring
supplied). On 22 December 1978, in pursuance of the resolution, the parties entered
into a new agreement for a ten-year lease of the property, renewable for another ten
(10) years, expressly granting FIRESTONE the first option to purchase the leased
premises in the event that it decided "to dispose and sell these properties including the
lot . . . . "[5]
The contracts of lease conspicuously contain an identically worded provision
requiring FIRESTONE to construct buildings and other improvements within the leased
premises worth several hundred thousands of pesos. [6]
 The parties' lessor-lessee relationship went smoothly until early 1988 when
FIRESTONE, cognizant of the impending expiration of their lease agreement with NDC,
informed the latter through several letters and telephone calls that it was renewing its
lease over the property. While its letter of 17 March 1988 was answered by Antonio A.
Henson, General Manager of NDC, who promised immediate action on the matter, the
rest of its communications remained unacknowledged. [7] FIRESTONE's predicament
worsened when rumors of NDC's supposed plans to dispose of the subject property in
favor of petitioner Polytechnic University of the Philippines (PUP) came to its
knowledge. Forthwith, FIRESTONE served notice on NDC conveying its desire to
purchase the property in the exercise of its contractual right of first refusal.
Apprehensive that its interest in the property would be disregarded, FIRESTONE
instituted an action for specific performance to compel NDC to sell the leased property
in its favor. FIRESTONE averred that it was pre-empting the impending sale of the NDC
compound to petitioner PUP in violation of its leasehold rights over the 2.60-
hectare[8] property and the warehouses thereon which would expire in
1999. FIRESTONE likewise prayed for the issuance of a writ of preliminary injunction to
enjoin NDC from disposing of the property pending the settlement of the controversy. [9]
In support of its complaint, FIRESTONE adduced in evidence a letter of Antonio A.
Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera, Director and Special
Assistant to Executive Secretary Catalino Macaraeg, reviewing a proposed
memorandum order submitted to then President Corazon C. Aquino transferring the
whole NDC compound, including the leased property, in favor of petitioner
PUP.Attached to the letter was a draft of the proposed memorandum order as well as a
summary of existing leases on the subject property. The survey listed FIRESTONE as
lessee of a portion of the property, placed at 29,000 [10] square meters, whose contract
with NDC was set to expire on 31 December 1989 [11] renewable for another ten (10)
years at the option of the lessee. The report expressly recognized FIRESTONE's right
of first refusal to purchase the leased property "should the lessor decide to sell the
same."[12]
Meanwhile, on 21 February 1989 PUP moved to intervene and asserted its interest
in the subject property, arguing that a "purchaser pendente lite of property which is
subject of a litigation is entitled to intervene in the proceedings." [13] PUP referred
to Memorandum Order No. 214 issued by then President Aquino ordering the transfer of
the whole NDC compound to the National Government, which in turn would convey the
aforementioned property in favor of PUP at acquisition cost. The issuance was
supposedly made in recognition of PUP's status as the "Poor Man's University" as well
as its serious need to extend its campus in order to accommodate the growing student
population. The order of conveyance of the 10.31-hectare property would automatically
result in the cancellation of NDC's total obligation in favor of the National Government in
the amount of P57,193,201.64.
Convinced that PUP was a necessary party to the controversy that ought to be
joined as party defendant in order to avoid multiplicity of suits, the trial court granted
PUP's motion to intervene.FIRESTONE moved for reconsideration but was denied. On
certiorari, the Court of Appeals affirmed the order of the trial court. FIRESTONE came to
 us on review but in a Resolution dated 11 July 1990 we upheld PUP's inclusion as
party-defendant in the present controversy.
Following the denial of its petition, FIRESTONE amended its complaint to include
PUP and Executive Secretary Catalino Macaraeg, Jr., as party-defendants, and sought
the annulment of Memorandum Order No. 214. FIRESTONE alleged that
although Memorandum Order No. 214 was issued "subject to such liens/leases existing
[on the subject property]," PUP disregarded and violated its existing lease by increasing
the rental rate at P200,000.00 a month while demanding that it vacated the premises
immediately.[14] FIRESTONE prayed that in the event Memorandum Order No. 214 was
not declared unconstitutional, the property should be sold in its favor at the price for
which it was sold to PUP - P554.74 per square meter or for a total purchase price
of P14,423,240.00.[15]
Petitioner PUP, in its answer to the amended complaint, argued in essence that the
lease contract covering the property had expired long before the institution of the
complaint, and that further, the right of first refusal invoked by FIRESTONE applied
solely to the six-unit pre-fabricated warehouse and not the lot upon which it stood.
After trial on the merits, judgment was rendered declaring the contracts of lease
executed between FIRESTONE and NDC covering the 2.60-hectare property and the
warehouses constructed thereon valid and existing until 2 June 1999. PUP was ordered
and directed to sell to FIRESTONE the "2.6 hectare leased premises or as may be
determined by actual verification and survey of the actual size of the leased properties
where plaintiff's fire brick factory is located" at P1,500.00 per square meter considering
that, as admitted by FIRESTONE, such was the prevailing market price thereof.
The trial court ruled that the contracts of lease executed between FIRESTONE and
NDC were interrelated and inseparable because "each of them forms part of the integral
system of plaintiff's brick manufacturing plant x x x if one of the leased premises will be
taken apart or otherwise detached from the two others, the purpose of the lease as well
as plaintiff's business operations would be rendered useless and inoperative." [16] It thus
decreed that FIRESTONE could exercise its option to purchase the property until 2
June 1999 inasmuch as the 22 December 1978 contract embodied a covenant to renew
the lease for another ten (10) years at the option of the lessee as well as an agreement
giving the lessee the right of first refusal.
The trial court also sustained the constitutionality of Memorandum Order No.
214 which was not per se hostile to FIRESTONE's property rights, but deplored as
prejudicial thereto the "very manner with which defendants NDC and PUP interpreted
and applied the same, ignoring in the process that plaintiff has existing contracts of
lease protectable by express provisions in the Memorandum No. 214 itself." [17]It further
explained that the questioned memorandum was issued "subject to such liens/leases
existing thereon"[18] and petitioner PUP was under express instructions "to enter, occupy
and take possession of the transferred property subject to such leases or liens and
encumbrances that may be existing thereon"[19] (underscoring supplied).
 Petitioners PUP, NDC and the Executive Secretary separately filed their Notice of
Appeal, but a few days thereafter, or on 3 September 1996, perhaps realizing the
groundlessness and the futility of it all, the Executive Secretary withdrew his appeal. [20]
Subsequently, the Court of Appeals affirmed the decision of the trial court ordering
the sale of the property in favor of FIRESTONE but deleted the award of attorney's fees
in the amount of Three Hundred Thousand Pesos (P300,000.00). Accordingly,
FIRESTONE was given a grace period of six (6) months from finality of the court's
judgment within which to purchase the property in questioned in the exercise of its right
of first refusal. The Court of Appeals observed that as there was a sale of the subject
property, NDC could not excuse itself from its obligation TO OFFER THE PROPERTY
FOR SALE FIRST TO FIRESTONE BEFORE IT COULD TO OTHER PARTIES. The
Court of Appeals held: "NDC cannot look to Memorandum Order No. 214 to excuse or
shield it from its contractual obligations to FIRESTONE. There is nothing therein that
allows NDC to disavow or repudiate the solemn engagement that it freely and
voluntarily undertook, or agreed to undertake." [21]
PUP moved for reconsideration asserting that in ordering the sale of the property in
favor of FIRESTONE the courts a quo unfairly created a contract to sell between the
parties. It argued that the "court cannot substitute or decree its mind or consent for that
of the parties in determining whether or not a contract (has been) perfected between
PUP and NDC."[22] PUP further contended that since "a real property located in Sta.
Mesa can readily command a sum of P10,000.00 per square (meter)," the lower court
gravely erred in ordering the sale of the property at only P1,500.00 per square
meter. PUP also advanced the theory that the enactment of Memorandum Order No.
214 amounted to a withdrawal of the option to purchase the property granted to
FIRESTONE. NDC, for its part, vigorously contended that the contracts of lease
executed between the parties had expired without being renewed by FIRESTONE;
consequently, FIRESTONE was no longer entitled to any preferential right in the sale or
disposition of the leased property.
We do not see it the way PUP and NDC did. It is elementary that a party to a
contract cannot unilaterally withdraw a right of first refusal that stands upon valuable
consideration. That principle was clearly upheld by the Court of Appeals when it denied
on 6 June 2000 the twin motions for reconsideration filed by PUP and NDC on the
ground that the appellants failed to advance new arguments substantial enough to
warrant a reversal of the Decision sought to be reconsidered. [23] On 28 June 2000 PUP
filed an urgent motion for an additional period of fifteen (15) days from 29 June 2000 or
until 14 July 2000 within which to file a Petition for Review on Certiorari of
the Decision of the Court of Appeals.
On the last day of the extended period PUP filed its Petition for Review on
Certiorari assailing the Decision of the Court of Appeals of 6 December 1999 as well as
the Resolution of 6 June 2000 denying reconsideration thereof. PUP raised two
issues: (a) whether the courts a quo erred when they "conjectured" that the transfer of
the leased property from NDC to PUP amounted to a sale; and, (b) whether
FIRESTONE can rightfully invoke its right of first refusal. Petitioner posited that if we
were to place our imprimatur on the decisions of the courts a quo, "public welfare or
 specifically the constitutional priority accorded to education" would greatly be
prejudiced.[24]
Paradoxically, our paramount interest in education does not license us, or any party
for that matter, to destroy the sanctity of binding obligations. Education may be
prioritized for legislative or budgetary purposes, but we doubt if such importance can be
used to confiscate private property such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for extension of fifteen (15) days within
which to appeal inasmuch as the aforesaid pleading lacked an affidavit of service of
copies thereof on the Court of Appeals and the adverse party, as well as written
explanation for not filing and serving the pleading personally. [25]
Accordingly, on 26 July 2000 we issued a Resolution dismissing PUP's Petition for
Review for having been filed out of time. PUP moved for reconsideration imploring a
resolution or decision on the merits of its petition. Strangely, about the same time,
several articles came out in the newspapers assailing the denial of the petition. The
daily papers reported that we unreasonably dismissed PUP's petition on technical
grounds, affirming in the process the decision of the trial court to sell the disputed
property to the prejudice of the government in the amount of P1,000,000,000.00.
[26]
Counsel for petitioner PUP, alleged that the trial court and the Court of Appeals "have
decided a question of substance in a way definitely not in accord with law or
jurisprudence."[27]
At the outset, let it be noted that the amount of P1,000,000,000.00 as reported in
the papers was way too exaggerated, if not fantastic. We stress that NDC itself sold the
whole 10.31-hectare property to PUP at only P57,193,201.64 which represents NDC's
obligation to the national government that was, in exchange, written off. The price
offered per square meter of the property was pegged at P554.74.FIRESTONE's leased
premises would therefore be worth only P14,423,240.00. From any angle, this amount
is certainly far below the ballyhooed price of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for Reconsideration to give it a
chance to ventilate its right, if any it still had in the leased premises, thereby paving the
way for a reinstatement of its Petition for Review.[28] In its appeal, PUP took to task the
courts a quo for supposedly "substituting or decreeing its mind or consent for that of the
parties (referring to NDC and PUP) in determining whether or not a contract of sale was
perfected." PUP also argued that inasmuch as "it is the parties alone whose minds must
meet in reference to the subject matter and cause," it concluded that it was error for the
lower courts to have decreed the existence of a sale of the NDC compound thus
allowing FIRESTONE to exercise its right of first refusal.
On the other hand, NDC separately filed its own Petition for Review and advanced
arguments which, in fine, centered on whether or not the transaction between
petitioners NDC and PUP amounted to a sale considering that ownership of the
property remained with the government.[29] Petitioner NDC introduced the novel
proposition that if the parties involved are both government entities the transaction
cannot be legally called a sale.
In due course both petitions were consolidated. [30]
 We believe that the courts a quo did not hypothesize, much less conjure, the sale of
the disputed property by NDC in favor of petitioner PUP. Aside from the fact that the
intention of NDC and PUP to enter into a contract of sale was clearly expressed in
the Memorandum Order No. 214,[31] a close perusal of the circumstances of this case
strengthens the theory that the conveyance of the property from NDC to PUP was one
of absolute sale, for a valuable consideration, and not a mere paper transfer as argued
by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where one of the
parties obligates himself to transfer the ownership of and to deliver a determinate thing
to the other or others who shall pay therefore a sum certain in money or its equivalent.
[32]
It is therefore a general requisite for the existence of a valid and enforceable contract
of sale that it be mutually obligatory, i.e., there should be a concurrence of the promise
of the vendor to sell a determinate thing and the promise of the vendee to receive and
pay for the property so delivered and transferred. The Civil Code provision is, in effect, a
"catch-all" provision which effectively brings within its grasp a whole gamut of transfers
whereby ownership of a thing is ceded for a consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one party
involved in the questioned transaction. Petitioners NDC and PUP have their respective
charters and therefore each possesses a separate and distinct individual personality.
[33]
The inherent weakness of NDCs proposition that there was no sale as it was only the
government which was involved in the transaction thus reveals itself.Tersely put, it is not
necessary to write an extended dissertation on government owned and controlled
corporations and their legal personalities. Beyond cavil, a government owned and
controlled corporation has a personality of its own, distinct and separate from that of the
government.[34] The intervention in the transaction of the Office of the President through
the Executive Secretary did not change the independent existence of these entities. The
involvement of the Office of the President was limited to brokering the consequent
relationship between NDC and PUP. But the withdrawal of the appeal by the Executive
Secretary is considered significant as he knew, after a review of the records, that the
transaction was subject to existing liens and encumbrances, particularly the priority to
purchase the leased premises in favor of FIRESTONE.
True that there may be instances when a particular deed does not disclose the real
intentions of the parties, but their action may nevertheless indicate that a binding
obligation has been undertaken. Since the conduct of the parties to a contract may be
sufficient to establish the existence of an agreement and the terms thereof, it becomes
necessary for the courts to examine the contemporaneous behavior of the parties in
establishing the existence of their contract.
The preponderance of evidence shows that NDC sold to PUP the whole NDC
compound, including the leased premises, without the knowledge much less consent of
private respondent FIRESTONE which had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale, without which there can be no sale,
were attendant in the "disposition" and "transfer" of the property from NDC to PUP
- consent of the parties, determinate subject matter, and consideration therefor.
 Consent to the sale is obvious from the prefatory clauses of Memorandum Order
No. 214 which explicitly states the acquiescence of the parties to the sale of the
property -

WHEREAS, PUP has expressed its willingness to acquire said NDC properties
and NDC has expressed its willingness to sell the properties to PUP (underscoring
supplied).[35]

Furthermore, the cancellation of NDC's liabilities in favor of the National

Government in the amount of P57,193,201.64 constituted the "consideration" for the
sale. As correctly observed by the Court of Appeals-

The defendants-appellants' interpretation that there was a mere transfer, and not a sale,
apart from being specious sophistry and a mere play of words, is too strained and
hairsplitting. For it is axiomatic that every sale imposes upon the vendor the obligation
to transfer ownership as an essential element of the contract. Transfer of title or an
agreement to transfer title for a price paid, or promised to be paid, is the very essence
of sale (Kerr & Co. v. Lingad, 38 SCRA 524; Schmid & Oberly, Inc., v. RJL Martinez
Fishing Corp., 166 SCRA 493). At whatever legal angle we view it, therefore, the
inescapable fact remains that all the requisites of a valid sale were attendant in the
transaction between co-defendants-appellants NDC and PUP concerning the realities
subject of the present suit.[36]

What is more, the conduct of petitioner PUP immediately after the transaction is in
itself an admission that there was a sale of the NDC compound in its favor. Thus, after
the issuance of Memorandum Order No. 214 petitioner PUP asserted its ownership over
the property by posting notices within the compound advising residents and occupants
to vacate the premises.[37] In its Motion for Intervention petitioner PUP also admitted that
its interest as a "purchaser pendente lite" would be better protected if it was joined as
party-defendant in the controversy thereby confessing that it indeed purchased the
property.
In light of the foregoing disquisition, we now proceed to determine whether
FIRESTONE should be allowed to exercise its right of first refusal over the
property. Such right was expressly stated by NDC and FIRESTONE in par. XV of their
third contract denominated as A-10-78 executed on 22 December 1978 which, as found
by the courts a quo, was interrelated to and inseparable from their first contract
denominated as C-30-65 executed on 24 August 1965 and their second contract
denominated as C-26-68 executed on 8 January 1969. Thus -

Should the LESSOR desire to sell the leased premises during the term of this
Agreement, or any extension thereof, the LESSOR shall first give to the LESSEE, which
shall have the right of first option to purchase the leased premises subject to mutual
agreement of both parties.[38]

In the instant case, the right of first refusal is an integral and indivisible part of the
contract of lease and is inseparable from the whole contract. The consideration for the
 right is built into the reciprocal obligations of the parties. Thus, it is not correct for
petitioners to insist that there was no consideration paid by FIRESTONE to entitle it to
the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of
lease making the consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first
refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price
until after he has made an offer to sell to the latter at a certain price and the lessee has
failed to accept it.[39] The lessee has a right that the lessor's first offer shall be in his
favor.
The option in this case was incorporated in the contracts of lease by NDC for the
benefit of FIRESTONE which, in view of the total amount of its investments in the
property, wanted to be assured that it would be given the first opportunity to buy the
property at a price for which it would be offered. Consistent with their agreement, it was
then implicit for NDC to have first offered the leased premises of 2.60 hectares to
FIRESTONE prior to the sale in favor of PUP. Only if FIRESTONE failed to exercise its
right of first priority could NDC lawfully sell the property to petitioner PUP.
It now becomes apropos to ask whether the courts a quo were correct in fixing the
proper consideration of the sale at P1,500.00 per square meter. In contracts of sale, the
basis of the right of first refusal must be the current offer of the seller to sell or the offer
to purchase of the prospective buyer. Only after the lessee-grantee fails to exercise its
right under the same terms and within the period contemplated can the owner validly
offer to sell the property to a third person, again, under the same terms as offered to the
grantee.[40] It appearing that the whole NDC compound was sold to PUP for P554.74 per
square meter, it would have been more proper for the courts below to have ordered the
sale of the property also at the same price. However, since FIRESTONE never raised
this as an issue, while on the other hand it admitted that the value of the property stood
at P1,500.00 per square meter, then we see no compelling reason to modify the
holdings of the courts a quo that the leased premises be sold at that price.
Our attention is invited by petitioners to Ang Yu Asuncion v. CA[41] in concluding that
if our holding in Ang Yu would be applied to the facts of this case then FIRESTONE's
"option, if still subsisting, is not enforceable," the option being merely a preparatory
contract which cannot be enforced.
The contention has no merit. At the heels of Ang Yu came Equatorial Realty
Development, Inc., v. Mayfair Theater, Inc.,[42] where after much deliberation we
declared, and so we hold, that a right of first refusal is neither "amorphous nor merely
preparatory" and can be enforced and executed according to its terms. Thus,
in Equatorial we ordered the rescission of the sale which was made in violation of the
lessee's right of first refusal and further ordered the sale of the leased property in favor
of Mayfair Theater, as grantee of the right. Emphatically, we held that "(a right of first
priority) should be enforced according to the law on contracts instead of the panoramic
and indefinite rule on human relations." We then concluded that the execution of the
right of first refusal consists in directing the grantor to comply with his obligation
according to the terms at which he should have offered the property in favor of the
grantee and at that price when the offer should have been made.
 One final word. Petitioner PUP should be cautioned against bidding for public
sympathy by bewailing the dismissal of its petition before the press. Such advocacy is
not likely to elicit the compassion of this Court or of any court for that matter. An
entreaty for a favorable disposition of a case not made directly through pleadings and
oral arguments before the courts do not persuade us, for as judges, we are ruled only
by our forsworn duty to give justice where justice is due.
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are
DENIED. Inasmuch as the first contract of lease fixed the area of the leased premises at
2.90118 hectares while the second contract placed it at 2.60 hectares, let a ground
survey of the leased premises be immediately conducted by a duly licensed, registered
surveyor at the expense of private respondent FIRESTONE CERAMICS, INC., within
two (2) months from finality of the judgment in this case. Thereafter, private respondent
FIRESTONE CERAMICS, INC., shall have six (6) months from receipt of the approved
survey within which to exercise its right to purchase the leased property at P1,500.00
per square meter, and petitioner Polytechnic University of the Philippines is ordered to
reconvey the property to FIRESTONE CERAMICS, INC., in the exercise of its right of
first refusal upon payment of the purchase price thereof.

LEON SIBAL 1.°, PLAINTIFF AND APPELLANT, VS. EMILIANO J. VALDEZ ET AL.,
DEFENDANTS. EMILIANO J. VALDEZ, APPELLEE.

DECISION

JOHNSON, J.:
This action was commenced in the Court of First Instance of the Province of Tarlac on
the 14th day of December, 1924. The facts are about as conflicting as it is possible for
facts to be, in the trial of causes.

As a first cause of action the plaintiff alleged that the defendant Vitaliano Mamawal,
deputy sheriff of the Province of Tarlac, by virtue of a writ of execution issued by the
Court of First Instance of Pampanga, attached and sold to the defendant Emiliano J.
Valdez the sugar cane planted by the plaintiff and his tenants on seven parcels of land
described in the complaint, in the third paragraph of the first cause of action; that within
one year from the date of the attachment and sale the plaintiff offered to redeem said
sugar cane and tendered to the defendant Valdez the amount sufficient to cover the
price paid by the latter, the interest thereon and any assessments or taxes which he
may have paid thereon after the purchase, and the interest corresponding thereto and
that Valdez refused to accept the money and to return the sugar cane to the plaintiff.

As a second cause of action, the plaintiff alleged that the defendant Emiliano J. Valdez
was attempting to harvest the palay planted in four of the seven parcels mentioned in
the first cause of action; that he had harvested and taken possession of the palay in one
of said seven parcels and in another parcel described in the second cause of action,
amounting to 300 cavans; and that all of said palay belonged to the plaintiff.
 Plaintiff prayed that a writ of preliminary injunction be issued against the defendant
Emiliano J. Valdez, his attorneys and agents, restraining them (1) from disturbing him in
the possession of the parcels of land described in the complaint; (2) from taking
possession of, or harvesting the sugar cane in question; and (3) from taking possession,
or harvesting the palay in said parcels of land. Plaintiff also prayed that a judgment be
rendered in his favor and against the defendants, ordering them to consent to the
redemption of the sugar carie in question, and that the defendant Valdez be condemned
to pay to the plaintiff the sum of P1,056, the value of palay harvested by him in the two
parcels above-mentioned, with interest and costs.

On December 27, 1924, the court, after hearing both parties and upon approval of the
bond for P6,000 filed by the plaintiff, issued the writ of preliminary injunction prayed for
in the complaint.

The defendant Emiliano J. Valdez, in his amended answer, denied generally and
specifically each and every allegation of the complaint and set up the following
defenses:

(a) That the sugar cane in question had the nature of personal property and was not,
therefore, subject to redemption;

(b) That he was the owner of parcels 1, 2 and 7 described in the first cause of action of
the complaint;

(c) That he was the owner of the palay in parcels 1, 2 and 7; and

(d) That he never attempted to harvest the palay in parcels 4 and 5.

The defendant Emiliano J. Valdez, by way of counterclaim, alleged that by reason of the
preliminary injunction he was unable to gather the sugar cane, sugar-cane shoots
(puntas de caña dulce) and palay in said parcels of land, representing a loss to him of
P8,375.20 and that, in addition thereto, he suffered damages amounting to P3,458.56.
He prayed for a judgment (1) absolving him from all liability under the complaint; (2)
declaring him to be the absolute owner of the sugar cane in question and of the palay in
parcels 1, 2 and 7; and (3) ordering the plaintiff to pay to him the sum of P11,833.76,
representing the value of the sugar cane and palay in question, including damages.

Upon the issue thus presented by the pleadings the cause was brought on for trial.
After hearing the evidence, and on April 28, 1926, the Honorable Cayetano Lukban,
judge, rendered a judgment against the plaintiff and in favor of the defendants

(1) Holding that the sugar cane in question was personal property and, as such, was not
subject to redemption;

(2) Absolving the defendants from all liability under the complaint; and
 (3) Condemning the plaintiff and his sureties Cenon de la Cruz, Juan Sangalang and
Marcos Sibal to jointly and severally pay to the defendant Emiliano J. Valdez the sum of
P9,439.08 as follows:

(a) P6,757.40, the value of the sugar cane;

(b) 1,435.68, the value of the sugar-cane shoots;
the value of palay harvested by
(c) 646.00,
plaintiff;
600.00,
the value of 150 cavans of palay which
___________
(d) the defendant was not able to raise by
9,439.08
reason of the injunction, at P4 cavan.
==========

From that judgment the plaintiff appealed and in his assignments of error contends that
the lower court erred:

(1) In holding that the sugar cane in question was personal property and, therefore, not
subject to redemption;

(2) In holding that parcels 1 and 2 of the complaint belonged to Valdez, as well as
parcels 7 and 8, and that the palay therein was planted by Valdez;

(3) In holding that Valdez, by reason of the preliminary injunction failed to realize
P6,757.40 from the sugar cane and P1,435.68 from sugar-cane shoots (puntas de caña
dulce);

(4) In holding that, for failure of plaintiff to gather the sugar cane on time, the defendant
was unable to raise palay on the land, which would have netted him the sum of P600;
and

(5) In condemning the plaintiff and his sureties to pay to the defendant the sum of
P9,439.08.

It appears from the record:

(1) That on May 11, 1923, the deputy sheriff of the Province of Tarlac, by virtue of a writ
of execution in civil case No. 20203 of the Court of First Instance of Manila (Macondray
& Co., Inc. vs. Leon Sibal), levied an attachment on eight parcels of land belonging to
said Leon Sibal, situated in the Province of Tarlac, designated in the record of
attachment as parcels 1, 2, 3, 4, 5, 6, 7 and 8 (Exhibit B, Exhibit 2-A).

(2) That on July 30, 1923, Macondray & Co., Inc., bought said eight parcels of land, at
the auction held by the sheriff of the Province of Tarlac, for the sum of P4,273.93,
having paid for the said parcels separately as follows (Exhibits C and 2-A):

Parc .........................................................................
1 P1.00
el ...............
 .........................................................................
2 2,000.00
...............
.........................................................................
3 120.93
...............
.........................................................................
4 1,000.00
...............
.........................................................................
5 1.00
...............
.........................................................................
6 1.00
...............
with the house
7 150.00
thereon.....................................................
.........................................................................
8 1,000.00
...............
__________
___
4,273.93
==========
==

(3) That within one year from the sale of said parcels of land, and on the 24th day of
September, 1923, the judgment debtor, Leon Sibal, paid P2,000, to Macondray & Co.,
Inc., for the account of the redemption price of said parcels of land, without specifying
the particular parcels to which said amount was to be applied. The redemption price of
said eight parcels was reduced, by virtue of said transaction, to P2,579.97, including
interest (Exhibits C and 2).

The record further shows:

(1) That on April 29, 1924, the defendant Vitaliano Mamawal, deputy sheriff of the
Province of Tarlac, by virtue of a writ of execution in civil case No. 1301 of the Province
of Pampanga (Emiliano J. Valdez vs. Leon Sibal 1.° the same parties in the present
case), attached the personal property of said Leon Sibal located in Tarlac, among which
was included the sugar cane now in question in the seven parcels of land described in
the complaint (Exhibit A).

(2) That on May 9 and 10, 1924, said deputy sheriff sold at public auction said personal
properties of Leon Sibal, including the sugar cane in question, to Emiliano J. Valdez,
who paid therefor the sum of P1,550, of which P600 was for the sugar cane (Exhibit A).

(3) That on April 29, 1924, said deputy sheriff, by virtue of said writ of execution, also
attached the real property of said Leon Sibal in Tarlac, including all of his rights, interest
and participation therein, which real property consisted of eleven parcels of land and a
house and camarin situated in one of said parcels (Exhibit,A).

(4) That on June 25, 1924, eight of said eleven parcels, including the house and the
 camarin, were bought by Emiliano J. Valdez at the auction held by the sheriff for the
sum of P12,200. Said eight parcels were designated in the certificate of sale as parcels
1, 3, 4, 5, 6, 7, 10 and 11. The house and camarin were situated on parcel 7 (Exhibit A).

(5) That the remaining three parcels, indicated in the certificate of the sheriff as parcels
2, 12 and 13, were released from the attachment by virtue of claims presented by
Agustin Cuyugan and Domiciano Tizon (Exhibit A).

(6) That on the same date, June 25, 1924, Macondray & Co. sold and conveyed to
Emiliano J. Valdez for P2,579.97 all of its rights and interest in the eight parcels of land
acquired by it at public auction held by the deputy sheriff of Tarlac in connection with
civil case No. 20203 of the Court of First Instance of Manila, as stated above. Said
amount represented the unpaid balance of the redemption price of said eight parcels,
after payment by Leon Sibal of P2,000 on September 24, 1923, for the account of the
redemption price, as stated above. (Exhibits C and 2.)

The foregoing statement of facts shows:

(1) That Emiliano J. Valdez bought the sugar cane in question, located in the seven
parcels of land described in the first cause of action of the complaint at public auction on
May 9 and 10, 1924, for P600.

(2) That on July 30, 1923, Macondray & Co. became the owner of eight parcels of land
situated in the Province of Tarlac belonging to Leon Sibal and that on September 24,
1923, Leon Sibal paid to Macondray & Co. P2,000 for the account of the redemption
price of said parcels.

(3) That on June 25, 1924, Emiliano J. Valdez acquired from Macondray & Co. all of its
rights and interest in the said eight parcels of land.

(4) That on the same date (June 25, 1924) Emiliano J. Valdez also acquired all of the
rights and interest which Leon Sibal had or might have had on said eight parcels by
virtue of the P2,000 paid by the latter to Macondray.

(5) That Emiliano J. Valdez became the absolute owner of said eight parcels of land.

The first question raised by the appeal is, whether the sugar cane in question is
personal or real property. It is contended that sugar cane comes under the classification
of real property as "ungathered products" in paragraph 2 of article 334 of the Civil Code.
Said paragraph 2 of article 334 enumerates as real property the following: "Trees,
plants, and ungathered products, while they are annexed to the land or form an integral
part of any immovable property." That article, however, has received in recent years an
interpretation by the Tribunal Supremo de España, which holds that, under certain
conditions, growing crops may be considered as personal property. (Decision of March
18, 1904, vol. 97, Civil Jurisprudence of Spain.)
Manresa, the eminent commentator of the Spanish Civil Code, in discussing section 334
of the Civil Code, in view, of the recent decisions of the Supreme Court of Spain, admits
that growing crops are sometimes considered and treated as personal property. He
says:

"No creemos, sin embargo, que esto excluya la excepcion que muchos autores hacen
tocante a la venta de toda cosecha o de parte de ella cuando aun no esta cogida (cosa
frecuente con la uva y la naranja), y a la de lefias, considerando ambas como muebles.
El Tribunal Supremo, en sentencia de 18 de marzo de 1904, al entender sobre un
contrato de arrendamiento de un predio rustico, resuelve que su terminacion por
desahucio no extingue los derechos del arrendatario, para recolectar o percibir los
frutos correspondientes al año agricola, dentro del que nacieron aquellos derechos,
cuando el arrendador ha percibido a su vez el importe de la renta integra
correspondiente, aun cuando lo haya sido por precepto legal durante el curso del juicio,
fundandose para ello, no solo en que de otra suerte se daria al desahucio un alcance
que no tiene, sino en que, y esto es lo interesante a nuestro proposito, la consideracion
de inmuebles que el articulo 334 del Codigo Civil atribuye a los frutos pendientes, no
les priva del caracter de productos pertenecientes, como tales, a quienes a ellos tenga
derecho, llegado el momento de su recoleccion.

* * * * * * *

"Mas actualmente y por virtud de la nueva edicion de la Ley Hipotecaria, publicada en

16 de diciembre de 1909, con las reformas introducidas por la de 21 de abril anterior, la
hipoteca, salvo pacto expreso que disponga lo contrario, y cualquiera que sea la
naturaleza y forma de la obligacion que garantice, no comprende los frutos cualquiera
que sea la situacion en que se encuentre." (3 Manresa, 5. a edicion, pags. 22, 23.)

From the foregoing it appears (1) that, under Spanish authorities, pending fruits and
ungathered products may be sold and transferred as personal property; (2) that the
Supreme Court of Spain, in a case of ejectment of a lessee of an agricultural land, held
that the lessee was entitled to gather the products corresponding to the agricultural
year, because said fruits did not go with the land but belonged separately to the lessee;
and (3) that under the Spanish Mortgage Law of 1909, as amended, the mortgage of a
piece of land does not include the fruits and products existing thereon, unless the
contract expressly provides otherwise.

An examination of the decisions of the Supreme Court of Louisiana may give us some
light on the question which we are discussing. Article 465 of the Civil Code of
Louisiana, which corresponds to paragraph 2 of article 334 of our Civil Code, provides:
"Standing crops and the fruits of trees not gathered, and trees before they are cut down,
are likewise immovable, and are considered as part of the land to which they are
attached."

The Supreme Court of Louisiana having occasion to interpret that provision, held that in
some cases "standing crops" may be considered and dealt with as personal property. In
the case of Lumber Co. vs. Sheriff and Tax Collector (106 La., 418) the Supreme Court
said: "True, by article 465 of the Civil Code it is provided that 'standing crops and the
fruits of trees not gathered and trees before they are cut down * * * are considered as
part of the land to which they are attached,' but the immovability provided for is only
one in abstracto and without reference to rights on or to the crop acquired by others
than the owners of the property to which the crop is attached. * * * The existence of a
right on the growing crop is a mobilization by anticipation, a gathering, as it were in
advance, rendering the crop movable quoad the right acquired therein. Our
jurisprudence recognizes the possible mobilization of the growing crop." (Citizens'
Bank vs. Wiltz, 31 La. Ann., 244; Porche vs. Bodin, 28 La. Ann., 761;
Sandel vs. Douglass, 27 La. Ann., 629; Lewis vs. Klotz, 39 La. Ann., 267.)

"It is true," as the Supreme Court of Louisiana said in the case of Porche vs. Bodin (28
La. An., 761) that "article 465 of the Revised Code says that standing crops are
considered as immovable and as part of the land to which they are attached, and article
466 declares that the fruits of an immovable gathered or produced while it is under
seizure are considered as making part thereof, and inure to the benefit of the person
making the seizure. But the evident meaning of these articles is, where the crops belong
to the owner of the plantation, they form part of the immovable, and where it is seized,
the fruits gathered or produced inure to the benefit of the seizing creditor.

"A crop raised on leased premises in no sense forms part of the immovable. It belongs
to the lessee, and may be sold by him, whether it be gathered or not, and it may be sold
by his-judgment creditors. If it necessarily forms part of the leased premises the result
would be that it could not be sold under execution separate and apart from the land. If a
lessee obtain supplies to make his crop, the factor's lien would not attach to the crop as
a separate thing belonging to his debtor, but the land belonging to the lessor would be
affected with the recorded privilege. The law cannot be construed so as to result in such
absurd conser quences."

In the case of Citizens' Bank vs. Wiltz (31 La. Ann., 244) the court said:

"If the crop quoad the pledge thereof under the act of 1874 was an immovable, it would
be destructive of the very objects of the act, it would render the pledge of the crop
impossible, for if the crop was an inseparable part of the realty possession of the latter
would be necessary to that of the former; but such is not the case. True, by article 465
C. C. it is provided that 'standing crops and the fruits of trees not gathered and frees
before they are cut down are likewise immovable and are considered as part of the land
to which they are attached;' but the immovability provided for is only one in abstracto
and without reference to rights on or to the crop acquired by other than the owners of
the property to which the crop was attached. The immovability of a growing crop is in
the order of things temporary, for the crop passes from the state of a growing to that of a
gathered one, from an immovable to a movable. The existence of a right on the growing
crop is a mobilization by anticipation, a gathering as it were in advance, rendering the
 crop movable quoadthe right acquired thereon. The provision of our Code is identical
with the Napoleon Code, 520, and we may therefore obtain light by an examination of
the jurisprudence of France."

The rule above announced, not only by the Tribunal Supremo de España but by the
Supreme Court of Louisiana, is followed in practically every state of the Union.

From an examination of the reports and codes of the State of California and other states
we find that the settled doctrine followed in said states in connection with the
attachment of property and execution of judgment is, that growing crops raised by
yearly labor and cultivation are considered personal property. (6 Corpus Juris, p. 197;
17 Corpus Juris, p. 379; 23 Corpus Juris, p. 329; Raventas vs. Green, 57 Cal., 254;
Norris vs. Watson, 55 Am. Dec, 161; Whipple vs. Foot, 3 Am. Dec, 442; 1 Benjamin on
Sales, sec 126; McKenzie vs. Lampley, 31 Ala., 526; Crine vs. Tifts and Co., 65 Ga.,
644; Gillitt vs. Truax, 27 Minn., 528; Preston vs. Ryan, 45 Mich., 174; Freeman on
Execution, vol. 1, p. 438; Drake on Attachment, sec 249; Mechem on Sales, sees. 200
and 763.)

Mr. Mechem says that a valid sale may be made of a thing, which though not yet
actually in existence, is reasonably certain to come into existence as the natural
increment or usual incident of something already in existence, and then belonging to the
vendor, and the title will vest in the buyer the moment the thing comes into existence.
(Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21
Am. St. Rep., 63.) Things of this nature are said to have a potential existence. A man
may sell property of which he is potentially and not actually possessed. He may make a
valid sale of the wine that a vineyard is expected to produce; or the grain a field may
grow in a given time; or the milk a cow may yield during the coming year; or the wool
that shall thereafter grow upon sheep; or what may be taken at the next cast of a
fisherman's net; or fruits to grow; or young animals not yet in existence; or the good will
of a trade and the like. The thing sold, however, must be specific and identified. They
must be also, owned at the time by the vendor. (Hull vs. Hull, 48 Conn., 250 [40 Am.
Rep., 165].)

It is contended on the part of the appellee that paragraph 2 of article 334 of the Civil
Code has been modified by section 450 of the Code of Civil Procedure as well as by Act
No. 1508, the Chattel Mortgage Law. Said section 450 enumerates the property of a
judgment debtor which may be subjected to execution. The pertinent portion of said
section reads as follows: "All goods, chattels, moneys, and other property, both real and
personal, * * * shall be liable to execution." Said section 450 and most of the other
sections of the Code of Civil Procedure relating to the execution of judgments were
taken from the Code of Civil Procedure of California. The Supreme Court of California,
under section 688 of the Code of Civil Procedure of that state (Pomeroy, p. 424) has
held, without variation, that growing crops were personal property and subject to
execution.

Act No. 1508, the Chattel Mortgage Law, fully recognizes that growing crops are
personal property. Section 2 of said Act provides: "All personal property shall be subject
to mortgage, agreeably to the provisions of this Act, and a mortgage executed in
pursuance thereof shall be termed a chattel mortgage." Section 7 in part provides: "If
growing crops be mortgaged the mortgage may contain an agreement stipulating that
the mortgagor binds himself properly to tend, care for and protect the crop while
growing * * *."

It is clear from the foregoing provisions that Act No. 1508 was enacted on the
assumption that "growing crops" are personal property. This consideration tends to
support the conclusion hereinbefore stated, that paragraph 2 of article 334 of the Civil
Code has been modified by section 450 of Act No. 190 and by Act No. 1508 in the
sense that "ungathered products" as mentioned in said article of the Civil Code have the
nature of personal property. In other words, the phrase "personal property" should be
understood to include "ungathered products."

"At common law, and generally in the United States, all annual crops which are raised
by yearly manurance and labor, and essentially owe their annual existence to cultivation
by man, * * * may be levied on as personal property." (23 C. J., p. 329.) On this
question Freeman, in his treatise on the Law of Executions, says: "Crops, whether
growing or standing in the field ready to be harvested, are, when produced by annual
cultivation, no part of the realty. They are, therefore, liable to voluntary transfer as
chattels. It is equally well settled that they may be seized and sold under execution."
(Freeman on Executions, vol. 1, p. 438.)

We may, therefore, conclude that paragraph 2 of article 334 of the Civil Code has been
modified by section 450 of the Code of Civil Procedure and] by Act No. 1508, in the
sense that, for the purposes of attachment and execution, and for the purposes of the
Chattel Mortgage Law, "ungathered products" have the nature of personal property. The
lower court, therefore, committed no error in holding that the sugar cane in question was
personal property and, as such, was not subject to redemption.

All the other assignments of error made by the appellant, as above stated, relate to
questions of fact only. Before entering upon a discussion of said assignments of error,
we deem it opportune to take special notice of the failure of the plaintiff to appear at the
trial during the presentation of evidence by the defendant. His absence from the trial
and his failure to cross-examine the defendant have lent considerable weight to the
evidence then presented for the defense.

Coming now to the ownership of parcels 1 and 2 described in the first cause of action of
the complaint, the plaintiff made a futile attempt to show that said two parcels belonged
to Agustin Cuyugan and were the identical parcel 2 which was excluded from the
attachment and sale of real property of Sibal to Valdez on June 25, 1924, as stated
above. A comparison of the description of parcel 2 in the certificate of sale by the sheriff
(Exhibit A) and the description of parcels 1 and 2 of the complaint will readily show that
they are not the same.
 The description of the parcels in the complaint is as follows:

"1. La caña dulce sembrada por los inquilinos del ejecutado Leon Sibal 1.° en una
parcela de terreno de la pertenencia del citado ejecutado, situada en Libutad,
Culubasa, Bamban, Tarlac, de unas dos hectareas poco mas o menos de superficie.
"2. La caña dulce sembrada por el inquilino del ejecutado Leon Sibal 1.°, llamado
Alejandro Policarpio, en una parcela de terreno de la iffertenencia del ejecutado,
situada en Dalayap, Culubasa, Bamban, Tarlac de unas dos hectareas de superficie
poco mas o menos." The description of parcel 2 given in the certificate of sale (Exhibit
A) is as follows:
"2.a Terreno palayero situado en Culubasa, Bamban, Tarlac, de 177,090 metros
cuadrados de superficie, linda al N. con Canuto Sibal, Esteban Lazatin and Alejandro
Dayrit; al E. con Francisco Dizon, Felipe Mañu and others; al S. con Alejandro Dayrit,
Isidoro Santos and Melecio Mañu; y al 0. con Alejandro Dayrit and Paulino Vergara. Tax
No. 2854 valor amillarado P4,200 pesos."
On the other hand the evidence for the defendant purported to show that parcels 1 and
2 of the complaint were included among the parcels bought by Valdez from Macondray
on June 25, 1924, and corresponded to parcel 4 in the deed of sale (Exhibits B and 2),
and were also included among the parcels bought by Valdez at the auction of the real
property of Leon Sibal on June 25, 1924, and corresponded to parcel 3 in the certificate
of sale made by the sheriff (Exhibit A), The description of parcel 4 (Exhibit 2) and parcel
3 (Exhibit A) is as follows:

"Parcela No. 4. Terreno palayero, ubicado en el barrio de Culubasa, Bamban, Tarlac, I.

F. de 145,000 metros cuadrados de superficie, lindante al Norte con Road of the barrio
of Culubasa that goes to Concepcion; al Este con Juan Dizon; al Sur con Lucio Maño y
Canuto Sibal y al Oeste con Esteban Lazatin, su valor amillarado asciende a la suma
de P2,990. Tax No. 2856."

As will be noticed, there is hardly any relation between parcels 1 and 2 of the complaint
and parcel 4 (Exhibits 2 and B) and parcel 3 (Exhibit A). But, inasmuch as the plaintiff
did not care to appear at the trial when the defendant offered his evidence, we are
inclined to give more weight to the evidence adduced by him than to the evidence
adduced by the plaintiff, with respect to the ownership of parcels 1 and 2 of the
complaint. We, therefore, conclude that parcels 1 and 2 of the complaint belong to the
defendant, having acquired the same from Macondray & Co. on June 25, 1924, and
from the plaintiff Leon Sibal on the same date.

It appears, however, that the plaintiff planted the palay in said parcels and harvested
therefrom 190 cavans. There being no evidence of bad faith on his part, he is therefore
entitled to one-half of the crop, or 95 cavans. He should therefore be condemned to pay
to the defendant for 95 cavans only, at P3.40 a cavan, or the sum of P323, and not for
the total of 190 cavans as held by the lower court.
 As to the ownership of parcel 7 of the complaint, the evidence shows that said parcel
corresponds to parcel 1 of the deed of sale of Macondray & Co. to Valdez (Exhibits B
and 2), and to parcel 4 in the certificate of sale to Valdez of real property belonging to
Sibal, executed by the sheriff as above stated (Exhibit A). Valdez is therefore the
absolute owner of said parcel, having acquired the interest of both Macondray and Sibal
in said parcel.

With reference to the parcel of land in Pacalcal, Tarlac, described in paragraph 3 of the
second cause of action, it appears from the testimony of the plaintiff himself that said
parcel corresponds to parcel 8 of the deed of sale of Macondray to Valdez (Exhibits B
and 2) and to parcel 10 in the deed of sale executed by the sheriff in favor of Valdez
(Exhibit A). Valdez is therefore the absolute owner of said parcel, having acquired the
interest of both Macondray and Sibal therein.

In this connection the following facts are worthy of mention:

Execution in favor of Macondray & Co., May 11, 1923. Eight parcels of land were
attached under said execution. Said parcels of land were sold to Macondray & Co. on
the 30th day of July, 1923. Rice paid P4,273.93. On September 24, 1923, Leon Sibal
paid to Macondray & Co. P2,000 on the redemption of said parcels of land. (See
Exhibits B and C.
Attachment, April 29, 1924, in favor of Valdez. Personal property of Sibal was attached,
including the sugar cane in question. (Exhibit A.) The said personal property so
attached, sold at public auction May 9 and 10, 1924. April 29, 1924, the real property of
Sibal was attached under the execution in favor of Valdez (Exhibit A). June 25, 1924,
said real property was sold and purchased by Valdez (Exhibit A).

June 25, 1924, Macondray & Co. sold all of the land which they had purchased at public
auction on the 30th day of July, 1923, to Valdez.

As to the loss of the defendant in sugar cane by reason of the injunction, the evidence
shows that the sugar cane in question covered an area of 22 hectares and 60 ares
(Exhibits 8, 8-b and 8-c); that said area would have yielded an average crop of 1039
picos and 60 cates; that one-half of that quantity, or 519 picos and 80 cates would have
corresponded to the defendant, as owner; that during the season the sugar was selling
at P13 a pico (Exhibits 5 and 5-A). Therefore, the defendant, as owner, would have
netted P6,757.40 from the sugar cane in question. The evidence also shows that the
defendant could have taken from the sugar cane 1,017,000 sugar-cane shoots (puntas
de caña) and not 1,170,000 as computed by the lower court. During the season the
shoots Were selling at P1.20 a thousand (Exhibits 6 and 7). The defendant therefore
would have netted P1,220.40 from sugar-cane shoots and not P1,435.68 as allowed by
the lower court.

As to the palay harvested by the plaintiff in parcels 1 and 2 of the complaint, amounting
to 190 cavans, one-half of said quantity should belong to the plaintiff, as stated above,
 and the other half to the defendant. The court erred in awarding the whole crop to the
defendant. The plaintiff should therefore pay the defendant for 95 cavans only, at P3.40
a cavan, or P323 instead of P646 as allowed by the lower court.

The evidence also shows that the defendant was prevented by the acts of the plaintiff
from cultivating about 10 hectares of the land involved in the litigation. He expected to
have raised about 600 cavans of palay, 300 cavans of which would have corresponded
to him as owner. The lower court has wisely reduced his share to 150 cavans only. At
P4 a cavan, the palay would have netted him P600.

In view of the foregoing, the judgment appealed from is hereby modified. The plaintiff
and his sureties Cenon de la Cruz, Juan Sangalang and Marcos Sibal are hereby
ordered to pay to the defendant jointly and severally the sum of P8,900.80, instead of
P9,439.08 allowed by the lower court, as follows:

P6,757.40 for the sugar cane;

1,220.40 for the sugar cane shoots;
for the palay harvested by plaintiff in parcels 1
323.00
and 2;
600.00
for the palay which defendant could have raised.
__________
8,900.80
=========

In all other respects, the judgment appealed from is hereby affirmed, with costs. So
ordered.
BELINDA TAREDO, for herself and in representation of her brothers and sisters,
and TEOFILA CORPUZ TANEDO, representing her minor daughter VERNA
TANEDO, petitioners, vs. THE COURT OF APPEALS, SPOUSES RICARDO
M. TAREDO AND TERESITA BARERA TAREDO, respondents.

DECISION
PANGANIBAN, J.:

Is a sale of future inheritance valid? In multiple sales of the same real property, who
has preference in ownership? What is the probative value of the lower courts finding of
good faith in registration of such sales in the registry of property? These are the main
questions raised in this Petition for review on certiorari under Rule 45 of the Rules of
Court to set aside and reverse the Decision 1 of the Court of Appeals2 in CA-G.R. CV
NO. 24987 promulgated on September 26, 1991 affirming the decision of the Regional
Trial Court, Branch 63, Third Judicial Region, Tarlac, Tarlac in Civil Case No. 6328, and
its Resolution denying reconsideration thereof, promulgated on May 27, 1992.
By the Courts Resolution on October 25, 1995, this case (along with several others)
was transferred from the First to the Third Division and after due deliberation, the Court
assigned it to the undersigned ponenle for the writing of this Decision.
 The Facts

On October 20, 1962, Lazardo Taedo executed a notarized deed of absolute sale in
favor of his eldest brother, Ricardo Taedo, and the latters wife, Teresita Barera, private
respondents herein, whereby he conveyed to the latter in consideration of P1,500.00,
one hectare of whatever share I shall have over Lot No. 191 of the cadastral survey of
Gerona, Province of Tarlac and covered by Title T-l3829 of the Register of Deeds of
Tarlac, the said property being his future inheritance from his parents (Exh. 1). Upon the
death of his father Matias, Lazaro executed an Affidavit of Conformity dated February
28, 1980 (Exh. 3) to re-affirm, respect. acknowledge and validate the sale I made in
1962. On January 13, 1981, Lazaro executed another notarized deed of sale in favor of
private respondents covering his undivided ONE TWELVE (1/12) of a parcel of land
known as Lot 191 x x (Exh. 4). He acknowledged therein his receipt of P 10,000.00 as
consideration therefor. In February 1981, Ricardo learned that Lazaro sold the same
property to his children, petitioners herein, through a deed of sale dated December 29,
1980 (Exh. E). On June 7, 1982, private respondents recorded the Deed of Sale (Exh.
4) in their favor in the Registry of Deeds and the corresponding entry was made in
Transfer Certificate of Title No. 166451 (Exh. 5).
Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the
deeds of sale executed by Lazaro in favor of private respondents covering the property
inherited by Lazaro from his father.
Petitioners claimed that their father, Lazaro, executed an Absolute Deed of Sale
dated December 29, 1980 (Exit. E), conveying to his ten children his allotted portion
under the extrajudicial partition executed by the heirs of Matias, which deed included
the land in litigation (Lot 191).
Petitioners also presented in evidence: (1) a private writing purportedly prepared
and signed by Matias dated December 28, 1978, stating that it was his desire that
whatever inheritance Lazaro would receive from him should be given to his (Lazaros)
children (Exh. A); (2) a typewritten document dated March 10, 1979 signed by Lazaro in
the presence of two witnesses, wherein he confirmed that he would voluntarily abide by
the wishes of his father, Matias, to give to his (Lazaros) children all the property he
would inherit from the latter (Exh. B); and (3) a letter dated January 1, 1980 of Lazaro to
his daughter, Carmela, stating that his share in the extrajudicial settlement of the estate
of his father was intended for his children, petitioners herein (Exh. C).
Private respondents, however presented in evidence a Deed of Revocation of a
Deed of Sale dated March 12, 1981 (Exh. 6), wherein Lazaro revoked the sale in favor
of petitioners for the reason that it was simulated or fictitious - without any consideration
whatsoever.
Shortly after the case a quo was filed, Lazaro executed a sworn statement (Exh. G)
which virtually repudiated the contents of the Deed of Revocation of a Deed of Sale
(Exh. 6) and the Deed of Sale (Exh. 4) in favor of private respondents. However, Lazaro
testified that he sold the property to Ricardo, and that it was a lawyer who induced him
 to execute a deed of sale in favor of his children after giving him five pesos (P5.00) to
buy a drink (TSN September 18, 1985, pp. 204-205).
The trial court decided in favor of private respondents, holding that petitioners failed
to adduce a preponderance of evidence to support (their) claim. On appeal, the Court of
Appeals affirmed the decision of the trial court, ruling that the Deed of Sale
dated January 13, 1981 (Exh. 9) was valid and that its registration in good faith vested
title in said respondents.

The Issues

Petitioners raised the following errors in the respondent Court, which they also now
allege in the instant Petition:

I. The trial court erred in concluding that the Contract of Sale of October 20, 1962 (Exhibit 7,
Answer) is merely voidable or annulable and not void ab initio pursuant to paragraph 2 of Article
1347 of the New Civil Code involving as it does a future inheritance.

II. The trial court erred in holding that defendants-appellees acted in good faith in registering the
deed of sale of January 13, 1981 (Exhibit 9) with the Register of Deeds of Tarlac and therefore
ownership of the land in question passed on to defendants-appellees.

III. The trial court erred in ignoring and failing to consider the testimonial and documentary
evidence of plaintiffs-appellants which clearly established by preponderance of evidence that
they are indeed the legitimate and lawful owners of the property in question.

IV. The decision is contrary to law and the facts of the case and the conclusions drawn from the
established facts are illogical and off-tangent.

From the foregoing, the issues may be restated as follows:

1. Is the sale of a future inheritance valid?
2. Was the subsequent execution on January 13, 1981 (and registration with the
Registry of Property) of a deed of sale covering the same property to the
same buyers valid?
3. May this Court review the findings of the respondent Court (a) holding that
the buyers acted in good faith in registering the said subsequent deed of sale
and (b) in failing to consider petitioners evidence? Are the conclusions of the
respondent Court illogical and off-tangent?

The Courts Ruling

 At the outset, let it be clear that the errors which are reviewable by this Court in this
petition for review on certiorari are only those allegedly committed by the respondent
Court of Appeals and not directly those of the trial court, which is not a party here. The
assignment of errors in the petition quoted above are therefore totally misplaced, and
for that reason, the petition should be dismissed. But in order to give the parties
substantial justice we have decided to delve into the issues as above re-stated. The
errors attributed by petitioners to the latter (trial) court will be discussed only insofar as
they are relevant to the appellate courts assailed Decision and Resolution.
The sale made in 1962 involving future inheritance is not really at issue here. In
context, the assailed Decision conceded it may be legally correct that a contract of sale
of anticipated future inheritance is null and void. 3
But to remove all doubts, we hereby categorically rule that, pursuant to Article 1347
of the Civil Code, (n)o contract may be entered into upon a future inheritance except in
cases expressly authorized by law.
Consequently, said contract made in 1962 is not valid and cannot be the source of
any right nor the creator of any obligation between the parties.
Hence, the affidavit of conformity dated February 28, 1980, insofar as it sought to
validate or ratify the 1962 sale, is also useless and, in the words of the respondent
Court, suffers from the same infirmity. Even private respondents in their
memorandum4 concede this.
However, the documents that are critical to the resolution of this case are: (a) the
deed of sale of January 13, 1981 in favor of private respondents covering Lazaros
undividedinheritance of one-twelfth (1/12) share in Lot No. 191, which was subsequently
registered on June 7, 1982; and (b) the deed of sale dated December 29, 1980 in favor
of petitioners covering the same property. These two documents were executed after
the death of Matias (and his spouse) and after a deed of extrajudicial settlement of his
(Matias) estate was executed, thus vesting in Lazaro actual title over said property. In
other words, these dispositions, though conflicting, were no longer infected with the
infirmities of the 1962 sale.
Petitioners contend that what was sold on January 13, 1981 was only one-half
hectare out of Lot No. 191, citing as authority the trial courts decision. As earlier pointed
out, what is on review in these proceedings by this Court is the Court of Appeals
decision - which correctly identified the subject matter of the January 13, 1981 sale to
be the entire undivided 1/12 share of Lazaro in Lot No. 191 and which is the same
property disposed of on December 29, 1980 in favor of petitioners.
Critical in determining which of these two deeds should be given effect is the
registration of the sale in favor of private respondents with the register of deeds on June
7, 1982.
Article 1544 of the Civil Code governs the preferential rights of vendees in cases of
multiple sales, as follows:
 Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith.

The property in question is land, an immovable, and following the above-quoted law,
ownership shall belong to the buyer who in good faith registers it first in the registry of
property. Thus, although the deed of sale in favor of private respondents was later than
the one in favor of petitioners, ownership would vest in the former because of the
undisputed fact of registration. On the other hand, petitioners have not registered the
sale to them at all.
Petitioners contend that they were in possession of the property and that private
respondents never took possession thereof. As between two purchasers, the one who
registered the sale in his favor has a preferred right over the other who has not
registered his title, even if the latter is in actual possession of the immovable property. 5
As to third issue, while petitioners conceded the fact of registration, they
nevertheless contended that it was done in bad faith. On this issue, the respondent
Court ruled:

Under the second assignment of error, plaintiffs-appellants contend that defendants-appellees

acted in bad faith when they registered the Deed of Sale in their favor as appellee Ricardo
already knew of the execution of the deed of sale in favor of the plaintiffs; appellants cite the
testimony of plaintiff Belinda Tafledo to the effect that defendant Ricardo Taedo called her up on
January 4 or 5, 1981 to tell her that he was already the owner of the land in question but the
contract of sale between our father and us were (sic) already consumated (pp. 9-10, tsn, January
6, 1984). This testimony is obviously self-serving, and because it was a telephone conversation,
the deed of sale dated December 29, 1980 was not shown; Belinda merely told her uncle that
there was already a document showing that plaintiffs are the owners (p. 80). Ricardo Taedo
controverted this and testified that he learned for the first time of the deed of sale executed by
Lazaro in favor of his children about a month or sometime in February 1981 (p. 111, tsn, Nov.
28, 1984). x x x6

The respondent Court, reviewing the trial courts findings, refused to overturn the latters
assessment of the testimonial evidence, as follows:

We are not prepared to set aside the finding of the lower court upholding Ricardo Tanedos
testimony, as it involves a matter of credibility of witnesses which the trial judge, who presided
at the hearing, was in a better position to resolve. (Court of Appeals Decision, p. 6.)
 In this connection, we note the tenacious allegations made by petitioners, both in
their basic petition and in their memorandum, as follows:
1. The respondent Court allegedly ignored the claimed fact that respondent
Ricardo by fraud and deceit and with foreknowledge that the property in
question had already been sold to petitioners, made Lazaro execute the
deed of January 13, 1981;
2. There is allegedly adequate evidence to show that only 1/2 of the purchase
price of P10,000.00 was paid at the time of the execution of the deed of sale,
contrary to the written acknowledgment, thus showing bad faith;
3. There is allegedly sufficient evidence showing that the deed of revocation of
the sale in favor of petitioners was tainted with fraud or deceit.
4. There is allegedly enough evidence to show that private respondents took
undue advantage over the weakness and unschooled and pitiful situation of
Lazaro Tafledo . . . and that respondent Ricardo Taedo exercised moral
ascendancy over his younger brother he being the eldest brother and who
reached fourth year college of law and at one time a former Vice-Governor of
Tarlac, while his younger brother only attained first year high school x x x ;
5. The respondent Court erred in not giving credence to petitioners evidence,
especially Lazaro Taedos Sinumpaang Salaysay dated July 27, 1982 stating
that Ricardo Taedo deceived the former in executing the deed of sale in favor
of private respondents.
To be sure, there are indeed many conflicting documents and testimonies as well as
arguments over their probative value and significance. Suffice it to say, however, that all
the above contentions involve questions of fact, appreciation of evidence and credibility
of witnesses, which are not proper in this review. It is well-settled that the Supreme
Court is not a trier of facts. In petitions for review under Rule 45 of the Revised Rules of
Court, only questions of law may be raised and passed upon. Absent any whimsical or
capricious exercise of judgment, and unless the lack of any basis for the conclusions
made by the lower courts be amply demonstrated, the Supreme Court will not disturb
their findings. At most, it appears that petitioners have shown that their evidence was
not believed by both the trial and the appellate courts, and that the said courts tended to
give more credence to the evidence presented by private respondents. But this in itself
is not a reason for setting aside such findings. We are far from convinced that both
courts gravely abused their respective authorities and judicial prerogatives.
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goidrock
Construction and Development Corp.:7

The Court has consistently held that the factual findings of the trial court, as well as the Court of
Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional
circumstances where a reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the
inference made is manifestly absurd, mistaken or Impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on a misapprehension of
 facts; when the findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench, we find
none of the above grounds present to justify the re-evaluation of the findings of fact made by the
courts below.

In the same vein, the ruling in the recent case of South Sea Surety and Insurance
Company, Inc. vs. Hon. Court of Appeals, et al.[8] is equally applicable to the present
case:

We see no valid reason to discard the factual conclusions of the appellate court. x x x (I)t is not
the function of this Court to assess and evaluate all over again the evidence, testimonial and
documentary, adduced by the parties, particularly where, such as here, the findings of both the
trial court and the appellate court on the matter coincide. (italics supplied)

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of
Appeals is AFFIRMED. No Costs.
SO ORDERED.
JUANITA P. PINEDA, assisted by her husband, CRISPIN PINEDA, and LILIA
SAYOC, petitioners, vs. COURT OF APPEALS and TERESITA A.
GONZALES, assisted by her husband, FRANCISCO G.
GONZALES, respondents.

DECISION
CARPIO, J.:

The Case

This petition for review on certiorari[1] seeks to reverse the Decision[2] of the Court of
Appeals dated 26 August 1993 in CA-G.R. SP No. 28651 as well as the Resolution
dated 4 March 1994 denying the motion for reconsideration. In its assailed decision, the
Court of Appeals declared void the orders[3] of the Regional Trial Court[4] of Cavite City
dated 10 January 1992, 5 February 1992 and 30 April 1992, and made the preliminary
injunction permanent. In the first order, the trial court declared that Teresita A. Gonzales,
despite notice, failed to appear at the hearing of the motion to surrender Transfer
Certificate of Title No. T-16084 and to file opposition to the motion. In the second order,
the trial court declared void the original and owners duplicate of Transfer Certificate of
Title No. T-16084 and ordered the reinstatement of Transfer Certificate of Title No. T-
8361. In the third order, the trial court denied the motions to lift the first order and to
reconsider the second order.

The Facts
 On 4 January 1982, the Spouses Virgilio and Adorita Benitez (Spouses Benitez)
mortgaged a house and lot (Property) covered by Transfer Certificate of Title No. T-8361
(TCT 8361) in favor of Juanita P. Pineda (Pineda) and Leila P. Sayoc (Sayoc). The real
estate mortgage secured the Spouses Benitezs loan of P243,000 with a one-year
maturity period.[5] Pineda and Sayoc did not register the mortgage with the Register of
Deeds. The Spouses Benitez delivered the owners duplicate of TCT 8361 to Pineda.
On 9 November 1983, with the consent of Pineda, the Spouses Benitez sold the
house,[6] which was part of the Property, to Olivia G. Mojica (Mojica). On the same date,
Mojica filed a petition for the issuance of a second owners duplicate of TCT 8361
alleging that she purchased a parcel of land [7] and the owners duplicate copy of TCT No.
T-8361 was lost.[8]
On 7 December 1983, the trial court granted the petition. The Register of Deeds of
Cavite City issued the second owners duplicate of TCT 8361 in the name of the
Spouses Benitez.
On 12 December 1983, the Spouses Benitez sold the lot [9] covered by TCT 8361 to
Mojica. With the registration of the deed of sale and presentation of the second owners
duplicate of TCT 8361, the Register of Deeds cancelled TCT 8361 and issued Transfer
Certificate of Title No. T-13138 (TCT 13138) in the name of Mojica.
On 22 February 1985, Mojica obtained a loan of P290,000 from Teresita A.
Gonzales (Gonzales). Mojica executed a promissory note and a deed of mortgage over
the Property in favor of Gonzales. Gonzales registered this deed of mortgage with the
Register of Deeds of Cavite City who annotated the mortgage on TCT 13138 as Entry
No. 33209.
Meanwhile, on 8 May 1985, Pineda and Sayoc filed a complaint before the Regional
Trial Court[10] of Cavite City, docketed as Civil Case No. 4654, against the Spouses
Benitez and Mojica. The complaint prayed for the cancellation of the second owners
duplicate of TCT 8361 and the award of moral damages and attorneys fees.
In their answer, the Spouses Benitez admitted selling to Mojica the Property which
was already subject to a previous mortgage in favor of Pineda and Sayoc. The Spouses
Benitez claimed that under the Acknowledgment of Indebtedness,[11] Mojica, with the
conformity of Pineda and Sayoc, agreed to assume the balance of the mortgage debt of
the Spouses Benitez to Pineda and Sayoc.
The Spouses Benitez denied any knowledge of Mojicas petition for the issuance of
a second owners duplicate of TCT 8361. The Spouses Benitez prayed for the dismissal
of the complaint and the award of moral damages and attorneys fees. The Spouses
Benitez also prayed that in case the court would render judgment in favor of Pineda and
Sayoc, only Mojica should be held liable.
On the other hand, Mojica denied conspiring with the Spouses Benitez and
committing fraud in filing the petition for the issuance of a second owners duplicate of
TCT 8361. Mojica stated that the Spouses Benitez sold to her the Property. Mojica
claimed that upon the execution of the deed of sale, the Spouses Benitez delivered to
 her the owners duplicate of TCT 8361. However, Mojica alleged that the owners
duplicate of TCT 8361 was lost.
Mojica also asserted that she verified with the Register of Deeds of Cavite City the
provision in the deed of sale that the Property was free from all liens and encumbrances
and found the same to be true. Mojica added that on learning of the Spouses Benitezs
mortgage with Pineda and Sayoc, she signed the Acknowledgment of
Indebtedness. Mojica contended that since Pineda, for herself and Sayoc, conformed to
this agreement, Pineda and Sayoc had no personality to file the complaint. Mojica
further alleged that Pineda and Sayoc were in estoppel from challenging the validity of
the second owners duplicate of TCT 8361 because Pineda and Sayoc, despite notice,
failed to oppose the reconstitution of the title.
Mojica maintained that the Spouses Benitez are indispensable parties because TCT
8361 was in their name. Mojica also asserted that she did not breach
the Acknowledgment of Indebtedness since she had paid the Spouses Benitez an
amount more than their debt to Pineda and Sayoc. Mojica contended that had the
Spouses Benitez paid the amount to Pineda and Sayoc, there would have been no
obligation to assume. Mojica prayed for the dismissal of the complaint and the award of
moral and exemplary damages and attorneys fees.
During the pendency of the case, Pineda caused the annotation on 18 August 1986
of a notice of lis pendens on the original of TCT 8361 with the Register of Deeds.
After trial, the trial court rendered a Decision dated 15 June 1987, the dispositive
portion of which reads:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment declaring the
second owners duplicate of TCT No. T-8361 of the land records of Cavite as null and void and
the Register of Deeds of Cavite City is hereby ordered upon payment of the corresponding legal
fees the annotation of this pronouncement in its record and the revival of the first owners
duplicate with the same faith and credit before its alleged loss. The counterclaim of defendants
Benitezes is hereby dismissed. No pronouncement as to costs.

SO ORDERED.[12]

On 7 December 1987, Mojica defaulted in paying her obligation to

Gonzales. Hence, Gonzales extrajudicially foreclosed the mortgage. On 27 January
1988, Gonzales purchased at public auction the Property for P423,244.88.
For failure of Mojica to redeem the Property, Gonzales consolidated the title to the
Property. On 29 March 1989, Gonzales executed the corresponding Affidavit of
Consolidation.
On 30 March 1989, the Register of Deeds of Cavite City cancelled TCT 13138,
which was in Mojicas name, and issued Transfer Certificate of Title No. T-16084 (TCT
16084) in the name of Gonzales. TCT 16084 contained Entry No. 35520, the notice
of lis pendens dated 18 August 1986 in relation to Civil Case No. 4654. [13] The Register
 of Deeds annotated on TCT 16084 the notice of lis pendens, even though TCT 13138
did not contain such annotation.
Meanwhile, dissatisfied with the trial courts decision, the Spouses Benitez and
Mojica appealed to the Court of Appeals, docketed as CA-G.R. CV No. 15417. On 29
January 1991, the Court of Appeals rendered a Decision [14] affirming the trial courts
decision declaring void the second owners duplicate of TCT 8361. The decision of the
Court of Appeals became final and was entered in the Book of Entries of Judgments on
17 June 1991.
The Court of Appeals returned the records of the case to the trial court on 10 July
1991. On motion of Pineda and Sayoc, the trial court issued a writ of execution to
enforce the judgment.
However, the writ of execution was returned unsatisfied. The Sheriffs Return of 12
September 1991 stated that the Register of Deeds could not implement the writ of
execution. The Sheriffs Return showed that the Register of Deeds had already
cancelled TCT 8361 and issued TCT 16084 in the name of Gonzales by virtue of the
consolidation of title dated 29 March 1989.
Consequently, on 6 December 1991, Pineda and Sayoc filed a motion with the trial
court for the issuance of an order requiring Gonzales to surrender the owners duplicate
of TCT 16084 to the Register of Deeds of Cavite City.
In its Order dated 10 January 1992 (first order), the trial court declared that
Gonzales, despite notice, failed to appear at the hearing and to oppose the motion to
surrender TCT 16084. In the same order, the trial court directed Gonzales to file a
memorandum. Gonzales received this order on 20 January 1992.
Subsequently, Gonzales filed a motion to lift the first order alleging that since she
was not a party in Civil Case No. 4654, the decision did not bind her. Gonzales also
claimed that she did not receive notice of the hearing, copy of the motion to surrender
TCT 16084 and the order resetting the hearing because she was in the United States of
America. Gonzales finally alleged that she was an innocent purchaser for value.
In an Order dated 5 February 1992 (second order), the trial court declared void the
original and the owners duplicate of TCT 16084 in the name of Gonzales. The trial court
ordered the reinstatement of TCT 8361 in the name of the Spouses Benitez.
Gonzales filed a motion for reconsideration of the second order. On 30 April 1992,
the trial court issued an Order (third order) denying Gonzales motions to lift the first
order and to reconsider the second order.
Aggrieved by the trial courts orders, Gonzales filed with the Court of Appeals a
petition for the issuance of a writ of prohibitory injunction.
On 26 August 1993, the Court of Appeals rendered a decision disposing as follows:

WHEREFORE, the petition is granted. The assailed orders dated 10 January 1992, 5 February
1992, and 30 April 1992 are hereby declared NULL and VOID, and the preliminary prohibitory
injunction is made permanent.
 SO ORDERED.[15]

Hence, the instant petition.

The Ruling of the Court of Appeals

In the Court of Appeals, Gonzales maintained that the trial court had no jurisdiction
over her person and property because Pineda and Sayoc did not implead her as a party
in Civil Case No. 4654. Insisting that the questioned orders were procured through
extrinsic or collateral fraud, Gonzales claimed that the orders of the trial court were
void. Gonzales further alleged that she was an innocent purchaser for value making her
title to the Property indefeasible and imprescriptible.
Pineda and Sayoc, on the other hand, argued that the notice of lis
pendens annotated on the title of the Property bound Gonzales, as subsequent
purchaser of the Property, to the outcome of the case. Pineda and Sayoc contended
that Gonzales was not a purchaser in good faith because Gonzales had constructive
notice of the pending litigation when she purchased the Property.
Moreover, Pineda and Sayoc argued that no separate action is necessary to cancel
the title because Gonzales is bound by the outcome of the litigation. They contended
that there was no extrinsic fraud because the notice of lis pendens warned Gonzales of
the pendency of Civil Case No. 4654 where she could have intervened. Pineda and
Sayoc further alleged that foreclosure and sale, not a mortgage, vest title on a
mortgagee. Foreclosure and sale, however, are always subject to a notice of lis
pendens.
In granting the petition, the Court of Appeals ruled that the trial court erred when it
voided TCT 16084 upon a mere motion for the surrender of the owners duplicate of TCT
16084. The Court of Appeals further held that the trial court erred in ordering the
reinstatement of TCT 8361 in the name of the Spouses Benitez.
The Court of Appeals held that Pineda and Sayoc should have filed the petition to
surrender TCT 16084 in the original case where the decree of registration of TCT 16084
was entered and not in Civil Case No. 4654. The second paragraph of Section 108 of
Presidential Decree No. 1529[16] (PD 1529) requires the filing of such separate petition.
The appellate court stated that it was beyond the trial courts authority to act on the
matter on a mere motion to surrender TCT 16084.
The Court of Appeals likewise ruled that the trial court did not acquire jurisdiction
over the person of Gonzales because she was not a party in Civil Case No. 4654. The
appellate court found that Gonzales could not have known of, and appeared at, the
hearing of the motion to surrender TCT 16084 because Gonzales was then out of the
country.
Assuming that the trial court could validly act on the motion of Pineda and Sayoc,
the Court of Appeals declared that the orders nevertheless contravened Section 107 of
PD 1529. This provision of law requires a hearing before the court can act on a petition
to surrender a duplicate certificate of title.

The Issues

Petitioners raise the following issues for resolution:

1. Whether a notice of lis pendens binds a subsequent purchaser of the property to the
outcome of the pending case.

2. Whether TCT 13138 and TCT 16084, being derived from the void second owners
duplicate of TCT 8361, are also void.

3. Whether a separate action should be filed to cancel TCT 16084.

4. Whether Gonzales was an innocent purchaser for value.

5. Whether Gonzales was denied due process of law.

The Ruling of the Court

We deny the petition.

Validity of TCT 13138 and TCT 16084

Mojica filed a petition for reconstitution[17] of the owners duplicate of TCT 8361
claiming that this owners duplicate was lost. However, contrary to Mojicas claims, the
owners duplicate of TCT 8361 was not lost but in Pinedas possession. Since the owners
duplicate of TCT 8361 was in fact not lost or destroyed, there was obviously nothing to
reconstitute or replace.Therefore, the trial court correctly ruled that the reconstitution
proceedings and the second owners duplicate of TCT 8361 are void. [18] As the Court
held in New Durawood Co., Inc. v. Court of Appeals:[19]

In the instant case, the owners duplicate certificates of title were in the possession of Dy Quim
Pong, the petitioners chairman of the board and whose family controls the petitioner-corporation.
Since said certificates were not in fact lost or destroyed, there was no necessity for the petition
filed in the trial court for the Issuance of New Owners Duplicate Certificates of Title . . . In fact,
the said court never acquired jurisdiction to order the issuance of new certificates. Hence, the
newly issued duplicates are themselves null and void. (Emphasis supplied)
 Mojica registered with the Register of Deeds the deed of sale executed by the
Spouses Benitez conveying the Property to her. Mojica also presented to the Register of
Deeds the second owners duplicate of TCT 8361. The Register of Deeds cancelled TCT
8361 and issued on 14 December 1983 TCT 13138 in the name of Mojica. However,
since TCT 13138 is derived from the void second owners duplicate of TCT 8361, TCT
13138 is also void. No valid transfer certificate of title can issue from a void transfer
certificate of title, unless an innocent purchaser for value has intervened. [20]
Mojica was not a purchaser in good faith. Mojica alleged that the Spouses Benitez
gave her the owners duplicate of TCT 8361 on 9 November 1983, the day the Spouses
Benitez sold to her the house. However, in her petition for reconstitution, which she also
filed on the same day, 9 November 1983, Mojica claimed that the owners duplicate of
TCT 8361 was lost. In effect, Mojica claimed that she received the owners duplicate of
TCT 8361 from the Spouses Benitez, lost the same, and filed the petition for
reconstitution, all on the same day, 9 November 1983.
In her petition for reconstitution, Mojica also claimed that she purchased a parcel of
land when in fact she only purchased on 9 November 1983 the house, and not the lot
covered by TCT 8361. Obviously, Mojica procured the reconstitution of the second
owners duplicate of TCT 8361 through misrepresentation. Hence, Mojica was not a
purchaser in good faith when she later purchased on 12 December 1983 the lot since
she knew of the irregularity in the reconstitution of the second owners duplicate of TCT
8361.
Therefore, TCT 13138 issued in the name of Mojica is void. However, what is void is
the transfer certificate of title and not the title over the Property. The title refers to the
ownership of the Property covered by the transfer certificate of title while the transfer
certificate of title merely evidences that ownership. A certificate of title is not equivalent
to title as the Court explained in Lee Tek Sheng v. Court of Appeals:[21]

xxx The certificate referred to is that document issued by the Register of Deeds known as the
Transfer Certificate of Title (TCT). By title, the law refers to ownership which is represented
by that document. Petitioner apparently confuses certificate with title. Placing a parcel of land
under the mantle of the Torrens system does not mean that ownership thereof can no longer be
disputed. Ownership is different from a certificate of title. The TCT is only the best proof of
ownership of a piece of land. Besides, the certificate cannot always be considered as conclusive
evidence of ownership. Mere issuance of the certificate of title in the name of any person does
not foreclose the possibility that the real property may be under co-ownership with persons not
named in the certificate or that the registrant may only be a trustee or that other parties may have
acquired interest subsequent to the issuance of the certificate of title. To repeat, registration is
not the equivalent of title, but is only the best evidence thereof. Title as a concept of ownership
should not be confused with the certificate of title as evidence of such ownership although
both are interchangeable. xxx (Emphasis supplied)

Mojicas Title
 The prior mortgage of the Property by the Spouses Benitez to Pineda and Sayoc
did not prevent the Spouses Benitez, as owners of the Property, from selling the
Property to Mojica. A mortgage is merely an encumbrance on the property and does not
extinguish the title of the debtor who does not lose his principal attribute as owner to
dispose of the property.[22] The law even considers void a stipulation forbidding the
owner of the property from alienating the mortgaged immovable. [23]
Since the Spouses Benitez were the undisputed owners of the Property, they could
validly sell and deliver the Property to Mojica. The execution of the notarized deed of
sale between the Spouses Benitez and Mojica had the legal effect of actual or physical
delivery. Ownership of the Property passed from the Spouses Benitez to Mojica. [24] The
nullity of the second owners duplicate of TCT 8361 did not affect the validity of the sale
as between the Spouses Benitez and Mojica.

Gonzales Title

After the sale of the Property to her, Mojica obtained a loan from Gonzales secured
by a real estate mortgage over the Property. Gonzales registered this mortgage on 22
February 1985 with the Register of Deeds who annotated the mortgage on the void TCT
13138 in Mojicas name. The nullity of TCT 13138 did not automatically carry with it the
nullity of the annotation of Gonzales mortgage. The rule is that a mortgage annotated
on a void title is valid if the mortgagee registered the mortgage in good faith.
[25]
In Blanco v. Esquierdo,[26] the Court held:

That the certificate of title issued in the name of Fructuosa Esquierdo is a nullity, the same
having been secured thru fraud, is not here in question. The only question for determination is
whether the defendant bank is entitled to the protection accorded to innocent purchasers for
value, which phrase, according to sec. 38 of the Land Registration Law, includes an innocent
mortgagee for value. The question, in our opinion, must be answered in the affirmative.

The trial court, in the decision complained of, made no finding that the defendant mortgagee
bank was a party to the fraudulent transfer of the land to Fructuosa Esquierdo. Indeed, there is
nothing alleged in the complaint which may implicate said defendant mortgagee in the fraud, or
justify a finding that it acted in bad faith. On the other hand, the certificate of title was in the
name of the mortgagor Fructuosa Esquierdo when the land was mortgaged by her to the
defendant bank. Such being the case, the said defendant bank, as mortgagee, had the right to rely
on what appeared in the certificate and, in the absence of anything to excite suspicion, was under
no obligation to look beyond the certificate and investigate the title of the mortgagor appearing
on the face of said certificate. (De Lara, et al. vs. Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838,
Joaquin vs. Madrid, et al., 106 Phil., 1060). Being thus an innocent mortgagee for value, its
right or lien upon the land mortgaged must be respected and protected, even if the mortgagor
obtained her title thereto thru fraud. The remedy of the persons prejudiced is to bring an action
for damages against those causing the fraud, xxx. (Emphasis supplied)
 Thus, the annotation of Gonzales mortgage on TCT 13138 was valid and operated to
bind the Property and the world, despite the invalidity of TCT 13138.
Gonzales registered her mortgage in good faith. Gonzales had no actual notice of
the prior unregistered mortgage in favor of Pineda and Sayoc. To bind third parties to an
unregistered encumbrance, the law requires actual notice. [27] The fact that Mojica, who
sold the Property to Gonzales, had actual notice of the unregistered mortgage did not
constitute actual notice to Gonzales, absent proof that Gonzales herself had actual
notice of the prior mortgage. Thus, Gonzales acquired her rights as a mortgagee in
good faith.
When Mojica defaulted in paying her debt, Gonzales caused the extrajudicial
foreclosure of the mortgaged Property. Gonzales purchased the mortgaged Property as
the sole bidder at the public auction sale. For Mojicas failure to redeem the foreclosed
Property within the prescribed period, Gonzales consolidated her title to the Property.
Absent any evidence to the contrary, the sale at public auction of the Property to
Gonzales was valid. Thus, the title or ownership of the Property passed from Mojica to
Gonzales. At this point, therefore, Gonzales became the owner of the Property.
When Gonzales purchased the Property at the auction sale, Pineda and Sayoc had
already annotated the lis pendens on the original of TCT 8361, which remained
valid. However, the mortgage of Gonzales was validly registered prior to the notation of
the lis pendens. The subsequent annotation of the lis pendens could not defeat the
rights of the mortgagee or the purchaser at the auction sale who derived their rights
under a prior mortgage validly registered. The settled rule is that the auction sale
retroacts to the date of the registration of the mortgage, [28] putting the auction sale
beyond the reach of any intervening lis pendens, sale or attachment. As the Court
explained in Caviles, Jr. v. Bautista:[29]

We have also consistently ruled that an auction or execution sale retroacts to the date of levy of
the lien of attachment. When the subject property was sold on execution to the petitioners, this
sale retroacted to the date of inscription of petitioners notice of attachment on October 6, 1982.
The earlier registration of the petitioners levy on preliminary attachment gave them superiority
and preference in rights over the attached property as against respondents.

Accordingly, we rule that the execution sale in favor of the petitioner Caviles spouses was
anterior and superior to the sale of the same property to the respondent Bautista spouses on
October 18, 1982. The right of petitioners to the surrender of the owners duplicate copy of TCT
No. 57006 covering the subject property for inscription of the certificate of sale, and for the
cancellation of said certificate of title and the issuance of a new title in favor of petitioners
cannot be gainsaid.

A contrary rule would make a prior registration of a mortgage or any lien

meaningless.[30] The prior registered mortgage of Gonzales prevails over the
subsequent notice of lis pendens, even if the auction sale took place after the notation
of the lis pendens. Consequently, TCT 16084, issued to Gonzales after she presented
the sheriffs certificate of sale and her affidavit of consolidation, is valid.
 What remained with Pineda and Sayoc after the foreclosure was the mortgagors
residual rights over the foreclosed Property, which rights are the equity of
redemption[31] and a share in the surplus fund, if any. [32] Since Mojica was not a
purchaser in good faith, the residual rights of Mojica were subject to the claim of Pineda
and Sayoc. Of course, Pineda and Sayoc may still file an action to recover the
outstanding debt of the Spouses Benitez, and even go after Mojica for her assumption
of obligation under the Acknowledgment of Indebtedness.

The Equities Favor Gonzales over Pineda and Sayoc

Pineda and Sayoc were negligent in not registering their mortgage, which ultimately
led to this controversy. Had Pineda and Sayoc registered their mortgage, their rights as
prior mortgagees would have prevailed over that of Gonzales. Pineda and Sayoc were
also negligent in not foreclosing their mortgage ahead of Gonzales, when they could
have done so as early as 4 January 1983 after the Spouses Benitez defaulted on their
loan.[33] In contrast, the loan of Mojica fell due only on 7 December 1987.
Since Gonzales vigilantly exercised her right to foreclose the mortgaged Property
ahead of Pineda and Sayoc, Gonzales mortgage would still prevail over the mortgage of
Pineda and Sayoc even if Gonzales mortgage was not validly registered. The
unregistered mortgage of Pineda and Sayoc was extinguished upon foreclosure of
Gonzales mortgage even assuming for the sake of argument that the latter mortgage
was unregistered. Between two unregistered mortgagees, both being in good faith, the
first to foreclose his mortgage prevails over the other.
Even assuming that Gonzales mortgage was not validly registered, the notice of lis
pendens could still not defeat Gonzales right under the foreclosure sale. The effect of
the notice of lis pendens was to subject Gonzales, as the subsequent purchaser of the
Property, to the outcome of the case. The outcome of the case is the cancellation of the
second owners duplicate of TCT 8361. The complaint of Pineda and Sayoc simply
prayed for the cancellation of the second owners duplicate of TCT 8361 and the award
of damages.[34]
The notice of lis pendens would only bind Gonzales to the declaration of nullity of
the second owners duplicate of TCT 8361. Gonzales could not use TCT 13138, as a
void issue of the void second owners duplicate of TCT 8361, to secure a new TCT in
her name. This is the legal consequence of the notice of lis pendens, which would have
bound Gonzales had the registration of her mortgage been void. However, the
declaration of nullity of TCT 13138 would still not make the mortgage of Pineda and
Sayoc preferred over that of Gonzales. Since Gonzales foreclosed her mortgage ahead
of Pineda and Sayoc, she would still have a better right than Pineda and Sayoc who
slept on their rights as mortgagees.

Conclusion
 The nullity of TCT 13138 did not affect the validity of the title or ownership of Mojica
or Gonzales as subsequent transferees of the Property. What is void is the transfer
certificate of title, not the title or ownership itself of Mojica or Gonzales. The notice
of lis pendens could not defeat Gonzales rights over the Property for two reasons. First,
Gonzales registered in good faith her mortgage before the notation of the lis
pendens, making the registration of her mortgage valid despite the invalidity of TCT
13138. Second, since Gonzales mortgage was valid, the auction sale retroacted to the
date of registration of her mortgage, making the auction sale prior in time to the notice
of lis pendens. Thus, TCT 16084, issued to Gonzales as a result of the foreclosure sale,
is valid.
WHEREFORE, the petition is DENIED. The Decision dated 26 August 1993 and the
Resolution dated 4 March 1994 of the Court of Appeals in CAG.R. SP No. 28651 are
AFFIRMED.Petitioners Juanita P. Pineda and Lilia Sayoc are directed to surrender the
owners duplicate of Transfer Certificate of Title No. 8361 to the Register of Deeds of
Cavite City for cancellation.Transfer Certificate of Title No. 16084 in the name of
Teresita A. Gonzales is declared valid. This is without prejudice to any action petitioners
Juanita P. Pineda and Lilia Sayoc may file against the Spouses Virgilio and Adorita
Benitez as well as Olivia G. Mojica. No pronouncement as to costs.
SO ORDERED.

NATIONAL FOOD AUTHORITY, (NFA), petitioner,

vs.
INTERMEDIATE APPELLATE COURT, SUPERIOR (SG) SHIPPING
CORPORATION, respondents.

Zapanta, Gloton & Ulejorada for petitioner.

Sison, Ortiz & Associates for private respondents.

PARAS, J.:

This is a petition for review on certiorari made by National Food Authority (NFA for
brevity) then known as the National Grains Authority or NGA from the decision 1 of the
Intermediate Appellate Court affirming the decision 2 of the trial court, the decretal
portion of which reads:

WHEREFORE, defendants Gil Medalla and National Food Authority are ordered
to pay jointly and severally the plaintiff:

a. the sum of P25,974.90, with interest at the legal rate from October 17,
1979 until the same is fully paid; and,

b. the sum of P10,000.00 as and for attorney's fees.

 Costs against both defendants.

SO ORDERED. (p. 22, Rollo)

Hereunder are the undisputed facts as established by the then Intermediate Appellate
Court (now Court of Appeals), viz:

On September 6, 1979 Gil Medalla, as commission agent of the plaintiff Superior

Shipping Corporation, entered into a contract for hire of ship known as "MV Sea
Runner" with defendant National Grains Authority. Under the said contract
Medalla obligated to transport on the "MV Sea Runner" 8,550 sacks of rice
belonging to defendant National Grains Authority from the port of San Jose,
Occidental Mindoro, to Malabon, Metro Manila.

Upon completion of the delivery of rice at its destination, plaintiff on October 17,
1979, wrote a letter requesting defendant NGA that it be allowed to collect the
amount stated in its statement of account (Exhibit "D"). The statement of account
included not only a claim for freightage but also claims for demurrage and
stevedoring charges amounting to P93,538.70.

On November 5, 1979, plaintiff wrote again defendant NGA, this time specifically
requesting that the payment for freightage and other charges be made to it and
not to defendant Medalla because plaintiff was the owner of the vessel "MV Sea
Runner" (Exhibit "E"). In reply, defendant NGA on November 16, 1979 informed
plaintiff that it could not grant its request because the contract to transport the
rice was entered into by defendant NGA and defendant Medalla who did not
disclose that he was acting as a mere agent of plaintiff (Exhibit "F"). Thereupon
on November 19, 1979, defendant NGA paid defendant Medalla the sum of
P25,974.90, for freight services in connection with the shipment of 8,550 sacks of
rice (Exhibit "A").

On December 4, 1979, plaintiff wrote defendant Medalla demanding that he turn

over to plaintiff the amount of P27,000.00 paid to him by defendant NFA.
Defendant Medalla, however, "ignored the demand."

Plaintiff was therefore constrained to file the instant complaint.

Defendant-appellant National Food Authority admitted that it entered into a

contract with Gil Medalla whereby plaintiffs vessel "MV Sea Runner" transported
8,550 sacks of rice of said defendant from San Jose, Mindoro to Manila.

For services rendered, the National Food Authority paid Gil Medalla P27,000.00
for freightage.
 Judgment was rendered in favor of the plaintiff. Defendant National Food
Authority appealed to this court on the sole issue as to whether it is jointly and
severally liable with defendant Gil Medalla for freightage. (pp. 61-62, Rollo)

The appellate court affirmed the judgment of the lower court, hence, this appeal by way
of certiorari, petitioner NFA submitting a lone issue to wit: whether or not the instant
case falls within the exception of the general rule provided for in Art. 1883 of the Civil
Code of the Philippines.

It is contended by petitioner NFA that it is not liable under the exception to the rule (Art.
1883) since it had no knowledge of the fact of agency between respondent Superior
Shipping and Medalla at the time when the contract was entered into between them
(NFA and Medalla). Petitioner submits that "(A)n undisclosed principal cannot maintain
an action upon a contract made by his agent unless such principal was disclosed in
such contract. One who deals with an agent acquires no right against the undisclosed
principal."

Petitioner NFA's contention holds no water. It is an undisputed fact that Gil Medalla was
a commission agent of respondent Superior Shipping Corporation which owned the
vessel "MV Sea Runner" that transported the sacks of rice belonging to petitioner NFA.
The context of the law is clear. Art. 1883, which is the applicable law in the case at bar
provides:

Art. 1883. If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted; neither have such
persons against the principal.

In such case the agent is the one directly bound in favor of the person with whom
he has contracted, as if the transaction were his own, except when the contract
involves things belonging to the principal.

The provision of this article shall be understood to be without prejudice to the

actions between the principal and agent.

Consequently, when things belonging to the principal (in this case, Superior Shipping
Corporation) are dealt with, the agent is bound to the principal although he does not
assume the character of such agent and appears acting in his own name. In other
words, the agent's apparent representation yields to the principal's true representation
and that, in reality and in effect, the contract must be considered as entered into
between the principal and the third person (Sy Juco and Viardo v. Sy Juco, 40 Phil.
634). Corollarily, if the principal can be obliged to perform his duties under the contract,
then it can also demand the enforcement of its rights arising from the contract.

WHEREFORE, PREMISES CONSIDERED, the petition is hereby DENIED and the

appealed decision is hereby AFFIRMED.
SO ORDERED.