G.R. No.

L-11872

December 1, 1917

DOMINGO MERCADO and JOSEFA MERCADO, plaintiffs-appellants, vs. JOSE ESPIRITU, administrator of the estate of the deceased Luis Espiritu, defendant-appellee. Perfecto Salas Rodriguez for appellants. Vicente Foz for appellee.

TORRES, J.: This is an appeal by bill of exceptions, filed by the counsel for the plaintiffs from the judgment of September 22, 1914, in which the judge of the Seventh Judicial District dismissed the complaint filed by the plaintiffs and ordered them to keep perpetual silence in regard to the litigated land, and to pay the costs of the suit. By a complaint dated April 9, 1913, counsel for Domingo and Josefa Mercado brought suit in the Court of First Instance of Bulacan, against Luis Espiritu, but, as the latter died soon thereafter, the complaint was amended by being directed against Jose Espiritu in his capacity of his administrator of the estate of the deceased Luis Espiritu. The plaintiffs alleged that they and their sisters Concepcion and Paz, all surnamed Mercado, were the children and sole heirs of Margarita Espiritu, a sister of the deceased Luis Espiritu; that Margarita Espiritu died in 1897, leaving as her paraphernal property a tract of land of 48 hectares in area situated in the barrio of Panducot, municipality of Calumpit, Bulacan, and bounded as described in paragraph 4 of the amended complaint, which hereditary portion had since then been held by the plaintiffs and their sisters, through their father Wenceslao Mercado, husband of Margarita Espiritu; that, about the year 1910, said Luis Espiritu, by means of cajolery, induced, and fraudulently succeeded in getting the plaintiffs Domingo and Josefa Mercado to sign a deed of sale of the land left by their mother, for the sum of P400, which amount was divided among the two plaintiffs and their sisters Concepcion and Paz, notwithstanding the fact that said land, according to its assessment, was valued at P3,795; that one-half of the land in question belonged to Margarita Espiritu, and one-half of this share, that is, one-fourth of said land , to the plaintiffs, and the other one-fourth, to their two sisters Concepcion and Paz; that the part of the land belonging to the two plaintiffs could produce 180 cavanes of rice per annum, at P2.50 per cavan, was equivalent to P450 per annum; and that Luis Espiritu had received said products from 1901 until the time of his death. Said counsel therefore asked that judgment be rendered in plaintiffs' favor by holding to be null and void the sale they made of their respective shares of their land, to Luis Espiritu, and that the defendant be ordered to deliver and restore to the plaintiffs the shares of the land that fell to the latter in the partition of the estate of their deceased mother Margarita Espiritu, together with the products thereof, uncollected since 1901, or their equivalent, to wit, P450 per annum, and to pay the costs of the suit.

In due season the defendant administrator answered the aforementioned complaint, denying each and all of the allegations therein contained, and in special defense alleged that the land, the subject-matter of the complaint, had an area of only 21 cavanes of seed rice; that, on May 25, 1894, its owner, the deceased Margarita Espiritu y Yutoc, the plaintiffs' mother, with the due authorization of her husband Wenceslao Mercado y Arnedo Cruz sold to Luis Espiritu for the sum of P2,000 a portion of said land, to wit, an area such as is usually required for fifteen cavanes of seed; that subsequently, on May 14, 1901, Wenceslao Mercado y Arnedo Cruz, the plaintiffs' father, in his capacity as administrator of the property of his children sold under pacto de retro to the same Luis Espiritu at the price of P375 the remainder of the said land, to wit, an area covered by six cavanes of seed to meet the expenses of the maintenance of his (Wenceslao's) children, and this amount being still insufficient the successively borrowed from said Luis Espiritu other sums of money aggregating a total of P600; but that later, on May 17,1910, the plaintiffs, alleging themselves to be of legal age, executed, with their sisters Maria del Consejo and Maria dela Paz, the notarial instrument inserted integrally in the 5th paragraph of the answer, by which instrument, ratifying said sale under pacto de retro of the land that had belonged to their mother Margarita Espiritu, effected by their father Wenceslao Mercado in favor of Luis Espiritu for the sum of P2,600, they sold absolutely and perpetually to said Luis Espiritu, in consideration of P400, the property that had belonged to their deceased mother and which they acknowledged having received from the aforementioned purchaser. In this cross-complaint the defendant alleged that the complaint filed by the plaintiffs was unfounded and malicious, and that thereby losses and damages in the sum of P1,000 had been caused to the intestate estate of the said Luis Espiritu. He therefore asked that judgment be rendered by ordering the plaintiffs to keep perpetual silence with respect to the land in litigation and, besides, to pay said intestate estate P1,000 for losses and damages, and that the costs of the trial be charged against them. In reply to the cross-complaint, the plaintiffs denied each and all of the facts therein set forth, and in special defense alleged that at the time of the execution of the deed of sale inserted in the cross-complaint the plaintiffs were still minors, and that since they reached their majority the four years fixed by law for the annulment of said contract had not yet elapsed. They therefore asked that they be absolved from the defendant's cross-complaint. After trial and the introduction of evidence by both parties, the court rendered the judgment aforementioned, to which the plaintiffs excepted and in writing moved for a reopening of the case and a new trial. This motion was overruled, exception was taken by the petitioners, and the proper bill of exceptions having been presented, the same was approved and transmitted to the clerk of this court. As the plaintiffs assailed the validity of the deed of sale, Exhibit 3, executed by them on May 17, 1910, on the ground that they were minors when they executed it, the questions submitted to the decision of this court consist in determining whether it is true that the plaintiffs were then minors and therefore incapable of selling their property on the date borne by the instrument Exhibit 3; and in case they then were such, whether a person who is really and truly a minor and, notwithstanding, attests that he is of legal age, can, after the execution of the deed and within legal period, ask

for the annulment of the instrument executed by him, because of some defect that invalidates the contract, in accordance with the law (Civ. Code, arts. 1263 and 1300), so that he may obtain the restitution of the land sold. The records shows it to have been fully proven that in 1891 Lucas Espiritu obtained title by composition with the State, to three parcels of land, adjoining each other, in the sitio of Panducot of the pueblo of Calumpit, Bulacan, containing altogether an area of 75 hectares, 25 ares, and 59 centares, which facts appear in the title Exhibit D; that, upon Luis Espiritu's death, his said lands passed by inheritance to his four children named Victoria, Ines, Margarita, and Luis; and that, in the partition of said decedent's estate, the parcel of land described in the complaint as containing forty-seven and odd hectares was allotted to the brother and sister Luis and Margarita, in equal shares. Margarita Espiritu, married to Wenceslao Mercado y Ardeno Cruz, had by this husband five children, Maria Consejo, Maria de la Paz, Domingo, Josefa, and Amalia, all surnamed Mercado y Espiritu, who, at the death of their mother in 1896 inherited, by operation of law, one-half of the land described in the complaint. The plaintiffs' petition for annulment of the sale and the consequent restitution to them of two-fourths of the land left by their mother, that is, of one-fourth of all the land described in the complaint, and which, they stated, amounts to 11 hectares, 86 ares and 37 centares. To this claim the defendant excepted, alleging that the land in question comprised only an area such as is customarily covered by 21 cavanes of seed. It was also duly proven that, by a notarial instrument of May 25, 1894, the plaintiffs' mother conveyed by actual and absolute sale for the sum of P2,000, to her brother Luis Espiritu a portion of the land now on litigation, or an area such as is usually covered by about 15 cavanes of seed; and that, on account of the loss of the original of said instrument, which was on the possession of the purchaser Luis Espiritu, and furthermore because, during the revolution, the protocols or registers of public documents of the Province of Bulacan were burned, Wenceslao Mercado y Arnedo Cruz, the widower of the vendor and father of the plaintiffs, executed, at the instance of the interested party Luis Espiritu, the notarial instrument Exhibit 1, of the date of May 20, 1901, in his own name and those of his minor children Maria Consejo, Maria de la Paz, Domingo, Josefa, and Amalia, and therein set forth that it was true that the sale of said portion of land had been made by his aforementioned wife, then deceased, to Luis Espiritu in 1894. However, even prior to said date, to wit, on May 14th of the same year, 1901, the widower Wenceslao Mercado, according to the private document Exhibit 2, pledged or mortgaged to the same man, Luis Espiritu, for P375, a part, or an area covered by six cavanes of seed, of the land that had belonged to this vendor's deceased wife, to the said Luis Espiritu and which now forms a part of the land in question a transaction which Mercado was obliged to make in order to obtain funds with which "to cover his children's needs." Wenceslao Mercado, the plaintiffs' father, having died, about the year 1904, the plaintiffs Domingo and Josefa Mercado, together with their sisters Consejo and Paz, declaring themselves to be of legal age and in possession of the required legal status to contract, executed and subscribed before a notary the

document Exhibit 3, on May 17, 1910, in which referring to the previous sale of the land, effected by their deceased mother for the sum of P2,600 and with her husband's permission and authorization, they sold absolutely and in perpetuity to Luis Espiritu, for the sum of P400 "as an increase" of the previous purchase price, the land described in said instrument and situated in Panducot, pueblo of Calumpit, Bulacan, of an area equal to that usually sown with 21 cavanes of seed bounded on the north by the lands of Flaviano Abreu and the heirs of Pedro Espiritu, on the east by those of Victoria Espiritu and Ines Espiritu, on the south by those of Luis Espiritu, and on the west by those of Hermogenes Tan-Toco and by the Sapang-Maitu stream. In this status of the case the plaintiffs seek the annulment of the deed Exhibit 3, on the ground that on the date of its execution they were minors without legal capacity to contract, and for the further reason that the deceased purchaser Luis Espiritu availed himself of deceit and fraud in obtaining their consent for the execution of said deed. As it was proven by the testimony of the clerk of the parochial church of Apalit (plaintiffs were born in Apalit) that the baptismal register books of that parish pertaining to the years 1890-1891, were lost or burned, the witness Maria Consejo Mercado recognized and identified the book Exhibit A, which she testified had been kept and taken care of by her deceased father Wenceslao Mercado, pages 396 and 397 of which bear the attestation that the plaintiff Domingo Mercado was born on August 4, 1890, and Josefa Mercado, on July 14, 1891. Furthermore, this witness corroborated the averment of the plaintiffs' minority, by the personal registration certificate of said Domingo Mercado, of the year 1914, Exhibit C, by which it appears that in 1910 he was only 23 years old, whereby it would also be appear that Josefa Mercado was 22 years of age in 1910, and therefore, on May 17,1910, when the instrument of purchase and sale, Exhibit 3, was executed, the plaintiffs must have been, respectively, 19 and 18 years of age. The witness Maria Consejo Mercado also testified that after her father's death her brother and sisters removed to Manila to live there, although her brother Domingo used to reside with his uncle Luis Espiritu, who took charge of the administration of the property left by his predecessors in interest; that it was her uncle Luis who got for her brother Domingo the other cedula, Exhibit B, pertaining to the year 1910, where in it appears that the latter was then already 23 years of age; that she did not know why her uncle did so; that she and her brother and sisters merely signed the deed of May 17, 1910; and that her father Wenceslao Mercado, prior to his death had pledged the land to her uncle Luis Espiritu. The witness Ines Espiritu testified that after the death of the plaintiffs' father, it was Luis Espiritu who directed the cultivation of the land in litigation. This testimony was corroborated by her sister Victoria Espiritu, who added that her nephew, the plaintiff Domingo, had lived for some time, she did not know just how long, under the control of Luis Espiritu. Roque Galang, married to a sister of Luis Espiritu, stated that the land that fell to his wife and to his sister-in-law Victoria, and which had an area of about 8 hectares less than that of the land allotted to the aforementioned Luis and Margarita produced for

his wife and his sister-in-law Victoria a net and minimum yield of 507 cavanes in 1907, in spite of its being high land and of inferior quality, as compared with the land in dispute, and that its yield was still larger in 1914, when the said two sisters' share was 764 cavanes. Patricio Tanjucto, the notary before whom the deed Exhibit 3 was ratified, was a witness for the defendant. He testified that this deed was drawn up by him at the request of the plaintiff Josefa Mercado; that the grantors of the instrument assured him that they were all of legal age; that said document was signed by the plaintiffs and the other contracting parties, after it had been read to them and had been translated into the Pampangan dialect for those of them who did not understand Spanish. On crossexamination, witness added that ever since he was 18 years of age and began to court, he had known the plaintiff Josefa Mercado, who was then a young maiden, although she had not yet commenced to attend social gatherings, and that all this took place about the year 1898, for witness said that he was then [at the time of his testimony, 1914,] 34 years of age. Antonio Espiritu, 60 years of age, who knew Lucas Espiritu and the properties owned by the latter, testified that Espiritu's land contained an area of 84 cavanes, and after its owner's death, was under witness' administration during to harvest two harvest seasons; that the products yielded by a portion of this land, to wit, an area such as is sown by about 15 cavanes of seed, had been, since 1894, utilized by Luis Espiritu, by reason of his having acquired the land; and that, after Margarita Espiritu's death, her husband Wenceslao Mercado took possession of another portion of the land, containing an area of six cavanes of seed and which had been left by this deceased, and that he held same until 1901, when he conveyed it to Luis Espiritu. lawphi1.net The defendant-administrator, Jose Espiritu, son of the deceased Luis Espiritu, testified that the plaintiff Domingo Mercado used to live off and on in the house of his deceased father, about the year 1909 or 1910, and used to go back and forth between his father's house and those of his other relatives. He denied that his father had at any time administered the property belonging to the Mercado brother and sisters. In rebuttal, Antonio Mercado, a cousin of Wenceslao, father of the plaintiffs, testified that he mediate in several transactions in connection with a piece of land belonging to Margarita Espiritu. When shown the deed of purchase and sale Exhibit 1, he stated that he was not acquainted with its contents. This same witness also testified that he mediated in a transaction had between Wenceslao Mercado and Luis Espiritu (he did not remember the year), in which the former sold to the latter a parcel of land situated in Panducot. He stated that as he was a witness of the deed of sale he could identify this instrument were it exhibited to him; but he did not do so, for no instrument whatever was presented to him for identification. The transaction mentioned must have concerned either the ratification of the sale of the land of 15 cavanes, in 1901, attested in Exhibit 1, or the mortgage or pledge of the other parcel of 6 cavanes, given on May 14, 1901, by Wenceslao Mercado to Luis Espiritu, as may be seen by the private document Exhibit 2. In rebuttal, the plaintiff Josefa Mercado denied having gone to the house of the notary Tanjutco for the purpose of requesting him to draw up any document whatever. She stated that she saw the document Exhibit 3 for the first

time in the house of her uncle Luis Espiritu on the day she signed it, on which occasion and while said document was being signed said notary was not present, nor were the witnesses thereto whose names appear therein; and that she went to her said uncle's house, because he had sent for her, as well as her brother and sisters, sending a carromata to fetch them. Victoria Espiritu denied ever having been in the house of her brother. Luis Espiritu in company with the plaintiffs, for the purpose of giving her consent to the execution of any deed in behalf of her brother. The evidence adduced at the trial does not show, even circumstantially, that the purchaser Luis Espiritu employed fraud, deceit, violence, or intimidation, in order to effect the sale mentioned in the document Exhibit 3, executed on May 17, 1910. In this document the vendors, the brother and the sisters Domingo, Maria del Consejo, Paz and, Josefa surnamed Mercado y Espiritu, attested the certainty of the previous sale which their mother, during her lifetime, had made in behalf of said purchaser Luis Espiritu, her brother with the consent of her husband Wenceslao Mercado, father of the vendors of the portion of land situated in the barrio of Panducot, pueblo of Calumpit, Bulacan; and in consideration of the fact that the said vendor Luis Espiritu paid them, as an increase, the sum of P400, by virtue of the contract made with him, they declare having sold to him absolutely and in perpetuity said parcel of the land, waive and thenceforth any and all rights they may have, inasmuch as said sum constitutes the just price of the property. So that said document Exhibit 3 is virtually an acknowledgment of the contract of sale of the parcel or portion of land that would contain 15 cavanes of seed rice made by the vendors' mother in favor of the purchaser Luis Espiritu, their uncle, and likewise an acknowledgment of the contract of pledge or mortgage of the remainder of said land, an area of six cavanes, made with the same purchaser, at an increase of P400 over the price of P2,600, making an aggregate sum of P3,000, decomposed as follows: P2,000, collected during her lifetime, by the vendors' father; and the said increase of P400, collected by the plaintiffs. In the aforementioned sale, according to the deed of May 25, 1894, Margarita Espiritu conveyed to her brother Luis the parcel of 15 cavanes of seed, Exhibit 1, and after her death the plaintiffs' widowed father mortgaged or pledged the remaining parcel or portion of 6 cavanes of seed to her brother-in-law, Luis Espiritu, in May, 1901 (Exhibit 2). So it is that the notarial instrument Exhibit 3, which was assailed by the plaintiffs, recognized the validity of the previous contracts, and the totality of the land, consisting of an area containing 21 cavanes of seed rice, was sold absolutely and in perpetuity, the vendors receiving in exchange P400 more; and there is no conclusive proof in the record that this last document was false and simulated on account of the employment of any violence, intimidation, fraud, or deceit, in the procuring of the consent of the vendors who executed it. Considering the relation that exists between the document Exhibit 3 and those of previous dates, Exhibits 1 and 2, and taking into the account the relationship between the contracting parties, and also the general custom that prevails in many provinces of these Islands for the vendor or debtor to obtain an increase in the price of the sale or of the pledge, or an increase in the amount loaned, without proof to the contrary, it

would be improper and illegal to hold, in view of the facts hereinabove set forth, that the purchaser Luis Espiritu, now deceased, had any need to forge or simulate the document Exhibit 3 inasmuch as, since May, 1894, he has held in the capacity of owner by virtue of a prior acquisition, the parcel of land of 15 cavanes of seed, and likewise, since May, 1901, according to the contract of mortgage or pledge, the parcel of 6 cavanes, or the remainder of the total area of 21 cavanes. So that Luis Espiritu was, during his lifetime, and now, after his death, his testate or intestate estate is in lawful possession of the parcel of land situated in Panducot that contains 21 cavanes of seed, by virtue of the title of conveyance of ownership of the land measuring 15 cavanes, and, in consequence of the contract of pledge or mortgage in security for the sum of P600, is likewise in lawful possession of the remainder of the land, or an area containing 6 cavanes of seed. The plaintiffs have absolutely no right whatever to recover said first parcel of land, as its ownership was conveyed to the purchaser by means of a singular title of purchase and sale; and as to the other portion of 6 cavanes of seed, they could have redeemed it before May 17, 1910, upon the payment or the return of the sum which their deceased father Wenceslao Mercado had, during his lifetime, received as a loan under security of the pledged property; but, after the execution of the document Exhibit 3, the creditor Luis Espiritu definitely acquired the ownership of said parcel of 6 cavanes. It is therefore a rash venture to attempt to recover this latter parcel by means of the contract of final and absolute sale, set forth in the deed Exhibit 3. Moreover, the notarial document Exhibit 1, are regards the statements made therein, is of the nature of a public document and is evidence of the fact which gave rise to its execution and of the date of the latter, even against a third person and his predecessors in interest such as are the plaintiffs. (Civ. Code, art. 1218.) The plaintiffs' father, Wenceslao Mercado, recognizing it to be perfectly true that his wife Margarita Espiritu sold said parcel of land which she inherited from her father, of an area of about "15 cavanes of seed," to her brother Luis Espiritu, by means of an instrument executed by her on May 25,1894 an instrument that disappeared or was burned and likewise recognizing that the protocols and register books belonging to the Province of Bulacan were destroyed as a result of the past revolution, at the request of his brother-in-law Luis Espiritu he had no objection to give the testimony recorded in said notarial instrument, as it was the truth regarding what had occurred, and in so doing he acted as the plaintiffs' legitimate father in the exercise of his parental authority, inasmuch as he had personal knowledge of said sale, he himself being the husband who authorized said conveyance, notwithstanding that his testimony affected his children's interest and prejudiced his own, as the owner of any fruits that might be produced by said real property. The signature and handwriting of the document Exhibit 2 were identified as authentic by one of the plaintiffs, Consejo Mercado, and as the record shows no evidence whatever that this document is false, and it does not appear to have been assailed as such, and as it was signed by the plaintiffs' father, there is no legal ground or well-

founded reason why it should be rejected. It was therefore properly admitted as evidence of the certainty of the facts therein set forth. The principal defect attributed by the plaintiffs to the document Exhibit 3 consists in that, on the date of May 17, 1910, when it was executed that they signed it, they were minors, that is, they had not yet attained the age of 21 years fixed by Act No. 1891, though no evidence appears in the record that the plaintiffs Josefa and Domingo Mercado were in fact minors, for no certified copies were presented of their baptismal certificates, nor did the plaintiffs adduce any supplemental evidence whatever to prove that Domingo was actually 19 and Josefa 18 years of age when they signed the document Exhibit 3, on May 17, 1910, inasmuch as the copybook, Exhibit A, notwithstanding the testimony of the plaintiff Consejo Mercado, does not constitute sufficient proof of the dates of births of the said Domingo and Josefa. However, even in the doubt whether they certainly were of legal age on the date referred to, it cannot be gainsaid that in the document Exhibit 3 they stated that they were of legal age at the time they executed and signed it, and on that account the sale mentioned in said notarial deed Exhibit 3 is perfectly valid a sale that is considered as limited solely to the parcel of land of 6 cavanes of seed, pledged by the deceased father of the plaintiffs in security for P600 received by him as a loan from his brotherin-law Luis Espiritu, for the reason that the parcel of 15 cavanes had been lawfully sold by its original owner, the plaintiffs' mother. The courts, in their interpretation of the law, have laid down the rule that the sale of real estate, made by minors who pretend to be of legal age, when in fact they are not, is valid, and they will not be permitted to excuse themselves from the fulfillment of the obligations contracted by them, or to have them annulled in pursuance of the provisions of Law 6, title 19, of the 6th Partida; and the judgment that holds such a sale to be valid and absolves the purchaser from the complaint filed against him does not violate the laws relative to the sale of minors' property, nor the juridical rules established in consonance therewith. (Decisions of the supreme court of Spain, of April 27, 1860, July 11, 1868, and March 1, 1875.) itc@alf With respect to the true age of the plaintiffs, no proof was adduced of the fact that it was Luis Espiritu who took out Domingo Mercado's personal registration certificate on April 13, 1910, causing the age of 23 years to be entered therein in order to corroborate the date of the notarial instrument of May 17th of the same year; and the supposition that he did, would also allow it to be supposed, in order to show the propriety of the claim, that the cedula Exhibit C was taken out on February 14, 1914, where in it is recorded that Domingo Mercado was on that date 23 years of age, for both these facts are not proved; neither was any proof adduced against the statement made by the plaintiffs Domingo and Josefa in the notarial instrument Exhibit 3, that, on the date when they executed it, they were already of legal age, and, besides the annotation contained in the copybook Exhibit A, no supplemental proof of their true ages was introduced. Aside from the foregoing, from a careful examination of the record in this case, it cannot be concluded that the plaintiffs, who claim to have minors when they executed

the notarial instrument Exhibit 3, have suffered positive and actual losses and damages in their rights and interests as a result of the execution of said document, inasmuch as the sale effected by the plaintiffs' mother, Margarita Espiritu, in May, 1894, of the greater part of the land of 21 cavanes of seed, did not occasion any damage or prejudice to the plaintiffs, inasmuch as their father stated in the document Exhibit 2 that he was obliged to mortgage or pledge said remaining portion of the land in order to secure the loan of the P375 furnished by Luis Espiritu and which was subsequently increased to P600 so as to provide for certain engagements or perhaps to meet the needs of his children, the plaintiff; and therefore, to judge from the statements made by their father himself, they received through him, in exchange for the land of 6 cavanes of seed, which passed into the possession of the creditor Luis Espiritu, the benefit which must have accrued to them from the sums of money received as loans; and, finally, on the execution of the impugned document Exhibit 3, the plaintiffs received and divided between themselves the sum of P400, which sum, added to that P2,000 received by Margarita Espiritu, and to that of the P600 collected by Wenceslao Mercado, widower of the latter and father of the plaintiffs, makes all together the sum of P3,000, the amount paid by the purchaser as the price of all the land containing 21 cavanes of seed, and is the just price of the property, was not impugned, and, consequently, should be considered as equivalent to, and compensatory for, the true value of said land. For the foregoing reasons, whereby the errors assigned to the judgment appealed from have been refuted, and deeming said judgment to be in accordance with law and the evidence of record, we should, and do hereby, affirm the same, with costs against the appellants. So ordered. Arellano, C. J., Johnson, Street, and Malcolm, JJ., concur.

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.

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,

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

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 psu99791 (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 Demontao for the land described therein (Exh. "F") was cancelled by Tax. Dec. No. 5172 of Francisco Militante (Exh. "E"). Liberato Demontao 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 planapproved 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 1964dismissing 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 Demontao 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 Demontao 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 beenapproved.

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 that plaintiff 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 tolawyers, 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 plaintiffappellant 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 thestipulated facts and admitted exhibits. The chain of Militante's alleged title and right to the land as supposedly traced back to Liberato Demontao 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 dismissedMilitante'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 Martinez 7 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 whichdoes 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 defendantappellant'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. Makalintal, Zaldivar, Castro,. Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

G.R. No. 156364

September 3, 2007

5) P50,000.00 as attorney's fees and for other litigation expenses; and 6) Cost of suit. SO ORDERED.3 Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased property to petitioner.4 From then on, petitioner alone pursued the case. On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to the Ex-Officio Sheriff of the Regional Trial Court of Tanauan, Batangas directing the latter to execute its judgment.5 On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of Execution. However, upon complaint of respondent with the CA on a Petition for Certiorari and Prohibition, the levy made by the Sheriff was set aside, requiring the Sheriff to levy first on respondent's personal properties. 6 Sheriff Jaime B. Ozaeta (Sheriff) tried to implement the writ as directed but the writ was returned unsatisfied. 7 On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias Writ of Execution.8 On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered by 13 Transfer Certificates of Title (TCT)9 in Barangay Niyugan, Laurel, Batangas.10 In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the levied properties on April 28, 2000 at 10:00 a.m..11 Two days before the scheduled public auction or on April 26, 2000, respondent filed an Urgent Motion to Quash Writ of Levy with the HLURB on the ground that the Sheriff made an overlevy since the aggregate appraised value of the levied properties at P6,500.00 per sq m is P83,616,000.00, based on the Appraisal Report12 of Henry Hunter Bayne Co., Inc. dated December 11, 1996, which is over and above the judgment award.13 At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's counsel objected to the conduct of the public auction on the ground that respondent's Urgent Motion to Quash Writ of Levy was pending resolution. Absent any restraining order from the HLURB, the Sheriff proceeded to sell the 15 parcels of land. Holly Properties Realty Corporation was the winning bidder for all 15 parcels of land for the total amount of P5,450,653.33. The sum of P5,313,040.00 was turned over to the petitioner in satisfaction of the judgment award after deducting the legal fees. 14 At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit the legal fees relative to the auction sale and to submit the Certificates of Sale 15 for the

JACOBUS BERNHARD HULST, petitioner, vs. PR BUILDERS, INC., respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court assailing the Decision1 dated October 30, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 60981. The facts: Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR Builders, Inc. (respondent), for the purchase of a 210-sq m residential unit in respondent's townhouse project in Barangay Niyugan, Laurel, Batangas. When respondent failed to comply with its verbal promise to complete the project by June 1995, the spouses Hulst filed before the Housing and Land Use Regulatory Board (HLURB) a complaint for rescission of contract with interest, damages and attorney's fees, docketed as HLRB Case No. IV6-071196-0618. On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter) rendered a Decision2 in favor of spouses Hulst, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant, rescinding the Contract to Sell and ordering respondent to: 1) Reimburse complainant the sum of P3,187,500.00, representing the purchase price paid by the complainants to P.R. Builders, plus interest thereon at the rate of twelve percent (12%) per annum from the time complaint was filed; 2) Pay complainant the sum of P297,000.00 as actual damages; 3) Pay complainant the sum of P100,000.00 by way of moral damages; 4) Pay complainant the sum of P150,000.00 as exemplary damages;

signature of HLURB Director Belen G. Ceniza (HLURB Director), he received the Order dated April 28, 2000 issued by the HLURB Arbiter to suspend the proceedings on the matter.16 Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director issued an Order setting aside the sheriff's levy on respondent's real properties,17 reasoning as follows: While we are not making a ruling that the fair market value of the levied properties is PhP6,500.00 per square meter (or an aggregate value of PhP83,616,000.00) as indicated in the Hunter Baynes Appraisal Report, we definitely cannot agree with the position of the Complainants and the Sheriff that the aggregate value of the 12,864.00-square meter levied properties is only around PhP6,000,000.00. The disparity between the two valuations are [sic] so egregious that the Sheriff should have looked into the matter first before proceeding with the execution sale of the said properties, especially when the auction sale proceedings was seasonably objected by Respondent's counsel, Atty. Noel Mingoa. However, instead of resolving first the objection timely posed by Atty. Mingoa, Sheriff Ozaete totally disregarded the objection raised and, posthaste, issued the corresponding Certificate of Sale even prior to the payment of the legal fees (pars. 7 & 8, Sheriff's Return). While we agree with the Complainants that what is material in an execution sale proceeding is the amount for which the properties were bidded and sold during the public auction and that, mere inadequacy of the price is not a sufficient ground to annul the sale, the court is justified to intervene where the inadequacy of the price shocks the conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The difference between PhP83,616,000.00 and Php6,000,000.00 is PhP77,616,000.00 and it definitely invites our attention to look into the proceedings had especially so when there was only one bidder, the HOLLY PROPERTIES REALTY CORPORATION represented by Ma, Chandra Cacho (par. 7, Sheriff's Return) and the auction sale proceedings was timely objected by Respondent's counsel (par. 6, Sheriff's Return) due to the pendency of the Urgent Motion to Quash the Writ of Levy which was filed prior to the execution sale. Besides, what is at issue is not the value of the subject properties as determined during the auction sale, but the determination of the value of the properties levied upon by the Sheriff taking into consideration Section 9(b) of the 1997 Rules of Civil Procedure x x x. xxxx It is very clear from the foregoing that, even during levy, the Sheriff has to consider the fair market value of the properties levied upon to determine

whether they are sufficient to satisfy the judgment, and any levy in excess of the judgment award is void (Buan v. Court of Appeals, 235 SCRA 424). x x x x18 (Emphasis supplied). The dispositive portion of the Order reads: WHEREFORE, the levy on the subject properties made by the Ex-Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET ASIDE and the said Sheriff is hereby directed to levy instead Respondent's real properties that are reasonably sufficient to enforce its final and executory judgment, this time, taking into consideration not only the value of the properties as indicated in their respective tax declarations, but also all the other determinants at arriving at a fair market value, namely: the cost of acquisition, the current value of like properties, its actual or potential uses, and in the particular case of lands, their size, shape or location, and the tax declarations thereon. SO ORDERED.19 A motion for reconsideration being a prohibited pleading under Section 1(h), Rule IV of the 1996 HLURB Rules and Procedure, petitioner filed a Petition for Certiorari and Prohibition with the CA on September 27, 2000. On October 30, 2002, the CA rendered herein assailed Decision20 dismissing the petition. The CA held that petitioner's insistence that Barrozo v. Macaraeg21 does not apply since said case stated that "when there is a right to redeem inadequacy of price should not be material" holds no water as what is obtaining in this case is not "mere inadequacy," but an inadequacy that shocks the senses; that Buan v. Court of Appeals22 properly applies since the questioned levy covered 15 parcels of land posited to have an aggregate value of P83,616,000.00 which shockingly exceeded the judgment debt of only around P6,000,000.00. Without filing a motion for reconsideration,23 petitioner took the present recourse on the sole ground that: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE LEVY MADE BY THE SHERIFF ON THE SUBJECT PROPERTIES.24 Before resolving the question whether the CA erred in affirming the Order of the HLURB setting aside the levy made by the sheriff, it behooves this Court to address a matter of public and national importance which completely escaped the attention of the HLURB Arbiter and the CA: petitioner and his wife are foreign nationals who are disqualified under the Constitution from owning real property in their names.

Section 7 of Article XII of the 1987 Constitution provides: Sec. 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. (Emphasis supplied). The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of the public domain. Private land may be transferred or conveyed only to individuals or entities "qualified to acquire lands of the public domain." The 1987 Constitution reserved the right to participate in the disposition, exploitation, development and utilization of lands of the public domain for Filipino citizens25 or corporations at least 60 percent of the capital of which is owned by Filipinos. 26 Aliens, whether individuals or corporations, have been disqualified from acquiring public lands; hence, they have also been disqualified from acquiring private lands. 27 Since petitioner and his wife, being Dutch nationals, are proscribed under the Constitution from acquiring and owning real property, it is unequivocal that the Contract to Sell entered into by petitioner together with his wife and respondent is void. Under Article 1409 (1) and (7) of the Civil Code, all contracts whose cause, object or purpose is contrary to law or public policy and those expressly prohibited or declared void by law are inexistent and void from the beginning. Article 1410 of the same Code provides that the action or defense for the declaration of the inexistence of a contract does not prescribe. A void contract is equivalent to nothing; it produces no civil effect.28 It does not create, modify or extinguish a juridical relation.29 Generally, parties to a void agreement cannot expect the aid of the law; the courts leave them as they are, because they are deemed in pari delicto or "in equal fault."30 In pari delicto is "a universal doctrine which holds that no action arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other." 31 This rule, however, is subject to exceptions32 that permit the return of that which may have been given under a void contract to: (a) the innocent party (Arts. 1411-1412, Civil Code);33 (b) the debtor who pays usurious interest (Art. 1413, Civil Code); 34 (c) the party repudiating the void contract before the illegal purpose is accomplished or before damage is caused to a third person and if public interest is subserved by allowing recovery (Art. 1414, Civil Code);35 (d) the incapacitated party if the interest of justice so demands (Art. 1415, Civil Code); 36 (e) the party for whose protection the prohibition by law is intended if the agreement is not illegal per se but merely prohibited and if public policy would be enhanced by permitting recovery (Art. 1416, Civil Code);37 and (f) the party for whose benefit the law has been intended such as in price ceiling laws (Art. 1417, Civil Code)38 and labor laws (Arts. 1418-1419, Civil Code).39

It is significant to note that the agreement executed by the parties in this case is a Contract to Sell and not a contract of sale. A distinction between the two is material in the determination of when ownership is deemed to have been transferred to the buyer or vendee and, ultimately, the resolution of the question on whether the constitutional proscription has been breached. In a contract of sale, the title passes to the buyer upon the delivery of the thing sold. The vendor has lost and cannot recover the ownership of the property until and unless the contract of sale is itself resolved and set aside.40 On the other hand, a contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed.41 In other words, in a contract to sell, the prospective seller agrees to transfer ownership of the property to the buyer upon the happening of an event, which normally is the full payment of the purchase price. But even upon the fulfillment of the suspensive condition, ownership does not automatically transfer to the buyer. The prospective seller still has to convey title to the prospective buyer by executing a contract of absolute sale. 42 Since the contract involved here is a Contract to Sell, ownership has not yet transferred to the petitioner when he filed the suit for rescission. While the intent to circumvent the constitutional proscription on aliens owning real property was evident by virtue of the execution of the Contract to Sell, such violation of the law did not materialize because petitioner caused the rescission of the contract before the execution of the final deed transferring ownership. Thus, exception (c) finds application in this case. Under Article 1414, one who repudiates the agreement and demands his money before the illegal act has taken place is entitled to recover. Petitioner is therefore entitled to recover what he has paid, although the basis of his claim for rescission, which was granted by the HLURB, was not the fact that he is not allowed to acquire private land under the Philippine Constitution. But petitioner is entitled to the recovery only of the amount of P3,187,500.00, representing the purchase price paid to respondent. No damages may be recovered on the basis of a void contract; being nonexistent, the agreement produces no juridical tie between the parties involved.43 Further, petitioner is not entitled to actual as well as interests thereon,44 moral and exemplary damages and attorney's fees. The Court takes into consideration the fact that the HLURB Decision dated April 22, 1997 has long been final and executory. Nothing is more settled in the law than that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it was made by the court that rendered it or by the highest court of the land.45 The only recognized exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.46 None of the exceptions is present in this case. The HLURB decision

cannot be considered a void judgment, as it was rendered by a tribunal with jurisdiction over the subject matter of the complaint.47 Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at the expense of respondent. Petitioner received more than what he is entitled to recover under the circumstances. Article 22 of the Civil Code which embodies the maxim, nemo ex alterius incommode debet lecupletari (no man ought to be made rich out of another's injury), states: Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him. The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as basic principles to be observed for the rightful relationship between human beings and for the stability of the social order; designed to indicate certain norms that spring from the fountain of good conscience; guides for human conduct that should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice.48 There is unjust enrichment when a person unjustly retains a benefit at the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience. 49 A sense of justice and fairness demands that petitioner should not be allowed to benefit from his act of entering into a contract to sell that violates the constitutional proscription. This is not a case of equity overruling or supplanting a positive provision of law or judicial rule. Rather, equity is exercised in this case "as the complement of legal jurisdiction [that] seeks to reach and to complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so."50 The purpose of the exercise of equity jurisdiction in this case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its judgments to the special circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.51 The sheriff delivered to petitioner the amount of P5,313,040.00 representing the net proceeds (bidded amount isP5,450,653.33) of the auction sale after deducting the legal fees in the amount of P137,613.33.52 Petitioner is only entitled to P3,187,500.00, the amount of the purchase price of the real property paid by petitioner to respondent

under the Contract to Sell. Thus, the Court in the exercise of its equity jurisdiction may validly order petitioner to return the excess amount of P2,125,540.00. The Court shall now proceed to resolve the single issue raised in the present petition: whether the CA seriously erred in affirming the HLURB Order setting aside the levy made by the Sheriff on the subject properties. Petitioner avers that the HLURB Arbiter and Director had no factual basis for pegging the fair market value of the levied properties at P6,500.00 per sq m or P83,616,000.00; that reliance on the appraisal report was misplaced since the appraisal was based on the value of land in neighboring developed subdivisions and on the assumption that the residential unit appraised had already been built; that the Sheriff need not determine the fair market value of the subject properties before levying on the same since what is material is the amount for which the properties were bidded and sold during the public auction; that the pendency of any motion is not a valid ground for the Sheriff to suspend the execution proceedings and, by itself, does not have the effect of restraining the Sheriff from proceeding with the execution. Respondent, on the other hand, contends that while it is true that the HLURB Arbiter and Director did not categorically state the exact value of the levied properties, said properties cannot just amount to P6,000,000.00; that the HLURB Arbiter and Director correctly held that the value indicated in the tax declaration is not the sole determinant of the value of the property. The petition is impressed with merit. If the judgment is for money, the sheriff or other authorized officer must execute the same pursuant to the provisions of Section 9, Rule 39 of the Revised Rules of Court, viz: Sec. 9. Execution of judgments for money, how enforced. (a) Immediate payment on demand. - The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. x x x (b) Satisfaction by levy. - If the judgment obligor cannot pay all or part of the obligation in cash, certified bank check or other mode of payment acceptable to the judgment obligee, the officer shall levy upon the properties of the judgment obligor of every kind and nature whatsoever which may be disposed of for value and not otherwise exempt from execution, giving the latter the option to immediately choose which property or part thereof may be levied upon, sufficient to satisfy the judgment. If the judgment obligor does not exercise the option, the officer shall first levy on the personal properties, if any, and then on the real

properties if the personal properties are insufficient to answer for the judgment. The sheriff shall sell only a sufficient portion of the personal or real property of the judgment obligor which has been levied upon. When there is more property of the judgment obligor than is sufficient to satisfy the judgment and lawful fees, he must sell only so much of the personal or real property as is sufficient to satisfy the judgment and lawful fees. Real property, stocks, shares, debts, credits, and other personal property, or any interest in either real or personal property, may be levied upon in like manner and with like effect as under a writ of attachment (Emphasis supplied).53 Thus, under Rule 39, in executing a money judgment against the property of the judgment debtor, the sheriff shall levy on all property belonging to the judgment debtor as is amply sufficient to satisfy the judgment and costs, and sell the same paying to the judgment creditor so much of the proceeds as will satisfy the amount of the judgment debt and costs. Any excess in the proceeds shall be delivered to the judgment debtor unless otherwise directed by the judgment or order of the court. 54 Clearly, there are two stages in the execution of money judgments. First, the levy and then the execution sale. Levy has been defined as the act or acts by which an officer sets apart or appropriates a part or the whole of a judgment debtor's property for the purpose of satisfying the command of the writ of execution.55 The object of a levy is to take property into the custody of the law, and thereby render it liable to the lien of the execution, and put it out of the power of the judgment debtor to divert it to any other use or purpose. 56 On the other hand, an execution sale is a sale by a sheriff or other ministerial officer under the authority of a writ of execution of the levied property of the debtor. 57 In the present case, the HLURB Arbiter and Director gravely abused their discretion in setting aside the levy conducted by the Sheriff for the reason that the auction sale conducted by the sheriff rendered moot and academic the motion to quash the levy. The HLURB Arbiter lost jurisdiction to act on the motion to quash the levy by virtue of the consummation of the auction sale. Absent any order from the HLURB suspending the auction sale, the sheriff rightfully proceeded with the auction sale. The winning bidder had already paid the winning bid. The legal fees had already been remitted to the HLURB. The judgment award had already been turned over to the judgment creditor. What was left to be done was only the issuance of the corresponding certificates of sale to the winning bidder. In fact, only the signature of the HLURB Director for that purpose was needed58 a purely ministerial act.

A purely ministerial act or duty is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in obedience to the mandate of a legal authority, without regard for or the exercise of his own judgment upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and gives him the right to decide how or when the duty shall be performed, such duty is discretionary and not ministerial. The duty is ministerial only when the discharge of the same requires neither the exercise of official discretion nor judgment.59In the present case, all the requirements of auction sale under the Rules have been fully complied with to warrant the issuance of the corresponding certificates of sale. And even if the Court should go into the merits of the assailed Order, the petition is meritorious on the following grounds: Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA, on Barrozo v. Macaraeg60 and Buan v. Court of Appeals61 is misplaced. The HLURB and the CA misconstrued the Court's pronouncements in Barrozo. Barrozo involved a judgment debtor who wanted to repurchase properties sold at execution beyond the one-year redemption period. The statement of the Court in Barrozo, that "only where such inadequacy shocks the conscience the courts will intervene," is at best a mere obiter dictum. This declaration should be taken in the context of the other declarations of the Court in Barrozo, to wit: Another point raised by appellant is that the price paid at the auction sale was so inadequate as to shock the conscience of the court. Supposing that this issue is open even after the one-year period has expired and after the properties have passed into the hands of third persons who may have paid a price higher than the auction sale money, the first thing to consider is that the stipulation contains no statement of the reasonable value of the properties; and although defendant' answer avers that the assessed value wasP3,960 it also avers that their real market value was P2,000 only. Anyway, mere inadequacy of price which was the complaint' allegation is not sufficient ground to annul the sale. It is only where such inadequacy shocks the conscience that the courts will intervene. x x x Another consideration is that the assessed value being P3,960 and the purchase price being in effect P1,864 (P464 sale price plus P1,400 mortgage lien which had to be discharged) the conscience is not shocked upon examining the prices paid in the sales in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v. Guerrero, 57 Phil., 445, sales which were left undisturbed by this Court. Furthermore, where there is the right to redeem as in this case inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale.

x x x x (Emphasis supplied).62 In other words, gross inadequacy of price does not nullify an execution sale. In an ordinary sale, for reason of equity, a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify the courts to interfere; such does not follow when the law gives the owner the right to redeem as when a sale is made at public auction,63 upon the theory that the lesser the price, the easier it is for the owner to effect redemption. 64 When there is a right to redeem, inadequacy of price should not be material because the judgment debtor may re-acquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the execution sale. 65 Thus, respondent stood to gain rather than be harmed by the low sale value of the auctioned properties because it possesses the right of redemption. More importantly, the subject matter in Barrozo is the auction sale, not the levy made by the Sheriff. The Court does not sanction the piecemeal interpretation of a decision. To get the true intent and meaning of a decision, no specific portion thereof should be isolated and resorted to, but the decision must be considered in its entirety.66 As regards Buan, it is cast under an entirely different factual milieu. It involved the levy on two parcels of land owned by the judgment debtor; and the sale at public auction of one was sufficient to fully satisfy the judgment, such that the levy and attempted execution of the second parcel of land was declared void for being in excess of and beyond the original judgment award granted in favor of the judgment creditor. In the present case, the Sheriff complied with the mandate of Section 9, Rule 39 of the Revised Rules of Court, to "sell only a sufficient portion" of the levied properties "as is sufficient to satisfy the judgment and the lawful fees." Each of the 15 levied properties was successively bidded upon and sold, one after the other until the judgment debt and the lawful fees were fully satisfied. Holly Properties Realty Corporation successively bidded upon and bought each of the levied properties for the total amount of P5,450,653.33 in full satisfaction of the judgment award and legal fees. 67 Secondly, the Rules of Court do not require that the value of the property levied be exactly the same as the judgment debt; it can be less or more than the amount of debt. This is the contingency addressed by Section 9, Rule 39 of the Rules of Court. In the levy of property, the Sheriff does not determine the exact valuation of the levied property. Under Section 9, Rule 39, in conjunction with Section 7, Rule 57 of the Rules of Court, the sheriff is required to do only two specific things to effect a levy upon a realty: (a) file with the register of deeds a copy of the order of execution, together with the description of the levied property and notice of execution; and (b) leave with the occupant of the property copy of the same order, description and notice. 68 Records do not show that respondent alleged non-compliance by the Sheriff of said requisites. Thirdly, in determining what amount of property is sufficient out of which to secure satisfaction of the execution, the Sheriff is left to his own judgment. He may exercise a reasonable discretion, and must exercise the care which a reasonably prudent person

would exercise under like conditions and circumstances, endeavoring on the one hand to obtain sufficient property to satisfy the purposes of the writ, and on the other hand not to make an unreasonable and unnecessary levy.69 Because it is impossible to know the precise quantity of land or other property necessary to satisfy an execution, the Sheriff should be allowed a reasonable margin between the value of the property levied upon and the amount of the execution; the fact that the Sheriff levies upon a little more than is necessary to satisfy the execution does not render his actions improper.70 Section 9, Rule 39, provides adequate safeguards against excessive levying. The Sheriff is mandated to sell so much only of such real property as is sufficient to satisfy the judgment and lawful fees. In the absence of a restraining order, no error, much less abuse of discretion, can be imputed to the Sheriff in proceeding with the auction sale despite the pending motion to quash the levy filed by the respondents with the HLURB. It is elementary that sheriffs, as officers charged with the delicate task of the enforcement and/or implementation of judgments, must, in the absence of a restraining order, act with considerable dispatch so as not to unduly delay the administration of justice; otherwise, the decisions, orders, or other processes of the courts of justice and the like would be futile.71 It is not within the jurisdiction of the Sheriff to consider, much less resolve, respondent's objection to the continuation of the conduct of the auction sale. The Sheriff has no authority, on his own, to suspend the auction sale. His duty being ministerial, he has no discretion to postpone the conduct of the auction sale. Finally, one who attacks a levy on the ground of excessiveness carries the burden of sustaining that contention.72In the determination of whether a levy of execution is excessive, it is proper to take into consideration encumbrances upon the property, as well as the fact that a forced sale usually results in a sacrifice; that is, the price demanded for the property upon a private sale is not the standard for determining the excessiveness of the levy.73 Here, the HLURB Arbiter and Director had no sufficient factual basis to determine the value of the levied property. Respondent only submitted an Appraisal Report, based merely on surmises. The Report was based on the projected value of the townhouse project after it shall have been fully developed, that is, on the assumption that the residential units appraised had already been built. The Appraiser in fact made this qualification in its Appraisal Report: "[t]he property subject of this appraisal has not been constructed. The basis of the appraiser is on the existing model units." 74 Since it is undisputed that the townhouse project did not push through, the projected value did not become a reality. Thus, the appraisal value cannot be equated with the fair market value. The Appraisal Report is not the best proof to accurately show the value of the levied properties as it is clearly self-serving. Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and Director Ceniza in HLRB Case No. IV6-071196-0618 which set aside the sheriff's levy on respondent's real properties, was clearly issued with grave abuse of discretion. The CA erred in affirming said Order.

WHEREFORE, the instant petition is GRANTED. The Decision dated October 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET ASIDE. The Order dated August 28, 2000 of HLURB Arbiter Ma. Perpetua Y. Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is declared NULL andVOID. HLURB Arbiter Aquino and Director Ceniza are directed to issue the corresponding certificates of sale in favor of the winning bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to respondent the amount of P2,125,540.00, without interest, in excess of the proceeds of the auction sale delivered to petitioner. After the finality of herein judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid. SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

G.R. No. 149615 August 29, 2006 IN RE: PETITION FOR SEPARATION OF PROPERTY ELENA BUENAVENTURA MULLER, Petitioner, vs. HELMUT MULLER, Respondent. DECISION YNARES-SANTIAGO, J.: This petition for review on certiorari 1 assails the February 26, 2001 Decision 2 of the Court of Appeals in CA-G.R. CV No. 59321 affirming with modification the August 12, 1996 Decision 3 of the Regional Trial Court of Quezon City, Branch 86 in Civil Case No. Q-94-21862, which terminated the regime of absolute community of property between petitioner and respondent, as well as the Resolution 4 dated August 13, 2001 denying the motion for reconsideration. The facts are as follows: Petitioner Elena Buenaventura Muller and respondent Helmut Muller were married in Hamburg, Germany on September 22, 1989. The couple resided in Germany at a house owned by respondents parents but decided to move and reside permanently in the Philippines in 1992. By this time, respondent had inherited the house in Germany from his parents which he sold and used the proceeds for the purchase of a parcel of land in Antipolo, Rizal at the cost of P528,000.00 and the construction of a house amounting to P2,300,000.00. The Antipolo property was registered in the name of petitioner under Transfer Certificate of Title No. 219438 5 of the Register of Deeds of Marikina, Metro Manila. Due to incompatibilities and respondents alleged womanizing, drinking, and maltreatment, the spouses eventually separated. On September 26, 1994, respondent filed a petition 6 for separation of properties before the Regional Trial Court of Quezon City. On August 12, 1996, the trial court rendered a decision which terminated the regime of absolute community of property between the petitioner and respondent. It also decreed the separation of properties between them and ordered the equal partition of personal properties located within the country, excluding those acquired by gratuitous title during the marriage. With regard to the Antipolo property, the court held that it was acquired using paraphernal funds of the respondent. However, it ruled that respondent cannot recover his funds because the property was purchased in violation of Section 7, Article XII of the Constitution. Thus However, pursuant to Article 92 of the Family Code, properties acquired by gratuitous title by either spouse during the marriage shall be excluded from the community

property. The real property, therefore, inherited by petitioner in Germany is excluded from the absolute community of property of the herein spouses. Necessarily, the proceeds of the sale of said real property as well as the personal properties purchased thereby, belong exclusively to the petitioner. However, the part of that inheritance used by the petitioner for acquiring the house and lot in this country cannot be recovered by the petitioner, its acquisition being a violation of Section 7, Article XII of the Constitution which provides that "save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations or associations qualified to acquire or hold lands of the public domain." The law will leave the parties in the situation where they are in without prejudice to a voluntary partition by the parties of the said real property. x x x xxxx As regards the property covered by Transfer Certificate of Title No. 219438 of the Registry of Deeds of Marikina, Metro Manila, situated in Antipolo, Rizal and the improvements thereon, the Court shall not make any pronouncement on constitutional grounds. 7 Respondent appealed to the Court of Appeals which rendered the assailed decision modifying the trial courts Decision. It held that respondent merely prayed for reimbursement for the purchase of the Antipolo property, and not acquisition or transfer of ownership to him. It also considered petitioners ownership over the property in trust for the respondent. As regards the house, the Court of Appeals ruled that there is nothing in the Constitution which prohibits respondent from acquiring the same. The dispositive portion of the assailed decision reads: WHEREFORE, in view of the foregoing, the Decision of the lower court dated August 12, 1996 is hereby MODIFIED. Respondent Elena Buenaventura Muller is hereby ordered to REIMBURSE the petitioner the amount of P528,000.00 for the acquisition of the land and the amount of P2,300,000.00 for the construction of the house situated in Atnipolo, Rizal, deducting therefrom the amount respondent spent for the preservation, maintenance and development of the aforesaid real property including the depreciation cost of the house or in the alternative to SELL the house and lot in the event respondent does not have the means to reimburse the petitioner out of her own money and from the proceeds thereof, reimburse the petitioner of the cost of the land and the house deducting the expenses for its maintenance and preservation spent by the respondent. Should there be profit, the same shall be divided in proportion to the equity each has over the property. The case is REMANDED to the lower court for reception of evidence as to the amount claimed by the respondents for the preservation and maintenance of the property. SO ORDERED. 8 Hence, the instant petition for review raising the following issues: I

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE RESPONDENT HEREIN IS ENTITLED TO REIMBURSEMENT OF THE AMOUNT USED TO PURCHASE THE LAND AS WELL AS THE COSTS FOR THE CONSTRUCTION OF THE HOUSE, FOR IN SO RULING, IT INDIRECTLY ALLOWED AN ACT DONE WHICH OTHERWISE COULD NOT BE DIRECTLY x x x DONE, WITHOUT DOING VIOLENCE TO THE CONSTITUTIONAL PROSCRIPTION THAT AN ALIEN IS PROHIBITED FROM ACQUIRING OWNERSHIP OF REAL PROPERTIES LOCATED IN THE PHILIPPINES. II THE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENTS CAUSE OF ACTION WHICH IS ACTUALLY A DESPERATE ATTEMPT TO OBTAIN OWNERSHIP OVER THE LOT IN QUESTION, CLOTHED UNDER THE GUISE OF CLAIMING REIMBURSEMENT. Petitioner contends that respondent, being an alien, is disqualified to own private lands in the Philippines; that respondent was aware of the constitutional prohibition but circumvented the same; and that respondents purpose for filing an action for separation of property is to obtain exclusive possession, control and disposition of the Antipolo property. Respondent claims that he is not praying for transfer of ownership of the Antipolo property but merely reimbursement; that the funds paid by him for the said property were in consideration of his marriage to petitioner; that the funds were given to petitioner in trust; and that equity demands that respondent should be reimbursed of his personal funds. The issue for resolution is whether respondent is entitled to reimbursement of the funds used for the acquisition of the Antipolo property. The petition has merit. Section 7, Article XII of the 1987 Constitution states: Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. Aliens, whether individuals or corporations, are disqualified from acquiring lands of the public domain. Hence, they are also disqualified from acquiring private lands. 9 The primary purpose of the constitutional provision is the conservation of the national patrimony. In the case of Krivenko v. Register of Deeds, 10 the Court held:

Under section 1 of Article XIII of the Constitution, "natural resources, with the exception of public agricultural land, shall not be alienated," and with respect to public agricultural lands, their alienation is limited to Filipino citizens. But this constitutional purpose conserving agricultural resources in the hands of Filipino citizens may easily be defeated by the Filipino citizens themselves who may alienate their agricultural lands in favor of aliens. It is partly to prevent this result that section 5 is included in Article XIII, and it reads as follows: "Sec. 5. Save in cases of hereditary succession, no private agricultural land will be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain in the Philippines." This constitutional provision closes the only remaining avenue through which agricultural resources may leak into aliens hands. It would certainly be futile to prohibit the alienation of public agricultural lands to aliens if, after all, they may be freely so alienated upon their becoming private agricultural lands in the hands of Filipino citizens. x x x xxxx If the term "private agricultural lands" is to be construed as not including residential lots or lands not strictly agricultural, the result would be that "aliens may freely acquire and possess not only residential lots and houses for themselves but entire subdivisions, and whole towns and cities," and that "they may validly buy and hold in their names lands of any area for building homes, factories, industrial plants, fisheries, hatcheries, schools, health and vacation resorts, markets, golf courses, playgrounds, airfields, and a host of other uses and purposes that are not, in appellants words, strictly agricultural." (Solicitor Generals Brief, p. 6.) That this is obnoxious to the conservative spirit of the Constitution is beyond question. Respondent was aware of the constitutional prohibition and expressly admitted his knowledge thereof to this Court.11 He declared that he had the Antipolo property titled in the name of petitioner because of the said prohibition. 12His attempt at subsequently asserting or claiming a right on the said property cannot be sustained. The Court of Appeals erred in holding that an implied trust was created and resulted by operation of law in view of petitioners marriage to respondent. Save for the exception provided in cases of hereditary succession, respondents disqualification from owning lands in the Philippines is absolute. Not even an ownership in trust is allowed. Besides, where the purchase is made in violation of an existing statute and in evasion of its express provision, no trust can result in favor of the party who is guilty of the fraud. 13 To hold otherwise would allow circumvention of the constitutional prohibition. Invoking the principle that a court is not only a court of law but also a court of equity, is likewise misplaced. It has been held that equity as a rule will follow the law and will not permit that to be done indirectly which, because of public policy, cannot be done

directly. 14 He who seeks equity must do equity, and he who comes into equity must come with clean hands. The latter is a frequently stated maxim which is also expressed in the principle that he who has done inequity shall not have equity. It signifies that a litigant may be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the controversy in issue. 15 Thus, in the instant case, respondent cannot seek reimbursement on the ground of equity where it is clear that he willingly and knowingly bought the property despite the constitutional prohibition. Further, the distinction made between transfer of ownership as opposed to recovery of funds is a futile exercise on respondents part. To allow reimbursement would in effect permit respondent to enjoy the fruits of a property which he is not allowed to own. Thus, it is likewise proscribed by law. As expressly held in Cheesman v. Intermediate Appellate Court: 16 Finally, the fundamental law prohibits the sale to aliens of residential land. Section 14, Article XIV of the 1973 Constitution ordains that, "Save in cases of hereditary succession, no private land shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain." Petitioner Thomas Cheesman was, of course, charged with knowledge of this prohibition. Thus, assuming that it was his intention that the lot in question be purchased by him and his wife, he acquired no right whatever over the property by virtue of that purchase; and in attempting to acquire a right or interest in land, vicariously and clandestinely, he knowingly violated the Constitution; the sale as to him was null and void. In any event, he had and has no capacity or personality to question the subsequent sale of the same property by his wife on the theory that in so doing he is merely exercising the prerogative of a husband in respect of conjugal property. To sustain such a theory would permit indirect controversion of the constitutional prohibition. If the property were to be declared conjugal, this would accord to the alien husband a not insubstantial interest and right over land, as he would then have a decisive vote as to its transfer or disposition. This is a right that the Constitution does not permit him to have. As already observed, the finding that his wife had used her own money to purchase the property cannot, and will not, at this stage of the proceedings be reviewed and overturned. But even if it were a fact that said wife had used conjugal funds to make the acquisition, the considerations just set out to militate, on high constitutional grounds, against his recovering and holding the property so acquired, or any part thereof. And whether in such an event, he may recover from his wife any share of the money used for the purchase or charge her with unauthorized disposition or expenditure of conjugal funds is not now inquired into; that would be, in the premises, a purely academic exercise. (Emphasis added) WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision dated February 26, 2001 of the Court of Appeals in CA-G.R. CV No. 59321 ordering petitioner Elena Buenaventura Muller to reimburse respondent Helmut Muller

the amount of P528,000 for the acquisition of the land and the amount of P2,300,000 for the construction of the house in Antipolo City, and the Resolution dated August 13, 2001 denying reconsideration thereof, are REVERSED and SET ASIDE. The August 12, 1996 Decision of the Regional Trial Court of Quezon City, Branch 86 in Civil Case No. Q-94-21862 terminating the regime of absolute community between the petitioner and respondent, decreeing a separation of property between them and ordering the partition of the personal properties located in the Philippines equally, is REINSTATED. SO ORDERED.

G.R. No. 23550

September 16, 1925

P.J. SALAS RODRIGUEZ, plaintiff-appellant, vs. MARIANO P. LEUTERIO, defendant-appellee. The appellant in his own behalf. No appearance for appellee. STREET, J.: On September 24, 1920, the parties to this action entered into a contract by which the defendant agreed to sell, and the plaintiff to buy, seven thousand square meters of land in the barrio of Tuliahan, municipality of Caloocan, Rizal, for the consideration of P5,600, which was paid by the plaintiff in the act of transfer. At the time of this sale the particular lots contemplated as the subject of the sale had not been segregated, but the seller agreed to establish the lots with a special frontage on a principal thoroughfare as soon as the streets should be laid out in a projected new subdivision of the city. As time passed the seller was unable to comply with this part of the agreement and was therefore unable to place the purchaser in possession. The present action was accordingly instituted by the purchaser in the Court of First Instance of the Province of Rizal for the resolution (in the complaint improperly denominated rescission) of the contract and a return of double the amount delivered to the defendant as the purchase price of the land. The trial court decreed a rescission (properly resolution) of the contract and ordered the defense to return to the plaintiff the amount received, or the sum of P5,600, with legal interest from the date of the filing of the complaint. From this judgment the plaintiff appealed. As no transcript of the evidence has been brought to this court, our revision of the case is confined to the questions of law involved, which are two in number, namely, first, whether the plaintiff is entitled to recover double the amount paid out by him as the purchase price of the land; and, secondly, whether he is entitled to interest from the date upon which the money was paid to the defendant, instead of from the date of the filing of the complaint only. As suggested by the trial judge in the appealed decision the provisions of the Civil Code applicable to the case are found in articles 1451 and 1124. By the latter of these articles a person prejudiced by the nonfulfillment of a contract may demand its resolution, with indemnity for damages and payment of interest. Article 1454 of the Civil Code is relied upon by plaintiff-appellant as authority for claiming double the amount paid out by him. In this article it is declared that when earnest money or pledge is given to bind a contract of purchase and sale, the contract may be rescinded if the vendee should be willing to forfeit the earnest money or pledge or the vendor to returndouble the amount. This provision is clearly not pertinent to the case, for the reason that where the purchase price is paid in whole or in part, the payment cannot be considered to be either earnest money or pledge. In this connection the commentator Manresa observes that the delivery of part of the purchase should not be

understood as constituting earnest money unless it be shown that such was the intention of the parties. (Manresa, Commentaries on the Civ. Code, 2nd., vol. 10, p. 85.) In the case before us there is nothing to indicate that the parties intended that the cash price paid by the purchaser should be treated merely as earnest money; and such could not possibly have been their intention. The evident purpose was that said payment should be taken as a fulfillment of the contract on the part of the purchaser. The contention of the plaintiff-appellant with respect to interest is, we think, meritorious. In case of the resolution of a contract of sale under article 1124, the purchaser is declared to be entitled to indemnity for damages and payment of interest. As pointed out by Manresa interest in here conceded in lieu of damages. (Manresa, Commentaries on the Spanish Civil Code, 3rd ed., vol. 8, p. 157); and it is familiar doctrine that interest at the legal rate is the accepted measure of damages for the detention of money. Moreover, as the resolution of a contract has the effect of dissolving the obligation ab initio, it follows that interest should be allowed on the purchase money during the entire period that the defendant has had it in his possession, that is, in this case from the date of the contract. If the plaintiff had had possession of the land during this period, he would be entitled to no damages, and hence to no interest. It will not escape notice that a similar provision with respect to interest is found in article 1295 of the Civil Code, which deals with rescission, properly so called, and in article 1303, which deals with annulment of contracts. The judgment appealed from will be modified by giving interest at the legal rate on the amount awarded by the trial court from September 24, 1920, until paid. As thus modified the judgment will be affirmed, and it is so ordered, without special pronouncement as to costs. Avancea, C.J., Malcolm, Villamor, Ostrand, Johns, Romualdez, and Villa-Real, JJ., concur. Johnson, J., dissents.

G.R. No. 106063 November 21, 1996 EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners, vs. MAYFAIR THEATER, INC., respondent.

for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter constructed on the leased property a movie house known as "Maxim Theatre." Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for the lease of another portion of Carmelo's property, to wit: A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters. THE TWO (2) STORE SPACES AT THE GROUND FLOOR and MEZZANINE of the two-storey building situated at C.M. Recto Avenue, Manila, with a floor area of 300 square meters and bearing street numbers 1871 and 1875, for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another movie house known as "Miramar Theatre" on this leased property. Both contracts of lease provides (sic) identically worded paragraph 8, which reads: That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property for US Dollars

HERMOSISIMA, JR., J.: Before us is a petition for review of the decision 1 of the Court of Appeals 2 involving questions in the resolution of which the respondent appellate court analyzed and interpreted particular provisions of our laws on contracts and sales. In its assailed decision, the respondent court reversed the trial court 3 which, in dismissing the complaint for specific performance with damages and annulment of contract, 4 found the option clause in the lease contracts entered into by private respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of performance and unsupported by a consideration and the subsequent sale of the subject property to petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial) to have been made without any breach of or prejudice to, the said lease contracts. 5 We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings: Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila. On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a portion of Carmelo's property particularly described, to wit: A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square meters. THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M. Recto Avenue, Manila, with a floor area of 150 square meters.

1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for Six to Seven Million Pesos. Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair replied through a letter stating as follows: It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's Mr. Henry Yang through the telephone that your company desires to sell your abovementioned C.M. Recto Avenue property. Under your company's two lease contracts with our client, it is uniformly provided: 8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it is (sic) herebinds (sic) and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions hereof (sic). Carmelo did not reply to this letter. On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in acquiring not only the leased premises but "the entire building and other improvements if the price is reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter. Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale, for the total sum of P11,300,000.00. In September 1978, Mayfair instituted the action a quo for specific performance and annulment of the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and affirmative defense (a) that it had informed Mayfair of its desire to

sell the entire C.M. Recto Avenue property and offered the same to Mayfair, but the latter answered that it was interested only in buying the areas under lease, which was impossible since the property was not a condominium; and (b) that the option to purchase invoked by Mayfair is null and void for lack of consideration. Equatorial, in its Answer, pleaded as special and affirmative defense that the option is void for lack of consideration (sic) and is unenforceable by reason of its impossibility of performance because the leased premises could not be sold separately from the other portions of the land and building. It counterclaimed for cancellation of the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary devaluation of the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for indemnification in respect of Mayfair's claims. During the pre-trial conference held on January 23, 1979, the parties stipulated on the following: 1. That there was a deed of sale of the contested premises by the defendant Carmelo . . . in favor of defendant Equatorial . . .; 2. That in both contracts of lease there appear (sic) the stipulation granting the plaintiff exclusive option to purchase the leased premises should the lessor desire to sell the same (admitted subject to the contention that the stipulation is null and void); 3. That the two buildings erected on this land are not of the condominium plan; 4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the contracts of lease constitute the consideration for the plaintiff's occupancy of the leased premises, subject of the same contracts of lease, Exhibits A and B; xxx xxx xxx 6. That there was no consideration specified in the option to buy embodied in the contract;

7. That Carmelo & Bauermann owned the land and the two buildings erected thereon; 8. That the leased premises constitute only the portions actually occupied by the theaters; and 9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the land and the two buildings erected thereon. xxx xxx xxx After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of which reads as follows: WHEREFORE, judgment is hereby rendered: (1) Dismissing the complaint with costs against the plaintiff; (2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of attorney's fees on its counterclaim; (3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month as reasonable compensation for the use of areas not covered by the contract (sic) of lease from July 31, 1979 until plaintiff vacates said area (sic) plus legal interest from July 31, 1978; P70,000 00 per month as reasonable compensation for the use of the premises covered by the contracts (sic) of lease dated (June 1, 1967 from June 1, 1987 until plaintiff vacates the premises plus legal interest from June 1, 1987; P55,000.00 per month as reasonable compensation for the use of the premises covered by the contract of lease dated March 31, 1969 from March 30, 1989 until plaintiff vacates the premises plus legal interest from March 30, 1989; and P40,000.00 as attorney's fees;

(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo & Bauermann. The contracts of lease dated June 1, 1967 and March 31, 1969 are declared expired and all persons claiming rights under these contracts are directed to vacate the premises. 6 The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to be an option clause which however cannot be deemed to be binding on Carmelo because of lack of distinct consideration therefor. The court a quo ratiocinated: Significantly, during the pre-trial, it was admitted by the parties that the option in the contract of lease is not supported by a separate consideration. Without a consideration, the option is therefore not binding on defendant Carmelo & Bauermann to sell the C.M. Recto property to the former. The option invoked by the plaintiff appears in the contracts of lease . . . in effect there is no option, on the ground that there is no consideration. Article 1352 of the Civil Code, provides: Contracts without cause or with unlawful cause, produce no effect whatever. The cause is unlawful if it is contrary to law, morals, good custom, public order or public policy. Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides: When the offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. in relation with Article 1479 of the same Code:

A promise to buy and sell a determine thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determine thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former establishes the existence of a distinct consideration. In other words, the promisee has the burden of proving the consideration. The consideration cannot be presumed as in Article 1354: Although the cause is not stated in the contract, it is presumed that it exists and is lawful unless the debtor proves the contrary. where consideration is legally presumed to exists. Article 1354 applies to contracts in general, whereas when it comes to an option it is governed particularly and more specifically by Article 1479 whereby the promisee has the burden of proving the existence of consideration distinct from the price. Thus, in the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said: (1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to sales in particular, and, more specifically, to an accepted unilateral promise to buy or to sell. In other words, Article 1479 is controlling in the case at bar. (2) In order that said unilateral promise may be binding upon the promissor, Article 1479 requires the concurrence of a condition, namely, that the promise be supported by a consideration distinct from the price. Accordingly, the promisee cannot compel the promissor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even

alleged the existence thereof in his complaint. 7 It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property to the former. Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent Court of Appeals. Respondent appellate court reversed the court a quo and rendered judgment: 1. Reversing and setting aside the appealed Decision; 2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the amount of P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty Development, Inc. to accept such payment; 3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to execute the deeds and documents necessary for the issuance and transfer of ownership to Mayfair of the lot registered under TCT Nos. 17350, 118612, 60936, and 52571; and 4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged, declaring the Deed of Absolute Sale between the defendants-appellants Carmelo & Bauermann, Inc. and Equatorial Realty Development, Inc. as valid and binding upon all the parties. 8 Rereading the law on the matter of sales and option contracts, respondent Court of Appeals differentiated between Article 1324 and Article 1479 of the Civil Code, analyzed their application to the facts of this case, and concluded that since paragraph 8 of the two lease contracts does not state a fixed price for the purchase of the leased premises, which is an essential element for a contract of sale to be perfected, what paragraph 8 is, must be a right of first refusal and not an option contract. It explicated: Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second paragraph, of the Civil Code. Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept within a certain period. Under this article, the offer may be withdrawn by the offeror before the expiration of the period and while the offeree has not yet accepted the offer. However, the offer cannot be withdrawn by the offeror within the period if a consideration has been promised or given by

the offeree in exchange for the privilege of being given that period within which to accept the offer. The consideration is distinct from the price which is part of the offer. The contract that arises is known as option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing Bouvier, defined an option as follows: "A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from or selling to B, certain securities or properties within a limited time at a specified price," (pp. 686-7). Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral promise to buy or to sell a determinate thing for a price within (which) is binding upon the promisee if the promise is supported by a consideration distinct from the price." That "unilateral promise to buy or to sell a determinate thing for a price certain" is called an offer. An "offer", in laws, is a proposal to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the proposal must be certain as to the object, the price and other essential terms of the contract (Art. 1319, Civil Code). Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days exclusive option to purchase" the leased premises is NOT AN OPTION in the context of Arts. 1324 and 1479, second paragraph, of the Civil Code. Although the provision is certain as to the object (the sale of the leased premises) the price for which the object is to be sold is not stated in the provision Otherwise stated, the questioned stipulation is not by itself, an "option" or the "offer to sell" because the clause does not specify the price for the subject property. Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be legally categorized as an option, it is, nevertheless, a valid and binding stipulation. What the trial court failed to appreciate was the intention of the parties behind the questioned proviso. xxx xxx xxx The provision in question is not of the pro-forma type customarily found in a contract of lease. Even appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit and protect Mayfair in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the leased property. This intention of the parties is achieved in two ways in accordance with the stipulation. The first is by giving Mayfair "30-days exclusive option to purchase" the leased

property. The second is, in case Mayfair would opt not to purchase the leased property, "that the purchaser (the new owner of the leased property) shall recognize the lease and be bound by all the terms and conditions thereof." In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair "30-days exclusive option to purchase the (leased premises)," was meant to provide Mayfair the opportunity to purchase and acquire the leased property in the event that Carmelo should decide to dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it had decided to sell the leased property, was not only to notify Mayfair of such decision to sell the property, but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the latter a fair and reasonable opportunity to accept or reject the offer, before offering to sell or selling the leased property to third parties. The right vested in Mayfair is analogous to the right of first refusal, which means that Carmelo should have offered the sale of the leased premises to Mayfair before offering it to other parties, or, if Carmelo should receive any offer from third parties to purchase the leased premises, then Carmelo must first give Mayfair the opportunity to match that offer. In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made the telephone call to Mr. Yang in 1974. Mr. Pascal thus testified: Q Can you tell this Honorable Court how you made the offer to Mr. Henry Yang by telephone? A I have an offer from another party to buy the property and having the offer we decided to make an offer to Henry Yang on a first-refusal basis. (TSN November 8, 1983, p. 12.). and on cross-examination: Q When you called Mr. Yang on August 1974

can you remember exactly what you have told him in connection with that matter, Mr. Pascal? A More or less, I told him that I received an offer from another party to buy the property and I was offering him first choice of the enter property. (TSN, November 29, 1983, p. 18). We rule, therefore, that the foregoing interpretation best renders effectual the intention of the parties. 9 Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement of distinct consideration indispensable in an option contract, has no application, respondent appellate court also addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it is impossible of performance because it covered only the leased premises and not the entire Claro M. Recto property, while Carmelo's offer to sell pertained to the entire property in question. The Court of Appeals ruled as to this issue in this wise: We are not persuaded by the contentions of the defendantsappellees. It is to be noted that the Deed of Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto property, made reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on the information submitted by Mayfair in its appellant's Brief (pp. 5 and 46) which has not been controverted by the appellees, and which We, therefore, take judicial notice of the two theaters stand on the parcels of land covered by TCT No. 17350 with an area of 622.10 sq. m and TCT No. 118612 with an area of 2,100.10 sq. m. The existence of four separate parcels of land covering the whole Recto property demonstrates the legal and physical possibility that each parcel of land, together with the buildings and improvements thereof, could have been sold independently of the other parcels. At the time both parties executed the contracts, they were aware of the physical and structural conditions of the buildings on which the theaters were to be constructed in relation to the remainder of the whole Recto property. The peculiar language of the stipulation would tend to limit Mayfair's right under paragraph 8 of the Contract of Lease to the acquisition of the leased areas only.

Indeed, what is being contemplated by the questioned stipulation is a departure from the customary situation wherein the buildings and improvements are included in and form part of the sale of the subjacent land. Although this situation is not common, especially considering the non-condominium nature of the buildings, the sale would be valid and capable of being performed. A sale limited to the leased premises only, if hypothetically assumed, would have brought into operation the provisions of co-ownership under which Mayfair would have become the exclusive owner of the leased premises and at the same time a co-owner with Carmelo of the subjacent land in proportion to Mayfair's interest over the premises sold to it. 10 Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the decision of respondent Court of Appeals on the basis of the following assigned errors: I THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE IN THE CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE FOR AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR STIPULATION OF FACTS. II WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN DIRECTING EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE. III THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF ITS DECISION EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED FOR IN THE COMPLAINT.

IV THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF APPEALED CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL RESOLVE THE MERITS OF THE CASE IN THE "DECISION STAGE". 11

Carmelo and Mayfair, as well as Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial. Both contracts of lease in question provide the identically worded paragraph 8, which reads: That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. 14 We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of first refusal. As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned . . . There was, therefore, a meeting of minds on the part of the one and the other, with regard to the stipulations made in the said document. But it is not shown that there was any cause or consideration for that agreement, and this omission is a bar which precludes our holding that the stipulations contained in Exhibit E is a contract of option, for, . . . there can be no contract without the requisite, among others, of the cause for the obligation to be established. In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language:

We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this case in the Court of Appeals. Suffice it to say that in our Resolution, 12 dated December 9, 1992, we already took note of this matter and set out the proper applicable procedure to be the following: On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a letter-complaint to this Court alleging certain irregularities and infractions committed by certain lawyers, and Justices of the Court of Appeals and of this Court in connection with case CA-G.R. CV No. 32918 (now G.R. No. 106063). This partakes of the nature of an administrative complaint for misconduct against members of the judiciary. While the letter-complaint arose as an incident in case CA-G.R. CV No. 32918 (now G.R. No. 106063), the disposition thereof should be separate and independent from Case G.R. No. 106063. However, for purposes of receiving the requisite pleadings necessary in disposing of the administrative complaint, this Division shall continue to have control of the case. Upon completion thereof, the same shall be referred to the Court En Bancfor proper disposition. 13 This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and Equatorial, to be an independent and separate subject for an administrative complaint based on misconduct by the lawyers and justices implicated therein, it is the correct, prudent and consistent course of action not to pre-empt the administrative proceedings to be undertaken respecting the said irregularities. Certainly, a discussion thereupon by us in this case would entail a finding on the merits as to the real nature of the questioned procedures and the true intentions and motives of the players therein. In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8 stipulated in the two contracts of lease between Carmelo and Mayfair in the face of conflicting findings by the trial court and the Court of Appeals; and (2) to determine the rights and obligations of

A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to B, certain securities or properties within a limited time at a specified price. (Story vs. Salamon, 71 N.Y., 420.) From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken: An agreement in writing to give a person the option to purchase lands within a given timeat a named price is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for and receive lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this right, or, rather, from his point of view, he receives the right to elect to buy. But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case where there was cause or consideration for the obligation, the subject of the agreement made by the parties; while in the case at bar there was no such cause or consideration. 16 (Emphasis ours.) The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in order to be valid and enforceable, must, among other things, indicate the definite price at which the person granting the option, is willing to sell. Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square meter upon failure to make the purchase within the time specified; 17 in one other case we freed the landowner from her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks because such option was not supported by a distinct consideration; 18 in the same vein in yet one

other case, we also invalidated an instrument entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of consideration; 19 and as an exception to the doctrine enumerated in the two preceding cases, in another case, we ruled that the option to buy the leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal contracts, like lease, the obligation or promise of each party is the consideration for that of the other. 20 In all these cases, the selling price of the object thereof is always predetermined and specified in the option clause in the contract or in the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals 21 that: . . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold in retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. . . . An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz:

Art. 1479. . . . An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. (1451a). Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern: (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc. vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." (2) If the period has a separate consideration, a contract of "option" deemed perfected, and it would be a breach of that

contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself; and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the opinion. . . In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two lease contracts involved in the instant case, we so hold that no option to purchase in contemplation of the second paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts. Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a separate consideration for the option, has no applicability in the instant case. There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which would bring them into the ambit of the usual offer or option requiring an independent consideration. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration. 22 In the instant case, the right of first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal obligations of the parties. To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in effectual or "inutile" the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the property at the price which Carmelo is willing to accept. It is not also correct to say that there is no consideration in an agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The consideration for the lease includes the consideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also consents that, should it sell the leased property, then, Mayfair shall be given the right to match the offered purchase price and to buy the property at that

price. As stated in Vda. De Quirino vs.Palarca, 23 in reciprocal contract, the obligation or promise of each party is the consideration for that of the other. The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8 to be that of a contractual grant of the right of first refusal to Mayfair. We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and Equatorial. The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu Asuncion vs. Court of Appeals. 24 First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile". What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an exchange of letters evidencing the offer and counteroffers made by both parties. Carmelo, however, did not pursue the exercise to its logical end. While it initially recognized Mayfair's right of first refusal, Carmelo violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the "30-day exclusive option" time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to Mayfair, the entire Claro M Recto property to Equatorial. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. . . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease.

According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause, or to protect some incompatible and preferent right created by the contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity. It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject property be regarded as acquired lawfully and in good faith. Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed a purchaser in good faith for the record shows that it categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than presumed notice by registration. A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests. The petitioner insists that it was not aware of the right of first priority granted by the Contract of Lease. Assuming this to be

true, we nevertheless agree with the observation of the respondent court that: If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame. Having known that the property it was buying was under lease, it behooved it as a prudent person to have required Reynoso or the broker to show to it the Contract of Lease in which Par. 20 is contained. 25 Petitioners assert the alleged impossibility of performance because the entire property is indivisible property. It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common sense and fairness dictate that instead of nullifying the agreement on that basis, the stipulation should be given effect by including the indivisible appurtenances in the sale of the dominant portion under the right of first refusal. A valid and legal contract where the ascendant or the more important of the two parties is the landowner should be given effect, if possible, instead of being nullified on a selfish pretext posited by the owner. Following the arguments of petitioners and the participation of the owner in the attempt to strip Mayfair of its rights, the right of first refusal should include not only the property specified in the contracts of lease but also the appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear violation of Mayfair's rights. While there was a series of exchanges of letters evidencing the offer and counter-offers between the parties, Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate within the 30-day period. Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible property. The boundaries of the property sold should be the boundaries of the offer under the right of first refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs.Court of Appeals should be modified, if not amplified under the peculiar facts of this case. As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorial's knowledge of the stipulations therein should have cautioned it to look further into the

agreement to determine if it involved stipulations that would prejudice its own interests. Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of justice and equity require that we order rescission here and now. Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract. 26 The sale of the subject real property by Carmelo to Equatorial should now be rescinded considering that Mayfair, which had substantial interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period. 27 This Court has always been against multiplicity of suits where all remedies according to the facts and the law can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at which Mayfair could have purchased the property is, therefore, fixed. It can neither be more nor less. There is no dispute over it. The damages which Mayfair suffered are in terms of actual injury and lost opportunities. The fairest solution would be to allow Mayfair to exercise its right of first refusal at the price which it was entitled to accept or reject which is P11,300,000.00. This is clear from the records. To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to enforce its right. It is not proper to give it an empty or vacuous victory in this case. From the viewpoint of Carmelo, it is like asking a fish if it would accept the choice of being thrown back into the river. Why should Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed. After having sold the property for P11,300,000.00, why should it be given another chance to sell it at an increased price? Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute because a contract over the right of first refusal belongs to a class of preparatory juridical relations governed not by the law on contracts but by the codal provisions on human relations. This may apply here if the contract is limited to the buying and selling of the real property. However, the obligation of Carmelo to first offer the property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations. The latter remedy encourages multiplicity of suits. There is something to execute and that is for Carmelo to comply with its obligation to

the property under the right of the first refusal according to the terms at which they should have been offered then to Mayfair, at the price when that offer should have been made. Also, Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be executed according to their terms. On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in mind that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered into with Mayfair. It sold the property to Equatorial with purpose and intend to withhold any notice or knowledge of the sale coming to the attention of Mayfair. All the circumstances point to a calculated and contrived plan of non-compliance with the agreement of first refusal. On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair. Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the grant of interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the property. It has used the P11,300,000.00 all these years earning income or interest from the amount. Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or Equatorial. WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo and Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00. SO ORDERED. Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza and Francisco, JJ., concur. Narvasa, C.J., took no part.