Republic of the Philippines

SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 117355 April 5, 2002
RIVIERA FILIPINA, INC., petitioner,
vs.
COURT OF APPEALS, JUAN L. REYES, (now deceased), substituted by his heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa,
Juan B. Reyes, Jr. and Fidel B. Reyes, PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT CORPORATION, CORNHILL
TRADING CORPORATION and URBAN DEVELOPMENT BANK, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision of the Court of Appeals dated June 6, 1994 in CA-G.R. CV No.
26513 affirming the Decision dated March 20, 1990 of the Regional Trial Court of Quezon City, Branch 89 dismissing Civil Case
No. Q-89-3371.
Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on August 31, 1989 to compel the defendants therein
Juan L. Reyes, now deceased, Philippine Cypress Construction & Development Corporation (Cypress), Cornhill Trading
Corporation (Cornhill) and Urban Development Bank to transfer the title covering a 1,018 square meter parcel of land located
along EDSA, Quezon City for alleged violation of Rivieras right of first refusal.
It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity) executed a Contract of Lease with Riviera.
The ten-year (10) renewable lease of Riviera, which started on August 1, 1982, involved a 1,018 square meter parcel of land
located along Edsa, Quezon City, covered and described in Transfer Certificate of Title No. 186326 of the Registry of Deeds of
Quezon City in the name of Juan L. Reyes.
The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in favor of Prudential Bank. Since the loan with
Prudential Bank remained unpaid upon maturity, the mortgagee bank extrajudicially foreclosed the mortgage thereon. At the
public auction sale, the mortgagee bank emerged as the highest bidder. The redemption period was set to expire on March 7,
1989. Realizing that he could not possibly raise in time the money needed to redeem the subject property, Reyes decided to sell
the same.
Since paragraph 11 of the lease contract expressly provided that the "LESSEE shall have the right of first refusal should the
LESSOR decide to sell the property during the term of the lease," Reyes offered to sell the subject property to Riviera, through its
President Vicente C. Angeles, for Five Thousand Pesos (P5,000.00) per square meter. However, Angeles bargained for Three
Thousand Five Hundred Pesos (P3,500.00) per square meter. Since Reyes was not amenable to the said price and insisted on Five
Thousand Pesos (P5,000.00) per square meter, Angeles requested Reyes to allow him to consult the other members of the Board
of Directors of Riviera.
Seven (7) months later, or sometime in October 1988, Angeles communicated with Reyes Rivieras offer to purchase the subject
property for Four Thousand Pesos (P4,000.00) per square meter. However, Reyes did not accept the offer. This time he asked for
Six Thousand Pesos (P6,000.00) per square meter since the value of the property in the area had appreciated in view of the plans
of Araneta to develop the vicinity.
In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes, informed Riviera that Reyes was selling the
subject property for Six Thousand Pesos (P6,000.00) per square meter, net of capital gains and transfer taxes, registration fees,
notarial fees and all other attendant charges. He further stated therein that:
In this connection, conformably to the provisions stipulated in Paragraph/Item No. 11 of your CONTRACT OF LEASE (Doc.
No. 365, Page No. 63, Book No. X, Series of 1982, of the Notarial Registry of Notary Public Leovillo S. Agustin), notice is
served upon your goodselves for you to exercise "the right of first refusal" in the sale of said property, for which purpose
you are hereby given a period of ten (10) days from your receipt hereof within which to thus purchase the same under
the terms and conditions aforestated, and failing which you shall be deemed to have thereby waived such pre-emptive
right and my client shall thereafter be absolutely free to sell the subject property to interested buyers.10
To answer the foregoing letter and confirm their telephone conversation on the matter, Riviera sent a letter dated November
22, 1988 to Atty. Juan, counsel for Reyes, expressing Rivieras interest to purchase the subject property and that Riviera is
already negotiating with Reyes which will take a couple of days to formalize.11 Riviera increased its offer to Five Thousand Pesos
(P5,000.00) per square meter but Reyes did not accede to said price as it was still lower than his quoted price of Six Thousand
Pesos (P6,000.00) per square meter.12 Angeles asked Reyes to give him until the end of November 1988 for Rivieras final
decision. 1wphi1.nt
In a letter dated December 2, 1988, Angeles wrote Reyes confirming Rivieras intent to purchase the subject property for the
fixed and final13 price of Five Thousand Pesos (P5,000.00) per square meter, complete payment within sixty (60) to ninety (90)

days which "offer is what we feel should be the market price of your property." Angeles asked that the decision of Reyes and his
written reply to the offer be given within fifteen (15) days since there are also other properties being offered to them at the
moment.14
In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5, 1988 informing Riviera that Rivieras
offer is not acceptable to his client. He further expressed, "let it be made clear that, much as it is the earnest desire of my client
to really give you the preference to purchase the subject property, you have unfortunately failed to take advantage of such
opportunity and thus lost your right of first refusal in sale of said property."15
Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close family friend and President of Cypress, his
predicament about the nearing expiry date of the redemption period of the foreclosed mortgaged property with Prudential
Bank, the money for which he could not raise on time thereby offering the subject property to him for Six Thousand Pesos
(P6,000.00) per square meter. Traballo expressed interest in buying the said property, told Reyes that he will study the matter
and suggested for them to meet the next day.16
They met the next day, December 5, 1988, at which time Traballo bargained for Five Thousand Three Hundred Pesos (P5,300.00)
per square meter. After considering the reasons cited by Traballo for his quoted price, Reyes accepted the same. However, since
Traballo did not have the amount with which to pay Reyes, he told the latter that he will look for a partner for that purpose.17
Reyes told Traballo that he had already afforded Riviera its right of first refusal but they cannot agree because Rivieras final
offer was for Five Thousand Pesos (P5,000.00) per square meter.18
Sometime in January 1989, apprehensive of the impending expiration in March 1989 of the redemption period of the foreclosed
mortgaged property with Prudential Bank and the deal between Reyes and Traballo was not yet formally concluded, Reyes
decided to approach anew Riviera. For this purpose, he requested his nephew, Atty. EstanislaoAlinea, to approach Angeles and
find out if the latter was still interested in buying the subject property and ask him to raise his offer for the purchase of the said
property a little higher. As instructed, Atty. Alinea met with Angeles and asked the latter to increase his offer of Five Thousand
Pesos (P5,000.00) per square meter but Angeles said that his offer is Five Thousand Pesos (P5,000.00) per square meter. 19
Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through Atty. Alinea, that his offer is Five
Thousand Pesos (P5,000.00) per square meter payment of which would be fifty percent (50%) down within thirty (30) days upon
submission of certain documents in three (3) days, the balance payable in five (5) years in equal monthly installments at twelve
percent (12%) interest in diminishing balance.20 With the terms of this second offer, Angeles admittedly downgraded the
previous offer of Riviera on December 2, 1988.21
Atty. Alinea conveyed to Reyes Rivieras offer of Five Thousand Pesos (P5,000.00) per square meter but Reyes did not agree.
Consequently, Atty. Alinea contacted again Angeles and asked him if he can increase his price. Angeles, however, said he cannot
add anymore.22 Reyes did not expressly offer his subject property to Riviera at the price of Five Thousand Three Hundred Pesos
(P5,300.00) per square meter.23
Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading Corporation, were able to come up with the
amount sufficient to cover the redemption money, with which Reyes paid to the Prudential Bank to redeem the subject
property.24 On May 1, 1989, a Deed of Absolute Sale covering the subject property was executed by Reyes in favor of Cypress
and Cornhill for the consideration of Five Million Three Hundred Ninety Five Thousand Four Hundred Pesos (P5,395,400.00).25
On the same date, Cypress and Cornhill mortgaged the subject property to Urban Development Bank for Three Million Pesos
(P3,000,000.00).26
Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject property to it claiming that its right of first
refusal under the lease contract was violated. After several unsuccessful attempts,27 Riviera filed the suit to compel Reyes,
Cypress, Cornhill and Urban Development Bank to transfer the disputed title to the land in favor of Riviera upon its payment of
the price paid by Cypress and Cornhill.
Following trial on the merits, the trial court dismissed the complaint of Riviera as well as the counterclaims and cross-claims of
the other parties.28 It ruled that the defendants therein did not violate Rivieras right of first refusal, ratiocinating in this wise:
Resolving the first issue, this Court takes note that since the beginning of the negotiation between the plaintiff and
defendant Reyes for the purchase of the property, in question, the plaintiff was firm and steadfast in its position,
expressed in writing by its President Vicente Angeles, that it was not willing to buy the said property higher than
P5,000.00, per square meter, which was far lower than the asking price of defendant Reyes for P6,000.00, per square
meter, undoubtedly, because, in its perception, it would be difficult for other parties to buy the property, at a higher
price than what it was offering, since it is in occupation of the property, as lessee, the term of which was to expire after
about four (4) years more.
On the other hand, it was obvious, upon the basis of the last ditch effort of defendant Reyes, thru his nephew, Atty.
Alinea, to have the plaintiff buy the property, in question, that he was willing to sell the said property at a price less than
P6,000.00 and a little higher than P5,000.00, per square meter, precisely, because Atty. Alinea, in behalf of his uncle,
defendant Reyes, sought plaintiffs Angeles and asked him to raise his price a little higher, indicating thereby the
willingness of defendant Reyes to sell said property at less than his offer of P6,000.00, per square meter.

This being the case, it can hardly be validly said by the plaintiff that he was deprived of his right of first refusal to buy the
subject property at a price of P5,300.00, per square meter which is the amount defendants Cypress/Cornhill bought the
said property from defendant Reyes. For, it was again given such an opportunity to exercise its right of first refusal by
defendant Reyes had it only signified its willingness to increase a little higher its purchase price above P5,000.00, per
square meter, when its President, Angeles, was asked by Atty. Alinea to do so, instead of adamantly sticking to its offer
of only P5,000.00 per square meter, by reason of which, therefore, the plaintiff had lost, for the second time, its right of
first refusal, even if defendant Reyes did not expressly offer to sell to it the subject land at P5,300.00, per square meter,
considering that by the plea of Atty. Alinea, in behalf of defendant Reyes, for it to increase its price a little, the plaintiff is
to be considered as having forfeited again its right of first refusal, it having refused to budged from its regid (sic) offer to
buy the subject property at no more than P5,000.00, per square meter.
As such, this Court holds that it was no longer necessary for the defendant Reyes to expressly and categorically offer to
the plaintiff the subject property at P5,300.00, per square meter, in order that he can comply with his obligation to give
first refusal to the plaintiff as stipulated in the Contract of Lease, the plaintiff having had already lost its right of first
refusal, at the first instance, by refusing to buy the said property at P6,000.00, per square meter, which was the asking
price of defendant Reyes, since to do so would be a useless ceremony and would only be an exercise in futility,
considering the firm and unbending position of the plaintiff, which defendant Reyes already knew, that the plaintiff, at
any event, was not amenable to increasing its price at over P5,000.00, per square meter.
Dissatisfied with the decision of the trial court, both parties appealed to the Court of Appeals.29 However, the appellate court,
through its Special Seventh Division, rendered a Decision dated June 6, 1994 which affirmed the decision of the trial court in its
entirety.30 In sustaining the decision of the trial court, the Court of Appeals adopted the above-quoted ratiocination of the trial
court and further added:
To put things in its proper perspective in accordance with the peculiar attendant circumstances herein, particular stress
should be given to RIVIERAs uncompromising counter offer of only P5,000.00 per square meter on all the occasions
when REYES offered the subject property to it. RIVIERA, in its letter to REYES dated December 2, 1988 (Exhibit "D", p. 68,
Rollo) justified its rigid offer by saying that "the above offer is what we feel should be the market price of your
property." If that be the case, We are convinced, the same manner that REYES was, that RIVIERA was unwilling to
increase its counter offer at any present or future time. RIVIERAs unilateral valuation of the subject property thus binds
him, it cannot now be heard to claim that it could have upped its offer had it been informed of CYPRESS and
CORNHILLS offer of P5,000.00 (sic) per square meter. Defendants CYPRESS and CORNHILL were therefore right in saying
that:
On the basic assumption that RIVIERA really meant what it said in its letter, DR. REYES could not be faulted for
believing that RIVIERA was definitely NOT WILLING TO PAY MORE THAN P5,000.00 PER SQUARE METER ON HIS
PROPERTY. The fault lies with the deceptive and insincere words of RIVIERA. Injustice (sic) and equity, RIVIERA
must be deemed in estoppel in now belatedly asserting that it would have been willing to pay a price higher
than P5,000.00 x xx." (Defendants-Appellees Cypress and Cornhills Brief, p. 8)
For this reason, no adverse inference can be drawn from REYES failure to disclose to RIVIERA the intervening counteroffer of CYPRESS and CORNHILL.
It would have been far different had REYES non-disclosure of CYPRESS and CORNHILLs counter-offer to RIVIERA
resulted in the sale of the subject property at equal or less than RIVIERAs offer; in which case, REYES would have been
rightly accused of cunningly circumventing RIVIERAs right of first refusal. But the incontrovertible antecedents obtaining
here clearly reveal REYES earnest efforts in respecting RIVIERAs contractual right to initially purchase the subject
property. Not only once but twice did REYES approach RIVIERA, the last one being the most telling indication of
REYES sincerest intention in RIVIERA eventually purchasing the subject property if only the latter would increase a little
its offer of P5,000.00 per square meter. And to this REYES was desperately willing to accede to despite the financial
quandary he was then in as the expiration of the redemption period drew closer and closer, and despite the better offer
of CYPRESS and CORNHILL. REYES unquestionably had displayed good faith. Can the same be said of RIVIERA? We do not
think so. It appears that RIVIERA all along was trying to push REYES back against the wall, for RIVIERA was well-aware of
REYES precarious financial needs at that time, and by clinging to its offer, REYES might eventually succumb to its offer
out of sheer desperation. RIVIERA was, to be frank, whimsically exercising its contractual right to the prejudice of REYES
who had commendably given RIVIERA extra leeway in exercising it. And to this We say that no amount of jurisprudence
RIVIERA might avail of for the purpose of construing the right of first refusal, however enlightening and persuasive they
may be, will cover-up for its arrogant exercise of its right as can be gleaned from the factual premises. Equity in this case
tilts in favor of defendants REYES, CYPRESS and CORNHILL that the consummated sale between them concerning the
subject property be given this Courts imprimatur, for if RIVIERA lost its opportunity to acquire it, it has only itself to
blame. For after all, REYES fundamental and intrinsic right of ownership which necessarily carries with it the exclusive
right to dispose of it to whoever he pleases, must ultimately prevail over RIVIERAs right of first refusal which it
unscrupulously tried to exercise.
From this decision, Riviera filed a motion for reconsideration,31 but the appellate court denied the same in a Resolution dated
September 22, 1994.32

Hence, Riviera interposed the instant petition anchored on the following errors:33
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS
OF ITS JURISDICTION IN RULING THAT PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS RIGHT OF FIRST REFUSAL.
II
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS
OF ITS JURISDICTION IN NOT FINDING THAT IT WAS THE PETITIONER, NOT RESPONDENT JUAN L. REYES, WHICH HAD
BEEN THOROUGHLY DECEIVED BY THE LATTER OUT OF ITS RIGHTS TO ITS CONTINUING PREJUDICE.
III
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS
OF ITS JURISDICTION IN DENYING RECONSIDERATION.
IV
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS
OF ITS JURISDICTION IN DECIDING PETITIONERS APPEAL AT A TIME WHEN THE PRINCIPAL APPELLEE IS ALLEGEDLY DEAD
AND NO PROPER SUBSTITUTION OF THE ALLEGED DECEASED PARTY HAS BEEN MADE; HENCE, THE DECISION OF THE
COURT OF APPEALS AND ITS RESOLUTION DENYING RECONSIDERATION, IS NULL AND VOID.
At the outset, we note that, while Riviera alleges that the Court of Appeals committed grave abuse of discretion amounting to
lack or excess of jurisdiction, the instant petition is, as it should be, treated as a petition for review under Rule 45 and not as a
special civil action for certiorari under Rule 65 of the Revised Rules of Court, now the 1997 Rules of Civil Procedure.
The distinctions between Rule 45 and 65 are far and wide, the most notable of which is that errors of jurisdiction are best
reviewed in a special civil action for certiorari under Rule 65, while errors of judgment are correctible only by appeal in a petition
for review under Rule 45.34 The rationale for the distinction is simple. When a court exercises its jurisdiction an error committed
while so engaged does not deprive it of the jurisdiction being exercised when the error is committed. If it did, every error
committed by a court would deprive it of its jurisdiction and every erroneous judgment would be a void judgment. This cannot
be allowed. The administration of justice would not countenance such a rule. Thus, an error of judgment that the court may
commit in the exercise of its jurisdiction is not correctible through the original special civil action of certiorari.35 Appeal from a
final disposition of the Court of Appeals, as in the case at bar, is by way of a petition for review under Rule 45.36
In the petition at bar, Riviera posits the view that its right of first refusal was totally disregarded or violated by Reyes by the
latters sale of the subject property to Cypress and Cornhill. It contends that the right of first refusal principally amounts to a
right to match in the sense that it needs another offer for the right to be exercised.
The concept and interpretation of the right of first refusal and the consequences of a breach thereof evolved in Philippine juristic
sphere only within the last decade. It all started in 1992 with Guzman, Bocaling& Co. v. Bonnevie37 where the Court held that a
lease with a proviso granting the lessee the right of first priority "all things and conditions being equal" meant that there should
be identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the
right of first priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and
which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible
under Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case ofAng Yu Asuncion v. Court of Appeals,38 the Court en banc departed from the doctrine laid
down in Guzman, Bocaling& Co. v. Bonnevieand refused to rescind a contract of sale which violated the right of first refusal. The
Court held that the so-called "right of first refusal" cannot be deemed a perfected contract of sale under Article 1458 of the New
Civil Code and, as such, a breach thereof decreed under a final judgment does not entitle the aggrieved party to a writ of
execution of the judgment but to an action for damages in a proper forum for the purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,39 the Court en banc reverted back to the
doctrine in Guzman Bocaling& Co. v. Bonneviestating that 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.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals,40 the Court affirmed the nature of and the
concomitant rights and obligations of parties under a right of first refusal. The Court, summarizing the rulings in Guzman,
Bocaling& Co. v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held that in order to have full
compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the price for
which they were finally sold to a third person should have likewise been first offered to the former. Further, there should be
identity of terms and conditions to be offered to the buyer holding a right of first refusal if such right is not to be rendered
illusory. Lastly, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any
prospective buyer.
Thus, the prevailing doctrine is that a right of first refusal means identity of terms and conditions to be offered to the lessee and
all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of another person, while
valid, is rescissible.

However, we must remember that general propositions do not decide specific cases. Rather, laws are interpreted in the context
of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis
of isolated clinical classroom principles.41 Analysis and construction should not be limited to the words used in the contract, as
they may not accurately reflect the parties true intent.42 The court must read a contract as the average person would read it
and should not give it a strained or forced construction.43
In the case at bar, the Court finds relevant and significant the cardinal rule in the interpretation of contracts that the intention of
the parties shall be accorded primordial consideration and in case of doubt, their contemporaneous and subsequent acts shall
be principally considered.44 Where the parties to a contract have given it a practical construction by their conduct as by acts in
partial performance, such construction may be considered by the court in construing the contract, determining its meaning and
ascertaining the mutual intention of the parties at the time for contracting. The parties practical construction of their contract
has been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant,
convincing, persuasive, or influential factor in determining the proper construction of the contract.45
An examination of the attendant particulars of the case do not persuade us to uphold Rivieras view. As clearly shown by the
records and transcripts of the case, the actions of the parties to the contract of lease, Reyes and Riviera, shaped their
understanding and interpretation of the lease provision "right of first refusal" to mean simply that should the lessor Reyes
decide to sell the leased property during the term of the lease, such sale should first be offered to the lessee Riviera. And that is
what exactly ensued between Reyes and Riviera, a series of negotiations on the price per square meter of the subject property
with neither party, especially Riviera, unwilling to budge from his offer, as evidenced by the exchange of letters between the two
contenders.
It can clearly be discerned from Rivieras letters dated December 2, 1988 and February 4, 1989 that Riviera was so intractable in
its position and took obvious advantage of the knowledge of the time element in its negotiations with Reyes as the redemption
period of the subject foreclosed property drew near. Riviera strongly exhibited a "take-it or leave-it" attitude in its negotiations
with Reyes. It quoted its "fixed and final" price as Five Thousand Pesos (P5,000.00) and not any peso more. It voiced out that it
had other properties to consider so Reyes should decide and make known its decision "within fifteen days." Riviera, in its letter
dated February 4, 1989, admittedly, even downgraded its offer when Reyes offered anew the property to it, such that whatever
amount Reyes initially receives from Riviera would absolutely be insufficient to pay off the redemption price of the subject
property. Naturally, Reyes had to disagree with Rivieras highly disadvantageous offer.
Nary a howl of protest or shout of defiance spewed forth from Rivieras lips, as it were, but a seemingly whimper of acceptance
when the counsel of Reyes strongly expressed in a letter dated December 5, 1989 that Riviera had lost its right of first refusal.
Riviera cannot now be heard that had it been informed of the offer of Five Thousand Three Hundred Pesos (P5,300.00) of
Cypress and Cornhill it would have matched said price. Its stubborn approach in its negotiations with Reyes showed crystal-clear
that there was never any need to disclose such information and doing so would be just a futile effort on the part of Reyes. Reyes
was under no obligation to disclose the same. Pursuant to Article 133946 of the New Civil Code, silence or concealment, by itself,
does not constitute fraud, unless there is a special duty to disclose certain facts, or unless according to good faith and the usages
of commerce the communication should be made.47 We apply the general rule in the case at bar since Riviera failed to
convincingly show that either of the exceptions are relevant to the case at bar.
In sum, the Court finds that in the interpretation of the right of first refusal as understood by the parties herein, the question as
to what is to be included therein or what is meant by the same, as in all other provisions of the contract, is for the parties and
not for the court to determine, and this question may not be resolved by what the parties might have provided had they thought
about it, which is evident from Riviera claims, or by what the court might conclude regarding abstract fairness.48
The Court would be rewriting the contract of Reyes and Riviera under the guise of construction were we to interpret the right of
first refusal as Riviera propounds it, despite a contrary construction as exhibited by its actions. A court, even the Supreme Court,
has no right to make new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships.
Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not
make themselves or the imposition upon one party to a contract of an obligation not assumed.49
On the last error attributed to the Court of Appeals which is the effect on the jurisdiction of the appellate court of the nonsubstitution of Reyes, who died during the pendency of the appeal, the Court notes that when Riviera filed its petition with this
Court and assigned this error, it later filed on October 27, 1994 a Manifestation50 with the Court of Appeals stating that it has
discovered that Reyes is already dead, in view of which the appellate court issued a Resolution dated December 16, 1994 which
noted the manifestation of Riviera and directed the counsel of Reyes to submit a copy of the latters death certificate and to file
the proper motion for substitution of party.51 Complying therewith, the necessary motion for substitution of deceased Reyes,
who died on January 7, 1994, was filed by the heirs, namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel
B. Reyes.52 Acting on the motion for substitution, the Court of Appeals granted the same.53
Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised Rules of Court, upon which Riviera anchors its
argument, has already been amended by the 1997 Rules of Civil Procedure.56 Even applying the old Rules, the failure of a counsel
to comply with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to inform the court of the death of his client
and no substitution of such is effected, will not invalidate the proceedings and the judgment thereon if the action survives the
death of such party,57 as this case does, since the death of Reyes did not extinguish his civil personality. The appellate court was
well within its jurisdiction to proceed as it did with the case since the death of a party is not subject to its judicial notice.

Needless to stress, the purpose behind the rule on substitution of parties is the protection of the right of every party to due
process. This purpose has been adequately met in this case since both parties argued their respective positions through their
pleadings in the trial court and the appellate court. Besides, the Court has already acquired jurisdiction over the heirs of Reyes
by voluntarily submitting themselves to our jurisdiction.58
In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its challenged
Decision.1wphi1.nt
WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of Appeals dated June 6, 1994 in CA-G.R. CV
No. 26513 is AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 142310
September 20, 2004
ARRA REALTY CORPORATION and SPOUSES CARLOS ARGUELLES and REMEDIOS DELA RAMA ARGUELLES, petitioners,
vs.
GUARANTEE DEVELOPMENT CORPORATION AND INSURANCE AGENCY and ENGR. ERLINDA EALOZA, respondents.
DECISION
CALLEJO, SR., J.:
Arra Realty Corporation (ARC) was the owner of a parcel of land, located in Alvarado Street, Legaspi Village, Makati City, covered
by Transfer Certificate of Title (TCT) No. 112269 issued by the Register of Deeds.1 Through its president, Architect Carlos D.
Arguelles, the ARC decided to construct a five-story building on its property and engaged the services of Engineer
ErlindaPealoza as project and structural engineer. In the process, Pealoza and the ARC, through Carlos Arguelles, agreed on
November 18, 1982 that Pealoza would share the purchase price of one floor of the building, consisting of 552 square meters
for the price of P3,105,838: P901,738, payable within sixty (60) days from November 20, 1982, and the balance payable in
twenty (20) equal quarterly installments of P110,205. The parties further agreed that the payments of Pealoza would be
credited to her account in partial payment of her stock subscription in the ARCs capital stock.2 Sometime in May 1983, Pealoza
took possession of the one-half portion of the second floor, with an area of 552 square meters3 where she put up her office and
operated the St. Michael International Institute of Technology. Unknown to her, ARC had executed a real estate mortgage over
the lot and the entire building in favor of the China Banking Corporation as security for a loan on May 12, 1983.4 The deed was
annotated at the dorsal portion of TCT No. 112269 on June 3, 1983.5 From February 23, 1983 to May 31, 1984, Pealoza paid
P1,175,124.59 for the portion of the second floor of the building she had purchased from the ARC.6 She learned that the
property had been mortgaged to the China Banking Corporation sometime in July 1984. Thereafter, she stopped paying the
installments due on the purchase price of the property.
Pealoza wrote the China Banking Corporation on August 1, 1984 informing the bank that the ARC had conveyed a portion of
the second floor of the building to her, and that she had paid P1,175,124.59 out of the total price of P3,105,838. She offered to
open an account with the bank in her name in the amount of P300,000, and to make monthly deposits of P50,000 each, to serve
as payments of the equivalent loan of the ARC upon the execution of the appropriate documents. She also proposed for the
bank to assist her in requesting the ARC to execute a deed of absolute sale over the portion of the second floor she had
purchased and the issuance of the title in her name upon the payment of the purchase price.7 However, the bank rejected her
proposal.8 She then wrote the ARC on August 31, 1984 informing it of China Banking Corporations rejection of her offer to
assume its equivalent loan from the bank and reminded it that it had conformed to her proposal to assume the payment of its
loan from the bank up to the equivalent amount of the balance of the purchase price of the second floor of the building as
agreed upon, and the consequent execution by the ARC of a deed of absolute sale over the property in her favor.9Pealoza then
sent a copy of a deed of absolute sale with assumption of mortgage for the ARCs consideration, and informed the latter that, in
the meantime, she was withholding installment payments.10 On October 3, 1984, Pealoza transferred the school to another
building she had purchased, but retained her office therein. She later discovered that her office had been padlocked.11 She had
the office reopened and continued holding office thereat. To protect her rights as purchaser, she executed on November 26,
1984 an affidavit of adverse claim over the property which was annotated at the dorsal portion of TCT No. 112269 on November
27, 1984.12 However, the adverse claim was cancelled on February 11, 1985.13
When the ARC failed to pay its loan to China Banking Corporation, the subject property was foreclosed extrajudicially, and,
thereafter, sold at public auction to China Banking Corporation on August 13, 1986 for P13,953,171.07.14 On April 29, 1987, the
ARC and the Guarantee Development Corporation and Insurance Agency (GDCIA) executed a deed of conditional sale covering
the building and the lot for P22,000,000, part of which was to be used to redeem the property from China Banking
Corporation.15 With the money advanced by the GDCIA, the property was redeemed on May 4, 1987.16 On May 14, 1987, the
petitioner executed a deed of absolute sale over the lot and building in favor of the GDCIA for P22,000,000.17 The ARC obliged
itself under the deed to deliver possession of the property without any occupants therein. The Register of Deeds, thereafter,
issued TCT No. 147846 in favor of the GDCIA over the property without any liens or encumbrances on May 15, 1987.18 Of the

purchase price of P22,000,000, the GDCIA retained P1,000,000 to answer for any damages arising from any suits of the
occupants of the building.
On May 28, 1987, Pealoza filed a complaint against the ARC, the GDCIA, and the Spouses Arguelles, with the Regional Trial
Court of Makati, Branch 61, for "specific performance or damages" with a prayer for a writ of preliminary injunction.
Pealoza prayed for the following reliefs:
WHEREFORE, it is most respectfully prayed of this Honorable Court that
1.- Before hearing, a temporary restraining order immediately issue;
2.- After notice and hearing, and the filing of an injunction bond, a preliminary injunction be issued forthwith
enjoining and restraining the defendant Register of Deeds for Makati, Metro Manila, from receiving and
registering any document transferring, conveying, encumbering or, otherwise, alienating the land and edifice
covered by Transfer Certificate of Title No. 112269 of said Registry of Deeds and from issuing a new title
therefor;
3.- After hearing and trial
(a) Ordering defendants ARRA and Arguelles to execute a deed of sale in favor of plaintiff over the
second floor of that 5-storey edifice built on 119 Alvarado Street, Legaspi Village, Makati, Metro Manila,
simultaneously with the tender of the remaining balance on the purchase price thereon;
(b) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff such moral
damages as may be proved during the trial;
(c) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff exemplary
damages in such amount as may be deem (sic) just, sufficient and equitable as exempary (sic) damages;
(d) Ordering defendants ARRA and Arguelles, jointly and severally, to pay the plaintiff an amount
equivalent to 20% of whatever she may recover herein as and for attorneys fees; P500.00 per
appearance of counsel in Court; and miscellaneous litigation expenses and cost of suit;
4.- On the Alternative Cause of Action, in the event that specific performance cannot be effected for any reason,
to render judgment in favor of the plaintiff and against the defendants
(a) Ordering the defendants, jointly and reveraaly (sic), to restitute to the plaintiff the sum of
P1,444,124.59 with interest thereon at bank borrowing rate from August 1984 until the same is finally
wholly returned;
(b) Ordering the defendants, jointly and severally, to pay the plaintiff the difference between the selling
price on the second floor of the 5-storey edifice after deducting P1,444,124.59 therefrom;
(c) Directing defendant Guarantee Development Corporation & Insurance Agency to deposit with the
Honorable Court any amount still in its possession on the purchase price of the land and the 5-storey
edifice in question;
(d) Ordering the defendants, jointly and severally, to pay the plaintiff moral and exemplary damages as
may be proved during the trial and/or as this Honorable Court may deem just, adequate and equitable
in the premises;
(e) Ordering the defendants, jointly and severally, to pay the plaintiff an amount equivalent to 20% of
whatever she may recover from the defendants in this suit as and for attorneys fees, litigation expenses
and costs.
PLAINTIFF further prays for such other reliefs and remedies as may be just and equitable in the premises19
On her first cause of action, Pealoza alleged, inter alia:
2.- That on or about November 18, 1982, the plaintiff and defendant ARRA represented by its President and General
Manager, defendant Arguelles, entered into an agreement whereby for and in consideration of the amount of
P3,105,828.00 on a deferred payment plan payable in five (5) years, defendants ARRA and Arguelles agreed to sell to the
plaintiff one (1) whole floor of a prospective 5-storey building which said defendants planned to build on a 992 square
meter lot located at 119 Alvarado Street, Legaspi Village, Makati, Metro Manila, covered by Transfer Certificate of Title
No. 112269 of the Registry of Deeds for Makati, Metro Manila, copy of which agreement is hereto attached as Annex "A"
and made integral part hereof ;

3.- That consonant with the aforementioned agreement between the plaintiff and defendants ARRA and Arguelles, the
former paid to said defendants the total amount of P1,377,124.59 as evidenced by receipts and cash vouchers copies of
which are hereto attached as Annexes "B," "B-1" to "B-10" and made integral parts hereof;
4.- That upon completion of the 5-storey edifice on May 31, 1984, the plaintiff made her choice of the second floor
thereof as the subject matter or object of the sale in her favor, and with the express knowledge and consent of
defendants ARRA and Arguelles, she immediately took possession and occupied the same as contained in a certification
to said effect of the defendants, and where they further certified that the certificate of condominium corresponding to
the second floor "is presently under process," copy of said certification is hereto attached as Annex "C" hereof;
5.- That sometime in August 1984, the plaintiff learned that the defendants ARRA and Arguelles, conspiring with one
another in a clear and unmistakeably (sic) scheme to defraud the plaintiff of her investment on the second floor of the 5storey edifice, mortgaged the land and the building covered by Transfer Certificate of Title No. 112269 of the Registry of
Deeds for Makati, Metro Manila, with the China Banking Corporation in order to secure the payment of their loan in the
total sum of P6,500,000.00 without the knowledge and/or consent of the plaintiff;
6.- That after verifying the fact of mortgage with the China Banking Corporation and realizing the risk of loss of her
investment of P1,377,124.59 she had so far paid on the purchase price of the second floor of the 5-storey edifice, the
plaintiff wrote the defendants ARRA and Arguelles on August 31, 1984 proposing to defendants ARRA and Arguelles the
execution of a deed of sale with assumption of mortgage in her favor of the portion of the loan corresponding to the
second floor of the said edifice and informing them of her resolve to hold further payments on the purchase price of the
second floor until her rights and interest over the same shall have been adequately and properly secured, copy of said
letter is hereto attached as Annex "D" hereof;
7.- That in order to facilitate the transaction and expeditious execution of the sale over the second floor in her favor, the
plaintiff had a Deed of Sale with Assumption of Mortgage prepared and forwarded the same to defendants ARRA and
Arguelles for their consideration and signature with an accompanying letter therefor dated September 25, 1984, copy of
said draft of a deed of sale with assumption of mortgage and the accompanying letter therefor are hereto attached as
Annexes "E" and"E-1," respectively;
8.- That by reason of the unjustified, unwarranted and malicious inaction and/or refusal and failure of the defendants
ARRA and Arguelles to comply with plaintiffs perfectly valid and legal demand for the execution of a document of sale
over the second floor of the 5-storey edifice, and in order to protect her rights and interest in said transaction, the
plaintiff caused to be prepared and executed an affidavit of Adverse Claim and effected the annotation thereof on
Transfer Certificate of Title No. 112269 of the Registry of Deeds for Makati, M.M., copy of said Adverse Claim is hereto
attached as Annex "F" hereof.20
On her second cause of action, Pealoza alleged, as follows:
9.- That after her occupation and taking possession of the second floor of the said 5-storey edifice, the plaintiff caused
the installation of a water tank and water pumps thereto;
10.- That the water tank installed on the second floor of the 5-storey edifice involved an outlay of P15,000.00 as
evidenced by Cash Vouchers, copies of which are hereto attached as Annexes "G" and "G-1," while the water pumps
involved the disbursement of P52,000.00 from the funds of the plaintiff as evidenced by Cash Vouchers, copies of which
are hereto attached as Annexes "H," "H-1" hereof;
11.- That when the defendants ARRA and Arguelles mortgaged with (sic) land and the 5-storey edifice to the China
Banking Corporation, the mortgage included the water tank and water pumps servicing the second floor thereof
installed by the plaintiff;21
Pealoza caused the annotation of the notice of lispendens at the dorsal portion of TCT No. 112269.
The GDCIA interposed the following affirmative and special defenses in its answer to the complaint:
26. Guarantee acquired clean title to the Property, as evidenced by the transfer certificate of title attached as Annex 4
hereof.
27. Guarantee was an innocent purchaser for value and in good faith of the Property who: (i) verified that the title to the
Property in the Registry of Deeds of Makati was absolutely free and clear of any encumbrances, liens or claims other
than the mortgage to China Banking Corporation; and, (ii) even obtained explicit confirmation of that fact from Arra and
Arguelles.

30. Consequently, Guarantee could rely, as it did, on the absence of any annotation of encumbrance on the title to the
Property. By clear provision of law, the present action, which is a collateral attack on the title to the Property in
question, cannot be allowed by the Court.
31. The complaint (para. 6) admits that plaintiff was unable to pay the purchase price for the portion of the building
which she allegedly bought under the letter agreement with Arra dated November 18, 1982 (Annex "A," Complaint).
Assuming plaintiffs agreement with Arra to be valid and enforceable, her failure to discharge her part of the agreement
bars her from now attempting to compel performance from Arra and Arguelles.
32. Plaintiffs remedy, should her claim, indeed, be meritorious, is a personal action for damages against Arra and
Arguelles.22
The GDCIA prayed that, after due proceedings, judgment be rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that, after due hearing, judgment be rendered:
(i) Dismissing the complaint for lack of merit;
(ii) Ordering plaintiff to pay attorneys fees in such amount as may be proven in the course of trial;
(iii) Ordering plaintiff to pay to Guarantee the amount of P500,000.00 as moral damages;
or, in the alternative, should plaintiffs claim be adjudged meritorious,
(iv) Ordering defendants Arra and Arguelles, solidarily, to return the purchase price of the Property with interest
as stated in the Deed of Conditional Sale;
(v) Ordering defendants Arra and Arguelles, solidarily, to pay to Guarantee the amount of P1,000,000.00 as
punitive and exemplary damages;
(vi) Ordering defendants Arra and Arguelles to pay attorneys fees in such amount as may be proven in the
course of trial;
(vii) Ordering defendants Arra and Arguelles to pay to Guarantee the amount of P500,000.00 as moral damages.
Other just and equitable reliefs are prayed for.23
The ARC and the Spouses Arguelles interposed the following special and affirmative defenses:
10. Plaintiff has no cause of action against answering defendants; her complaint is definitely a nuisance suit;
11. When answering defendants decided to erect a 5-storey building on their lot in 1982, plaintiff and answering
defendants agree that plaintiff will share in the construction of any one (1) floor thereof; hence, the agreement between
them (Annex "A");
12. Plaintiff not only refused and failed to comply with her Agreement despite repeated demands but also grossly
violated said agreement as she paid only an initial amount of P200,000.00 on February 7, 1982 in contrary to the
specific, express decisive stipulation in Annex "A" which was synchronized with the agreement of Answering Defendants
with the contractor of the building, Pyramid Construction & Engineering Corp., who was committed to finish the building
in a period of five (5) months;
13. Having committed to construct the 5-storey edifice on their lot, answering defendants has (sic) to raise the required
initial amount to start the construction and for this reason, they were constrained to borrow the rest of the amount
necessary for the completion of the building and they used their own land and the building itself as collateral to enable
defendant Arguelles to finish the building plus his own funding in the amount of P7,000,000.00;
14. Despite her non-compliance with her agreement, plaintiff, on her own and without the consent of answering
defendants, occupied the second floor of the building and converted the same into a school the St. Michael International
School and other business establishments whereby she earned no less than P3,000,000.00 in a period of four (4) years of
her occupancy as a squatter thereof without paying the rentals to answering defendants;
15. Due to plaintiffs persistent requests for the issuance in her favor of a certification of her occupancy of the second
floor to enable her to secure a loan in the amount of P3,105,838.00 to complete payment of her obligation, defendant
Carlos Arguelles, always a kind and understanding person, issued Annex "C" with the expectation that plaintiff could,
indeed, comply with her agreement within a period of three (3) months as she promised;

16. Having failed to fulfill her promise and to comply with her obligation as mentioned in the immediately preceding
paragraph hereof, plaintiff voluntarily vacated the second floor of the said building on (sic) May 1986;
17. As a consequence of plaintiffs violation of her written agreement, answering defendants naturally defaulted in their
mortgage obligation with China Banking Corporation and answering defendants lot and building were, therefore,
foreclosed by said bank and having no means of redeeming the mortgaged properties within the redemption period,
answering defendants were compelled to negotiate for the sale of the foreclosed properties which sale was monitored
to the plaintiff together with her statement of account;
18. That the negotiation for the sale of the building took almost a year and during such period, plaintiff was cooperative
in showing the second floor which she was then occupying to prospective buyers;
19. Whatever right plaintiff may have acquired over the second floor of the subject 5-storey building has been
extinguished upon her failure to comply with her obligation, which was the payment of the total amount of
P3,105,838.00 within the specific period expressly provided as the essence of the agreement.24
The ARC and the Spouses Arguelles also interposed counterclaims against the GDCIA, while the latter secured a writ of
preliminary attachment against its co-defendants and garnished their funds. On April 17, 1995, the trial court rendered
judgment in favor of Pealoza and the GDCIA, and against the ARC and the Spouses Arguelles, thus:
WHEREFORE, premises above considered, judgment is hereby rendered as prayed for by plaintiff PEALOZA in the case
for SUM OF MONEY as against defendants ARRA and SPOUSES CARLOS D. ARGUELLES and REMEDIOS DELA RAMAARGUELLES, who are hereby ORDERED as follows:
1. TO PAY plaintiff the amount of P1,444,124.59 with interest of 12 per centum per annum from August 1984
until fully paid;
2. TO PAY the amount of P150,000.00 for and as attorneys fees; and
3. TO PAY the Costs of the proceedings.
The case for SPECIFIC PERFORMANCE and prayer for PRELIMINARY INJUNCTION are considered as DISMISSED on
grounds that this case for this alternative relief was filed after the Transfer Certificate of Title of the property was
already issued by defendant Register of Deeds in the name of GUARANTEE.
The case as against DEFENDANT Guarantee Development Corporation & Insurance Agency (GUARANTEE) is hereby
DISMISSED for insufficiency of evidence.
The counterclaims of DEFENDANTS are hereby DISMISSED for insufficiency of evidence.
SO ORDERED.25
Pealoza, as well as the ARC and the Spouses Arguelles, appealed the decision to the Court of Appeals (CA). The ARC and the
Spouses Arguelles alleged that the Regional Trial Court (RTC) erred as follows:
I IN NOT ANNULLING OR RESCINDING THE CONDITIONAL DEED OF SALE OF REALTY DATED APRIL 29, 1987 AND DEED OF
ABSOLUTE SALE DATED MAY 14, 1999;
II IN NOT ORDERING THE DEFENDANT GUARANTEE DEVELOPMENT AND INSURANCE AGENCY TO PAY DEFENDANTSAPPELLANTS FOR THE MALICIOUS AND UNFOUNDED FILING OF WRIT OF ATTACHMENT AND GARNISHMENT; AND
III IN NOT DIRECTING PACES TO PAY ARRA REALTY AND SPOUSES ARGUELLES ARREARS IN RENTALS PLUS INTERESTS AND
DISMISSING THE ORIGINAL AND AMENDED COMPLAINTS.26
The CA rendered judgment, on September 30, 1998, affirming with modification the appealed decision. The fallo reads:
WHEREFORE, the appeals of both ARRA Realty Corporation and plaintiff Engineer ErlindaPealoza are hereby
DISMISSED, and the Decision of the lower court is hereby AFFIRMED but the award of P150,000.00 as attorneys fees in
favor of said plaintiff is deleted. The Register of Deeds of Makati City is hereby ordered to cancel the Notice of
LisPendens annotated on Transfer Certificate of Title No. 147845 registered in the name of Guarantee Development
Corporation and Insurance Agency.27
The ARC and the Spouses Arguelles filed a motion for reconsideration of the decision of the CA on the following grounds:
1.) THIS HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT PEALOZAS ACTION WAS TANTAMOUNT TO
FORFEITURE OR WAIVER OF HER RIGHTS.

2.) THIS HONORABLE COURT OF APPEALS ERRED IN NOT APPRECIATING THE EVIDENCE OF CO-DEFENDANTS
ARRA/ARGUELLES ESPECIALLY THE ARREARS IN RENTALS/OUT OF POCKET ADVANCES WITH THE RESULTANT UNJUST
ENRICHMENT ON THE PART OF PEALOZA.28
However, the appellate court denied the said motion. Pealoza filed a petition for review on certiorari with this Court docketed
as G.R. No. 136876, wherein she made the following assignment of errors:
I
The Court of Appeals gravely erred in finding respondent Guarantee an innocent purchaser for value and in good faith
contrary to settled jurisprudence that a buyer of a parcel of land who did not pay the purchase price in full and who
could not have failed to know or discover that the land sold to him was in the adverse possession of another is a buyer in
bad faith.
II
The Court of Appeals gravely erred in finding that petitioner, who had established her legal right for sum of money
against respondents Arra and the Arguelles spouses, may be effectively barred from pursuing her alternative remedy for
recovery of title against respondent Guarantee contrary to Section 2, Rule 8 of the Rules of Court.
III
The Court of Appeals gravely erred in not awarding damages and attorneys fees despite violation of the rights of the
petitioner on the wrongful or fraudulent action on the part of the respondents.29

WHEREFORE, premises considered, it is respectfully prayed that the Decision of the Court of Appeals in CA-G.R. CV No.
52911 dated September 30, 1998 as well as its Resolution dated December 23, 1998 be reversed and set aside and that
a Decision be rendered:
1. Declaring as null and void the title of Guarantee (TCT No. 147845) over the subject property located at No.
119 Alvarado St., Legaspi Village, Makati, Metro Manila.
2. Ordering respondents to execute a Deed of Sale in favor of the petitioner covering the subject second floor of
the subject property simultaneously with the tender of the remaining balance on the purchase price.
3. Ordering respondents, jointly and severally, to pay petitioner moral and exemplary damages of One Million
Pesos (P1,000,000.00).
4. Ordering respondents, jointly and severally, to pay petitioner attorneys fees of ten (10%) percent of the
amount involved.
On the alternative cause of action, in the event that specific performance cannot be affected, to render judgment:
1. Ordering respondents, jointly and severally, to pay petitioner the sum of P1,944,124.59 with interest of
twelve (12%) percent from August 1984 until fully paid.
2. Ordering respondents, jointly and severally, to pay moral and exemplary damages of One Million Pesos
(P1,000,000.00).
3. Ordering respondents, jointly and severally, to pay attorneys fees of ten (10%) percent of the amount
involved.
Such other reliefs just and proper are, likewise, prayed for.30
On March 15, 1999, the Court resolved to deny due course to the petition for failure of the petitioner therein to show any
reversible error committed by the CA in its decision. Entry of judgment was made of record on April 14, 1999.31
For their part, the ARC and the Spouses Arguelles, now the petitioner, filed their petition for review with this Court, contending
that:
I
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT HOLDING THAT NO PERFECTED
CONTRACT EXISTS BETWEEN ARRA REALTY CORPORATION AND ENGINEER ERLINDA PEALOZA.
II
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT HOLDING THAT GUARANTEE
DEVELOPMENT CORPORATION IS NOT AN INNOCENT PURCHASER FOR VALUE AND THAT AUTOMATIC RESCISSION IS
PRESENT.32

III

THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN NOT HOLDING THAT ENGINEER
ERLINDA PEALOZA IS GUILTY OF FRAUD AND IS IN BAD FAITH. HENCE, LIABLE FOR DAMAGES.
At the outset, it must be pointed out that the issues raised by the parties in their respective pleadings in this Court have already
been resolved in G.R. No. 136876, where we denied due course to Pealozas petition for review. Nonetheless, considering that
the sole petitioner in the said case was Pealoza, whereas the petitioners in the petition at bar are the ARC and the Spouses
Arguelles, we shall resolve the petition on its merits. Furthermore, since the issues raised by the petitioners in their assignment
of errors are interrelated, the Court shall delve into and resolve the same simultaneously.
The petitioners posit that no contract of sale over the subject property was perfected between the petitioner ARC, on the one
hand, and respondent Pealoza, on the other, because the latter failed to pay the balance of the total purchase price of a
portion of the second floor of the building as provided in their November 18, 1982 agreement. They aver that respondent
Pealoza bound and obliged herself to pay the downpayment of P901,738 on or before January 1983, and the balance in twenty
(20) equal quarterly payments of P110,205. However, the petitioners aver, respondent Pealoza was able to complete the
downpayment only on March 4, 1983 and managed to pay only three quarterly installments, and part of the fourth quarterly
installment. They assert that, in violation of the November 18, 1982 agreement, respondent Pealoza used the property as a
school instead of an office, and later abandoned the same without prior notice to the petitioner ARC. The petitioners assert that
respondent Pealoza failed to pay for the advances extended to her, amounting to P302,753.06 inclusive of interests, as well as
rentals for her occupancy of the property in the total amount of P2,177,935. The petitioners contend that, even if the payments
of respondent Pealoza amounting to P1,735,500 would be deducted from the agreed purchase price, she would still end up
owing the petitioner ARC the net amount of P930,815.56, excluding interests. They aver that respondent Pealoza should be
ordered to pay damages under Article 19 of the New Civil Code because she acted in bad faith, and pray that the payments she
made to the petitioner ARC for the purchase of the said portion of the building be forfeited in its favor.
The petitioners further contend that respondent GDCIA was a purchaser of the property in bad faith because it purchased the lot
and building despite its presumed knowledge of the claims of respondent Pealoza and the fact that the building was occupied
by private individuals and/or corporations. The petitioners aver that they even offered to return the P21,000,000 paid by the
respondent GDCIA for the property, less the retained P1,000,000, but that the latter rejected the offer. Hence, the deed of
absolute sale executed by the petitioner ARC and the respondent GDCIA over the property was automatically rescinded.
In her comment on the petition, respondent Pealoza averred that her November 18, 1982 agreement with the petitioner ARC is
a perfected contract of sale. She asserts that the CA erred in holding that she was barred from recovering the property from the
respondent GDCIA and in not finding that the latter is not an innocent purchaser in good faith because, by its own admission, it
purchased the building although it was still occupied. In fact, she notes, the respondent GDCIA retained P1,000,000 of the
purchase price of the property to answer for any claims for damages of the said occupants. She prayed, thus:
WHEREFORE, premises considered, it is respectfully prayed that the petition be denied and that the Decision of the
Court of Appeals in CA-G.R. CV No. 52911 dated September 30, 1998 as well as its Resolution dated February 21, 2000
be modified in that:
1. Declaring as null and void the title of Guarantee (TCT No. 147845) over the subject property located at No.
119 Alvarado St., Legaspi Village, Makati, Metro Manila.
2. Ordering petitioners and respondent Guarantee to execute a Deed of Sale in favor of the petitioner covering
the subject second floor of the subject property simultaneously with the tender of the remaining balance on the
purchase price.
3. Ordering petitioners and respondent Guarantee, jointly and severally, to pay Pealoza moral and exemplary
damages of One Million Pesos (P1,000,000.00).
4. Ordering petitioners and respondent Guarantee, jointly and severally, to pay Pealoza attorneys fees of ten
(10%) percent of the amount involved.
In the alternative, in the event that specific performance cannot be affected, to render judgment:
1. Ordering petitioners and respondent Guarantee, jointly and severally, to pay petitioner the sum of
P1,944,124.59 with interest of twelve (12%) percent from August 1984 until fully paid.
2. Ordering petitioners and respondent Guarantee, jointly and severally, to pay moral and exemplary damages
of One Million Pesos (P1,000,000.00).
3. Ordering petitioners and respondent Guarantee, jointly and severally, to pay attorneys fees of ten (10%)
percent of the amount involved.
Such other reliefs just and proper are, likewise, prayed for.33
In its comment on the petition, the respondent GDCIA avers that the issues raised by the petitioners and respondent Pealoza in
her Comment had already been resolved by this Court in G.R. No. 136876, when the petition therein was denied due course.
We rule against the petitioners.
Central to the issue is the November 18, 1982 letter-agreement of the parties, which reads:
Ms. ErlindaPealoza
5th Flr. ODC Intl. Plaza Bldg.

Salcedo St., Legaspi Village

Makati, Metro Manila
Dear Linda:
I would like to review the arrangement arrived at our meeting yesterday afternoon. You shall share one (1) floor
of the proposed 5-storey office building to be constructed on a 992 sq. mt. lot owned by ARRA Realty
Corporation located at Alvarado St., Legaspi Village, Makati, MetroMla. The consideration for which you shall
own one (1) floor is THREE MILLION ONE HUNDRED FIVE THOUSAND EIGHT HUNDRED THIRTY-EIGHT PESOS
(P3,105,838.00) on a deferred payment plan. The initial payment of NINE HUNDRED ONE THOUSAND SEVEN
HUNDRED THIRTY-EIGHT PESOS (P901,738.00) shall be paid within sixty (60) days from November 20, 1982 and
the balance payable in 20 equal quarterly payments of ONE HUNDRED TEN THOUSAND TWO HUNDRED FIVE
PESOS (P110,205.00). Every payment that you make, ARRA shall credit your account by way of partial payment
to your stock subscriptions of ARRAs capital stock. As soon as our contractor, Pyramid Construction and
Engineering Corporation, complete its commitment with us, which is not more than five (5) months, you shall
immediately take possession of the floor of your choice. Further, as soon as practicable, the Title corresponding
to the floor that you own shall be transferred to your name.
However, should you pay in full at the end of the fourth quarter or at any time prior to the 5-year arrangement,
the price shall be adjusted accordingly.
I believe that this accurately summarizes our understanding. If you have any questions or if I have not properly
stated our agreement, please let me know, otherwise, you may signify your conformity by signing the duplicate
copy of this letter.
Very truly yours,
(Sgd.)
CARLOS D. ARGUELLES
President & General Manager

CONFORME:
(Sgd.)

PL:FP:ccr

ERLINDA PEALOZA
Date: __________34

As gleaned from the agreement, the petitioner ARC, as vendor, and respondent Pealoza, as vendee, entered into a contract of
sale over a portion of the second floor of the building yet to be constructed for the price of P3,105,838 payable in installments,
the first installment of P901,738 to be paid within sixty (60) days from November 20, 1982 or on or before January 20, 1983, and
the balance payable in twenty (20) equal quarterly payments of P110,205. As soon as the second floor was constructed within
five (5) months, respondent Pealoza would take possession of the property, and title thereto would be transferred to her
name. The parties had agreed on the three elements of subject matter, price, and terms of payment. Hence, the contract of sale
was perfected, it being consensual in nature, perfected by mere consent, which, in turn, was manifested the moment there was
a meeting of the minds as to the offer and the acceptance thereof.35 The perfection of the sale is not negated by the fact that
the property subject of the sale was not yet in existence. This is so because the ownership by the seller of the thing sold at the
time of the perfection of the contract of sale is not an element of its perfection. A perfected contract of sale cannot be
challenged on the ground of non-ownership on the part of the seller at the time of its perfection. What the law requires is that
the seller has the right to transfer ownership at the time the thing is delivered. Perfection per se does not transfer ownership
which occurs upon the actual or constructive delivery of the thing sold.36
In May 1983, respondent Pealoza took possession of a portion of the second floor of the building sold to her with an area of
552 square meters. She put up her office and operated the St. Michael International Institute of Technology. Thenceforth,
respondent Pealoza became the owner of the property, conformably to Article 1477 of the New Civil Code which reads:
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof.
In a contract of sale, until and unless the contract is resolved or rescinded in accordance with law, the vendor cannot recover the
thing sold even if the vendee failed to pay in full the initial payment for the property. The failure of the buyer to pay the
purchase price within the stipulated period does not by itself bar the transfer of ownership or possession of the property sold,
nor ipso facto rescind the contract.37 Such failure will merely give the vendor the option to rescind the contract of sale judicially
or by notarial demand as provided for by Article 1592 of the New Civil Code:
Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price
at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or
by a notarial act. After the demand, the court may not grant him a new term.

Admittedly, respondent Pealoza failed to pay the downpayment on time. But then, the petitioner ARC accepted, without any
objections, the delayed payments of the respondent; hence, as provided in Article 1235 of the New Civil Code, the obligation of
the respondent is deemed complied with:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.
The respondent cannot be blamed for suspending further remittances of payment to the petitioner ARC because when she
pushed for the issuance of her title to the property after taking possession thereof, the ARC failed to comply. She was aghast
when she discovered that in July 1984, even before she took possession of the property, the petitioner ARC had already
mortgaged the lot and the building to the China Banking Corporation; when she offered to pay the balance of the purchase price
of the property to enable her to secure her title thereon, the petitioner ARC ignored her offer. Under Article 1590 of the New
Civil Code, a vendee may suspend the payment of the price of the property sold:
Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the
payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for
the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the
vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment
of the price.
Respondent Pealoza was impelled to cause the annotation of an adverse claim at the dorsal portion of TCT No. 112269. Her
testimony is quoted, thus:
Q: And did you finally acquire the certificate of title to the 2nd floor of the said building?
A: No, Sir.
Q: Why not?
A: Because the said building was mortgaged by ARRA Realty and Architect Arguelles with China Banking Corporation and
subsequently sold to Guaranty (sic) Development Corporation.
Q: When, for the first time, did you learn about the mortgage of the building to China Banking Corp.?
A: It was sometime in July of 1984.
Q: How did you learn about it?
A: Since I took possession of the 2nd floor and made payments thereon, I asked Architect Arguelles every now and then
about the execution of a Deed of Sale to the 2nd floor.
Q: What was the reply of Arguelles?
A: He told me that he had to work out yet the titling of the 2nd floor as a condominium unit.
Q: Was Arguelles able to have the 2nd floor titled as a condominium unit?
A: No, Sir.
Q: Why not?
A: Because he did not take any steps about it.
Q: When Arguelles did not take steps about it, what did you do?
A: I inquired why Arguelles was not doing anything about the titling of the 2nd floor and the sale thereof to me. That
was how I discovered that Arguelles mortgaged the same to the China Banking Corp.38

Q: With those letters, what did you do?

A: On August 31, 1984, I wrote a letter to ARRA requesting them to execute a deed of sale with the assumption of
mortgage in my favor. I attached a copy of the deed of sale and assumption of mortgage to the said letter, may I request
this letter be marked as Exh. "U" and the deed of sale attached to it with the assumption of mortgage as Exh. "U-1."
Q: Did ARRA reply to your letter?
A: ARRA and Arguelles ignored the said letter.
Q: What did you do then?
A: On September 25, 1984, I wrote a letter to ARRA which I request to be marked as Exh. "V" reiterating the signing of
the deed of sale and at the same time telling him that I was suspending my payments on the 2nd floor unless and until
he signs that Deed of Sale. I offered to pay the full amount so I can get the certificate of title, because I had more than
sufficient money to pay him at the time. Here are copies of my bank deposits from 1982 to 1986 which show my
liquidity. I request that they be marked as Exh. "W" and "W-1" to "W-59" inclusive.
Q: What did ARRA do with that letter?
A: ARRA and Arguelles ignored the said letter.
Q: What steps did you take?
A: Upon [the] advise of my lawyer, I filed a Notice of Adverse Claim dated November 26, 1984, which I request to be
marked as Exh. "X" which was inscribed the next day, November 7, 1984, at the back of the Certificate of Title No.
112269, which I request to be marked as Exh. "Y" and the inscription of the Notice of Adverse Claim to be bracketed and
marked as Exh. "Y-1."39
Contrary to the claim of the petitioners, respondent Pealoza did not waive her right to enforce the letter-agreement or
abandon the property she had purchased from the petitioner ARC. While she transferred the school to another location, the
respondent maintained her office in the subject property, only to discover that the petitioner had had her office padlocked.
Nevertheless, she had her office reopened and continued holding office thereat for a year or so, thereafter:

Q: In the meantime, did you continue holding office and holding classes for St. Michael on the 2nd floor?
A: Sometime in April of 1986 when classes ended I transferred the St. Michael School to a building which I purchased at
Yakal St. also in Makati.
Q: Why did you transfer the St. Michael School at that building in Yakal St.?
A: Because after three years of operation the St. Michael School has grown too big for the 2nd floor of that building at
119 Alvarado.
Q: How about your Engineering Office?
A: My Engineering Office has also grown bigger, just right for that space at the 2nd floor, so it remained there.
Q: So the office of Pealoza Engineering retained the Alvarado office?
A: Yes, Sir.
Q: After St. Michael left it, were you able to hold office there peacefully?
A: No, Sir.
Q: Why not?
A: One Monday, I went to our office at the 2nd floor at 119 Alvarado for work.
Q: Were you able to enter the office?
A: No, Sir.
Q: Why not?
A: Because the padlock that I placed there had been changed.
Q: How did you discover that?
A: Because when I was using my key to my padlock, it would not fit.
Q: What did you do?
A: I went to the office of Engr. Arguelles at ARRA Realty Corp. at the upper floor and asked them why they changed the
padlock. Nobody wanted to explain to me why the padlock was changed but they gave me the key and I had it
duplicated for my use, so I continued holding office there. I held office in the said premises continuously for about a
year. Later on, it was padlocked.40
Respondent Pealoza turned over the possession of the property to the petitioner ARC on October 7, 1986 and, shortly
thereafter, filed her complaint against the petitioner ARC. The bare fact that the respondent filed her complaint shortly after
vacating the property is evidence of her determination to pursue her claims against the petitioners.
In view of the failure of the petitioner ARC to transfer the title of the property to her name because of the mortgage thereof to
China Banking Corporation and the subsequent sale thereof to the GDCIA, respondent Pealoza is entitled to the refund of the
amount she paid to the petitioner ARC, conformably to Article 1398 of the New Civil Code, which reads:
Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have
been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages.
We reject the petitioners claim that respondent Pealoza is liable for P2,177,935 by way of advances and unpaid
rentals. We note that in their answer to the amended complaint of respondent Pealoza, the petitioners did not
interpose any counterclaims for actual damages in the form of unpaid rentals. Neither did the petitioners assign as error
in their brief in the CA the failure of the trial court to award P302,753.06 to them for advances. It was only when they
moved for the reconsideration of the decision of the CA did they claim, for the first time on appeal, their entitlement to
P302,753.06 as refund for advances. The petitioner ARC is, thus, barred from raising the said issue in this Court.41
Likewise barren of factual and legal basis is the petitioners claim for damages against the respondent based on Article 19 of the
New Civil Code, which reads:
Art. 19. 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.
In this case, respondent Pealoza suspended the payment of the balance of the purchase price of the property because she had
the right to do so. While she failed to pay the purchase price on time, the petitioner ARC nevertheless accepted such delayed
payments. The respondent even proposed to assume the loan account of the petitioner ARC with the China Banking Corporation
in an amount equivalent to the balance of the purchase price of the subject property, which the petitioner ARC rejected. In fine,
respondent Pealoza acted in accord with law and in utmost good faith. Hence, she is not liable for damages to the petitioners
under Article 19 of the New Civil Code.
The law is that men, singly or in combination, may use any lawful means to accomplish a lawful purpose, although the means
adopted may cause injury to another.42 When a person is doing a lawful thing in a lawful way, his conduct is not actionable
though it may result in damages to another; for, though the damage caused is undoubted, no legal right of another is invaded;
hence, it is said to be damnumabsque injuria.43
The elements of abuse of rights are the following: (a) the existence of a legal right or duty, (b) which is exercised in bad faith; and
(c) for the sole intent of prejudicing or injuring another. Malice or bad faith is at the core of said provision.44 Good faith is

presumed and he who alleges bad faith has the duty to prove the same.45 Good faith refers to the state of the mind which is
manifested by the acts of the individual concerned. It consists of the intention to abstain from taking an unconscionable and
unscrupulous advantage of another.46 Bad faith, on the other hand, does not simply connote bad judgment to simple negligence.
It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a breach of known duty due to some
motive or interest or ill-will that partakes of the nature of fraud.47 Malice connotes ill-will or spite and speaks not in response to
duty. It implies an intention to do ulterior and unjustifiable harm. The petitioners failed to adduce evidence of bad faith or
malice on the part of respondent Pealoza. This cannot be said of the petitioner ARC. It mortgaged the property to China
Banking Corporation even after having sold the same to respondent Pealoza, and, thereafter, sold the same anew to GDCIA;
respondent Pealoza was, thus, left holding the proverbial bag.
On the last issue, the petitioners contend that the deed of conditional sale and deed of absolute sale executed by them and the
respondent GDCIA were automatically nullified because the latter had actual or personal knowledge that the property sold had
tenants. Furthermore, the respondent GDCIA retained P1,000,000 on account of the claims of respondent Pealoza, Paces
Industrial Development Corporation, and Emeterio Samson over the portions of the property.
The contention of the petitioners has no merit.
First. The petitioners did not file a counterclaim against the respondent GDCIA for the rescission of the aforesaid
decision.48Moreover, the petitioners did not adduce evidence to prove bad faith on the part of the respondent GDCIA.
Additionally, the petitioners warranted in the aforesaid deeds in favor of the said respondent, that:
d) It is hereby agreed, convenanted and stipulated by and between the parties hereto that the VENDOR will execute and
deliver to the VENDEE a definite or absolute Deed of Sale upon the full payment by the VENDEE of the unpaid balance of
the purchase price hereinabove stipulated.
1. The VENDOR undertakes and commits to deliver the Property, including all floors of the building, as entirely vacant to
the VENDEE not later than May 15, 1987. Physical possession, however, of the first and second floors of the Building can
be turned over to the VENDEE at any time convenient to them.49

The VENDOR undertakes to perform, fulfill and comply with the representations, warranties and undertaking stated in
the Deed of Conditional Sale. Should the VENDOR fail to do so, this agreement shall become null and void and the
VENDEE shall be entitled to enforce its right under Section 8 of the Deed of Conditional Sale.50
Second. The respondent GDCIA relied on the representations of the petitioners. However, the respondent received claims for
ownership of portions of the property from tenants of the building, including respondent Pealoza, which impelled it to retain
P1,000,000 of the purchase price to answer for said claims. There is, thus, no factual and legal basis for the plea of the
petitioners that the trial court and the CA erred in not rendering judgment in their favor declaring the said deeds rescinded.
On the claim of respondent Pealoza against the petitioners and her co-respondent GDCIA, we agree with the latter that the
same is barred by the resolution of this Court in G.R. No. 136876, denying due course to her petition for review of the decision of
the CA on the ground that no reversible error was committed by the said court, which resolution has become final and
executory.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision and resolution of the Court of Appeals are
AFFIRMED. Costs against the petitioners.
SECOND DIVISION
[G.R. No. 129107. September 26, 2001]
ALFONSO L. IRINGAN, petitioner, vs. HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact, FELISA
P. DELOS SANTOS, respondents.
DECISION
QUISUMBING, J.:
This petition assails the Decision dated April 30, 1997 of the Court of Appeals in CA G.R. CV No. 39949, affirming the decision of
the Regional Trial Court and deleting the award of attorneys fee.
The facts of the case are based on the records.
On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan, an undivided portion of Lot No. 992 of
the TuguegaraoCadastre, located at the Poblacion of Tuguegarao and covered by Transfer Certificate of Title No. T-5790. The
parties executed a Deed of Sale on the same date with the purchase price of P295,000.00, payable as follows:
(a) P10,000.00 upon the execution of this instrument, and for this purpose, the vendor acknowledges having received the said
amount from the vendee as of this date;
(b) P140,000.00 on or before April 30, 1985;
(c) P145,000.00 on or before December 31, 1985.

When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao sent a lettertoIringan stating that
he considered the contract as rescinded and that he would not accept any further payment considering that Iringan failed to
comply with his obligation to pay the full amount of the second installment.
On August 20, 1985, Iringan through his counsel Atty. Hilarion L. Aquino. Replied that they were not opposing the revocation of
the Deed of Sale but asked for the reimbursement of the following amounts:
(a) P50,000.00 cash received by you;
(b) P3,200.00 geodetic engineers fee;
(c) P500.00 attorneys fee;
(d) the current interest on P53,700.00.
In response, Palao sent a letter dated January 10, 1986, to Atty. Aquino, stating that he was not amenable to the
reimbursements claimed by Iringan.
On February 21, 1989, Iringan, now represented by a new counsel Atty. Carmelo Z. Lasam, proposed that the P50,000 which he
had already paid Palao be reimbursed or Palao could sell to Iringan, an equivalent portion of the land.
Palao instead wrote Iringan that the latters standing obligation had reached P61,600, representing payment of arrears for
rentals from October 1985 up to March 1989. The parties failed to arrive at an agreement.
On July 1, 1991, Palao filed a Complaint for Judicial Confirmation of Rescission of Contract and Damages against Iringan and his
wife.
In their Answer, the spouses alleged that the contract of sale was a consummated contract, hence, the remedy of Palao was for
collection of the balance of the purchase price and not rescission. Besides, they said that they had always been ready and willing
to comply with their obligations in accordance with said contract.
In a Decision dated September 25, 1992, the Regional Trial Court of Cagayan, Branch I, ruled in favor of Palao and affirmed the
rescission of the contract. It disposed,
WHEREFORE, the Court finds that the evidence preponderates in favor of the plaintiff and against the defendants and judgment
is hereby rendered as follows:
(a)

Affirming the rescission of the contract of sale;

(b)

Cancelling the adverse claim of the defendants annotated at the back of TCT No. T-5790;

(c)

Ordering the defendants to vacate the premises;

(d)
Ordering the defendants to pay jointly and severally the sum of P100,000.00 as reasonable compensation for use of the
property minus 50% of the amount paid by them; and to pay P50,000.00 as moral damages; P10,000.00 as exemplary damages;
and P50,000.00 as attorneys fee; and to pay the costs of suit.
SO ORDERED.
As stated, the Court of Appeals affirmed the above decision. Hence, this petition for review.
Iringan avers in this petition that the Court of Appeals erred:
1. In holding that the lower court did not err in affirming the rescission of the contract of sale; and
2. In holding that defendant was in bad faith for resisting rescission and was made liable to pay moral and exemplary damages.
We find two issues for resolution: (1) whether or not the contract of sale was validly rescinded, and (2) whether or not the
award of moral and exemplary damages is proper.
On the first issue, petitioner contends that no rescission was effected simply by virtue of the letter sent by respondent stating
that he considered the contract of sale rescinded. Petitioner asserts that a judicial or notarial act is necessary before one party
can unilaterally effect a rescission.
Respondent Palao, on the other hand, contends that the right to rescind is vested by law on the obligee and since petitioner did
not oppose the intent to rescind the contract, Iringan in effect agreed to it and had the legal effect of a mutually agreed
rescission.
Article 1592 of the Civil Code is the applicable provision regarding the sale of an immovable property.
Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act.
After the demand, the court may not grant him a new term. (Italics supplied)

Article 1592 requires the rescinding party to serve judicial or notarial notice of his intent to resolve the contract.
In the case of Villaruel v. Tan King, we ruled in this wise,
since the subject-matter of the sale in question is real property, it does not come strictly within the provisions of article 1124
(now Article 1191) of the Civil Code, but is rather subjected to the stipulations agreed upon by the contracting parties and to the
provisions of article 1504 (now Article 1592) of the Civil Code.
Citing Manresa, the Court said that the requirement of then Article 1504, refers to a demand that the vendor makes upon the
vendee for the latter to agree to the resolution of the obligation and to create no obstacles to this contractual mode of
extinguishing obligations.
Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has
been stipulated. It is to be noted that the law uses the phrase even though emphasizing that when no stipulation is found on
automatic rescission, the judicial or notarial requirement still applies.
On the first issue, both the trial and appellate courts affirmed the validity of the alleged mutual agreement to rescind based on
Article 1191 of the Civil Code, particularly paragraphs 1 and 2 thereof.
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.[Emphasis
ours.]
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.
But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to automatic rescission. In Escueta v.
Pando, we ruled that under Article 1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal obligations, is
deemed implied in case one of the obligors shall fail to comply with what is incumbent upon him. But that right must be invoked
judicially. The same article also provides: The Court shall decree the resolution demanded, unless there should be grounds
which justify the allowance of a term for the performance of the obligation.
This requirement has been retained in the third paragraph of Article 1191, which states that the court shall decree the
rescission claimed, unless there be just cause authorizing the fixing of a period.
Consequently, even if the right to rescind is made available to the injured party, the obligation is not ipso facto erased by the
failure of the other party to comply with what is incumbent upon him. The party entitled to rescind should apply to the court for
a decree of rescission. The right cannot be exercised solely on a partys own judgment that the other committed a breach of the
obligation. The operative act which produces the resolution of the contract is the decree of the court and not the mere act of
the vendor. Since a judicial or notarial act is required by law for a valid rescission to take place, the letter written by respondent
declaring his intention to rescind did not operate to validly rescind the contract.
Notwithstanding the above, however, in our view when private respondent filed an action for Judicial Confirmation of Rescission
and Damages before the RTC, he complied with the requirement of the law for judicial decree of rescission. The complaint
categorically stated that the purpose was 1) to compel appellants to formalize in a public document, their mutual agreement of
revocation and rescission; and/or 2) to have a judicial confirmation of the said revocation/rescission under terms and conditions
fair, proper and just for both parties. In Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., we held that even a crossclaim
found in the Answer could constitute a judicial demand for rescission that satisfies the requirement of the law.
Petitioner contends that even if the filing of the case were considered the judicial act required, the action should be deemed
prescribed based on the provisions of Article 1389 of the Civil Code.
This provision of law applies to rescissible contracts, as enumerated and defined in Articles 1380 and 1381. We must stress
however, that the rescission in Article 1381 is not akin to the term rescission in Article 1191 and Article 1592. In Articles
1191 and 1592, the rescission is a principal action which seeks the resolution or cancellation of the contract while in Article
1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said article.
The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144, which provides that the
action upon a written contract should be brought within ten years from the time the right of action accrues. The suit was
brought on July 1, 1991, or six years after the default. It was filed within the period for rescission. Thus, the contract of sale
between the parties as far as the prescriptive period applies, can still be validly rescinded.

On the issue of moral and exemplary damages, petitioner claims that the Court of Appeals erred in finding bad faith on his part
when he resisted the rescission and claimed he was ready to pay but never actually paid respondent, notwithstanding that he
knew that appellees principal motivation for selling the lot was to raise money to pay his SSS loan. Petitioner would have us
reverse the said CA findings based on the exception that these findings were made on a misapprehension of facts.
The records do not support petitioners claims. First, per the records, petitioner knew respondents reason for selling his
property. As testified to by petitioner and in the deposition of respondent, such fact was made known to petitioner during their
negotiations as well as in the letters sent to petitioner by Palao. Second, petitioner adamantly refused to formally execute an
instrument showing their mutual agreement to rescind the contract of sale, notwithstanding that it was petitioner who plainly
breached the terms of their contract when he did not pay the stipulated price on time, leaving private respondent desperate to
find other sources of funds to pay off his loan. Lastly, petitioner did not substantiate by clear and convincing proof, his
allegation that he was ready and willing to pay respondent. We are more inclined to believe his claim of readiness to pay was an
afterthought intended to evade the consequence of his breach. There is no record to show the existence of such amount, which
could have been reflected, at the very least, in a bank account in his name, if indeed one existed; or, alternatively, the proper
deposit made in court which could serve as a formal tender of payment. Thus, we find the award of moral and exemplary
damages proper.
WHEREFORE, the petition is DENIED. The assailed decision dated April 30, 1997 of the Court of Appeals in CA G.R. CV No. 39949,
affirming the Regional Trial Court decision and deleting the award of attorneys fees, is hereby AFFIRMED. Costs against the
petitioner.
SO ORDERED.
G.R. No. 137552 June 16, 2000
ROBERTO Z.LAFORTEZA,
GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z.LAFORTEZA, and LEA Z. LAFORTEZA, petitioners,
vs. ALONZO MACHUCA, respondent.
PARTIES: HEIRS OF FRANCISCO LAFORTEZA SELLER ALONZO MACHUCA BUYER SUBJECT: A house and lot located at No. 7757
Sherwood Street, Marcelo Green Village, Paraaque,Metro Manila worth P630, 000.00.
FACTS:
In the exercise of the authority of Special Power Of Attorney, on January 20, 1989, the heirs of the late Francisco Q. Laforteza
represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. enteredinto a Memorandum of Agreement (Contract to Sell)
with the plaintiff over the subject property for thesum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not effected due tothe fault of the
plaintiff;(b) P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q. Lafortezaand upon
execution of an extra-judicial settlement of the decedent's estate with sale in favor of the plaintiff (Par. 2, Exh. "E", record, pp.
335-336).
Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20,1989 (Exh. "E",
supra.)contained a provision as follows:
. . . . Upon issuance by the proper Court of the new title, the BUYER-LESSEE shall be notified in writing and said BUYER-LESSEE
shall have thirty (30) days to produce the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution
of the Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND PESOS (P30,000.00), plusrentals for the subject
property .On September 18, 1998 3, defendant heirs, through their counsel wrote a letter to the plaintiff furnishingthe latter a
copy of the reconstituted title to the subject property, advising him that he had thirty (3) days to produce the balance of
P600,000.00 under the Memorandum of Agreement which plaintiff received on thesamedate.On October 18, 1989, plaintiff sent
the defendant heirs a letter requesting for an extension of the THIRTY(30) DAYS deadline up to November 15, 1989 within which
to produce the balance of P600,000.00.Defendant Roberto Z. Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez, signed
his conformityto the plaintiff's letter request. The extension, however, does not appear to have been approved by GonzaloZ.
Laforteza, the second attorney-in-fact as his conformity does not appear to have been secured.On November 15, 1989, plaintiff
informed the defendant heirs, through defendant Roberto Z. Laforteza,that he already had the balance of P600,000.00 covered
by United Coconut Planters Bank Manager's Check dated November 15, 1989 . However, the defendants, refused to accept the
balance .Defendant Roberto Z.Laforteza had told him that the subject property was no longer for sale .On November 20,
defendants informed plaintiff that they were canceling the Memorandum of Agreement(Contract to Sell) in view of the plaintiff's
failure to comply with his contractual obligations .
Thereafter, plaintiff reiterated his request to tender payment of the balance of P600,000.00. Defendants,however, insisted on
the rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instantaction for specific performance.
LOWER COURT:
The lower court rendered judgment in favor of the Alonzo Machuca and against thedefendant heirs of the late Francisco Q.
Laforteza,.Petitioners appealed to the Court of Appeals,
CA:
This affirmed with the decision of the lower court.Hence this petition wherein the petitioners raise the issues:
ISSUE: Whether or not the MOA is an OPTION CONTRACT, CONTRACT TO SELL or aCONTRACT OF SALE.

SC: In the case at bench, there was a perfected agreement between the petitioners and the respondentwhereby the petitioners
obligated themselves to transfer the ownership of and deliver the house and lotlocated at 7757 Sherwood St., Marcelo Green
Village, Paraaque and the respondent to pay the priceamounting to six hundred thousand pesos (P600,000.00).
All the elements of a contract of sale were thuspresent.
The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2)
determinate subject matter and (3) price certain money or its equivalent.Even assuming for the sake of argument that the
petitioners were ready to comply with their obligation (andMachuca cannot), we find that rescission of the contract will still not
prosper. The rescission of a sale of animmovable property is specifically governed by Article 1592 of the New Civil Code, which
reads:
In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place, the vendee may pay,even after the expiration of the period,
as long as no demand for rescission of the contract has been madeupon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term
.It is not disputed that the petitioners did not make a judicial or notarial demand for rescission.
Jose Gomez et al vs Court of Appeals et al
OnMarch 17, 2012
168 scra 503, Land Titles and Deeds
Judgment Confirms Title Sec 30 & 32 PD 1529
A court ruling (Philippine Islands vsAbran) settled that 12 parcels of land belonged to one Consolacion Gomez. Consolacion later
died and the 12 parcels of land were inherited by Gomez et al her heirs. The heirs agreed to divide the property among them.
After notice and publication, and there being no opposition to the application, the trial court issued an order of general default.
On 5 August 1981, the court rendered its decision adjudicating the subject lots in Gomez et als favor. The decision became final
and executory hence the court directed the Chief of the General Land Registration Office to issue the corresponding decrees of
registration over the lots adjudicated.
GLRO Chief Silverio Perez opposed the adjudication and petitioned for its setting aside. He discovered that the 12 parcels of land
were formerly part of a titled land which was already granted by homestead patent in 1929. Under the law, land already granted
by homestead patent can no longer be the subject of another registration. The lower court granted Silverios recommendation.
Gomez et al invoked Sec. 30 and 32 of PD 1529 (Land Registration Act) which provides that after judgment has become final and
executory, the court shall forthwith issue an order to the Commissioner of Land Registration for the issuance of the decree of
registration and certificate of title. That once the judgment becomes final and executory under Sec 30, the decree of registration
must issue as a matter of course.
ISSUE: Whether or not to set aside the lower courts initial ruling on approving the adjudication even after it had became final
and executory.
HELD: Yes. Unlike ordinary civil actions, the adjudication of land in a cadastral or land registration proceeding does not become
final, in the sense of incontrovertibility until after the expiration of one (1) year after the entry of the final decree of
registration. The Supreme Court has held that as long as a final decree has not been entered by the Land Registration
Commission (now NLTDRA) and the period of one (1) year has not elapsed from date of entry of such decree, the title is not
finally adjudicated and the decision in the registration proceeding continues to be under the control and sound discretion of the
court rendering it.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-20954
May 24, 1967
ELIAS GALLAR, plaintiff-appellee,
vs.
HERMENEGILDA HUSAIN, ET AL., defendants.
BONIFACIO HUSAIN, defendant-appellant.
D. E. Esmeralda for defendant-appellant.
E. B. Treas for plaintiff-appellee.
REGALA, J.:
This is an appeal directly from the Court of First Instance.

A hectare of rice land in Cabatuan, Iloilo, is the subject of this controversy. On January 9, 1919, Teodoro Husain, the owner, sold
this land to SerapioChichirita for P30, reserving for himself the right to repurchase it within six years. The deed of sale, written in
Ilongo dialect, is contained in a private instrument, the English translation of which reads:
I, Teodoro Husain, single, of legal age, native and resident of the Municipality of Cabatuan, Province of Iloilo, Philippine
islands, because of the amount of Thirty Pesos (P30.00), Philippine currency, that was paid to me by SerapioChichirita,
married to FlorentinaMuyuela of legal age, native and resident of this Municipality of Cabatuan, Province of Iloilo,
Philippine Islands, hereby declare that I am selling to the aforementioned vendee SerapioChichirita, his heirs, and the
heirs of the latter, my one parcel of rice land at Barrio Salacay of this Municipality of Cabatuan, and its descriptions are
as follows:
One parcel of rice land that has a seedling of one cavan of palay, legal measure, bounded on the North, land of
Juan Alcayaga, on the East, land of AgapitoSuero, on the South, land of Elias Gallar and on the West, land of Juan
Mina. The said land was inherited by me from my father who is now dead, Clemente Husain.
I also declare that we have agreed that if the vendor shall have repaid to the vendee the aforementioned amount of P30.00
within six years from this date, the vendee or his heirs shall execute a document of repurchase in my favor, but if after the said
term that he cannot return the aforementioned amount, this document shall be considered absolute and irrevocably
consummated and in the meantime the vendee shall be the one to make use of the aforementioned land in accordance with the
Ley Hipotecaria.
In truth whereof, I have signed this document at Cabatuan, 9th of January, 1919.
(Sgd.) TEODORO HUSAIN
Signed in the presence of:
(sgd.) TOMAS JILOCA

(sgd.) EUSEBIO JOCANO

Teodoro Husain did not redeem the land, although shortly after the execution of the deed of sale, that is, on January 28, 1919,
the vendee a retro, Chichirita, transferred his right to Graciana Husain, sister of the vendor a retro, in what purports to be a
resale of the land. The following annotation appears on the reverse side of the deed of pacto de retro sale:
NOTA: The amount stated above, was received by me from Graciana Husain and on my own voluntary will as
redemption (gawad) of the same land, and because of this, I am transferring my rights as stated above to Graciana
Husain in the presence of her husband Manuel Catalan, and in truth whereof I have signed at Cabatuan, 28 January
1919.
Thumb marked
SerapioChichirita
(English translation)
Graciana Husain subsequently transferred her rights to the land to appellee Elias Gallar in exchange for one cow. The transaction
is recorded in a second note added on the reverse side of the deed of sale. The note reads.
OTRA NOTA:
The undersigned Graciana Husain, with the consent and knowledge of her husband Manuel Catalan, has agreed with
Elias Gallar that all the rights that belongs to her, or she, Graciana Husain, is transferring to the said Elias Gallar in
accordance with that stated in the original with the difference that this transfer is definite because it is their agreement
in exchange of one head of cow described in the Certificate of Large Cattle existing in the Office of the Municipal
treasurer of this town. And in truth whereof, Graciana Husain signed hereunder together with her husband Manuel
Catalan.
Cabatuan, April 2, 1919.
(sgd.) MANUEL CATALAN

(sgd.) GRACIANA HUSAIN

(English translation)
Possession of the land, together with the owner's duplicate of the certificate of title of Teodoro Husain, was delivered on the
same occasion to appellee who since then has been in possession of the land.
In an affidavit dated March 6, 1928, Chichirita confirmed the "redemption" of the land by Graciana Husain. In another affidavit
of the same date, Graciana Husain for her part confirmed having subsequently sold the land to the appellee.1wph1.t

In 1960, appellee asked the Cadastral Court for the issuance to him of a transfer certificate of title but the court dismissed his
petition for lack of jurisdiction. (The court, however, granted appellee's request for the amendment of the certificate of title by
changing the surname of "Osaen" to "Husain.") He, therefore, filed this suit in the Court of Instance of Iloilo on October 10, 1960
to compel Hermenegilda and Bonifacio Husain, as heirs of Teodoro Husain, to execute a deed of conveyance in his favor so that
he could get a transfer certificate of title. He also asked for damages.
In their answer, Hermenegilda and Bonifacio Husain denied the sale and contended that the agreement between their father
and SerapioChichirita was that of a mortgage to secure a loan of P30. They claimed that the mortgage had been discharged on
January 28, 1919 when Graciana Husain paid Teodoro Husain's debt to Chichirita. Hermenegilda and Bonifacio Husain likewise
invoked prescription to bar appellee's action and asked for damages for the value of palay which they claimed they failed to
receive on account of appellee's refusal to return possession of the land to them.
The trial court found that after acquiring the land from Teodoro Husain, SerapioChichirita sold it to Graciana Husain who in turn
sold it to the appellee. Accordingly, it ordered the appellants to execute a deed of conveyance of the land in favor of the
appellee on the authority of our ruling in Sapto v. Fabiana, G.R. No. L-11285, May 16, 1958.
From this judgment, Bonifacio Husain brought this appeal to this Court. He contends that the land in question, which is
identified as Lot No. 766 of the Cadastral Survey of Cabatuan, Iloilo and covered by Original Certificate of Title No. 4521 of the
Register of Deeds of Iloilo, is not the same land which Teodoro Husain sold to SerapioChichirita on January 9,1919. According to
appellant he raised this question at the trial but the lower court passed it up in its decision. The records on appeal do not
disclose that appellant made such a claim. About the only hint that he was questioning the identity of the land sold by means of
the deed of sale of January 9, 1919 was an objection to a question during the direct examination of the appellee. Thus the
following appears on pages 20-21 of the transcript of notes taken on July 5, 1961;
Q According to this Exhibit C, you bought the lot to in Exhibit A which is Lot 766 in question, was bought, by you for
one cow. Do you know how much the worth of your cow during that time?
ATTY. ESMERALDA [for defendants]
Objection, Your Honor. The question is premised on Lot 766 but the document does not mention Lot 766.
x xx
x xx
x xx
COURT
So your objection is that it lacks basis.
ATTY. ESMERALDA
It lacks basis, your Honor.
Otherwise, the records do not show any allegation made much less evidence presented, by appellant of the supposed difference
in the identity of the land sold in the deed of pacto de retro sale and the land now in question. Indeed, the only defense put up
by appellant was that the pacto de retro sale was in reality a mortgage and that, at any rate, appellee's action was barred by the
statute of limitations. In so doing, appellant joined issues with the appellee and he will not now be permitted to bring up new
matters on appeal as this would constitute changing of theory so utterly unfair to the adverse party1 that the lower court
deliberately, perhaps, ignored the point. It may be added that an admission that the land described in the deed of sale and Lot
No. 766 are one and the same is implicit in appellant's defense that the deed of sale did not express the true intention of the
parties.
Still it is argued that no action can be brought on the basis of the deed of sale with a right of repurchase because the land in
question was redeemed a few days after it had been sold. While it is indeed true that the first note written on the reverse side of
the deed of sale speaks of the "redemption" of the land, there is no evidence to show that the vendee, Graciana Husain, was
acting in behalf of her brother Teodoro Husain, in the exercise the latter's right of redemption. Now, unlike a debt which a third
party may satisfy even against the debtor's will2 the right of repurchase may be exercised only by the vendor in whom the right
is recognized by contract3 or by any person to whom the right may have been transferred.4Graciana Husain must, therefore, be
deemed to have acquired the land in her own right, subject only to Teodoro Husain's right of redemption. As the new owner she
had a perfect right to dispose of the land as she in fact did when she exchanged it for a cattle with the appellee.
Now, when Teodoro Husain failed to redeem the land within the stipulated period, i.e., January 9, 1925, its ownership became
consolidated in the appellee. True the successive sales are in a private instrument, but they are valid just the same.5By the
delivery of possession of the land on April 2, 1919 the sale was consummated and title was transferred to the appellee. Indeed,
this action is not for specific performance; all it seeks is to quiet title,6 to remove the cloud cast on appellee's ownership as a
result of appellant's refusal to recognize the sale made by their predecessor. And, as plaintiff-appellee is in possession of the
land, the action is imprescriptible.7 Appellant's argument that the action has prescribed would be correct if they were in
possession as the action to quiet title would then be an action for recovery of real property which must be brought within the
statutory period of limitation governing such actions.8
Wherefore, the decision appealed from is affirmed, with costs against appellant.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19196 November 29, 1968
ANGEL VILLARICA and NIEVES PALMA GIL DE VILLARICA, petitioners,
vs.
THE COURT OF APPEALS, JULIANA MONTEVERDE, GAUDENCIO CONSUNJI and JOVITO S. FRANCISCO, respondents.
Ruiz Law Office and Leopoldo M. Abellera for petitioners.
Anatolia Reyes for respondent Jovito S. Francisco.
Jose M. Kimpo for respondents Juliana Monteverde, et al..
CAPISTRANO, J.:
On May 19, 1951, the spouses Angel Villarica and Nieves Palma Gil de Villarica sold to the spouses GaudencioConsunji and
Juliana Monteverde a lot containing an area of 1,174 sq. meters, situated in thepoblacionof the City of Davao, for the price of
P35,000. The instrument of absolute sale dated May 19, 1951 (Exh. "B"), in the form of a deed poll, drafted by Counselor Juan B.
Espolong who had been appointed by the Villaricas as their agent to sell the lot, was acknowledged on May 25, 1951, before the
same Juan B. Espolong who was also a Notary Public. The public instrument of absolute sale and the vendors' TCT No. 2786 were
delivered to the vendees. On the same day, May 25, 1951, the spouses Consunji executed another public instrument, Exh. "D",
whereby they granted the spouses Villarica an option to buy the same property within the period of one year for the price of
P37,750. In July, same year, the spouses Consunji registered the absolute deed of sale, Exh. "B", in consequence of which TCT
No. 2786 in the names of the spouses Villarica was cancelled and a new TCT No. 3147 was issued in the names of the spouses
Consunji. In February, 1953, the spouses Consunji sold the lot to Jovito S. Francisco for the price of P47,000 by means of a public
instrument of sale Exh. "4". This public instrument of sale was registered in view of which TCT No. 3147 in the names of the
spouse Consunji was cancelled and a new TCT in the name of Jovito S. Francisco was issued.
On April 14, 1953, the spouses Villarica brought an action in the Court of First Instance of Davao against the spouses Consunji
and Jovito S. Francisco for the reformation of the instrument of absolute sale, Exh. "B", into an equitable mortgage as a security
for a usurious loan of P28,000 alleging that such was the real intention of the parties. Defendants answered that the deed of
absolute sale expressed the real intention of the parties and they also alleged a counterclaim for sums of money borrowed by
the plaintiffs from the Consunjis which were then due and demandable. After trial, the Court of First Instance of Davao rendered
its decision holding that the instrument of absolute sale, Exh. "B", was really intended as an equitable mortgage. Judgment was
accordingly rendered reforming the deed of absolute sale into an equitable mortgage. Judgment was likewise rendered in favor
of defendant Consunjis on their counterclaim for sums of money. Judgment was also rendered in favor of defendant Francisco as
purchaser in good faith. Both parties appealed to the Court of Appeals.
On September 15, 1961, the Court of Appeals rendered its decision finding that the public instrument of absolute sale, Exh. "B",
expressed the true intention of the parties and that the defendants-appellants' (Consunjis) counterclaim for sums of money was
substantiated by the evidence. Accordingly the Court of Appeals rendered judgment as follows:
WHEREFORE, the judgment appealed from is reversed and the complaint is dismissed as to the defendant spouses, and
the plaintiffs are ordered to pay to them their remaining indebtedness of fifteen thousand (P15,000.00) pesos with
interest at 5% from July 7, 1951. That part of the judgment dismissing the complaint as to Jovito S. Francisco is hereby
affirmed, with the modification that the attorney's fees in the sum of P2,350.00 awarded to him is eliminated. The
present case is not one of those enumerated in Article 2208 of the New Civil Code where attorney's fees may be
recovered. Costs against the plaintiffs-appellants.
On December 6, 1961, the spouses Villarica, plaintiffs-appellants in the Court of Appeals, petitioned the Supreme Court for
certiorari or review of the decision rendered by the Court of Appeals. The petition was given due course and the decision of the
Court of Appeals is now before us for review on questions of law.
Petitioners contend that the Court of Appeals erred in finding that the public instrument of absolute sale, Exh. "B", expressed
the true intention of the parties, arguing that under Article 1604 in relation to Articles 1602 and 1603 of the Civil Code, the
instrument of absolute sale, Exh. "B", should be presumed as an equitable mortgage on the grounds that (1) the price of P35,000
was unusually inadequate; (2) the vendors remained in possession of the property sold; (3) the period of one year for
repurchase granted in the instrument Exh. "D" was extended for one month; and (4) the vendors pay the taxes on the land sold.
The contention is unmeritorious in view of the following considerations:
(1) The price of P35,000 was not even inadequate. The land sold was assessed for tax purposes at P8,870 effective 1950. It was
purchased by the spouses Villarica from the Philippine Alien Property Custodian in October, 1950, for the price of P20,000. The
Villaricas borrowed P7,400 from a Chinese named Domingo Lua Chin Lam and, with this borrowed money, made part payment
of the price to the Philippine Alien Property Custodian. Then they mortgaged the land to the Philippine Alien Property Custodian
as security for the P10,000 unpaid balance of the purchase price. One year later, on May 19, 1951, they sold the land by means
of the instrument of absolute sale Exh. "B" to the Consunjis for the price of P35,000, thus making a profit of P15,000 in one year
without having invested their own money in buying the land. On February 21, 1953, the Consunjis sold the land to Jovito S.

Francisco for the price of P47,000, thus making profit of P12,000. The price of P70,000 found by the trial court to be the market
price of the land at the time of the trial in 1956 was not the market price in 1951 when the Villaricas sold the lot to the
Consunjis. Hence, it is evident that the price of P35,000 stated in the instrument of absolute sale Exh. "B" was the market price
of the lot in 1951.
(2) The vendors did not remain in possession of the land sold as lessees or otherwise. On their request in order to help them in
the expenses of their children in Manila, the vendors were merely allowed by the vendees to collect the monthly rents of P300
for five months up to October, 1951, on the understanding that the amounts so collected would be charged against them. But
thereafter the vendees were the ones who collected the monthly rents from the tenants. It follows that the vendors did not
remain in possession of the land as lessees or otherwise.
(3) In Exh. "D" the Consunjis as new owners of the lot granted the Villaricas an option to buy the property within the period of
one year from May 25, 1951 for the price of P37,750. Said option to buy is different and distinct from the right of repurchase
which must be reserved by the vendor, by stipulation to that effect, in the contract of sale. This is clear from Article 1601 of the
Civil Code, which provides:
Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the
obligation to comply with the provisions of article 1616 and other stipulation which may have been agreed upon.
The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by
the vendor in the same instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is
executed, the vendor can no longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee
in a separate instrument cannot be a right of repurchase but some other right like the option to buy in the instant case. Hence,
Exhibits "B" and "D" cannot be considered as evidencing a contract of sale withpacto de retro. Since Exh. "D" did not evidence a
right to repurchase but an option to buy, the extension of the period of one year for the exercise of the option by one month
does not fall under No. 3, of Article 1602 of the Civil Code, which provides that:
When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or
granting a new period is executed.
(4) The taxes paid by the vendors were back taxes up to the time of the sale on May 19, 1951. The vendors had the obligation to
pay the back taxes because they sold the land free of all liens and encumbrances. The taxes due after the sale were paid by the
vendees.
The petitioners admit that they cannot now question the finding of the Court of Appeals that they fully received the price of
P35,000 mentioned in the instrument of absolute sale Exh. "B". In addition, we noted that the petitioners acknowledged in
writing (Exh. "4"-Consunji-Monteverde), dated May 28, 1951, having received full payment of said price of P35,000. In view
hereof and of the foregoing considerations, petitioners' contention that Exhibits "B" and "D" were used as a device to cover a
usurious loan, has absolutely no merit.
The findings of the Court of Appeals on the amounts due from the spouses Villarica to the spouses Consunji as loans, evidenced
by promissory notes, after deducting partial payments made thereon being factual, cannot be reviewed.
PREMISES CONSIDERED, the judgment of the Court of Appeals is hereby affirmed, with costs against petitioners also in this
instance.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-46307 October 9, 1985
PACIENCIA VIZCONDE SERRANO, petitioner,
vs.
HONORABLE COURT OF APPEALS, LEOCADIO MACARAYA and MAXIMO C. FERNANDEZ, respondents.
Guillermo Jumamil and Tanjili Law Office for petitioner.
Gregorio Batiller for private respondent.
GUTIERREZ, JR., J.:
This is a case which involves the true nature of the purported contract of sale executed by petitioner PacienciaVizconde Serrano
in favor of private respondent LeocadioMacaraya.
The background tacts were summarized by the then Court of Appeals as follows:
The litigated realty is more or less 384 square meters situated in the municipality of Mati, Davao Province,
originally encompassed in plaintiff-appellee's TCT No. T-438 (Exh. D), then under lease, to expire last January

1971, with one Lorenzo Tan, who subleased the same to the Angelo Leonar Enterprises & Co., Inc., in actual
possession thereof for a monthly rental of P500.00.
On January 17, 1969, Mrs. Serrano executed a notarial document (Exh. A) purporting to convey the said realty by
way of absolute sale to defendant LeocadioMacaraya for the price of P12,000.00. In a separate private
document of even date (Exh. 1) Mrs. Serrano was given by Macaraya two months therefrom to repurchase her
property during which period she was allowed to collect the monthly rentals. Thereafter rentals were collected
by Macaraya himself.(1. tsn., 41-42).
Mrs. Serrano did not re-purchase The property in question was burdened with unpaid taxes which had
accumulated for many years, and pending the determination of the exact amount thereof by the Municipal
Treasurer of Mati, Macaraya had his ownership rights in TCT No. T-438 on September 12, 1969 (Exhs.E & 2) of
which fact Mrs. Serrano was duly notified on even date (Exh. 2-A).
On September 29, 1969, Macaraya paid the tax arrearages in its entirety, including surcharges, for the period of
11 years from 1958 to 1969, inclusive, in the total amount of P 760.41 (Exh. 3). Thereafter, the sale to Macaraya
was registered and on October 3, 1969, TCT No. 15704 (Exh. F) was consequently issued in his name.
On October 21, 1969, the Macaraya spouses, Leocadio and Dorotea, jointly executed a deed of absolute sale
(Exh. H) of the said property to Maximo C, Fernandez, which transaction was in effect one of (dacion en pago,)
the P20,000.00 consideration therefor was applied as partial payment for the Macaraya's outstanding
indebtedness to the vendee Fernandez who was consequently issued TCT No. T-15789 (Exh. G). There is now
pending in the Municipal Court of Mati, Davao Oriental ejectment case No. 366, lodged by Maximo C. Fernandez
against the lessee Angelo Leonar Enterprises & Co. In the meantime that the present litigation has not been
resolved with finality the parties in the said ejectment case agreed to have the monthly rentals deposited as
they fall due in the said municipal court.
On April 18, 1970, petitioner Serrano filed with the then Court of First Instance of Davao Oriental, Branch X, a complaint against
respondents LeocadioMacaraya and Maximo Fernandez for declaration of nullity of contract, cancellation of titles, reconveyance
and damages. She alleged that the contract of sale between her and Macaraya was fictitious and simulated. She averred that it
did not reflect their true agreement, which was a mere transaction of loan in the amount of P12,000.00. She further alleged that
she actually received only P10,000.00 and that the difference of P2,000.00 was added to the consideration to conceal the
usurious monthly interest of P1,000.00. She claimed to be a victim of fraud perpetrated by Macaraya and Fernandez.
On the other hand, respondents Macaraya and Fernandez denied the imputation of fraud and insisted upon the regularity of the
assailed transactions. Fernandez, who never attended trial but sent his deposition, claimed good faith in purchasing the property
in question and denied knowledge of any flaw in the title of Macaraya.
On May 29, 1971, the lower court rendered the following decision:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering:
l) Defendants to surrender to the Register Deeds of Davao Oriental, Transfer Certificate of Title No. T-15789 in
the name of Maximo C. Fernandez;
2) The Register of Deeds of Davao Oriental to cancel Transfer Certificate of Title T-15789 in the name of Maximo
C. Fernandez and to re-issue a new one in lieu thereof in the name of PACIENCIA VIZCONDE SERRANO; and
3) Defendants to pay moral damages in the sum of P2,000.00, attorney's fees in the sum of P1,000.00 and the
costs of the suit.
On appeal to the Court of Appeals, the trial court's decision was totally reversed in the following manner:
IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, the decision appealed from is set aside and the complaint
dismissed. The title certificate TCT No. T-15789 of defendant-appellant Maximo C. Fernandez is hereby declared
valid and consequently he is likewise declared the absolute owner of the herein litigated property.
The Court of Appeals held that "the Deed of Sale" Identified as Exhibit "A" is really a contract of sale with all the required legal
formalities and therefore has in its favor the presumption of regularity and nothing but the most convincing evidence will prevail
in order to overthrow its probative value with respect to the transactions recorded therein." The appellate court stated that
even if Exhibit "A" is void, the property subject of the conflict has been transferred to a third person, the other defendant
Maximo C. Fernandez, and, therefore, the nullity of Exhibit "A", would be of no moment and cannot adversely affect the rights of
the said defendant-transferee.
On November 26, 1976, the petitioner filed a motion for reconsideration and rehearing of the decision of the Court of Appeals.
The motion was denied in a resolution dated January 19, 1977. On February 23, 1977, the petitioner filed with the same court a

motion for new trial based on newly discovered evidence which would prove that respondent Fernandez was not a buyer in
good faith. This motion was denied by the Court of Appeals in its resolution dated April 19, 1977.
Petitioner Serrano went to this Court in a petition for certiorari with the following assignments of errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN HOLDING THAT EXHIBIT "A" WAS REALLY
A CONTRACT OF SALE WITHOUT CONSIDERING EXHIBIT "I" AND OTHER CIRCUMSTANCES.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT EXHIBIT "A" TOGETHER WITH EXHIBIT "I"
IS A PACTO DE RETRO SALE AND CONSEQUENTLY ERRED IN NOT ALLOWING PETITIONER TO REPURCHASE THE
LITIGATED PROPERTY ACCORDING TO LAW.
III
THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING DEPOSITION (EXHIBIT 1, FERNANDEZ) IN ITS
DECISION CONTRARY TO LAW.
IV
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PRESUMPTION OF GOOD FAITH WAS NOT
OVERCOME BY PETITIONER AND IN DECLARING THAT RESPONDENT FERNANDEZ HAS A VALID TITLE OVER THE
LITIGATED PROPERTY.
V
THE HONORABLE COURT OF APPEALS ERRED IN DENYING PETITIONER'S MOTION FOR RECONSIDERATION AND
REHEARING AND THE SUBSEQUENT MOTION FOR NEW TRIAL WITHOUT VALID GROUNDS STATED THEREIN.
Even as respondents Macaraya and Fernandez urge this Court to affirm the Court of Appeals decision on its merits, they raise as
a preliminary issue the timeliness of the filing of the petition. Our examination of the records of this case shows that the
arguments on this issue have no merit.
We note that the respondents have deducted the number of days between the petitioner's notice of the decision and the date
she filed a motion for reconsideration from the number of days given her to come to us on a petition for review or to take such
other action before judgment becomes final and executory.
The respondents err in their mode of computing the period before finality of judgment. Section I of Rule 45 of the Rules of Court
gives a party 15 days from the denial of a motion for reconsideration by the appellate court to come to the Supreme Court.
These 15 days do not include the number of days that lapse from notice of judgment to the filing of the motion for
reconsideration. The 15-day period starts anew from the notice of the motion's denial.
And even assuming that a petition for review is filed a few days late, where strong considerations of substantial justice are
manifest in the petition, this Court may relax the stringent application of technical rules in the exercise of our equity jurisdiction.
In addition to the basic merits of the main case, such a petition usually embodies justifying circumstances which warrant our
heeding the petitioner's cry for justice, inspite of the earlier negligence of counsel.
It bears repeating that rules of procedure are not to be applied rigidly (Tan v. Director of Forestry, 125 SCRA 302). In a number of
cases, this Court in the exercise of equity jurisdiction decided to disregard technicalities in order to resolve the case on its merits
based on the evidence. (See St. Peter Memorial Park, Inc. v. Cleofas, 121 SCRA 287; Helmuth, Jr. v. People of the Philippines, 112
SCRA 573). As we ruled in the case of CalasiaoFarmers Cooperative Marketing Association, Inc. v. Court of Appeals (106 SCRA
630, 637):
Dismissal of appeals based on purely technical grounds is frowned upon as the policy of the Courts is to
encourage hearing of appeals on the merits. (Gregorio v. Court of Appeals, 72 SCRA 120 [1976]) Rules of
procedure, are intended to promote, not to defeat substantial justice, and therefore, they should not be applied
in a very rigid and technical sense.
In the case at bar, the conclusions of the Court of Appeals on factual matters are contrary to those of the trial court. A minute
scrutiny by this Court is in order and resort to duly proven evidence becomes necessary (Legaspi v. Court of Appeals, 69 SCRA
360, and Tolentino v. De Jesus, 56 SCRA 167).
Was the contract entered into between petitioner Serrano and respondent Macaraya an absolute sale as found by the Court of
Appeals or an equitable mortgage as alleged by the petitioner?
The records show that the contract between the parties was actually a deed of sale pacto de retro which was made to appear as
an absolute deed of sale.
This Court has ruled in Shell Co. of the Phils. Ltd. v. Firemen's Ins. Co. of Newark, N. J. et al. (100 Phil. 757.) that:
To determine the nature of a contract courts do not have or are not bound to rely upon the name or title given it
by the contracting parties, should there be a controversy as to what they really had intended to enter into, but
the way the contracting parties do or perform their respective obligations stipulated or agreed upon may be

shown and inquired into, and should such performance conflict with the name or title given the contract by the
parties, the former must prevail over the latter.
That a transaction was really one of loan with security, and therefore a mortgage, may be shown by the aid of surrounding
circumstances, and parol evidence is competent in that respect. This rule has been accepted for many generations. The difficulty
lies in its application, for many factors are to be considered, none of them conclusive in itself, but each to be considered in its
company. (1 Glenn, Mortgages, 59-60 [1943]).
In the instant case, the petitioner was made to execute a document entitled "Deed of Absolute Sale" in favor of respondent
Macaraya. On the same date Macaraya executed an Undertaking" giving the vendor the right to repurchase the lot within two
months from date. Significantly, the same Elpidia C. Lagura who signed as witness to the deed of absolute sale was also a
witness to the undertaking. As stated in Capulong v. Court of Appeals (130 SCRA 245), the intent to circumvent the Civil Code
provision discouraging pacto de retro sales is very apparent. In the Capulong case, we distinguished between these types of
contracts and the contract in Villarica v. Court of Appeals (26 SCRA 189). We stated:
There is one important factor that differentiates the Villarica case from the instant petition. The document
granting the vendors therein an option to buy back the property was executed six (6) days after the execution of
the deed of sale whereas in the instant case the option to buy was embodied in a document executed at the
same time that the questioned deed of sale was executed. The option to buy in Villarica case was interpreted to
be only an afterthought. On the other hand, the intent of the parties to circumvent the provision discouraging
pacto de retro sales is very apparent in the instant case. The two contracts, the deed of sale and the document
embodying the option to repurchase were prepared, signed, and notarized on the same day. The respondent
court should have seen through a transparent effort to make it appear that the two transactions were not
intimately related but distinct and separate as in the Villarica case. This should have put the court on guard
considering the other circumstances of the case from which no other conclusion could be derived except that
the deed of absolute sale and the document giving the right to repurchase were, in fact, only one transaction of
sale pacto de retro which must be construed as an equitable mortgage. ...
Since the sale of the lot was one of pacto de retro, the question before us now is whether or not it should be treated as an
equitable mortgage. The Civil Code provides:
ART. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws.
ART. 1603. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an
equitable mortgage.
ART. 1604. The provisions of article l602 shall also apply to a contract purporting to be an absolute sale.
We find the amount of P12,000.00 inadequate for a 384 square meter lot in the poblacion of Mati, Davao which the trial court
found to be "a very valuable piece of commercial property." This conclusion is supported by the fact that barely ten months after
the questioned transaction between the petitioner and respondent Macaraya, it was transferred to respondent Fernandez
(Exhibit H) who admitted that it was good bargain, for a consideration of P20,000.00, The records also show that on June 2, 1970
or another seven months later, (Exhibit "4"), the Angelo Leonar Enterprises, Inc. offered to respondent Macaraya their
willingness to purchase the same lot for P30,000.00. There was no showing of any reasons why the value of the lot appreciated
so rapidly. What was admitted in the pleadings and testimonies of both parties was the fact that petitioner Serrano "needed the
money." In Labasan v. Lacuesta (86 SCRA 16), this Court quoted the Lord Chancellor in Vernon v. Bethell(2 Eden. 13) thus:
Necessitous men are not, truly speaking, free men; but to answer a present emergency, will submit to any terms that the crafty
may impose upon them."
In the trial proceedings below, we also note that respondent Macaraya had not been consistent in rebutting the allegation that
the petitioner had paid him P1,000.00 monthly as interest for the amount loaned.
It was also admitted by respondent Macaraya that petitioner Serrano continued receiving rentals from Angelo Leonar
Enterprises, Inc., the lessee of the subject property for at least six months after the execution of the contract of sale dated
January 17, 1969 (2 tsn. p. 24). The collection of rentals ceased only when respondent Fernandez sued the lessee for ejectment
and the rentals were subsequently ordered to be deposited in the municipal court of Mati pending the resolution of this case.
This Court finds it strange that respondent, Macaraya would allow petitioner Serrano to receive the fruits of the subject property
several months after he acquired absolute ownership of the same. This is contrary to the principle of ownership. As of the filing

of the petition and presumably up to the present, the petitioner and supposed vendor in an absolute sale has retained
possession of the disputed property.
The last issue refers to the petitioner's allegations that respondent Maximo C. Fernandez was not a purchaser in good faith.
The trial court stated in its decision that it had serious doubts on the authenticity of the deed of sale executed by Macaraya in
favor of his co-respondent Maximo C. Fernandez. The appellate court, however, brushed aside the contentions that Fernandez
was a mere dummy in a simulated sale and ruled that the presumption of good faith was not overcome by clear cut and positive
evidence to the contrary.
We sustain the factual finding of the trial court.
The trial court emphasized in its decision that the supposed buyer in good faith and current owner never showed the slightest
interest in the litigation involving the cancellation of his title and the reversion of the lot he purchased from Macaraya to the
original vendor. The court stated:
It was the defendant Macaraya, who has from the inception of this case, manifested intense interest in the
outcome of the same so much so that no one will doubt that he is indeed and truly the owner of the lot in
question.
Fernandez did not appear at the trial. His deposition taken in Cebu City at the Macaraya Building, Colon Street was introduced in
evidence by the respondents. Fernandez admitted that he has never been to Mati, Davao Oriental and he has never seen the lot
sold to him by Macaraya. He lives in San Roque, Talisay, Cebu. He never bothered to find out what was sold to him for
P20,000.00 in 1969, whether or not the land was really worth that much or that it even existed. Maximo C. Fernandez was then
a 64-year old man who worked as a tailor for a living.
The records show that the deed of sale was executed by petitioner Serrano in favor of Macaraya on January 17, 1969. It took
Macaraya until October 3, 1969 to have the transfer certificate of title T-15704 registered in his name.
The deed of sale in favor of Fernandez was executed in Cebu City on October 21, 1969. Two days later, October 23, 1969, the
new title, TCT No. 15704 was already registered in the Registry of Davao in the name of Fernandez, who was all the time in Cebu.
It is also highly unusual that the transaction between Macaraya and Fernandez involved no transfer of money. The sale was
allegedly one of dacion en pago. The Macarayas, who appear to be well to do, "sold" the P20,000.00 lot to Fernandez, a poor
tailor, as "partial payment" for the Macaraya's outstanding indebtedness to the vendee.
The fifth assignment of error questions the respondent court's denial of the petitioner's motion for rehearing or new trial. The
petitioner wanted to introduce into the records the certification of the Talisay, Cebu treasurer that respondent Fernandez has
no property listed in his name in that municipality and the certification of the Bureau of Internal Revenue Regional Director for
Central Visayas that respondent Fernandez did not file any income tax returns for the years 1968 through 1972.
We see no need to pass upon this issue. There is more than enough evidence in the records to affirm the trial court's finding that
Fernandez was not a buyer in good faith.
WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. The contract
between the petitioner and LeocadioMacaraya being one of equitable mortgage, Transfer Certificate of Title No. T-15789 in the
name of Maximo C. Fernandez is ordered CANCELLED and a new one issued in the petitioner's name.
SO ORDERED.