SECOND DIVISION

[G.R. No. 135657. January 17, 2001]

JOSE V. LAGON, petitioner, vs. HOOVEN COMALCO INDUSTRIES,
INC., respondent.
DECISION
BELLOSILLO, J.:
This petition for review on certiorari seeks to set aside the Decision of the Court of
Appeals of 28 April 1997 which in turn set aside the decision of the Regional Trial
Court of Davao City and ordered petitioner Jose V. Lagon to pay respondent
Hooven Comalco Industries, Inc. (HOOVEN) the amount of P69,329.00 with
interest at twelve percent (12%) per annum computed from the filing of the
complaint until fully paid, plus attorneys fees and costs,[1] as well as the
Resolution of the appellate court denying reconsideration thereof.[2]
Petitioner Jose V. Lagon is a businessman and owner of a commercial building in
Tacurong, Sultan Kudarat. Respondent HOOVEN on the other hand is a domestic
corporation known to be the biggest manufacturer and installer of aluminum
materials in the country with branch office at E. Quirino Avenue, Davao City.
Sometime in April 1981 Lagon and HOOVEN entered into two (2) contracts, both
denominated Proposal, whereby for a total consideration of P104,870.00
HOOVEN agreed to sell and install various aluminum materials in Lagons
commercial building in Tacurong, Sultan Kudarat.[3] Upon execution of the
contracts, Lagon paid HOOVEN P48,00.00 in advance.[4]
On 24 February 1987 respondent HOOVEN commenced an action for sum of
money with damages and attorneys fees against petitioner Lagon before the
Regional Trial Court of Davao City. HOOVEN alleged in its complaint that on
different occasions, it delivered and installed several construction materials in the
commercial building of Lagon pursuant to their contracts; that the total cost of the
labor and materials amounted to P117,329.00 out of which P69,329.00 remained
unpaid even after the completion of the project; and, despite repeated demands,
Lagon failed and refused to liquidate his indebtedness. HOOVEN also prayed for
attorneys fees and litigation expenses, and in support thereof, presented its OIC,
Alberto Villanueva, and its employee, Ernesto Argente, and other witnesses, as
well as several documentary evidence consisting mainly of the two (2) proposals,
invoices and delivery receipts.
Lagon, in his answer, denied liability and averred that HOOVEN was the party
guilty of breach of contract by failing to deliver and install some of the materials
specified in the proposals; that as a consequence he was compelled to procure
the undelivered materials from other sources; that as regards the materials duly
delivered and installed by HOOVEN, they were fully paid. He counterclaimed for
actual, moral, exemplary, temperate and nominal damages, as well as for
attorneys fees and expenses of litigation.

On 9 October 1987, upon request of both parties, the trial court conducted an
ocular inspection of Lagons commercial building to determine whether the items
alleged in the complaint and appearing in the invoices and delivery receipts had
been delivered and installed on the premises. The result of the ocular inspection
was 1) with respect to the items covered by Exhibit A and submarkings that there are
only seventeen (17) light diffusers, 13 in the ceiling of the ground and 4 on the
mezzanine (Ocular Inspection, TSN, pp. 5 to 6); 2) on Exhibit B and
submarkings, there are only twenty-three (23) light aluminum boxes, 14 aluminum
boxes in the ceiling of the mezzanine and 9 on the ceiling of the ground floor
(Ocular Inspection, TSN, p. 7); 3) on Exhibit C-1, the items are missing in the
area where they were supposed to be installed; 4) on Exhibit C-2, admitted by
defendant Lagon when he stated that I will admit that these were installed by the
plaintiff but I do not know exactly the materials, but I really accept that these were
installed sometime in 1981, before the occupation of the DBP. But I have paid
that already in 1981. I could not identify the materials delivered in 1981 because I
do not know the exact names of those materials. (Ocular Inspection, TSN, p. 12);
5) on Exhibit C-2, the glasses are not tinted but plain white; on Exhibit C-3, the
materials cannot be formed (sic) in the place where they are supposed to be
(Ocular Inspection, TSN, p.7); 6) Exhibit D and D-1, that the materials were
supplied by plaintiff but they did not install them. It was the defendant who caused
the installation thereof (Ocular Inspection, TSN, p. 13.); and 7) Exhibit E-1, as
NU- Main and Cross-Runners and supplied by plaintiff but plaintiff did not
install. They had it installed (Ocular Inspection, TSN, p. 14).
In due course the trial court rendered a decision partly on the basis of the result of
the ocular inspection finding that the total actual deliveries and installations made
by HOOVEN cost P87,140.00. Deducting therefrom P48,000.00 which Lagon paid
in advance upon execution of their contracts with no further payments appearing
to have been made thereafter, only P39,140.00 remained unpaid and where
Lagon incurred in delay. The trial court also awarded HOOVEN P3,255.00 as
attorneys fees, but sustained Lagons counterclaims and awarded
him P26,120.00 as actual damages representing the value of the undelivered and
uninstalled materials, and P30,000.00 as attorneys fees in addition to litigation
expenses of P45,534.50. According to the court a quo[5]
As a result of the partial breach of contract on plaintiff's (Hooven Comalco) part,
the defendant is entitled to actual damages only to the extent of the undelivered
materials and undone labor or to the amount of P26,120.00. This P26,120.00 will
be partially offsetted (sic) to the P39,140.00 unpaid balance of the defendant
(Lagon), so that the difference that remain (sic) payable to plaintiff
is P13,020.00. Evidence is insufficient to show that bad faith existed in the filing
of the instant complaint for collection against the defendant. Plaintiff's obstinate
1

conduct in prosecuting its claim spending for litigation expenses and for its
lawyers negate the existence of bad faith. The fact alone that the findings of fact
show an unpaid account of the defendant is proof that the complaint is not
completely unfounded though evidence shows also that plaintiff is guilty of partial
breach of contract by reason of failure to completely deliver and install the
materials defendant ordered pursuant to the contract so that plaintiff is liable for
damages. As plaintiff acted in good faith in the filing of the instant complaint in the
belief that it has a valid cause of action against the defendant to enforce its claim,
engaging a lawyer to prosecute it, plaintiff is entitled to a reasonable attorneys
fees equivalent to 25% of the collectible amount of P13,020.00 or the amount
of P3,225.00. Defendant's claim of attorneys fees in the amount of P152,629.15
is in the opinion of the court clearly unreasonable and unconscionable considering
the nature of the action and the amount involved. The court has the power to
reduce it to render it reasonable and conscionable whether the contract for
attorney's fees is written or oral. The attorneys fees is fixed at P30,000.00. The
defendant presented evidence of litigation expenses incurred in the course of the
trial for plane fare of its lawyer in coming to Davao City from Manila from 1987 up
to July 1990 in the total amount of P34,730.50 as evidenced by Exhibit 11 to 11E. The records show that the defendants counsel came to Davao City from
Manila to attend eleven (11) hearings of the case and the plane fare from 1987 up
to August, 1989 is P2,524.50 and from August 1989 to June 1990
is P3,007.50. Hotel expenses of defendants counsel at the Maguindanao Hotel
where he was billeted everytime he came to Davao City to attend the trial
amounted to P11,824.00 as evidenced by Exhibit 17, the certification issued by
the said hotel management. So that the total amount of the actual damage
suffered by defendant is P45,534.50. Said amount of P45,534.50 is partially
offsetted (sic) by the amount of P13,020.00 representing the unpaid obligation of
the defendant to the plaintiff so that the plaintiff is still liable to pay the defendant
the difference in the amount of P32,514.50.
Both parties appealed to the Court of Appeals. In its Decision of 28 April 1997, the
appellate court set aside the judgment of the trial court and resolved the case in
favor of HOOVEN. It held that the trial court erred in relying solely on the results
of the ocular inspection since the delivery and installation of the materials in
question started as early as 1981, while the ocular inspection was conducted only
in 1987 or six (6) years later, after the entire mezzanine was altered and the whole
building renovated. The appellate court also stressed that the testimonies of
HOOVEN's witnesses were straightforward, categorical and supported by
documentary evidence of the disputed transactions, and that all Lagon could offer
was a mere denial, uncorroborated and self-serving statements regarding his
transactions with HOOVEN. The decretal portion of the assailed decision of the
Court of Appeals reads -

ACCORDINGLY, finding the decision of August 26, 1991 appealed from afflicted
by reversible errors, the same is hereby SET ASIDE, and a new one entered
ordering the defendant-appellant (Lagon) to pay plaintiff-appellant (Hooven
Comalco):
The amount of P69,329.00 plus interest of 12% per annum computed from the
date of the filing of the complaint, until fully paid.
Fifteen percent (15%) of the amount due, as and by way of attorneys fees.
Defendant-appellant to pay costs.
Petitioner's motion for reconsideration having been denied he now hopes to
secure relief from this Court by contending that: (a) The Court of Appeals erred in
holding that the trial court could not rely on the results of the ocular inspection
conducted on his commercial building in Tacurong, Sultan Kudarat; and, (b) The
assailed decision of the appellate court is based on speculations and contrary to
the evidence adduced during the trial.
The arguments in the petition ultimately boil down to the sole issue of whether all
the materials specified in the contracts had been delivered and installed by
respondent in petitioners commercial building in Tacurong, Sultan Kudarat. The
question is basically factual involving as it does an evaluation of the conflicting
evidence presented by the contending parties, including the existence and
relevance of specific surrounding circumstances, to determine the truth or falsity
of alleged facts.
While factual issues are not within the province of this Court, as it is not a trier of facts and
is not required to examine or contrast the oral and documentary evidence de novo,
[6]
nevertheless, the Court has the authority to review and, in proper cases, reverse the
factual findings of lower courts in these instances: (a) when the findings of fact of the trial
court are in conflict with those of the appellate court; (b) when the judgment of the
appellate court is based on misapprehension of facts; and, (c) when the appellate court
manifestly overlooked certain relevant facts which, if properly considered, would justify a
different conclusion.[7] This case falls squarely within the foregoing exceptions.
Before delving into the merits of this case, we find it necessary to describe and detail the
nature and contents of the vital documentary exhibits upon which respondent HOOVEN
based its claims, thus Exhibit F - Undated Proposal:
I. For the supply of materials and installation of suspended aluminum ceiling runners:
Area: 2,290 sq. ft.
Materials: NU- Main & Cross runners, NU-5 Perimeter mouldings G.I. wire hangers, Aluminum
straps stiffeners, Blind Rivets and
P14,110.00
Labor charge
4,230.00
18,440.00
II. One (1) set: 65 x 68 YP aluminum cladding 1,150.00
P19,590.00
Delivery and Installation charge 1,860.00
P21,450.00
Exhibit F-1 Proposal dated 3 April 1981
Hooven Aluminum Casement Windows Anolok Finish Manually Operated, with 6.0 mm
Bronzepane Tinted Glass
Five (5) sets: 65 x 126-1/2 (w/ transom), One (1) set: 65 x 126-1/2 (w/ AC provision), Two
(2) sets: 39-1/2 x 125-1/2 -do-, One (1) set: 39-1/2 x 87 -do-, One (1) set: 391/2 x 223 do, -One (1) 65 x 57-1/2 (w/ transom), One (1) set: 65
x 4
-do-

Hooven Aluminum Entrances and Fixed Windows Anolok Finish, with 6.0 mm Bronzepane Tinted
Glass
One (1) set: 100-1/2 x 76-1/2, double sash, double acting swing door, with transom. Two (2) sets:
80 x 278, fixed panels
21,740.00
Hooven Aluminum Sliding Windows Fabricated From SD-Sections, Anolok Finish, with 6.0 mm
Bronzepane Tinted Glass
One (1) set: 54 x 191 One (1) set: 45 x 302 11,650.00 75,920.00
Add: Delivery and Installation charge 7,500.00
P83,420.00
Exhibit A Invoice No. 11094 dated 29 December 1982
Eighty Six (86) Pieces, 2.0 mm Hishilite
P3,440.00 Diffusers
Exhibit B Invoice No. 11095 dated 29 December 1982
Forty-Three Pieces: For the Supply and Installation of Light Boxes Fabricated from GA. 032
Aluminum Plain Sheet Delivery and Installers subsistence
P5,718.50
Exhibit C Invoice No. 14349 dated 29 December 1984
Five (5) sets 1.651m 3.213m
Hooven Aluminum Casement windows, Anolok finish, manually operated with 6.0 Bronzepane tinted
glass.
One (1) set 1.651 m 3.367m - do - with a/c provisionTwo (2) sets 1.00 m 3.188m - do do -One (1) set 1.00 m 2.210 m - do - do -One (1) set 1.00 m 5.664 m - do - do
-One (1) set 1.651m 1.461 m - do - do - with transomOne (1) set 1.651m 1.880 m - do
- with transom One (1) set 1.651m 1.524 m - do - do - One (1) et 2.553m 1.943
m Hooven aluminum double sash, double acting swing door, with transom, with 6.0 mm Bronzepane tinted glass.
Two (2) sets 2.032m 7.061 m Fixed windows, Anolok finish.
One (1) set .737 m 7.061
m Aluminum tubulars with aluminum YP-100 cladding, Anolok finish.
One (1)
set 1.143m 4.851m Hooven aluminum sliding windows fabricated from SD sections, Anolok
finish, with 6.0 mm Bronzepane tinted glass, with 1.88 m tubular posts.
One (1) set 1.143m 7.671m - do
P75,291.83
4% tax
3,011.67
78,303.50
Delivery & Subs.
7,500.00
P85,803.50
Exhibit D Invoice No. 14265 dated 29 September 1984
For the supply of materials and
installation of aluminum stucco embossed sheet on spiral
staircase
P5,310.00
Exhibit E Invoice No. 14264 dated 29 November 1984
For the supply of materials and installation of suspended aluminum ceiling system.
Materials: NU-4 main and cross runners, NU-5 perimeter mouldings GI wire hangers, Alum strap
stiffeners, Blind rivets and screws
P17,057.00
Exhibit A-1 Delivery Receipt dated 9 June 1981
Twenty (20) pieces Light boxes fabricated from aluminum sheets, Forty (40) pieces 2.0 mm x 24 x
24 Hishilite Diffusers, Lump sum cost including discount and Delivery and, Installer
,Subsistence P4,340.00
Exhibit A-2 Delivery Receipt dated 8 August 1981
Twenty (20) pieces Light boxes fabricated from .032 aluminum plain sheet
Twenty Seven (27) 2.0 mm x 24 x 24 Hishilite Diffusers, Add: Delivery & Installers
Subsistence
P180.00
Exhibit A-3 Delivery Receipt, dated 8 December 1981
19 pcs. 2.0 mm x 2 x2 Hishilite Diffusers
P40.00
Exhibit B-1 Delivery Receipt dated 25 June 1981 Additional three (3) pcs. Light boxes
fabricated from .032 Aluminum sheets
P140.00
Exhibit C-1 Delivery Receipt dated 25 August 1983
To change alum tubular frames for sliding windows (item 10 & 11) from 45 L x to 94 x 74.
To change width of one (1) set: item 1 from 126-1/2 to 132-1/2.
To add: one (1) set 65H x 60 aluminum casement windows with 6.0 mm tinted glass.

To extend alum tubulars of fixed windows on 2nd floor by 29L and installation of YP-aluminum
cladding
P8,640.00
Exhibit C-2 Delivery Receipt dated 25 August 1983 Hooven Alum Casement Windows Anolok
Finish Manually Operated with 6.0 mm Bronzepane Tinted Glass:
Five (5) sets: 65
x 126-1/2 with transom, One (1) set: 65
x 126-1/2 with AC
provision, Two (2) sets: 39-1/2 x 125-1/2
- do -, One (1) set: 39-1/2 x 87
- do
-,One (1) set: 39-1/2 x 223
- do -, One (1) set: 65
x 57-1/2 with transom, One
(1) set: 65
x 74
- do P42,530.00
Hooven Alum Entrances & Fixed Windows Anolok Finish with 6.0 mm Bronzepane Tinted Glass:
One (1) set: 100-1/2 x 76-1/2, double sash, double acting swing door, with transom, Two (2) sets:
80 x 278 fixed panels P21,740.00
Exhibit C-3 Delivery Receipt dated 25 August 1983
Hoven Alum Sliding Windows Fabricated from SD Sections Anolok Finish with 6.0 mm
Bronzepane Tinted Glass:
One (1) set: 45 x 191One (1) set: 45 x 302
P11,650.00
Add: Delivery and Installation
7,500.00
Less: 7% Discount
6,256.50
P77,163.50
Exhibit D-1 Delivery Receipt dated 25 August 1983
For the supply of materials and installation of aluminum stucco embossed sheet on spiral
staircase: One (1) set 32 H x 304 WL P5,310.00
Exhibit E-1 Delivery Receipt dated 25 August 1983
NU- main and cross runners, NU-5 Perimeter mouldings G.I. Wire Hangers, Aluminum straps
stiffeners, Blind rivets and ,screws
P17,057.00

We have carefully and diligently considered the foregoing exhibits and we are fully
convinced that the mass of documentary evidence adduced by respondent suffers
from patent irregularities and material inconsistencies on their faces, raising
serious questions requiring cogent explanations. These flaws inevitably deplete
the weight of its evidence, with the result that for lack of the requisite quantum of
evidence, respondent dismally failed in the lower court to discharge its burden
necessary to prevail in this case.
Firstly, the quantity of materials and the amounts stated in the delivery receipts do
not tally with those in the invoices covering them, notwithstanding that, according
to HOOVEN OIC Alberto Villanueva, the invoices were based merely on the
delivery receipts.[8] For instance, only eleven (11) items were listed in Exhs. "C-2"
and "C-3" with a total worth of P77,163.50. But in Exh. "C," which was the invoice
for Exhs. "C-2" and "C-3," there were thirteen (13) items enumerated for a total
worth of P85,803.50. If Exh. "C" is supposed to be based on Exhs. "C-2" and "C3," we cannot understand the apparent discrepancy in the items listed in those
documents when they all referred to the same materials.
Secondly, the total value of the materials as reflected in all the invoices
is P117,329.00 while under the delivery receipts it is only P112,870.50, or a
difference of P4,458.00. Moreover, the materials listed in the two (2) Proposals,
upon which HOOVEN based its claims, is only for the total sum
of P104,870.00. Curiously then, why would the materials supposedly delivered by
HOOVEN be more than what was contracted and purchased by Lagon? This

circumstance underscores the need to reexamine the strength, if not weakness, of

respondents cause.
Thirdly, under the Proposals HOOVEN bound itself to invoice the materials "when
complete and ready for shipment." Oddly, the records show that the invoices were
prepared several years after the materials were allegedly delivered and installed
completely on petitioners building. Alberto Villanueva testified that their project
with petitioner was completed sometime in August 1981 and that thereafter no
further installation was done in the building.[9] But the disputed invoices marked
Exhs. "A" and "B" were prepared only on 29 December 1982; Exhs. "C" and "D"
were prepared only on 29 December 1984; and, Exh. "E" was prepared only on 29
November 1984. As for the delivery receipts, Exhs. "C-1," "C-2," "C-3" and "E-1"
were prepared only on 25 August 1983 or two (2) years after the completion of the
project, while Exh. "A-3" was prepared only on 8 December 1981 or some four (4)
months after the date of completion.
Even more strange is the fact that HOOVEN instituted the present action for
collection of sum of money against Lagon only on 24 February 1987, or more than
five (5) years after the supposed completion of the project. Indeed, it is contrary
to common experience that a creditor would take its own sweet time in collecting
its credit, more so in this case when the amount involved is not miniscule but
substantial.
Fourthly, the demand letter of 25 August 1983 [10] sent to petitioner by respondent
further betrays the falsity of its claims Dear Mr. Lagon:The bearer, Mr. Fermin Piero, is an authorized representative of this company. He will arrange
for your acceptance of the complete aluminum and glass installation we have undertaken for your building. He
has with him the delivery receipts for your signature so with a statement of account showing your
balance. Kindly favor us with a partial payment to cover our operation costs. Also kindly relay to him all other
installations you wish us to undertake.Hoping for your favorable action, we shall remain. Very Truly
Hooven
Comalco Industries, Inc.
Davao
(Sgd.) Alberto P. Villanueva

If, as claimed by HOOVEN, all the materials were completely delivered and installed in petitioners
building as early as August 1981, why then would it demand partial payment only two (2) years
later? This circumstance is very significant especially considering that under the Proposals the
terms of payment should be 50% down "and the balance to be paid in full" upon
completion. Moreover, it is surprising that the partial payment demanded was only "to cover
operation costs." As correctly observed by petitioner, demand for payment of operation costs is
typical of a still on-going project where the contractor needs funds to defray his expenses. If there
was complete installation, why would respondent demand payment for operation costs only? Why
not enforce the whole amount of indebtedness? All these clearly suggest that there was no full and
complete delivery and installation of materials ordered by petitioner.

Fifthly, all the delivery receipts did not appear to have been signed by petitioner or
his duly authorized representative acknowledging receipt of the materials listed
therein. A closer examination of the receipts clearly showed that the deliveries
were made to a certain Jose Rubin, claimed to be petitioners driver, Armando
Lagon, and a certain bookkeeper. Unfortunately for HOOVEN, the identities of
these persons were never been established, and there is no way of determining
now whether they were indeed authorized representatives of
petitioner. Paragraph 3 of each Proposal is explicit on this point -

3. x x x the sellers responsibility ends with delivery of the merchandise to carrier

in good condition, to buyer, or to buyers authorized "Receiver/Depository" named
on the face of this proposal(underscoring supplied).
As above specifically stated, deliveries must be made to the buyer or his duly
authorized representative named in the contracts. In other words, unless the
buyer specifically designated someone to receive the delivery of materials and his
name is written on the Proposals opposite the words "Authorized
Receiver/Depository," the seller is under obligation to deliver to the buyer only and
to no other person; otherwise, the delivery would be invalid and the seller would
not be discharged from liability. In the present case, petitioner did not name any
person in the Proposals who would receive the deliveries in his behalf, which
meant that HOOVEN was bound to deliver exclusively to petitioner.
Sixthly, it is also obvious from the contested delivery receipts that some important
details were not supplied or were left in blank, i.e., truck numbers, persons who
delivered the materials, invoice and s. o. numbers. The persons who delivered
the materials were potential witnesses who could shed light on the circumstances
surrounding the alleged deliveries of the materials to petitioner. Moreover, it could
have been easier for HOOVEN to pinpoint responsibility to any of its employees
for the non-delivery of the materials.
We are not unaware of the slipshod manner of preparing receipts, order slips and
invoices, which unfortunately has become a common business practice of traders
and businessmen. In most cases, these commercial forms are not always fully
accomplished to contain all the necessary information describing the whole
business transaction. The sales clerks merely indicate a description and the price
of each item sold without bothering to fill up all the available spaces in the
particular receipt or invoice, and without proper regard for any legal repercussion
for such neglect. Certainly, it would not hurt if businessmen and traders would
strive to make the receipts and invoices they issue complete, as far as practicable,
in material particulars. These documents are not mere scraps of paper bereft of
probative value but vital pieces of evidence of commercial transactions. They are
written memorials of the details of the consummation of contracts.
Given this pathetic state of respondent's evidence, how could it be said that
respondent had satisfactorily proved its case? Essentially, respondent has the
burden of establishing its affirmative allegations of complete delivery and
installation of the materials, and petitioners failure to pay therefor. In this regard,
its evidence on its discharge of that duty is grossly anemic. We emphasize that
litigations cannot be properly resolved by suppositions, deductions, or even
presumptions, with no basis in evidence, for the truth must have to be determined
by the hard rules of admissibility and proof.
The Court of Appeals however faulted the trial court for supposedly
relying solely on the results of the ocular inspection on the premises, which were

not conclusive since the inspection was conducted several years after the
disputed materials were allegedly installed therein.
We disagree. The ocular inspection was made by the judge himself, at the
request of both petitioner and respondent, for the exclusive purpose of
determining whether the materials subject of this case were actually delivered and
installed. There is therefore no basis to give little evidentiary value on the results
of the ocular inspection, as the Court of Appeals would, and charge the trial court
with error for relying thereon. It is now rather late for any of the parties to disclaim
them, especially when they are not in his or its favor. Furthermore, a cursory
reading of the decision of the court a quo will at once show that it was not
premised solely on the results of the ocular inspection but was likewise predicated
on other evidence presented by the parties and well-considered facts and
circumstances discussed by the trial court in its ratio decidendi. We cannot ignore
the factual findings of the trial court, which must carry great weight in the
evaluation of evidentiary facts, and in the absence of any indication showing
grave error committed by trial court, the appellate court is bound to respect such
findings of fact.
We hasten to add however that petitioner is not entirely free from any liability to
respondent. Petitioner admitted the delivery of materials under Exhs. "A" and its
submarkings, "B" and its submarkings, "D," "D-1" and "E." With respect to Exh.
"C-2," petitioner acknowledged his obligation under the first heading, Items Nos.
3, 4 and 5, and the second heading, and denied the rest. Consequently, he
should be made liable therefor in the total amount of P58,786.65. From this
amount, petitioners down payment of P48,000.00 should be deducted.
It is insisted by petitioner in his appeal brief filed before the Court of Appeals that
the second item under the second heading of Exh. "C-2" should be excluded in
the computation since he never admitted liability therefor.
We are not persuaded. The transcript of stenographic notes shows that during
the ocular inspection counsel for respondent manifested in effect that petitioner
admitted the delivery and installation of the second item in his building, and
petitioner did not interpose any objection to respondent's manifestation
ATTY. QUIONES: We would like to make of record that
defendant (Lagon) admits that
plaintiff (Hooven Comalco) delivered and installed Item No. 1 under the second column
of
Exhibit C-2 which is the front door of the ground floor.
ATTY. RICO: Defendant however adds that these were installed in 1981 and had already paid for
the said item.
ATTY. QUIONES: I would like to make of record also that defendant admits the delivery and
installation of Item No. 2 under the second column of Exhibit C-2 as having been delivered and
installed by the plaintiff in 1981 with the qualification, however, that he had already paid the same.
COURT: Are you stating that all these installed items on the ground floor were all paid by you?MR.
LAGON: Yes, Your Honor.[11]

Petitioner cannot now be heard to complain against its inclusion in the

computation of his liability since his silence virtually amounted to
acquiescence. The silence of one of the contracting parties and his failure to

protest against the claims of the other party, when he is chargeable with the duty
to do so, strongly suggest an admission of the veracity and validity of the other
partys claims.
In sum, petitioners total liability to respondent may be computed as follows:
(1) Items under Exh. A, consisting of 17
light diffusers at P40.00 each
P 680.00
(2)
Items
under
Exh.
B,
consisting
of
23light
boxes
at P40.00
each
3,220.00
(3) Third, fourth and fifth items under the first heading of Exh. "C-2" which on the basis of their
measurements constitute only 1/3 of
the total costs of materials listed
therein
14,176.65
(4) Items under the second heading of Exh. C-2
21,740.00
(5) Items under Exhs. D and D-1
4,860.00
(6) Items under Exh. E14,110.00
P58,786.65
Less: Stipulated 7% discount
4,408.99
P54,377.66
Less: Advance payment made by petitioner to Hooven Comalco 48,000.00
Unpaid Balance of petitioner
P6,377.66

Notwithstanding the breach of contract by respondent in failing to deliver and

install in the premises of petitioner all the stipulated materials, we nevertheless accede to the right
of respondent to recover the unpaid balance from petitioner for the materials actually delivered.
The next point of inquiry is the propriety of awarding damages, attorneys fees and litigation
expenses.

We are not in accord with the trial courts ruling that petitioner is entitled to actual
damages to the extent of the undelivered materials and undone labor in the
amount of P26,120.00. There is no proof that petitioner already paid for the value
of the undelivered and uninstalled materials to respondent. Therefore, petitioner
may not be deemed to have suffered any such damage. We have declared in no
uncertain terms that actual or compensatory damages cannot be presumed but
must be proved with reasonable degree of certainty.[12] A court cannot rely on
speculations, conjectures or guesswork as to the fact of damage but must depend
upon competent proof that they have indeed been suffered by the injured party
and on the basis of the best evidence obtainable as to the actual amount thereof.
[13]
It must point out specific facts that could provide the gauge for measuring
whatever compensatory or actual damages were borne.
But we agree with petitioner that he is entitled to moral damages. HOOVEN's bad
faith lies not so much on its breach of contract - as there was no showing that its
failure to comply with its part of the bargain was motivated by ill will or done with
fraudulent intent - but rather on its appalling temerity to sue petitioner for payment
of an alleged unpaid balance of the purchase price notwithstanding knowledge of
its failure to make complete delivery and installation of all the materials under their
contracts. It is immaterial that, after the trial, petitioner was found to be liable to
respondent to the extent ofP6,377.66. Petitioner's right to withhold full payment of
the purchase price prior to the delivery and installation of all the merchandise
cannot be denied since under the contracts the balance of the purchase price
became due and demandable only upon the completion of the
project. Consequently, the resulting social humiliation and damage to petitioner's
5

reputation as a respected businessman in the community, occasioned by the filing

of this suit provide sufficient grounds for the award of P50,000.00 as moral
damages.
Moreover, considering the fact that petitioner was drawn into this litigation by
respondent and was compelled to hire an attorney to protect and defend his
interest, and taking into account the work done by said attorney throughout the
proceedings, as reflected in the record, we deem it just and equitable to award
attorney's fees for petitioner in the amount of P30,000.00.[14] In addition, we agree
with the trial court that petitioner is entitled to recover P46,554.50 as actual
damages including litigation expenses as this amount is sufficiently supported by
the evidence.[15]
WHEREFORE, the assailed Decision of the Court of Appeals dated 28 April 1997
is MODIFIED. Petitioner Jose V. Lagon is ordered to pay respondent Hooven
Comalco Industries, Inc., P6,377.66 representing the value of the unpaid materials
admittedly delivered to him. On the other hand, respondent is ordered to pay
petitioner P50,000.00 as moral damages, P30,000.00 as attorney's fees
andP46,554.50 as actual damages and litigation expenses.SO ORDERED.

FIRST DIVISION
[G.R. No. 119255. April
9, 2003]
TOMAS K. CHUA, petitioner,
vs. COURT OF APPEALS and ENCARNACION VALDESCHOY, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari seeking to reverse the decision[1] of the Court of
Appeals in an action for specific performance [2] filed in the Regional Trial Court[3] by petitioner Tomas
K. Chua (Chua) against respondent Encarnacion Valdes-Choy (Valdes-Choy). Chua sought to
compel Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The
Court of Appeals reversed the decision[4] rendered by the trial court in favor of Chua.

The Facts
Valdes-Choy advertised for sale her paraphernal house and lot (Property) with an
area of 718 square meters located at No. 40 Tampingco Street corner Hidalgo Street, San
Lorenzo Village, Makati City. The Property is covered by Transfer Certificate of Title No.
162955 (TCT) issued by the Register of Deeds of Makati City in the name of ValdesChoy. Chua responded to the advertisement. After several meetings, Chua and ValdesChoy agreed on a purchase price of P10,800,000.00 payable in cash.
On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The
receipt (Receipt) evidencing the transaction, signed by Valdes-Choy as seller, and Chua
as buyer, reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE HUNDRED
THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for the sale of the property located at 40
Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila (Area : 718 sq. meters).
The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before
15[5] July 1989. Capital Gains Tax for the account of the seller. Failure to pay balance on or before 15 July 1989
forfeits the earnest money. This provided that all papers are in proper order.[6]
CONFORME: ENCARNACION VALDES
Seller TOMAS K. CHUA
Buyer

x x x.[7]
In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce (PBCom)
a managers check for P480,000.00. Strangely, after securing the managers check, Chua
immediately gave PBCom a verbal stop payment order claiming that this managers check
for P480,000.00 was lost and/or misplaced.[8] On the same day, after receipt of Chuas verbal order,
PBCom Assistant VicePresident Julie C. Pe notified in writing [9] the PBCom Operations Group of
Chuas stop payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to
execute the necessary documents and arrange the payments. [10] Valdes-Choy as vendor and Chua
as vendee signed two Deeds of Absolute Sale (Deeds of Sale). The first Deed of Sale covered
the house and lot for the purchase price of P8,000,000.00.[11] The second Deed of Sale covered the
furnishings, fixtures and movable properties contained in the house for the purchase price
of P2,800,000.00.[12] The parties also computed the capital gains tax to amount to P485,000.00.

On 14 July 1989, the parties met again at the office of Valdes-Choys counsel. Chua handed to Valdes-Choy the
PBCom managers check for P485,000.00 so Valdes-Choy could pay the capital gains tax as she did not have
sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua had a remaining balance
of P10,215,000.00 after deducting the advances made by Chua. This receipt reads:
July 14, 1989
Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR HUNDRED EIGHTY
FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for the sale of the property located at 40
Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters), covered by TCT
No. 162955 of the Registry of Deeds of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN MILLION EIGHT HUNDRED THOUSAND
PESOS only, broken down as follows:
SELLING PRICE
P10,800,000.00
EARNEST MONEY
P100,000.00
PARTIAL PAYMENT
485,000.00 585,000.00
BALANCE DUE TO ENCARNACION VALDEZ-CHOY P10,215,000.00
PLUS P80,000.00 for documentary stamps
paid in advance by seller 80,000.00 P10,295,000.00

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited

the P485,000.00 managers check to her account with Traders Royal Bank. She
then purchased a Traders Royal Bank managers check for P480,000.00 payable
to the Commissioner of Internal Revenue for the capital gains tax. Valdes-Choy
and Chua returned to the office of Valdes-Choys counsel and handed the Traders
Royal Bank check to the counsel who undertook to pay the capital gains tax. It
was then also that Chua showed to Valdes-Choy a PBCom managers check
for P10,215,000.00 representing the balance of the purchase price. Chua,
however, did not give this PBCom managers check to Valdes-Choy because the
TCT was still registered in the name of Valdes-Choy. Chua required that the
Property be registered first in his name before he would turn over the check to
Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of Sale, claiming
that what Chua required was not part of their agreement.[14]
On the same day, 14 July 1989, Chua confirmed his stop payment order by
submitting to PBCom an affidavit of loss[15] of the PBCom Managers Check
for P480,000.00. PBCom Assistant Vice-President Pe, however, testified that the
managers check was nevertheless honored because Chua subsequently verbally
advised the bank that he was lifting the stop-payment order due to his special
arrangement with the bank.[16]
On 15 July 1989, the deadline for the payment of the balance of the purchase
price, Valdes-Choy suggested to her counsel that to break the impasse Chua
should deposit in escrow the P10,215,000.00 balance.[17] Upon such deposit,
Valdes-Choy was willing to cause the issuance of a new TCT in the name of Chua
even without receiving the balance of the purchase price. Valdes-Choy believed
this was the only way she could protect herself if the certificate of title is
transferred in the name of the buyer before she is fully paid. Valdes-Choys
counsel promised to relay her suggestion to Chua and his counsel, but nothing
came out of it.
On 17 July 1989, Chua filed a complaint for specific performance against ValdesChoy which the trial court dismissed on 22 November 1989. On 29 November
7

1989, Chua re-filed his complaint for specific performance with damages. After
trial in due course, the trial court rendered judgment in favor of Chua, the
dispositive portion of which reads:
Applying the provisions of Article 1191 of the new Civil Code, since this is
an action for specific performance where the plaintiff, as
vendee, wants to pursue the sale, and in order that the
fears of the defendant may be allayed and still have the
sale materialize, judgment is hereby rendered:
I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality
of this decision:
a.
the owners duplicate copy of TCT No. 162955 registered in her name;
b.
the covering tax declaration and the latest tax receipt evidencing payment of real
estate taxes;
c.
the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly
executed by defendant in favor of the plaintiff, whether notarized or not; and
2. Within five (5) days from compliance by the defendant of the above, ordering the
plaintiff to deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00
representing the balance of the consideration (with the sum of P80,000.00 for stamps
already included);
3. Ordering the Branch Clerk of this Court or her duly authorized representative:
a. to make representations with the BIR for the payment of capital gains tax for the sale of
the house and lot (not to include the fixtures) and to pay the same from the funds
deposited with her;
b. to present the deed of sale executed in favor of the plaintiff, together with the
owners duplicate copy of TCT No. 162955, real estate tax receipt and proof of payment
of capital gains tax, to the Makati Register of Deeds;
c. to pay the required registration fees and stamps (if not yet advanced by the defendant)
and if needed update the real estate taxes all to be taken from the funds deposited with
her; and
d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale over the property
and the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the
Branch Clerk of Court of this Court is hereby authorized and empowered to prepare, sign
and execute the said deeds of sale for and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral and compensatory damages for the
plaintiff; and
b. the sum of P50,000.00 as reimbursement for plaintiffs attorneys fees and cost of
litigation.
6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken
from the funds said plaintiff has deposited with the Court, the amounts covered at
paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom
the following amounts:
a. the capital gains tax paid to the BIR;

b. the expenses incurred in the registration of the sale, updating of real estate taxes, and
transfer of title; and
c. the amounts paid under this judgment to the plaintiff.
8.
Ordering the defendant to surrender to the plaintiff or his representatives the
premises with the furnishings intact within seventy-two (72) hours from receipt of the
proceeds of the sale;
9.
No interest is imposed on the payment to be made by the plaintiff because he had
always been ready to pay the balance and the premises had been used or occupied by
the defendant for the duration of this case.
II. In the event that specific performance cannot be done for reasons or causes not
attributable to the plaintiff, judgment is hereby rendered ordering the defendant:
1.
To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest
at the legal rate from June 30, 1989 until fully paid;
2.
To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from
July 14, 1989 until fully paid;
3.
To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and
the additional sum of P300,000.00 in the concept of exemplary damages; and
4.
To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorneys fees
and cost of litigation.

SO ORDERED.[18]
Valdes-Choy appealed to the Court of Appeals which reversed the decision
of the trial court. The Court of Appeals handed down a new judgment,
disposing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET
ASIDE, and another one is rendered:
(1) Dismissing Civil Case No. 89-5772;
(2) Declaring the amount of P100,000.00, representing earnest money as
forfeited in favor of defendant-appellant;
(3) Ordering defendant-appellant to return/refund the amount
of P485,000.00 to plaintiff-appellee without interest;
(4) Dismissing defendant-appellants compulsory counter-claim; and
(5) Ordering the plaintiff-appellee to pay the costs. [19]
Hence, the instant petition.
The Trial Courts Ruling
The trial court found that the transaction reached an impasse when ValdesChoy wanted to be first paid the full consideration before a new TCT covering the
Property is issued in the name of Chua. On the other hand, Chua did not want to
pay the consideration in full unless a new TCT is first issued in his name. The trial
court faulted Valdes-Choy for this impasse.
The trial court held that the parties entered into a contract to sell on 30
June 1989, as evidenced by the Receipt for the P100,000.00 earnest
money. The trial court pointed out that the contract to sell was subject to the
8

following conditions: (1) the balance of P10,700,000.00 was payable not later
than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August
1989; and (3) all papers must be in proper order before full payment is made.
The trial court held that Chua complied with the terms of the contract to
sell. Chua showed that he was prepared to pay Valdes-Choy the consideration in
full on 13 July 1989, two days before the deadline of 15 July 1989. Chua even
added P80,000.00 for the documentary stamp tax. He purchased from PBCom
two managers checks both payable to Valdes-Choy. The first check
for P485,000.00 was to pay the capital gains tax. The second check
for P10,215,000.00 was to pay the balance of the purchase price. The trial court
was convinced that Chua demonstrated his capacity and readiness to pay the
balance on 13 July 1989 with the production of the PBCom managers check
for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy
did not perform her correlative obligation under the
contract to sell to put all the papers in order. The trial
court noted that as of 14 July 1989, the capital gains tax
had not been paid because Valdes-Choys counsel who was
suppose to pay the tax did not do so. The trial court
declared that Valdes-Choy was in a position to deliver only
the owners duplicate copy of the TCT, the signed Deeds of
Sale, the tax declarations, and the latest realty tax receipt.
The trial court concluded that these documents were all
useless without the Bureau of Internal Revenue receipt
evidencing full payment of the capital gains tax which is a
pre-requisite to the issuance of a new certificate of title in
Chuas name.
The trial court held that Chuas non-payment of the
balance of P10,215,000.00 on the agreed date was due to
Valdes-Choys fault.
The Court of Appeals Ruling
In reversing the trial court, the Court of Appeals ruled that Chuas stance to
pay the full consideration only after the Property is registered in his name was not
the agreement of the parties. The Court of Appeals noted that there is a whale of
difference between the phrases all papers are in proper order as written on the
Receipt, and transfer of title as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals found that all
the papers were in order and that Chua had no valid reason not to pay on the
agreed date. Valdes-Choy was in a position to deliver the owners duplicate copy

of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty
tax receipt. The Property was also free from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in considering Chuas
showing to Valdes-Choy of the PBCom managers check for P10,215,000.00 as
compliance with Chuas obligation to pay on or before 15 July 1989. The Court of
Appeals pointed out that Chua did not want to give up the check unless the
property was already in his name.[20] Although Chua demonstrated his capacity to
pay, this could not be equated with actual payment which he refused to do.
The Court of Appeals did not consider the non-payment of
the capital gains tax as failure by Valdes-Choy to put the
papers in proper order. The Court of Appeals explained
that the payment of the capital gains tax has no bearing
on the validity of the Deeds of Sale. It is only after the
deeds are signed and notarized can the final computation
and payment of the capital gains tax be made.

The Issues
In his Memorandum, Chua raises the following issues:
1.
WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY;
2.
WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY
WITHOUT OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;
3.
WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE
PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES
OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE AUTOMATIC RESCISSION OF
THE CONTRACT OF SALE;
4.
WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO
DECLARE THE EARNEST MONEY IN THE AMOUNT OF P100,000.00 AS FORFEITED IN
FAVOR OF VALDES-CHOY;
5.
WHETHER THE TRIAL COURTS JUDGMENT IS IN ACCORD WITH LAW, REASON AND
EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED.[21]

The issues for our resolution are: (a) whether the transaction between
Chua and Valdes-Choy is a perfected contract of sale or a mere contract to
sell, and (b) whether Chua can compel Valdes-Choy to cause the issuance
of a new TCT in Chuas name even before payment of the full purchase
price.
The Courts Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is the absolute owner of the Property which
is registered in her name under TCT No.162955, free from all liens and
encumbrances. She was ready, able and willing to deliver to Chua the owners
duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the
latest realty tax receipt. There is also no dispute that on 13 July 1989, ValdesChoy received PBCom Check No. 206011 for P100,000.00 as earnest money
9

from Chua. Likewise, there is no controversy that the Receipt for theP100,000.00
earnest money embodied the terms of the binding contract between Valdes-Choy
and Chua.
Further, there is no controversy that as embodied in the Receipt, ValdesChoy and Chua agreed on the following terms: (1) the balance of P10,215,000.00
is payable on or before 15 July 1989; (2) the capital gains tax is for the account of
Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on or
before 15 July 1989, Valdes-Choy has the right to forfeit the earnest
money, provided that all papers are in proper order. On 13 July 1989, Chua
gave Valdes-Choy the PBCom managers check for P485,000.00 to pay the
capital gains tax.
Both the trial and appellate courts found that the balance of P10,215,000.00 was
not actually paid to Valdes-Choy on the agreed date. On 13 July 1989, Chua
did show to Valdes-Choy the PBCom managers check for P10,215,000.00, with
Valdes-Choy as payee. However, Chua refused to give this check to ValdesChoy until a new TCT covering the Property is registered in Chuas name. Or, as
the trial court put it, until there is proof of payment of the capital gains tax which is
a pre-requisite to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with Valdez-Choy, as
evidenced by the Receipt, as a contract to sell and not a contract of sale. This
has been Chuas persistent contention in his pleadings before the trial and
appellate courts.
Chua now pleads for the first time that there is a perfected contract of sale
rather than a contract to sell. He contends that there was no reservation in the
contract of sale that Valdes-Choy shall retain title to the Property until after the
sale. There was no agreement for an automatic rescission of the contract in case
of Chuas default. He argues for the first time that his payment of earnest money
and its acceptance by Valdes-Choy precludes the latter from rejecting the binding
effect of the contract of sale. Thus, Chua claims that Valdes-Choy may not validly
rescind the contract of sale without following Article 1592 [22] of the Civil Code
which requires demand, either judicially or by notarial act, before rescission may
take place.
Chuas new theory is not well taken in light of well-settled jurisprudence. An
issue not raised in the court below cannot be raised for the first time on appeal, as
this is offensive to the basic rules of fair play, justice and due process. [23] In
addition, when a party deliberately adopts a certain theory, and the case is tried
and decided on that theory in the court below, the party will not be permitted to
change his theory on appeal. To permit him to change his theory will be unfair to
the adverse party.[24]

Nevertheless, in order to put to rest all doubts on the matter, we hold that the
agreement between Chua and Valdes-Choy, as evidenced by the Receipt, is a
contract to sell and not a contract of sale. The distinction between a contract of
sale and contract to sell is well-settled:
In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the vendor loses
ownership over the property and cannot recover it until and unless the contract is
resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor
until full payment of the price. In the latter contract, payment of the price is a
positive suspensive condition, failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming effective.[25]
A perusal of the Receipt shows that the true agreement between the parties
was a contract to sell. Ownership over the Property was retained by Valdes-Choy
and was not to pass to Chua until full payment of the purchase price.
First, the Receipt provides that the earnest money shall be forfeited in case
the buyer fails to pay the balance of the purchase price on or before 15 July
1989. In such event, Valdes-Choy can sell the Property to other interested
parties. There is in effect a right reserved in favor of Valdes-Choy not to push
through with the sale upon Chuas failure to remit the balance of the purchase
price before the deadline. This is in the nature of a stipulation reserving
ownership in the seller until full payment of the purchase price. This is also similar
to giving the seller the right to rescind unilaterally the contract the moment the
buyer fails to pay within a fixed period.[26]
Second, the agreement between Chua and Valdes-Choy was embodied in a
receipt rather than in a deed of sale, ownership not having passed between
them. The signing of the Deeds of Sale came later when Valdes-Choy was under
the impression that Chua was about to pay the balance of the purchase
price. The absence of a formal deed of conveyance is a strong indication that the
parties did not intend immediate transfer of ownership, but only a transfer after full
payment of the purchase price.[27]
Third, Valdes-Choy retained possession of the certificate of title and all other
documents relative to the sale. When Chua refused to pay Valdes-Choy the
balance of the purchase price, Valdes-Choy also refused to turn-over to Chua
these documents.[28] These are additional proof that the agreement did not transfer
to Chua, either by actual or constructive delivery, ownership of the Property.[29]

10

It is true that Article 1482 of the Civil Code provides that [W]henever earnest
money is given in a contract of sale, it shall be considered as part of the price and
proof of the perfection of the contract. However, this article speaks of earnest
money given in a contract of sale. In this case, the earnest money was given in
a contract to sell. The Receipt evidencing the contract to sell stipulates that the
earnest money is a forfeitable deposit, to be forfeited if the sale is not
consummated should Chua fail to pay the balance of the purchase price. The
earnest money forms part of the consideration only if the sale is consummated
upon full payment of the purchase price. If there is a contract of sale, ValdesChoy should have the right to compel Chua to pay the balance of the purchase
price. Chua, however, has the right to walk away from the transaction, with no
obligation to pay the balance, although he will forfeit the earnest money. Clearly,
there is no contract of sale. The earnest money was given in a contract to sell,
and thus Article 1482, which speaks of a contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere contract to sell,
the full payment of the purchase price partakes of a suspensive condition. The
non-fulfillment of the condition prevents the obligation to sell from arising and
ownership is retained by the seller without further remedies by the buyer.[30] Article
1592 of the Civil Code permits the buyer to 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 notarial act. However, Article 1592 does not apply to a
contract to sell where the seller reserves the ownership until full payment of the
price.[31]
Third and Fourth Issues: Withholding of Payment of the Balance
of the Purchase Price and Forfeiture of the Earnest Money
Chua insists that he was ready to pay the balance of the purchase price but
withheld payment because Valdes-Choy did not fulfill her contractual obligation to
put all the papers in proper order. Specifically, Chua claims that Valdes-Choy
failed to show that the capital gains tax had been paid after he had advanced the
money for its payment. For the same reason, he contends that Valdes-Choy may
not forfeit the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase all papers are in proper order
as written in the Receipt. There is no dispute though, that as long as the papers
are in proper order, Valdes-Choy has the right to forfeit the earnest money if
Chua fails to pay the balance before the deadline.
The trial court interpreted the phrase to include payment of the capital gains tax,
with the Bureau of Internal Revenue receipt as proof of payment. The Court of
Appeals held otherwise. We quote verbatim the ruling of the Court of Appeals on
this matter:
The trial court made much fuss in connection with the payment of the capital gains
tax, of which Section 33 of the National Internal Revenue Code of 1977, is the
governing provision insofar as its computation is concerned. The trial court failed

to consider Section 34-(a) of the said Code, the last sentence of which provides,
that [t]he amount realized from the sale or other disposition of propertyshall be
the sum of money received plus the fair market value of the property (other than
money) received; and that the computation of the capital gains tax can only be
finally assessed by the Commission on Internal Revenue upon the presentation of
the Deeds of Absolute Sale themselves, without which any premature
computation of the capital gains tax becomes of no moment. At any rate, the
computation and payment of the capital gains tax has no bearing insofar as the
validity and effectiveness of the deeds of sale in question are concerned, because
it is only after the contracts of sale are finally executed in due form and have been
duly notarized that the final computation of the capital gains tax can follow as a
matter of course. Indeed, exhibit D, the PBC Check No. 325851, dated July 13,
1989, in the amount of P485,000.00, which is considered as part of the
consideration of the sale, was deposited in the name of appellant, from which she
in turn, purchased the corresponding check in the amount representing the sum to
be paid for capital gains tax and drawn in the name of the Commissioner of
Internal Revenue, which then allayed any fear or doubt that that amount would not
be paid to the Government after all.[32]
We see no reason to disturb the ruling of the Court of Appeals.
In a contract to sell, the obligation of the seller to sell becomes demandable only
upon the happening of the suspensive condition. In this case, the suspensive
condition is the full payment of the purchase price by Chua. Such full payment
gives rise to Chuas right to demand the execution of the contract of sale.
It is only upon the existence of the contract of sale that the seller becomes
obligated to transfer the ownership of the thing sold to the buyer. Article 1458 of
the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent.
x x x. (Emphasis supplied)
Prior to the existence of the contract of sale, the seller is not obligated to transfer
ownership to the buyer, even if there is a contract to sell between them. It is also
upon the existence of the contract of sale that the buyer is obligated to pay the
purchase price to the seller. Since the transfer of ownership is in exchange for the
purchase price, these obligations must be simultaneously fulfilled at the time of
the execution of the contract of sale, in the absence of a contrary stipulation.
In a contract of sale, the obligations of the seller are specified in Article 1495 of
the Civil Code, as follows:
Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well
as warrant the thing which is the object of the sale. (Emphasis supplied)
The obligation of the seller is to transfer to the buyer ownership of the thing
sold. In the sale of real property, the seller is not obligated to transfer in the name
11

of the buyer a new certificate of title, but rather to transfer ownership of the real
property. There is a difference between transfer of the certificate of title in the
name of the buyer, and transfer of ownership to the buyer. The buyer may
become the owner of the real property even if the certificate of title is still
registered in the name of the seller. As between the seller and buyer, ownership is
transferred not by the issuance of a new certificate of title in the name of the buyer
but by the execution of the instrument of sale in a public document.
In a contract of sale, ownership is transferred upon delivery of the thing sold. As
the noted civil law commentator Arturo M. Tolentino explains it, Delivery is not only a necessary condition for the enjoyment of the thing, but is a
mode of acquiring dominion and determines the transmission of ownership, the
birth of the real right. The delivery, therefore, made in any of the forms
provided in articles 1497 to 1505 signifies that the transmission of
ownership from vendor to vendee has taken place. The delivery of the thing
constitutes an indispensable requisite for the purpose of acquiring ownership. Our
law does not admit the doctrine of transfer of property by mere consent; the
ownership, the property right, is derived only from delivery of the thing. x x x.
[33]
(Emphasis supplied)
In a contract of sale of real property, delivery is effected when the instrument of
sale is executed in a public document. When the deed of absolute sale is signed
by the parties and notarized, then delivery of the real property is deemed made by
the seller to the buyer. Article 1498 of the Civil Code provides that
Art. 1498. When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be
inferred.x x x.
Similarly, in a contract to sell real property, once the seller is ready, able and
willing to sign the deed of absolute sale before a notary public, the seller is in a
position to transfer ownership of the real property to the buyer. At this point, the
seller complies with his undertaking to sell the real property in accordance with the
contract to sell, and to assume all the obligations of a vendor under a contract of
sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the
seller is not obligated to transfer ownership to the buyer. Neither is the seller
obligated to cause the issuance of a new certificate of title in the name of the
buyer. However, the seller must put all his papers in proper order to the point that
he is in a position to transfer ownership of the real property to the buyer upon the
signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with all her
obligations as a seller under the contract to sell. First, she already signed the
Deeds of Sale in the office of her counsel in the presence of the buyer. Second,
she was prepared to turn-over the owners duplicate of the TCT to the buyer,
along with the tax declarations and latest realty tax receipt. Clearly, at this point

Valdes-Choy was ready, able and willing to transfer ownership of the Property to
the buyer as required by the contract to sell, and by Articles 1458 and 1495 of the
Civil Code to consummate the contract of sale.
Chua, however, refused to give to Valdes-Choy the PBCom managers check for
the balance of the purchase price. Chua imposed the condition that a new TCT
should first be issued in his name, a condition that is found neither in the law nor
in the contract to sell as evidenced by the Receipt. Thus, at this point Chua was
not ready, able and willing to pay the full purchase price which is his obligation
under the contract to sell. Chua was also not in a position to assume the principal
obligation of a vendee in a contract of sale, which is also to pay the full purchase
price at the agreed time. Article 1582 of the Civil Code provides that
Art. 1582. The vendee is bound to accept delivery and to pay the price of the
thing sold at the time and place stipulated in the contract.
x x x. (Emphasis supplied)
In this case, the contract to sell stipulated that Chua should pay the balance of the
purchase price on or before 15 July 1989. The signed Deeds of Sale also
stipulated that the buyer shall pay the balance of the purchase price upon signing
of the deeds. Thus, the Deeds of Sale, both signed by Chua, state as follows:
Deed of Absolute Sale covering the lot:xxx
For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00),
Philippine Currency, receipt of which in full is hereby acknowledged by the
VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the
VENDEE, his heirs, successors and assigns, the said parcel of land, together with
the improvements existing thereon, free from all liens and encumbrances.
[34]
(Emphasis supplied)
Deed of Absolute Sale covering the furnishings:xxx
For and in consideration of the sum of TWO MILLION EIGHT HUNDRED
THOUSAND PESOS (P2,800,000.00), Philippine Currency, receipt of which in
full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR
sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns,
the said furnitures, fixtures and other movable properties thereon, free from all
liens and encumbrances.[35] (Emphasis supplied)
However, on the agreed date, Chua refused to pay the balance of the purchase
price as required by the contract to sell, the signed Deeds of Sale, and Article
1582 of the Civil Code. Chua was therefore in default and has only himself to
blame for the rescission by Valdes-Choy of the contract to sell.
Even if measured under existing usage or custom, Valdes-Choy had all her
papers in proper order. Article 1376 of the Civil Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.
12

Customarily, in the absence of a contrary agreement, the submission by an

individual seller to the buyer of the following papers would complete a sale of real
estate: (1) owners duplicate copy of the Torrens title;[36] (2) signed deed of
absolute sale; (3) tax declaration; and (3) latest realty tax receipt. The buyer can
retain the amount for the capital gains tax and pay it upon authority of the seller, or
the seller can pay the tax, depending on the agreement of the parties.
The buyer has more interest in having the capital gains tax paid immediately since
this is a pre-requisite to the issuance of a new Torrens title in his
name. Nevertheless, as far as the government is concerned, the capital gains tax
remains a liability of the seller since it is a tax on the sellers gain from the sale of
the real estate. Payment of the capital gains tax, however, is not a prerequisite to the transfer of ownership to the buyer. The transfer of ownership
takes effect upon the signing and notarization of the deed of absolute sale.
The recording of the sale with the proper Registry of Deeds[37] and the transfer of
the certificate of title in the name of the buyer are necessary only to bind third
parties to the transfer of ownership.[38] As between the seller and the buyer, the
transfer of ownership takes effect upon the execution of a public instrument
conveying the real estate.[39] Registration of the sale with the Registry of Deeds, or
the issuance of a new certificate of title, does not confer ownership on the
buyer. Such registration or issuance of a new certificate of title is not one of the
modes of acquiring ownership.[40]
In this case, Valdes-Choy was ready, able and willing to submit to Chua all the
papers that customarily would complete the sale, and to pay as well the capital
gains tax. On the other hand, Chuas condition that a new TCT be first issued in
his name before he pays the balance of P10,215,000.00, representing 94.58% of
the purchase price, is not customary in a sale of real estate. Such a condition, not
specified in the contract to sell as evidenced by the Receipt, cannot be considered
part of the omissions of stipulations which are ordinarily established by usage or
custom.[41] What is increasingly becoming customary is to deposit in escrow the
balance of the purchase price pending the issuance of a new certificate of title in
the name of the buyer. Valdes-Choy suggested this solution but unfortunately, it
drew no response from Chua.
Chua had no reason to fear being swindled. Valdes-Choy was prepared to turnover to him the owners duplicate copy of the TCT, the signed Deeds of Sale, the
tax declarations, and the latest realty tax receipt. There was no hindrance to
paying the capital gains tax as Chua himself had advanced the money to pay the
same and Valdes-Choy had procured a managers check payable to the Bureau of
Internal Revenue covering the amount. It was only a matter of time before the
capital gains tax would be paid. Chua acted precipitately in filing the action for
specific performance a mere two days after the deadline of 15 July 1989 when
there was an impasse. While this case was dismissed on 22 November 1989, he
did not waste any time in re-filing the same on 29 November 1989.

Accordingly, since Chua refused to pay the consideration in full on the agreed
date, which is a suspensive condition, Chua cannot compel Valdes-Choy to
consummate the sale of the Property. Article 1181 of the Civil Code provides that
ART. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired shall depend upon the
happening of the event which constitutes the condition.
Chua acquired no right to compel Valdes-Choy to transfer ownership of the
Property to him because the suspensive condition - the full payment of the
purchase price - did not happen. There is no correlative obligation on the part of
Valdes-Choy to transfer ownership of the Property to Chua. There is also no
obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the
name of Chua since unless expressly stipulated, this is not one of the obligations
of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652
dated 23 February 1995 is AFFIRMED in toto.
SO ORDERED.

13

THIRD DIVISION
[G.R. No. 151212. September 10, 2003]
TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its
President, VERONICA G. LORENZANA, petitioner, vs. MARINA
CRUZ,respondent.
DECISION
PANGANIBAN, J.:
In an ejectment suit, the question of ownership may be provisionally ruled upon for
the sole purpose of determining who is entitled to possession de facto. In the
present case, both parties base their alleged right to possess on their right to
own. Hence, the Court of Appeals did not err in passing upon the question of
ownership to be able to decide who was entitled to physical possession of the
disputed land.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking
to nullify the August 31, 2001 Decision[2] and December 19, 2001 Resolution[3] of
the Court of Appeals (CA) in CA- GR SP No. 64861. The dispositive portion of the
assailed Decision is as follows:
WHEREFORE, premises considered, the petition is hereby DISMISSED and the
Decision dated May 4, 2001 is hereby AFFIRMED.[4]
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
A complaint for ejectment was filed by [Petitioner Ten Forty Realty and
Development Corporation] against x x x [Respondent Marina Cruz] before the
Municipal Trial Court in Cities (MTCC) of Olongapo City, docketed as Civil Case
4269, which alleged that: petitioner is the true and absolute owner of a parcel of
lot and residential house situated in #71 18th Street, E.B.B. Olongapo City,
particularly described as:
A parcel of residential house and lot situated in the above-mentioned address
containing an area of 324 square meters more or less bounded on the Northeast
by 041 (Lot 255, Ts-308); on the Southeast by 044 (Lot 255, Ts-308); on the
Southwest by 043 (Lot 226-A & 18th street) and on the Northwest by 045 (Lot 227,
Ts-308) and declared for taxation purposes in the name of [petitioner] under T.D.
No. 002-4595-R and 002-4596.
having acquired the same on December 5, 1996 from Barbara Galino by virtue of
a Deed of Absolute Sale; the sale was acknowledged by said Barbara Galino
through a 'Katunayan'; payment of the capital gains tax for the transfer of the
property was evidenced by a Certification Authorizing Registration issued by the
Bureau of Internal Revenue; petitioner came to know that Barbara Galino sold the
same property on April 24, 1998 to Cruz, who immediately occupied the property
and which occupation was merely tolerated by petitioner; on October 16, 1998, a

complaint for ejectment was filed with the Barangay East Bajac-Bajac, Olongapo
City but for failure to arrive at an amicable settlement, a Certificate to File Action
was issued; on April 12, 1999 a demand letter was sent to [respondent] to vacate
and pay reasonable amount for the use and occupation of the same, but was
ignored by the latter; and due to the refusal of [respondent] to vacate the
premises, petitioner was constrained to secure the services of a counsel for an
agreed fee of P5,000.00 as attorneys fee and P500.00 as appearance fee and
incurred an expense of P5,000.00 for litigation.
In respondents Answer with Counterclaim, it was alleged that: petitioner is not
qualified to own the residential lot in dispute, being a public land; according to
Barbara Galino, she did not sell her house and lot to petitioner but merely
obtained a loan from Veronica Lorenzana; the payment of the capital gains tax
does not necessarily show that the Deed of Absolute Sale was at that time already
in existence; the court has no jurisdiction over the subject matter because the
complaint was filed beyond the one (1) year period after the alleged unlawful
deprivation of possession; there is no allegation that petitioner had been in prior
possession of the premises and the same was lost thru force, stealth or violence;
evidence will show that it was Barbara Galino who was in possession at the time
of the sale and vacated the property in favor of respondent; never was there an
occasion when petitioner occupied a portion of the premises, before respondent
occupied the lot in April 1998, she caused the cancellation of the tax declaration in
the name of Barbara Galino and a new one issued in respondents name;
petitioner obtained its tax declaration over the same property on November 3,
1998, seven (7) months [after] the respondent [obtained hers]; at the time the
house and lot [were] bought by respondent, the house was not habitable, the
power and water connections were disconnected; being a public land, respondent
filed a miscellaneous sales application with the Community Environment and
Natural Resources Office in Olongapo City; and the action for ejectment cannot
succeed where it appears that respondent had been in possession of the property
prior to the petitioner.[5]
In a Decision[6] dated October 30, 2000, the Municipal Trial Court in Cities
(MTCC) ordered respondent to vacate the property and surrender to petitioner
possession thereof. It also directed her to pay, as damages for its continued
unlawful use, P500 a month from April 24, 1999 until the property was
vacated, P5,000 as attorneys fees, and the costs of the suit.
On appeal, the Regional Trial Court[7] (RTC) of Olongapo City (Branch 72)
reversed the MTCC. The RTC ruled as follows: 1) respondents entry into the
property was not by mere tolerance of petitioner, but by virtue of a Waiver and
Transfer of Possessory Rights and Deed of Sale in her favor; 2) the execution of
the Deed of Sale without actual transfer of the physical possession did not have
14

the effect of making petitioner the owner of the property, because there was no
delivery of the object of the sale as provided for in Article 1428 of the Civil Code;
and 3) being a corporation, petitioner was disqualified from acquiring the property,
which was public land.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner had failed to make a case for
unlawful detainer, because no contract -- express or implied -- had been entered
into by the parties with regard to possession of the property. It ruled that the
action should have been for forcible entry, in which prior physical possession was
indispensable -- a circumstance petitioner had not shown either.
The appellate court also held that petitioner had challenged the RTCs ruling on
the question of ownership for the purpose of compensating for the latters failure
to counter such ruling. The RTC had held that, as a corporation, petitioner had
no right to acquire the property which was alienable public land.
Hence, this Petition.[8]
Issues
Petitioner submits the following issues for our consideration:
1. The Honorable Court of Appeals had clearly erred in not holding that [r]espondents
occupation or possession of the property in question was merely through the tolerance or
permission of the herein [p]etitioner;
[2.] The Honorable Court of Appeals had likewise erred in holding that the ejectment
case should have been a forcible entry case where prior physical possession is
indispensable; and
[3.] The Honorable Court of Appeals had also erred when it ruled that the herein
[r]espondents possession or occupation of the said property is in the nature of an exercise
of ownership which should put the herein [p]etitioner on guard. [9]
The Courts Ruling
The Petition has no merit.

First Issue:
Alleged Occupation by Tolerance
Petitioner faults the CA for not holding that the former merely tolerated
respondents occupation of the subject property. By raising this issue, petitioner is
in effect asking this Court to reassess factual findings. As a general rule, this kind
of reassessment cannot be done through a petition for review on certiorari under
Rule 45 of the Rules of Court, because this Court is not a trier of facts; it reviews
only questions of law.[10] Petitioner has not given us ample reasons to depart from
the general rule.
On the basis of the facts found by the CA and the RTC, we find that petitioner
failed to substantiate its case for unlawful detainer. Admittedly, no express
contract existed between the parties. Not shown either was the corporations
alleged tolerance of respondents possession.

While possession by tolerance may initially be lawful, it ceases to be so upon

the owners demand that the possessor by tolerance vacate the property. [11] To
justify an action for unlawful detainer, the permission or tolerance must have been
present at the beginning of the possession.[12] Otherwise, if the possession was
unlawful from the start, an action for unlawful detainer would be an improper
remedy. Sarona v. Villegas[13] elucidates thus:
A close assessment of the law and the concept of the word tolerance confirms our view
heretofore expressed that such tolerance must be present right from the start of
possession sought to be recovered, to categorize a cause of action as one of unlawful
detainer not of forcible entry. Indeed, to hold otherwise would espouse a dangerous
doctrine. And for two reasons. First. Forcible entry into the land is an open challenge to
the right of the possessor. Violation of that right authorizes the speedy redress in the
inferior court provided for in the rules. If one year from the forcible entry is allowed to
lapse before suit is filed, then the remedy ceases to be speedy; and the possessor is
deemed to have waived his right to seek relief in the inferior court. Second, if a forcible
entry action in the inferior court is allowed after the lapse of a number of years, then the
result may well be that no action for forcible entry can really prescribe. No matter how
long such defendant is in physical possession, plaintiff will merely make a demand, bring
suit in the inferior court upon a plea of tolerance to prevent prescription to set in and
summarily throw him out of the land. Such a conclusion is unreasonable. Especially if we
bear in mind the postulates that proceedings of forcible entry and unlawful detainer are
summary in nature, and that the one year time bar to suit is but in pursuance of the
summary nature of the action.[14]

In this case, the Complaint and the other pleadings do not recite
any averment of fact that would substantiate the claim of petitioner that it
permitted or tolerated the occupation of the property by Respondent Cruz. The
Complaint contains only bare allegations that 1) respondent immediately occupied
the subject property after its sale to her, an action merely tolerated by petitioner;
[15]
and 2) her allegedly illegal occupation of the premises was by mere tolerance.
[16]

These allegations contradict, rather than support, petitioners theory that its
cause of action is for unlawful detainer. First, these arguments advance the view
that respondents occupation of the property was unlawful at its inception. Second,
they counter the essential requirement in unlawful detainer cases that petitioners
supposed act of sufferance or tolerance must be present right from the start of a
possession that is later sought to be recovered.[17]

15

As the bare allegation of petitioners tolerance of respondents occupation of the

premises has not been proven, the possession should be deemed illegal from the
beginning. Thus, the CA correctly ruled that the ejectment case should have been
for forcible entry -- an action that had already prescribed, however, when the
Complaint was filed on May 12, 1999. The prescriptive period of one year for
forcible entry cases is reckoned from the date of respondents actual entry into the
land, which in this case was on April 24, 1998.
Second Issue:
Nature of the Case
Much of the difficulty in the present controversy stems from the legal
characterization of the ejectment Complaint filed by petitioner. Specifically, was it
for unlawful detainer or for forcible entry?
The answer is given in Section 1 of Rule 70 of the Rules of Court, which we
reproduce as follows:
SECTION 1. Who may institute proceedings, and when. - Subject to the
provisions of the next succeeding section, a person deprived of the possession of
any land or building by force, intimidation, threat, strategy, or stealth, or a lessor,
vendor, vendee, or other person against whom the possession of any land or
building is unlawfully withheld after the expiration or termination of the right to hold
possession, by virtue of any contract, express or implied, or the legal
representatives or assigns of any such lessor, vendor, vendee, or other person,
may, at any time within one (1) year after such unlawful deprivation or withholding
of possession, bring an action in the proper Municipal Trial Court against the
person or persons unlawfully withholding or depriving of possession, or any
person or persons claiming under them, for the restitution of such possession,
together with damages and costs.
While both causes of action deal only with the sole issue of physical or de
facto possession,[18] the two cases are really separate and distinct, as explained
below:
x x x. In forcible entry, one is deprived of physical possession of land or building
by means of force, intimidation, threat, strategy, or stealth. In unlawful detainer,
one unlawfully withholds possession thereof after the expiration or termination of
his right to hold possession under any contract, express or implied. In forcible
entry, the possession is illegal from the beginning and the basic inquiry centers on
who has the prior possession de facto. In unlawful detainer, the possession was
originally lawful but became unlawful by the expiration or termination of the right to
possess, hence the issue of rightful possession is decisive for, in such action, the
defendant is in actual possession and the plaintiffs cause of action is the
termination of the defendants right to continue in possession.
What determines the cause of action is the nature of defendants entry into the
land. If the entry is illegal, then the action which may be filed against the intruder
within one year therefrom is forcible entry. If, on the other hand, the entry is legal

but the possession thereafter became illegal, the case is one of unlawful detainer
which must be filed within one year from the date of the last demand.[19]
It is axiomatic that what determines the nature of an action as well as which court
has jurisdiction over it are the allegations in the complaint[20] and the character of
the relief sought.[21]
In its Complaint, petitioner alleged that, having acquired the subject property from
Barbara Galino on December 5, 1996,[22] it was the true and absolute
owner[23] thereof; that Galino had sold the property to Respondent Cruz on April
24, 1998;[24] that after the sale, the latter immediately occupied the property, an
action that was merely tolerated by petitioner;[25] and that, in a letter given to
respondent on April 12, 1999,[26] petitioner had demanded that the former vacate
the property, but that she refused to do so.[27] Petitioner thereupon prayed for
judgment ordering her to vacate the property and to pay reasonable rentals for the
use of the premises, attorneys fees and the costs of the suit.[28]
The above allegations appeared to show the elements of unlawful detainer. They
also conferred initiatory jurisdiction on the MTCC, because the case was filed a
month after the last demand to vacate -- hence, within the one-year prescriptive
period.
However, what was actually proven by petitioner was that possession by
respondent had been illegal from the beginning. While the Complaint was crafted
to be an unlawful detainer suit, petitioners real cause of action was for forcible
entry, which had already prescribed. Consequently, the MTCC had no more
jurisdiction over the action.
The appellate court, therefore, did not err when it ruled that petitioners Complaint
for unlawful detainer was a mere subterfuge or a disguised substitute action for
forcible entry, which had already prescribed. To repeat, to maintain a viable action
for forcible entry, plaintiff must have been in prior physical possession of the
property; this is an essential element of the suit.[29]
Third Issue: Alleged Acts of Ownership
Petitioner next questions the CAs pronouncement that respondents occupation of
the property was an exercise of a right flowing from a claim of ownership. It
submits that the appellate court should not have passed upon the issue of
ownership, because the only question for resolution in an ejectment suit is that of
possession de facto.
Clearly, each of the parties claimed the right to possess the disputed property
because of alleged ownership of it. Hence, no error could have been imputed to
the appellate court when it passed upon the issue of ownership only for the
purpose of resolving the issue of possession de facto.[30] The CAs holding is
moreover in accord with jurisprudence and the law.
Execution of a Deed of Sale Not Sufficient as Delivery
In a contract of sale, the buyer acquires the thing sold only upon its delivery in
any of the ways specified in Articles 1497 to 1501, or in any other manner
16

signifying an agreement that the possession is transferred from the vendor to the
vendee.[31] With respect to incorporeal property, Article 1498 lays down the
general rule: the execution of a public instrument shall be equivalent to the
delivery of the thing that is the object of the contract if, from the deed, the contrary
does not appear or cannot be clearly inferred.
However, ownership is transferred not by contract but by tradition or delivery.
[32]
Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is
a conclusivepresumption of delivery of possession of a piece of real estate.[33]
This Court has held that the execution of a public instrument gives rise only to a
prima facie presumption of delivery. Such presumption is destroyed when the
delivery is not effected because of a legal impediment.[34] Pasagui v.
Villablanca[35] had earlier ruled that such constructive or symbolic delivery, being
merely presumptive, was deemed negated by the failure of the vendee to take
actual possession of the land sold.
It is undisputed that petitioner did not occupy the property from the time it was
allegedly sold to it on December 5, 1996 or at any time thereafter. Nonetheless, it
maintains that Galinos continued stay in the premises from the time of the sale up
to the time respondents occupation of the same on April 24, 1998, was
possession held on its behalf and had the effect of delivery under the law.[36]
Both the RTC and the CA disagreed. According to the RTC, petitioner did not
gain control and possession of the property, because Galino had continued to
exercise ownership rights over the realty. That is, she had remained in
possession, continued to declare it as her property for tax purposes and sold it to
respondent in 1998.
For its part, the CA found it highly unbelievable that petitioner -- which claims to be
the owner of the disputed property -- would tolerate possession of the property by
respondent from April 24, 1998 up to October 16, 1998. How could it have been
so tolerant despite its knowledge that the property had been sold to her, and that it
was by virtue of that sale that she had undertaken major repairs and
improvements on it?
Petitioner should have likewise been put on guard by respondents declaration of
the property for tax purposes on April 23, 1998,[37] as annotated in the tax
certificate filed seven months later.[38] Verily, the tax declaration represented an
adverse claim over the unregistered property and was inimical to the right of
petitioner.
Indeed, the above circumstances derogated its claim of control and possession of
the property.
Order of Preference in Double Sale of Immovable Property
The ownership of immovable property sold to two different buyers at different
times is governed by Article 1544 of the Civil Code, which reads as follows:
Article 1544. x x x

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
Galino allegedly sold the property in question to petitioner on December 5, 1996
and, subsequently, to respondent on April 24, 1998. Petitioner thus argues that
being the first buyer, it has a better right to own the realty. However, it has not
been able to establish that its Deed of Sale was recorded in the Registry of Deeds
of Olongapo City.[39] Its claim of an unattested and unverified notation on its Deed
of Absolute Sale[40] is not equivalent to registration. It admits that, indeed, the sale
has not been recorded in the Registry of Deeds.[41]
In the absence of the required inscription, the law gives preferential right to the
buyer who in good faith is first in possession. In determining the question of who
is first in possession, certain basic parameters have been established by
jurisprudence.
First, the possession mentioned in Article 1544 includes not only material but also
symbolic possession.[42] Second, possessors in good faith are those who are not
aware of any flaw in their title or mode of acquisition. [43] Third, buyers of real
property that is in the possession of persons other than the seller must be wary -they must investigate the rights of the possessors.[44] Fourth, good faith is always
presumed; upon those who allege bad faith on the part of the possessors rests the
burden of proof.[45]
Earlier, we ruled that the subject property had not been delivered to petitioner;
hence, it did not acquire possession either materially or symbolically. As between
the two buyers, therefore, respondent was first in actual possession of the
property.
Petitioner has not proven that respondent was aware that her mode of acquiring
the property was defective at the time she acquired it from Galino. At the time, the
property -- which was public land -- had not been registered in the name of Galino;
thus, respondent relied on the tax declarations thereon. As shown, the formers
name appeared on the tax declarations for the property until its sale to the latter in
1998. Galino was in fact occupying the realty when respondent took over
possession. Thus, there was no circumstance that could have placed the latter
upon inquiry or required her to further investigate petitioners right of ownership.
Disqualification from Ownership of Alienable Public Land
Private corporations are disqualified from acquiring lands of the public domain, as
provided under Section 3 of Article XII of the Constitution, which we quote:
Sec. 3. Lands of the public domain are classified into agricultural, forest or timber,
mineral lands, and national parks. Agricultural lands of the public domain may be
further classified by law according to the uses to which they may be
devoted. Alienable lands of the public domain shall be limited to agricultural
17

lands. Private corporations or associations may not hold such alienable lands of
the public domain except by lease, for a period not exceeding twenty-five years,
and not to exceed one thousand hectares in area. Citizens of the Philippines may
not lease not more than five hundred hectares, or acquire not more than twelve
hectares thereof by purchase, homestead, or grant. x x x. (Italics supplied)
While corporations cannot acquire land of the public domain, they can however
acquire private land.[46] Hence, the next issue that needs to be resolved is the
determination of whether the disputed property is private land or of the public
domain.
According to the certification by the City Planning and Development Office of
Olongapo City, the contested property in this case is alienable and disposable
public land.[47] It was for this reason that respondent filed a miscellaneous sales
application to acquire it.[48]
On the other hand, petitioner has not presented proof that, at the time it
purchased the property from Galino, the property had ceased to be of the public
domain and was already private land. The established rule is that alienable and
disposable land of the public domain held and occupied by a possessor -personally or through predecessors-in-interest, openly, continuously, and
exclusively for 30 years -- is ipso jure converted to private property by the mere
lapse of time.[49]
In view of the foregoing, we affirm the appellate courts ruling that respondent is
entitled to possession de facto. This determination, however, is only provisional in
nature.[50] Well-settled is the rule that an award of possession de facto over a
piece of property does not constitute res judicata as to the issue of its ownership.
[51]

WHEREFORE,
this
Petition
is DENIED and
the
assailed
Decision AFFIRMED. Costs against petitioner.SO ORDERED.
Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.
Puno, (Chairman), on official leave.
Digest TEN FORTY REALTY V. CRUZ| PanganibanG.R. No. 151212 | September
10, 2003
FACTS:
Petitioner filed an ejectment complaint against Marina Cruz(respondent) before
the MTC. Petitioner alleges that the land indispute was purchased from Barbara
Galino on December 1996, andthat said land was again sold to respondent on
April 1998;
On the other hand, respondent answer with counterclaim that never was there
an occasion when petitioner occupied a portion of the premises. In addition,
respondent alleges that said land was a public land (respondent filed a
miscellaneous sales application with the Community Environment and Natural
Resources Office) and the action for ejectment cannot succeed where it appears
that respondent had been in possession of the property prior to the petitioner;

On October 2000, MTC ordered respondent to vacate the land and surrender to
petitioner possession thereof. On appeal, the RTC reversed the decision. CA
sustained the trial courts decision.
ISSUE/S:
Whether or not petitioner should be declared the rightful owner of the property.
HELD:
No. Respondent is the true owner of the land.1) The action filed by the petitioner,
which was an action for unlawful detainer, is improper. As the bare allegation of
petitioners tolerance of respondents occupation of the premises has not been
proven, the possession should be deemed illegal from the beginning. Thus, the
CA correctly ruled that the ejectment case should have been for forcible entry.
However, the action had already prescribed because the complaint was filed on
May 12, 1999 a month after the last day forfiling;2) The subject property had not
been delivered to petitioner; hence, it did not acquire possession either materially
or symbolically. As between the two buyers, therefore, respondent was first in
actual possession of the property.
As regards the question of whether there was good faith in the second buyer.
Petitioner has not proven that respondent was aware that her mode of acquiring
the property was defective at the time she acquired it from Galino. At the time, the
property which was public land had not been registered in the name of Galino;
thus, respondent relied on the tax declarations thereon. As shown, the formers
name appeared on the tax declarations for the property until its sale to the latter in
1998. Galino was in fact occupying the realty when respondent took over
possession. Thus, there was no circumstance that could have placed the latter
upon inquiry or required her to further investigate petitioners right of ownership.
DOCTRINE/S:
Execution of Deed of Sale; Not sufficient as delivery. Ownership is transferred not
by contract but by tradition or delivery. Nowhere in the Civil Code is it provided
that the execution of a Deed of Sale is a conclusive presumption of delivery of
possession of a piece of real estate. The execution of a public instrument gives
rise only to a prima facie presumption of delivery. Such presumption is destroyed
when the delivery is not effected, because of a legal impediment. Such
constructive or symbolic delivery, being merely presumptive, was deemed
negated by the failure of the vendee to take actual possession of the land sold.
Disqualification from Ownership of Alienable Public Land.
Private corporations are disqualified from acquiring lands of the public domain, as
provided under Section 3 of Article XII of the Constitution. While corporations
cannot acquire land of the public domain, they can however acquire private land.
However, petitioner has not presented proof that, at the time it purchased the
property from Galino, the property had ceased to be of the public domain and was
already private land. The established rule is that alienable and disposable land of
the public domain held and occupied by a possessor personally or through
18

predecessors-in-interest, openly, continuously, and exclusively for 30 years is

ipso jure converted to private property by the mere lapse of time.
RULING:
The Supreme Court DENIED the petition.

SECOND DIVISION[G.R. No. 133895. October 2, 2001]

ZENAIDA M. SANTOS, petitioner, vs. CALIXTO
SANTOS, ALBERTO SANTOS, ROSA SANTOSCARREON and ANTONIO santos
DECISION
QUISUMBING, J.:
This petition for review[1] seeks to annul and set aside the decision dated March
10, 1998 of the Court of Appeals that affirmed the decision of the Regional Trial
Court of Manila, Branch 48, dated March 17, 1993. Petitioner also seeks to annul
the resolution that denied her motion for reconsideration.
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private
respondents Calixto, Alberto, Antonio, all surnamed Santos and Rosa SantosCarreon.
The spouses Jesus and Rosalia Santos owned a parcel of land registered under
TCT No. 27571 with an area of 154 square meters, located at Sta. Cruz
Manila. On it was a four-door apartment administered by Rosalia who rented
them out. The spouses had five children, Salvador, Calixto, Alberto, Antonio and
Rosa.
On January 19, 1959, Jesus and Rosalia executed a deed of sale of the
properties in favor of their children Salvador and Rosa. TCT No. 27571 became
TCT No. 60819. Rosa in turn sold her share to Salvador on November 20, 1973
which resulted in the issuance of a new TCT No. 113221. Despite the transfer of
the property to Salvador, Rosalia continued to lease and receive rentals from the
apartment units.
On November 1, 1979, Jesus died. Six years after or on January 9, 1985,
Salvador died, followed by Rosalia who died the following month. Shortly after,
petitioner Zenaida, claiming to be Salvadors heir, demanded the rent from

Antonio Hombrebueno,[2] a tenant of Rosalia. When the latter refused to pay,

Zenaida filed an ejectment suit against him with the Metropolitan Trial Court of
Manila, Branch 24, which eventually decided in Zenaidas favor.
On January 5, 1989, private respondents instituted an action for reconveyance of
property with preliminary injunction against petitioner in the Regional Trial Court of
Manila, where they alleged that the two deeds of sale executed on January 19,
1959 and November 20, 1973 were simulated for lack of consideration. They
were executed to accommodate Salvador in generating funds for his business
ventures and providing him with greater business flexibility.
In her Answer, Zenaida denied the material allegations in the complaint and as
special and affirmative defenses, argued that Salvador was the registered owner
of the property, which could only be subjected to encumbrances or liens annotated
on the title; that the respondents right to reconveyance was already barred by
prescription and laches; and that the complaint stated no cause of action.
On March 17, 1993, the trial court decided in private respondents favor, thus:
WHEREFORE, viewed from all the foregoing considerations, judgment is hereby
made in favor of the plaintiffs and against the defendants:
a) Declaring Exh. B, the deed of sale executed by Rosalia Santos and Jesus
Santos on January 19, 1959, as entirely null and void for being fictitious or
simulated and inexistent and without any legal force and effect;
b) Declaring Exh. D, the deed of sale executed by Rosa Santos in favor of
Salvador Santos on November 20, 1973, also as entirely null and void for being
likewise fictitious or simulated and inexistent and without any legal force and
effect;
c) Directing the Register of Deeds of Manila to cancel Transfer Certificate of Title
No. T-113221 registered in the name of Salvador Santos, as well as, Transfer
Certificate of Title No. 60819 in the names of Salvador Santos, Rosa Santos, and
consequently thereafter, reinstating with the same legal force and effect as if the
same was not cancelled, and which shall in all respects be entitled to like faith and
credit; Transfer Certificate of Title No. T-27571 registered in the name of Rosalia
A. Santos, married to Jesus Santos, the same to be partitioned by the heirs of the
said registered owners in accordance with law; and
d) Making the injunction issued in this case permanent.
Without pronouncement as to costs.SO ORDERED.[3]
The trial court reasoned that notwithstanding the deeds of sale transferring the
property to Salvador, the spouses Rosalia and Jesus continued to possess the
property and to exercise rights of ownership not only by receiving the monthly
rentals, but also by paying the realty taxes. Also, Rosalia kept the owners
duplicate copy of the title even after it was already in the name of
Salvador. Further, the spouses had no compelling reason in 1959 to sell the
property and Salvador was not financially capable to purchase it. The deeds of

19

sale were therefore fictitious. Hence, the action to assail the same does not
prescribe.[4]
Upon appeal, the Court of Appeals affirmed the trial courts decision dated March
10, 1998. It held that in order for the execution of a public instrument to effect
tradition, as provided in Article 1498 of the Civil Code, [5] the vendor shall have had
control over the thing sold, at the moment of sale. It was not enough to confer
upon the purchaser the ownership and the right of possession. The thing sold
must be placed in his control. The subject deeds of sale did not confer upon
Salvador the ownership over the subject property, because even after the sale,
the original vendors remained in dominion, control, and possession thereof. The
appellate court further said that if the reason for Salvadors failure to control and
possess the property was due to his acquiescence to his mother, in deference to
Filipino custom, petitioner, at least, should have shown evidence to prove that her
husband declared the property for tax purposes in his name or paid the land
taxes, acts which strongly indicate control and possession. The appellate court
disposed:
WHEREFORE, finding no reversible error in the decision appealed from, the same
is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.[6]
Hence, this petition where petitioner avers that the Court of Appeals erred in:
I.
...HOLDING THAT THE OWNERSHIP OVER THE LITIGATED PROPERTY BY THE LATE
HUSBAND OF DEFENDANT-APPELLANT WAS AFFECTED BY HIS FAILURE TO
EXERCISE CERTAIN ATTRIBUTES OF OWNERSHIP.
II
...HOLDING THAT DUE EXECUTION OF A PUBLIC INSTRUMENT IS NOT EQUIVALENT
TO DELIVERY OF THE LAND IN DISPUTE.
III
...NOT FINDING THAT THE CAUSE OF ACTION OF ROSALIA SANTOS HAD
PRESCRIBED AND/OR BARRED BY LACHES.
IV
...IGNORING PETITIONERS ALLEGATION TO THE EFFECT THAT PLAINTIFF DR.
ROSA [S.] CARREON IS NOT DISQUALIFIED TO TESTIFY AS TO THE QUESTIONED
DEEDS OF SALE CONSIDERING THAT SALVADOR SANTOS HAS LONG BEEN DEAD.
[7]

In this petition, we are asked to resolve the following:

1. Are payments of realty taxes and retention of possession indications of
continued ownership by the original owners?
2. Is a sale through a public instrument tantamount to delivery of the thing sold?
3. Did the cause of action of Rosalia Santos and her heirs prescribe?
4. Can petitioner invoke the Dead Mans Statute?[8]
On the first issue, petitioner contends that the Court of Appeals erred in holding
that despite the deeds of sale in Salvadors favor, Jesus and Rosalia still owned
the property because the spouses continued to pay the realty taxes and possess

the property. She argues that tax declarations are not conclusive evidence of
ownership when not supported by evidence. She avers that Salvador allowed his
mother to possess the property out of respect to her in accordance with Filipino
values.
It is true that neither tax receipts nor declarations of ownership for taxation
purposes constitute sufficient proof of ownership. They must be supported by
other effective proofs.[9] These requisite proofs we find present in this case. As
admitted by petitioner, despite the sale, Jesus and Rosalia continued to possess
and administer the property and enjoy its fruits by leasing it to third persons.
[10]
Both Rosa and Salvador did not exercise any right of ownership over it.
[11]
Before the second deed of sale to transfer her 1/2 share over the property was
executed by Rosa, Salvador still sought the permission of his mother.[12] Further,
after Salvador registered the property in his name, he surrendered the title to his
mother.[13] These are clear indications that ownership still remained with the
original owners. In Serrano vs. CA, 139 SCRA 179, 189 (1985), we held that the
continued collection of rentals from the tenants by the seller of realty after
execution of alleged deed of sale is contrary to the notion of ownership.
Petitioner argues that Salvador, in allowing her mother to use the property even
after the sale, did so out of respect for her and out of generosity, a factual matter
beyond the province of this Court. [14]Significantly, in Alcos vs. IAC, 162 SCRA 823,
837 (1988), we noted that the buyers immediate possession and occupation of
the property corroborated the truthfulness and authenticity of the deed of
sale. Conversely, the vendors continued possession of the property makes
dubious the contract of sale between the parties.
On the second issue, is a sale through a public instrument tantamount to delivery
of the thing sold? Petitioner in her memorandum invokes Article 1477[15] of the
Civil Code which provides that ownership of the thing sold is transferred to the
vendee upon its actual or constructive delivery. Article 1498, in turn, provides that
when the sale is made through a public instrument, its execution is equivalent to
the delivery of the thing subject of the contract. Petitioner avers that applying said
provisions to the case, Salvador became the owner of the subject property by
virtue of the two deeds of sale executed in his favor.
Nowhere in the Civil Code, however, does it provide that execution of a deed of
sale is a conclusive presumption of delivery of possession. The Code merely said
that the execution shall be equivalent to delivery. The presumption can be
rebutted by clear and convincing evidence.[16] Presumptive delivery can be
negated by the failure of the vendee to take actual possession of the land sold.[17]
In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the execution of a
public instrument to effect tradition, the purchaser must be placed in control of the
thing sold. When there is no impediment to prevent the thing sold from converting
to tenancy of the purchaser by the sole will of the vendor, symbolic delivery
through the execution of a public instrument is sufficient. But if, notwithstanding
20

the execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy nor make use of it himself or through another in his name, then
delivery has not been effected.
As found by both the trial and appellate courts and amply supported by the
evidence on record, Salvador was never placed in control of the property. The
original sellers retained their control and possession. Therefore, there was no real
transfer of ownership.
Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699 (1991),
citing the land case of Abuan vs. Garcia, 14 SCRA 759 (1965), we held that the
critical factor in the different modes of effecting delivery, which gives legal effect to
the act is the actual intention of the vendor to deliver, and its acceptance by the
vendee. Without that intention, there is no tradition. In the instant case, although
the spouses Jesus and Rosalia executed a deed of sale, they did not deliver the
possession and ownership of the property to Salvador and Rosa. They agreed to
execute a deed of sale merely to accommodate Salvador to enable him to
generate funds for his business venture.
On the third issue, petitioner argues that from the date of the sale from Rosa to
Salvador on November 20, 1973, up to his death on January 9, 1985, more or less
twelve years had lapsed, and from his death up to the filing of the case for
reconveyance in the court a quo on January 5, 1989, four years had lapsed. In
other words, it took respondents about sixteen years to file the case
below. Petitioner argues that an action to annul a contract for lack of
consideration prescribes in ten years and even assuming that the cause of action
has not prescribed, respondents are guilty of laches for their inaction for a long
period of time.
Has respondents cause of action prescribed? In Lacsamana vs. CA, 288 SCRA
287, 292 (1998), we held that the right to file an action for reconveyance on the
ground that the certificate of title was obtained by means of a fictitious deed of
sale is virtually an action for the declaration of its nullity, which does not
prescribe. This applies squarely to the present case. The complaint filed by
respondents in the court a quo was for the reconveyance of the subject property
to the estate of Rosalia since the deeds of sale were simulated and fictitious. The
complaint amounts to a declaration of nullity of a void contract, which is
imprescriptible. Hence, respondents cause of action has not prescribed.
Neither is their action barred by laches. The elements of laches are: 1) conduct
on the part of the defendant, or of one under whom he claims, giving rise to the
situation of which the complaint seeks a remedy; 2) delay in asserting the
complainants rights, the complainant having had knowledge or notice of the
defendants conduct as having been afforded an opportunity to institute a suit; 3)
lack of knowledge or notice on the part of the defendant that the complainant
would assert the right in which he bases his suit; and 4) injury or prejudice to the
defendant in the event relief is accorded to the complainant, or the suit is not held

barred.[18] These elements must all be proved positively. The conduct which
caused the complaint in the court a quo was petitioners assertion of right of
ownership as heir of Salvador. This started in December 1985 when petitioner
demanded payment of the lease rentals from Antonio Hombrebueno, the tenant of
the apartment units. From December 1985 up to the filing of the complaint for
reconveyance on January 5, 1989, only less than four years had lapsed which we
do not think is unreasonable delay sufficient to bar respondents cause of
action. We likewise find the fourth element lacking. Neither petitioner nor her
husband made considerable investments on the property from the time it was
allegedly transferred to the latter. They also did not enter into transactions
involving the property since they did not claim ownership of it until December
1985. Petitioner stood to lose nothing. As we held in the same case
of Lacsamana vs. CA, cited above, the concept of laches is not concerned with
the lapse of time but only with the effect of unreasonable lapse. In this case, the
alleged 16 years of respondents inaction has no adverse effect on the petitioner
to make respondents guilty of laches.
Lastly, petitioner in her memorandum seeks to expunge the testimony of Rosa
Santos-Carreon before the trial court in view of Sec. 23, Rule 130 of the Revised
Rules of Court, otherwise known as the Dead Mans Statute.[19] It is too late for
petitioner, however, to invoke said rule. The trial court in its order dated February
5, 1990, denied petitioners motion to disqualify respondent Rosa as a
witness. Petitioner did not appeal therefrom. Trial ensued and Rosa testified as a
witness for respondents and was cross-examined by petitioners counsel. By her
failure to appeal from the order allowing Rosa to testify, she waived her right to
invoke the dead mans statute. Further, her counsel cross-examined Rosa on
matters that occurred during Salvadors lifetime. In Goi vs. CA, 144 SCRA 222,
231 (1986), we held that protection under the dead mans statute is effectively
waived when a counsel for a petitioner cross-examines a private respondent on
matters occurring during the deceaseds lifetime. The Court of Appeals cannot be
faulted in ignoring petitioner on Rosas disqualification.
WHEREFORE, the instant petition is DENIED. The assailed decision dated
March 10, 1998 of the Court of Appeals, which sustained the judgment of the
Regional Trial Court dated March 17, 1993, in favor of herein private respondents,
is AFFIRMED. Costs against petitioner.
SO ORDERED.

21

SECOND DIVISION G.R. No. 167195

ASSET PRIVATIZATION TRUST,
Petitioner,
Present:
CARPIO MORALES, J.,*
- versus Acting Chairperson,
TINGA,
VELASCO,
JR.,
LEONARDO-DE CASTRO,**
and
BRION, JJ.
T.J. ENTERPRISES,
. Promulgated:
May 8, 2009
x----------------------------------------------------------------------------------x
DECISION
TINGA, J.::

This is a Rule 45 petition[1] which seeks the reversal of the Court of

Appeals decision[2] and resolution[3] affirming the RTCs decision[4] holding
petitioner liable for actual damages for breach of contract.
Petitioner Asset Privatization Trust[5] (petitioner) was a government entity
created for the purpose to conserve, to provisionally manage and to dispose
assets of government institutions.[6] Petitioner had acquired from the Development
Bank of the Philippines (DBP) assets consisting of machinery and refrigeration
equipment which were then stored at Golden City compound, Pasay City. The
compound was then leased to and in the physical possession of Creative Lines,
Inc., (Creative Lines). These assets were being sold on an as-is-where-is basis.

On 7 November 1990, petitioner and respondent entered into an

absolute deed of sale over certain machinery and refrigeration equipment
identified as Lots Nos. 2, 3 and 5. Respondent paid the full amount of P84,000.00
as evidenced by petitioners Receipt No. 12844. After two (2) days, respondent
demanded the delivery of the machinery it had purchased. Sometime in March
1991, petitioner issued Gate Pass No. 4955. Respondent was able to pull out
from the compound the properties designated as Lots Nos. 3 and 5. However,
during the hauling of Lot No. 2 consisting of sixteen (16) items, only nine (9) items
were pulled out by respondent. The seven (7) items that were left behind
consisted of the following: (1) one (1) Reefer Unit 1; (2) one (1) Reefer Unit 2; (3)
one (1) Reefer Unit 3; (4) one (1) unit blast freezer with all accessories; (5) one (1)
unit chest freezer; (6) one (1) unit room air-conditioner; and (7) one (1) unit air
compressor. Creative Lines employees prevented respondent from hauling the
remaining machinery and equipment.
Respondent filed a complaint for specific performance and damages
against petitioner and Creative Lines.[7] During the pendency of the case,
respondent was able to pull out the remaining machinery and equipment.
However, upon inspection it was discovered that the machinery and equipment
were damaged and had missing parts.
Petitioner argued that upon the execution of the deed of sale it had
complied with its obligation to deliver the object of the sale since there was no
stipulation to the contrary. It further argued that being a sale on an as-is-whereis basis, it was the duty of respondent to take possession of the property.
Petitioner claimed that there was already a constructive delivery of the machinery
and equipment.
The RTC ruled that the execution of the deed of absolute sale did not
result in constructive delivery of the machinery and equipment. It found that at the
time of the sale, petitioner did not have control over the machinery and equipment
and, thus, could not have transferred ownership by constructive delivery. The RTC
ruled that petitioner is liable for breach of contract and should pay for the actual
damages suffered by respondent.
On petitioners appeal, the Court of Appeals affirmed in toto the decision of the RTC.
Hence this petition.
Before this Court, petitioner raises issues by attributing the following errors to the Court of Appeals,
to wit:
I.
The Court of Appeals erred in not finding that petitioner had complied with its obligation to make
delivery of the properties subject of the contract of sale.
II.
The Court of Appeals erred in not considering that the sale was on an as-is-where-is basis wherein
the properties were sold in the condition and in the place where they were located.
III.
The Court of Appeals erred in not considering that respondents acceptance of petitioners disclaimer
of warranty forecloses respondents legal basis to enforce any right arising from the contract.
IV.

22

The reason for the failure to make actual delivery of the properties was not
attributable to the fault and was beyond the control of petitioner. The claim for
damages against petitioner is therefore bereft of legal basis.[8]
The first issue hinges on the determination of whether there was a constructive
delivery of the machinery and equipment upon the execution of the deed of
absolute sale between petitioner and respondent.
The ownership of a thing sold shall be transferred to the vendee upon the actual
or constructive delivery thereof.[9] The thing sold shall be understood as delivered
when it is placed in the control and possession of the vendee.[10]
As a general rule, when the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is the object
of the contract, if from the deed the contrary does not appear or cannot clearly be
inferred. And with regard to movable property, its delivery may also be made by
the delivery of the keys of the place or depository where it is stored or kept. [11] In
order for the execution of a public instrument to effect tradition, the purchaser
must be placed in control of the thing sold.[12]
However, the execution of a public instrument only gives rise to a prima
facie presumption of delivery. Such presumption is destroyed when the delivery is
not effected because of a legal impediment.[13] It is necessary that the vendor shall
have control over the thing sold that, at the moment of sale, its material delivery
could have been made.[14]Thus, a person who does not have actual possession of
the thing sold cannot transfer constructive possession by the execution and
delivery of a public instrument.[15]
In this case, there was no constructive delivery of the machinery and
equipment upon the execution of the deed of absolute sale or upon the issuance
of the gate pass since it was not petitioner but Creative Lines which had actual
possession of the property. The presumption of constructive delivery is not
applicable as it has to yield to the reality that the purchaser was not placed in
possession and control of the property.
On the second issue, petitioner posits that the sale being in an as-iswhere-is basis, respondent agreed to take possession of the things sold in the
condition where they are found and from the place where they are located. The
phrase as-is where-is basis pertains solely to the physical condition of the thing
sold, not to its legal situation.[16] It is merely descriptive of the state of the thing
sold. Thus, the as-is where-is basis merely describes the actual state and location
of the machinery and equipment sold by petitioner to respondent. The depiction
does not alter petitioners responsibility to deliver the property to respondent.
Anent the third issue, petitioner maintains that the presence of the
disclaimer of warranty in the deed of absolute sale absolves it from all warranties,
implied or otherwise. The position is untenable.
The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale. [17] Ownership of the thing sold is

acquired by the vendee from the moment it its delivered to him in any of the ways
specified in articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the vendee.[18] A perusal of
the deed of absolute sale shows that both the vendor and the vendee represented
and warranted to each other that each had all the requisite power and
authority to enter into the deed of absolute sale and that they shall perform
each of their respective obligations under the deed of absolute in accordance with
the terms thereof.[19] As previously shown, there was no actual or constructive
delivery of the things sold. Thus, petitioner has not performed its obligation to
transfer ownership and possession of the things sold to respondent.
As to the last issue, petitioner claims that its failure to make actual
delivery was beyond its control. It posits that the refusal of Creative Lines to allow
the hauling of the machinery and equipment was unforeseen and constituted a
fortuitous event.
The matter of fortuitous events is governed by Art. 1174 of the Civil Code
which provides that except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires
assumption of risk, no person shall be responsible for those events which could
not be foreseen, or which though foreseen, were inevitable. The elements of a
fortuitous event are: (a) the cause of the unforeseen and unexpected occurrence,
must have been independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable, impossible to
avoid; (c) the occurrence must have been such as to render it impossible for the
debtors to fulfill their obligation in a normal manner, and; (d) the obligor must have
been free from any participation in the aggravation of the resulting injury to the
creditor.[20]
A fortuitous event may either be an act of God, or natural occurrences
such as floods or typhoons, or an act of man such as riots, strikes or wars.
[21]
However, when the loss is found to be partly the result of a persons
participationwhether by active intervention, neglect or failure to actthe whole
occurrence is humanized and removed from the rules applicable to a fortuitous
event.[22]
We quote with approval the following findings of the Court of Appeals, to
wit:
We find that Creative Lines refusal to surrender the property to the
vendee does not constitute force majeure which exculpates APT from the
payment of damages. This event cannot be considered unavoidable or
unforeseen. APT knew for a fact that the properties to be sold were housed in
the premises leased by Creative Lines. It should have made arrangements with
Creative Lines beforehand for the smooth and orderly removal of the
equipment. The principle embodied in the act of God doctrine strictly requires
that the act must be one occasioned exclusively by the violence of nature and
23

all human agencies are to be excluded from creating or entering into the cause
of the mischief. When the effect, the cause of which is to be considered, is
found to be in part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it were, and removed from the rules applicable to the acts of
God.[23]
Moreover, Art. 1504 of the Civil Code provides that where actual delivery
has been delayed through the fault of either the buyer or seller the goods are at
the risk of the party in fault. The risk of loss or deterioration of the goods sold does
not pass to the buyer until there is actual or constructive delivery thereof. As
previously discussed, there was no actual or constructive delivery of the
machinery and equipment. Thus, the risk of loss or deterioration of property is
borne by petitioner. Thus, it should be liable for the damages that may arise from
the delay.
Assuming arguendo that Creative Lines refusal to allow the hauling of
the machinery and equipment is a fortuitous event, petitioner will still be liable for
damages. This Court agrees with the appellate courts findings on the matter of
damages, thus:

Court of Appeals (CA) on February 20, 2009 in CA-G.R. CV No. 86286, the
dispositive portion of which reads:
WHEREFORE, the instant appeal is DISMISSED. The assailed
decision is AFFIRMED in toto.
SO ORDERED.[3]
The resolution[4] issued by the CA on July 8, 2009 denied the petitioner's
motion for reconsideration to the foregoing.
The ruling[5] of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela,
which was affirmed by the CA in the herein assailed decision and resolution,
ordered the (1) rescission of the contract of sale of real property entered into by
Villamar and Balbino Mangaoil (Mangaoil); and (2) return of the down payment
made relative to the said contract.
Antecedents Facts
The CA aptly summarized as follows the facts of the case prior to the filing
by Mangaoil of the complaint[6] for rescission of contract before the RTC:
Villamar is the registered owner of a 3.6080 hectares parcel of land
[hereinafter referred as the subject property] in San Francisco, Manuel, Isabela
covered by Transfer Certificate of Title (TCT) No. T-92958-A. On March 30,
1998, she entered into an Agreement with Mangaoil for the purchase and sale
Article 1170 of the Civil Code states: Those who in the performance of their
of said parcel of land, under the following terms and conditions:
obligations are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof are liable for damages. In contracts and quasi-contracts,
1. The price of the land is ONE HUNDRED AND EIGHTY THOUSAND
the damages for which the obligor who acted in good faith is liable shall be those that are
(180,000.00) PESOS per hectare but only the 3.5000 hec. shall be paid and the
the natural and probable consequences of the breach of the obligation, and which the
rest shall be given free, so that the total purchase or selling price shall be
parties have foreseen or could have reasonably foreseen at the time the obligation was
[P]630,000.00 only;
constituted.[24] The trial court correctly awarded actual damages as pleaded and proven
during trial.[25]
2. ONE HUNDRED EIGHTY FIVE THOUSAND (185,000.00) PESOS of
WHEREFORE, the Court AFFIRMS in toto the Decision of the Court of
the total price was already received on March 27, 1998 for payment of the loan
Appeals dated 31 August 2004. Cost against petitioner.
secured by the certificate of title covering the land in favor of the Rural
SO ORDERED.
Bank of Cauayan, San Manuel Branch, San Manuel, Isabela [Rural Bank of
Cauayan], in order that the certificate of title thereof be withdrawn and released
Republic of the Philippines Supreme Court Baguio City SECOND DIVISION
from the said bank, and the rest shall be for the payment of the mortgag[e]s in
favor of Romeo Lacaden and Florante Parangan;
ESTELITA VILLAMAR,
G.R. No. 188661
3. After the release of the certificate of title covering the land subjectPetitioner,
Present: CARPIO, J., Chairperson,
- versus BRION,PEREZ,SERENO, and
matter of this agreement, the necessary deed of absolute sale in favor of the
BALBINO MANGAOIL,
REYES, JJ. Promulgated:
PARTY OF THE SECOND PART shall be executed and the transfer be
Respondent.
April 11, 2012
immediately effected so that the latter can apply for a loan from any lending
institution using the corresponding certificate of title as collateral therefor, and the
proceeds of the loan, whatever be the amount, be given to the PARTY OF THE
x--------------------------------------------------------------------------------------------x
FIRST PART;
DECISION
4. Whatever balance left from the agreed purchase price of the land
REYES, J.:
subject matter hereof after deducting the proceed of the loan and the
The Case
[P]185,000.00 already received as above-mentioned, the PARTY OF THE
Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of
SECOND PART shall pay unto the PARTY OF THE FIRST PART not later
[2]
Court filed by Estelita Villamar (Villamar) to assail the Decision rendered by the
24

than June 30, 1998 and thereafter the parties shall be released of any
obligations for and against each other; xxx
On April 1, 1998, the parties executed a Deed of Absolute
Sale whereby Villamar (then Estelita Bernabe) transferred the subject parcel of
land to Mangaoil for and in consideration of [P]150,000.00.
In a letter dated September 18, 1998, Mangaoil informed Villamar that
he was backing out from the sale agreed upon giving as one of the reasons
therefor:
3. That the area is not yet fully cleared by incumbrances as there are
tenants who are not willing to vacate the land without giving them back the
amount that they mortgaged the land.
Mangaoil demanded refund of his [P]185,000.00 down payment. Reiterating
said demand in another letter dated April 29, 1999, the same, however, was
unheeded.[7] x x x (Citations omitted)
On January 28, 2002, the respondent filed before the RTC a
complaint[8] for rescission of contract against the petitioner. In the said complaint,
the respondent sought the return of P185,000.00 which he paid to the petitioner,
payment of interests thereon to be computed from March 27, 1998 until the suit's
termination, and the award of damages, costs and P20,000.00 attorney's fees.
The respondent's factual allegations were as follows:
5. That as could be gleaned the Agreement (Annex A), the plaintiff
[Mangaoil] handed to the defendant [Villamar] the sum of [P]185,000.00 to be
applied as follows; [P]80,000 was for the redemption of the land which was
mortgaged to the Rural Bank of Cauayan, San Manuel Branch, San Manuel,
Isabela, to enable the plaintiff to get hold of the title and register the sale x x
x and [P]105,000.00 was for the redemption of the said land from private
mortgages to enable plaintiff to posses[s] and cultivate the same;
6. That although the defendant had already long redeemed the said
land from the said bank and withdrawn TCT No. T-92958-A, she has failed and
refused, despite repeated demands, to hand over the said title to the plaintiff
and still refuses and fails to do so;
7. That, also, the plaintiff could not physically, actually and materially
posses[s] and cultivate the said land because the private mortgage[e]s and/or
present possessors refuse to vacate the same;
xxxx
11. That on September 18, 1998, the plaintiff sent a letter to the
defendant demanding a return of the amount so advanced by him, but the latter
ignored the same, x x x;
12. That, again, on April 29, 1999, the plaintiff sent to the defendant
another demand letter but the latter likewise ignored the same, x x x;

13. That, finally, the plaintiff notified the defendant by a notarial act of
his desire and intention to rescind the said contract of sale, xxx; x x x.
[9]
(Citations omitted)
In the respondents answer to the complaint, she averred that she had
complied with her obligations to the respondent. Specifically, she claimed having
caused the release of TCT No. T-92958-A by the Rural Bank of Cauayan and its
delivery to a certain Atty. Pedro C. Antonio (Atty. Antonio). The petitioner alleged
that Atty. Antonio was commissioned to facilitate the transfer of the said title in the
respondent's name. The petitioner likewise insisted that it was the respondent who
unceremoniously withdrew from their agreement for reasons only the latter knew.
The Ruling of the RTC
On September 9, 2005, the RTC ordered the rescission of the agreement
and the deed of absolute sale executed between the respondent and the
petitioner. The petitioner was, thus directed to return to the respondent the sum
of P185,000.00 which the latter tendered as initial payment for the purchase of the
subject property. The RTC ratiocinated that:
There is no dispute that the defendant sold the LAND to the plaintiff
for [P]630,000.00 with down payment of [P]185,000.00. There is no evidence
presented if there were any other partial payments made after the perfection of
the contract of sale.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale[,] one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefore a price certain in money
or its equivalent.
As such, in a contract of sale, the obligation of the vendee to pay the
price is correlative of the obligation of the vendor to deliver the thing sold. It
created or established at the same time, out of the same course, and which
result in mutual relations of creditor and debtor between the parties.
The claim of the plaintiff that the LAND has not been delivered to him
was not refuted by the defendant. Considering that defendant failed to deliver
to him the certificate of title and of the possession over the LAND to the
plaintiff, the contract must be rescinded pursuant to Article 1191 of the Civil
Code which, in part, provides:
Art. 1191. The power of rescind obligations is implied in reciprocal
ones in case one of the obligors should not comply with what is
incumbent upon him.[10]
The petitioner filed before the CA an appeal to challenge the foregoing. She
ascribed error on the part of the RTC when the latter ruled that the agreement and
deed of sale executed by and between the parties can be rescinded as she failed
to deliver to the respondent both the subject property and the certificate of title
covering the same.
25

The Ruling of the CA

On February 20, 2009, the CA rendered the now assailed decision
dismissing the petitioners appeal based on the following grounds:
Burden of proof is the duty of a party to prove the truth of his claim or
defense, or any fact in issue necessary to establish his claim or defense by the
amount of evidence required by law. In civil cases, the burden of proof is on
the defendant if he alleges, in his answer, an affirmative defense, which is
not a denial of an essential ingredient in the plaintiff's cause of action, but is one
which, if established, will be a good defense i.e., an avoidance of the claim,
which prima facie, the plaintiff already has because of the defendant's own
admissions in the pleadings.
Defendant-appellant Villamar's defense in this case was an affirmative
defense. She did not deny plaintiff-appellees allegation that she had an
agreement with plaintiff-appellee for the sale of the subject parcel of land.
Neither did she deny that she was obliged under the contract to deliver the
certificate of title to plaintiff-appellee immediately after said title/property was
redeemed from the bank. What she rather claims is that she already
complied with her obligation to deliver the title to plaintiff-appellee when
she delivered the same to Atty. Antonioas it was plaintiff-appellee himself
who engaged the services of said lawyer to precisely work for the immediate
transfer of said title in his name. Since, however, this affirmative defense as
alleged in defendant-appellant's answer was not admitted by plaintiff-appellee, it
then follows that it behooved the defendant-appellant to prove her
averments by preponderance of evidence.
Yet, a careful perusal of the record shows that the defendant-appellant
failed to sufficiently prove said affirmative defense. She failed to prove that in
the first place, Atty. Antonio existed to receive the title for and in behalf
of plaintiff-appellee. Worse, the defendant-appellant failed to prove that Atty.
Antonio received said title as allegedly agreed upon.
We likewise sustain the RTC's finding that defendant-appellant
V[i]llamar failed to deliver possession of the subject property to plaintiffappellee Mangaoil. As correctly observed by the RTC - [t]he claim of the
plaintiff that the land has not been delivered to him was not refuted by the
defendant. Not only that. On cross-examination, the defendant-appellant gave
Us insight on why no such delivery could be made, viz.:x x x x
Q:
So, you were not able to deliver this property to Mr.
Mangaoil just after you redeem the property because of the presence of
these two (2) persons, is it not?x x xA:
Yes, sir.
Q:
Forcing you to file the case against them and which according
to you, you have won, is it not?
A:
Yes, sir.
Q:
And now at present[,] you are in actual possession of the
land?
A:
Yes, sir. x x x

With the foregoing judicial admission, the RTC could not have erred
in finding that defendant-[appellant] failed to deliver the possession of the
property sold, to plaintiff-appellee.
Neither can We agree with defendant-appellant in her argument that
the execution of the Deed of Absolute Sale by the parties is already
equivalent to a valid and constructive deliveryof the property to plaintiffappellee. Not only is it doctrinally settled that in a contract of sale, the
vendor is bound to transfer the ownership of, and to deliver the thing
that is the object of the sale, the way Article 1547 of the Civil Code is
worded, viz.:
Art. 1547. In a contract of sale, unless a contrary intention appears,
there is:
(1) An implied warranty on the part of the seller that he has a right
to sell the thing at the time when the ownership is to pass, and that the
buyer shall from that time have and enjoy the legal and peaceful
possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden
defaults or defects, or any change or encumbrance not declared or known to
the buyer.
x x x.
shows that actual, and not mere constructive delivery is warrantied by
the seller to the buyer. (P)eaceful possession of the thing sold can
hardly be enjoyed in a mere constructive delivery.
The obligation of defendant-appellant Villamar to transfer ownership and
deliver possession of the subject parcel of land was
her correlative obligation to plaintiff-appellee in exchange for the latter's
purchase price thereof. Thus, if she fails to comply with what is
incumbent upon her, a correlative right to rescind such contract from
plaintiff-appellee arises, pursuant to Article 1191 of the Civil Code. [11] x x
x (Citations omitted)

The Issues
Aggrieved, the petitioner filed before us the instant petition and
submits the following issues for resolution:
I.
WHETHER THE FAILURE OF PETITIONER-SELLER TO DELIVER THE CERTIFICATE OF
TITLE OVER THE PROPERTY TO RESPONDENT-BUYER IS A BREACH OF OBLIGATION
IN A CONTRACT OF SALE OF REAL PROPERTY THAT WOULD WARRANT RESCISSION
OF THE CONTRACT;
II.
WHETHER PETITIONER IS LIABLE FOR BREACH OF OBLIGATION IN A CONTRACT
OF SALE FOR FAILURE OF RESPONDENT[-]BUYER TO IMMEDIATELY TAKE ACTUAL
POSSESSION OF THE PROPERTY NOTWITHSTANDING THE ABSENCE OF ANY
STIPULATION IN THE CONTRACT PROVIDING FOR THE SAME;
III.

26

WHETHER THE EXECUTION OF A DEED OF SALE OF REAL PROPERTY IN THE

PRESENT CASE IS ALREADY EQUIVALENT TO A VALID AND CONSTRUCTIVE DELIVERY
OF THE PROPERTY TO THE BUYER;
IV.
WHETHER OR NOT THE CONTRACT OF SALE SUBJECT MATTER OF THIS CASE
SHOULD BE RESCINDED ON SLIGHT OR CASUAL BREACH;
V.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF
THE RTC ORDERING THE RESCISSION OF THE CONTRACT OF SALE[.][12]
The Petitioner's Arguments

The petitioner avers that the CA, in ordering the rescission of the
agreement and deed of sale, which she entered into with the respondent,
on the basis of her alleged failure to deliver the certificate of title, effectively
imposed upon her an extra duty which was neither stipulated in the
contract nor required by law. She argues that under Articles 1495 [13] and
1496[14] of the New Civil Code (NCC), the obligation to deliver the thing sold
is complied with by a seller who executes in favor of a buyer an instrument
of sale in a public document. Citing Chua v. Court of Appeals,[15] she claims
that there is a distinction between transferring a certificate of title in the
buyer's name, on one hand, and transferring ownership over the property
sold, on the other. The latter can be accomplished by the seller's execution
of an instrument of sale in a public document. The recording of the sale
with the Registry of Deeds and the transfer of the certificate of title in the
buyer's name are necessary only to bind third parties to the transfer of
ownership.[16]
The petitioner contends that in her case, she had already complied
with her obligations under the agreement and the law when she had
caused the release of TCT No. T-92958-A from the Rural Bank of Cauayan,
paid individual mortgagees Romeo Lacaden (Lacaden) and Florante
Parangan (Paranga), and executed an absolute deed of sale in the
respondent's favor. She adds that before T-92958-A can be cancelled and
a new one be issued in the respondent's favor, the latter decided to
withdraw from their agreement. She also points out that in the letters
seeking for an outright rescission of their agreement sent to her by the
respondent, not once did he demand for the delivery of TCT.
The petitioner insists that the respondent's change of heart was due
to (1) the latter's realization of the difficulty in determining the subject
property's perimeter boundary; (2) his doubt that the property he purchased
would yield harvests in the amount he expected; and (3) the presence of
mortgagees who were not willing to give up possession without first being
paid the amounts due to them. The petitioner contends that the actual

reasons for the respondent's intent to rescind their agreement did not at all
constitute a substantial breach of her obligations.
The petitioner stresses that under Article 1498 of the NCC, when a
sale is made through a public instrument, its execution is equivalent to the
delivery of the thing which is the contract's object, unless in the deed, the
contrary appears or can be inferred. Further, in Power Commercial and
Industrial Corporation v. CA,[17] it was ruled that the failure of a seller to
eject lessees from the property he sold and to deliver actual and physical
possession, cannot be considered a substantial breach, when such failure
was not stipulated as a resolutory or suspensive condition in the contract
and when the effects and consequences of the said failure were not
specified as well. The execution of a deed of sale operates as a formal or
symbolic delivery of the property sold and it already authorizes the buyer to
use the instrument as proof of ownership. [18]
The petitioner argues that in the case at bar, the agreement and the
absolute deed of sale contains no stipulation that she was obliged to
actually and physically deliver the subject property to the respondent. The
respondent fully knew Lacaden's and Parangan's possession of the subject
property. When they agreed on the sale of the property, the respondent
consciously assumed the risk of not being able to take immediate physical
possession on account of Lacaden's and Parangan's presence therein.
The petitioner likewise laments that the CA allegedly misappreciated
the evidence offered before it when it declared that she failed to prove the
existence of Atty. Antonio. For the record, she emphasizes that the said
lawyer prepared and notarized the agreement and deed of absolute sale
which were executed between the parties. He was also the petitioners
counsel in the proceedings before the RTC. Atty. Antonio was also the one
asked by the respondent to cease the transfer of the title over the subject
property in the latter's name and to return the money he paid in
advance.
The Respondent's Contentions
In the respondent's comment,[19] he seeks the dismissal of the instant
petition. He invokes Articles 1191 and 1458 to argue that when a seller fails
to transfer the ownership and possession of a property sold, the buyer is
entitled to rescind the contract of sale. Further, he contends that the
execution of a deed of absolute sale does not necessarily amount to a valid
and constructive delivery. In Masallo v. Cesar,[20] it was ruled that a person
who does not have actual possession of real property cannot transfer
constructive possession by the execution and delivery of a public document
27

by which the title to the land is transferred. In Addison v. Felix and Tioco,
[21]
the Court was emphatic that symbolic delivery by the execution of a
public instrument is equivalent to actual delivery only when the thing sold is
subject to the control of the vendor.
Our Ruling
The instant petition is bereft of merit.
There is only a single issue for resolution in the instant petition, to wit,
whether or not the failure of the petitioner to deliver to the respondent both
the physical possession of the subject property and the certificate of title
covering the same amount to a substantial breach of the former's
obligations to the latter constituting a valid cause to rescind the agreement
and deed of sale entered into by the parties.
We rule in the
affirmative.
The RTC and the CA both found that the petitioner failed to comply
with her obligations to deliver to the respondent both the possession of the
subject property and the certificate of title covering the same.
Although Articles 1458, 1495 and 1498 of the NCC and case law do not generally
require the seller to deliver to the buyer the physical possession of the property
subject of a contract of sale and the certificate of title covering the same, the
agreement entered into by the petitioner and the respondent provides otherwise.
However, the terms of the agreement cannot be considered as violative of law,
morals, good customs, public order, or public policy, hence, valid.

Article 1458 of the NCC obliges the seller to transfer the ownership
of and to deliver a determinate thing to the buyer, who shall in turn pay
therefor a price certain in money or its equivalent. In addition thereto,
Article 1495 of the NCC binds the seller to warrant the thing which is the
object of the sale. On the other hand, Article 1498 of the same code
provides that when the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed, the contrary does not appear or
cannot clearly be inferred.
In the case of Chua v. Court of Appeals,[22] which was cited by the
petitioner, it was ruled that when the deed of absolute sale is signed by the
parties and notarized, then delivery of the real property is deemed made by
the seller to the buyer.[23] The transfer of the certificate of title in the name
of the buyer is not necessary to confer ownership upon him.
In the case now under our consideration, item nos. 2 and 3 of the
agreement entered into by the petitioner and the respondent explicitly
provide:

2.
ONE HUNDRED EIGHTY FIVE THOUSAND (P185,000.00)
PESOS of the total price was already received on March 27, 1998 for
payment of the loan secured by the certificate of title covering the land in
favor of the Rural Bank of Cauayan, San Manuel Branch, San Manuel,
Isabela, in order that the certificate of title thereof be withdrawn and
released from the said bank, and the rest shall be for the payment of the
mortgages in favor of Romeo Lacaden and Florante Parangan;
3.
After the release of the certificate of title covering the land subjectmatter of this agreement, the necessary deed of absolute sale in favor of
the PARTY OF THE SECOND PART shall be executed and the transfer
be immediately effected so that the latter can apply for a loan from any
lending institution using the corresponding certificate of title as
collateral therefor, and the proceeds of the loan, whatever be the amount,
be given to the PARTY OF THE FIRST PART;[24] (underlining supplied)
As can be gleaned from the agreement of the contending parties, the
respondent initially paid the petitioner P185,000.00 for the latter to pay the
loan obtained from the Rural Bank of Cauayan and to cause the release
from the said bank of the certificate of title covering the subject property.
The rest of the amount shall be used to pay the mortgages over the subject
property which was executed in favor of Lacaden and Parangan. After the
release of the TCT, a deed of sale shall be executed and transfer shall be
immediately effected so that the title covering the subject property can be
used as a collateral for a loan the respondent will apply for, the proceeds of
which shall be given to the petitioner.
Under Article 1306 of the NCC, the contracting parties may establish
such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs,
public order or public policy.
While Articles 1458 and 1495 of the NCC and the doctrine enunciated
in the case of Chua do not impose upon the petitioner the obligation to
physically deliver to the respondent the certificate of title covering the
subject property or cause the transfer in the latter's name of the said title, a
stipulation requiring otherwise is not prohibited by law and cannot be
regarded as violative of morals, good customs, public order or public policy.
Item no. 3 of the agreement executed by the parties expressly states that
transfer [shall] be immediately effected so that the latter can apply for a
loan from any lending institution using the corresponding certificate of title
as collateral therefore. Item no. 3 is literal enough to mean that there
should be physical delivery of the TCT for how else can the respondent use
28

it as a collateral to obtain a loan if the title remains in the petitioners

possession. We agree with the RTC and the CA that the petitioner failed to
prove that she delivered the TCT covering the subject property to the
respondent. What the petitioner attempted to establish was that she gave
the TCT to Atty. Antonio whom she alleged was commissioned to effect the
transfer of the title in the respondent's name. Although Atty. Antonio's
existence is certain as he was the petitioners counsel in the proceedings
before the RTC, there was no proof that the former indeed received the
TCT or that he was commissioned to process the transfer of the title in the
respondent's name.
It is likewise the petitioners contention that pursuant to Article 1498
of the NCC, she had already complied with her obligation to deliver the
subject property upon her execution of an absolute deed of sale in the
respondents favor. The petitioner avers that she did not undertake to eject
the mortgagors Parangan and Lacaden, whose presence in the premises
of the subject property was known to the respondent.
We are not persuaded.
In the case of Power Commercial and Industrial Corporation [25] cited
by the petitioner, the Court ruled that the failure of the seller to eject the
squatters from the property sold cannot be made a ground for rescission if
the said ejectment was not stipulated as a condition in the contract of sale,
and when in the negotiation stage, the buyer's counsel himself undertook
to eject the illegal settlers.
The circumstances surrounding the case now under our
consideration are different. In item no. 2 of the agreement, it is stated that
part of the P185,000.00 initially paid to the petitioner shall be used to pay
the mortgagors, Parangan and Lacaden. While the provision does not
expressly impose upon the petitioner the obligation to eject the said
mortgagors, the undertaking is necessarily implied. Cessation of
occupancy of the subject property is logically expected from the
mortgagors upon payment by the petitioner of the amounts due to them.
We note that in the demand letter [26] dated September 18, 1998,
which was sent by the respondent to the petitioner, the former lamented
that the area is not yet fully cleared of incumbrances as there are tenants
who are not willing to vacate the land without giving them back the amount
that they mortgaged the land. Further, in the proceedings before the RTC
conducted after the complaint for rescission was filed, the petitioner herself
testified that she won the ejectment suit against the mortgagors only last
year.[27] The complaint was filed on September 8, 2002 or more than four

years from the execution of the parties' agreement. This means that after
the lapse of a considerable period of time from the agreement's execution,
the mortgagors remained in possession of the subject property.
Notwithstanding the absence of stipulations in the agreement and
absolute deed of sale entered into by Villamar and Mangaoil expressly indicating
the consequences of the former's failure to deliver the physical possession
of the subject property and the certificate of title covering the same, the latter is
entitled to demand for the rescission of their contract pursuant to Article 1191 of
the NCC.

We note that the agreement entered into by the petitioner and the
respondent only contains three items specifying the parties'
undertakings. In item no. 5, the parties consented to abide with all the
terms and conditions set forth in this agreement and never violate the
same.[28]
Article 1191 of the NCC is clear that 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 respondent cannot be deprived of
his right to demand for rescission in view of the petitioners failure to abide
with item nos. 2 and 3 of the agreement. This remains true notwithstanding
the absence of express stipulations in the agreement indicating the
consequences of breaches which the parties may commit. To hold
otherwise would render Article 1191 of the NCC as useless.
Article 1498 of the NCC generally considers the execution of a public
instrument as constructive delivery by the seller to the buyer of the property
subject of a contract of sale. The case at bar, however, falls among the exceptions
to the foregoing rule since a mere presumptive and not conclusive delivery is
created as the respondent failed to take material possession of the subject
property.

Further, even if we were to assume for argument's sake that the

agreement entered into by the contending parties does not require the
delivery of the physical possession of the subject property from the
mortgagors to the respondent, still, the petitioner's claim that her execution
of an absolute deed of sale was already sufficient as it already amounted to
a constructive delivery of the thing sold which Article 1498 of the NCC
allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor
General,[29] we held:
When the sale of real property is made in a public instrument, the
execution thereof is equivalent to the delivery of the thing object of the
29

contract, if from the deed the contrary does not appear or cannot clearly
be inferred.
In other words, there is symbolic delivery of the property subject
of the sale by the execution of the public instrument, unless from the
express terms of the instrument, or by clear inference therefrom, this was
not the intention of the parties. Such would be the case, for instance, x x
x where the vendor has no control over the thing sold at the moment of
the sale, and, therefore, its material delivery could not have been made .
[30]
(Underlining supplied and citations omitted)
Stated differently, as a general rule, the execution of a public
instrument amounts to a constructive delivery of the thing subject of a
contract of sale. However, exceptions exist, among which is when mere
presumptive and not conclusive delivery is created in cases where the
buyer fails to take material possession of the subject of sale. A person who
does not have actual possession of the thing sold cannot transfer
constructive possession by the execution and delivery of a public
instrument.
In the case at bar, the RTC and the CA found that the petitioner failed
to deliver to the respondent the possession of the subject property due to
the continued presence and occupation of Parangan and Lacaden. We find
no ample reason to reverse the said findings. Considered in the light of
either the agreement entered into by the parties or the pertinent provisions
of law, the petitioner failed in her undertaking to deliver the subject property
to the respondent.
IN VIEW OF THE FOREGOING, the instant petition is DENIED. The
February 20, 2009 Decision and July 8, 2009 Resolution of the Court of
Appeals, directing the rescission of the agreement and absolute deed of
sale entered into by Estelita Villamar and Balbino Mangaoil and the return
of the down payment made for the purchase of the subject property,
are AFFIRMED. However, pursuant to our ruling in Eastern Shipping
Lines, Inc. v. CA,[31] an interest of 12% per annum is imposed on the sum
ofP185,000.00 to be returned to Mangaoil to be computed from the date
of finality of this Decision until full satisfaction thereof.
SO ORDERED.

30

SECOND DIVISION
G.R. No. 122463
Petitioner,
Present:
- versusPUNO, J.,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
THE COURT OF APPEALS,
TINGA, andAGAPITO BURIOL, TIZIANA
CHICONAZARIO, JJ.
TURATELLO & PAOLA SANI,
Respondents.
Promulgated:
December 19, 2005
x --------------------------------------------------------------------x
DECISION
RUDOLF LIETZ, INC.,

TINGA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised
Rules of Court, praying for the annulment of the Decision[1] dated April 17,
1995 and the Resolution[2] dated October 25, 1995 of the Court of Appeals
in CA-G.R. CV No. 38854. The Court of Appeals affirmed theDecision[3] in
Civil Case No. 2164 of the Regional Trial Court (RTC), Branch 48, of
Palawan and Puerto Princesa City with the modification that herein
respondents Tiziana Turatello and Paola Sani are entitled to damages,
attorneys fees, and litigation expenses.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing and as prayed for by the
defendants, the instant complaint is hereby DISMISSED. Defendants
counterclaim is likewise DISMISSED. Plaintiff, however, is ordered to pay
defendant Turatello and Sanis counsel the sum of P3,010.38 from August
9, 1990 until fully paid representing the expenses incurred by said counsel
when the trial was cancelled due to the non-appearance of plaintiffs
witnesses. With costs against the plaintiff.SO ORDERED. [4]
As culled from the records, the following antecedents appear:
Respondent Agapito Buriol previously owned a parcel of unregistered
land situated at Capsalay Island, Port Barton, San Vicente, Palawan. On
August 15, 1986, respondent Buriol entered into a lease agreement with
Flavia Turatello and respondents Turatello and Sani, all Italian citizens,
involving one (1) hectare of respondent Buriols property. The lease
agreement was for a period of 25 years, renewable for another 25 years.
The lessees took possession of the land after paying respondent Buriol a
down payment of P10,000.00.[5] The lease agreement, however, was
reduced into writing only in January 1987.
On November 17, 1986, respondent Buriol sold to petitioner Rudolf
Lietz, Inc. the same parcel of land for the amount of P30,000.00. TheDeed
of Absolute Sale embodying the agreement described the land as follows:

A parcel of land, consisting of FIVE (5) hectares, more or less, a

portion of that parcel of land declared in the name of Agapito Buriol,
under Tax Declaration No. 0021, revised in the year 1985, together with
all improvements thereon, situated at the Island of Capsalay, Barangay
Port Barton, municipality of San Vicente, province of Palawan which
segregated from the whole parcel described in said tax declaration, has
the following superficial boundaries: NORTH, Sec. 01-017; and
remaining property of the vendor; EAST, by Seashore; SOUTH, 01-020;
and WEST, by 01-018 (now Elizabeth Lietz). [6]
Petitioner later discovered that respondent Buriol owned only four (4)
hectares, and with one more hectare covered by lease, only three (3)
hectares were actually delivered to petitioner. Thus, petitioner instituted on
April 3, 1989 a complaint for Annulment of Lease with Recovery of
Possession with Injunction and Damages against respondents and Flavia
Turatello before the RTC. The complaint alleged that with evident bad faith
and malice, respondent Buriol sold to petitioner five (5) hectares of land
when respondent Buriol knew for a fact that he owned only four (4)
hectares and managed to lease one more hectare to Flavia Turatello and
respondents Tiziana Turatello and Paola Sani. The complaint sought the
issuance of a restraining order and a writ of preliminary injunction to
prevent Flavia Turatello and respondents Turatello and Sani from
introducing improvements on the property, the annulment of the lease
agreement between respondents, and the restoration of the amount paid
by petitioner in excess of the value of the property sold to him. Except for
Flavia Turatello, respondents filed separate answers raising similar
defenses of lack of cause of action and lack of jurisdiction over the action
for recovery of possession. Respondents Turatello and Sani also prayed for
the award of damages and attorneys fees. [7]
After trial on the merits, the trial court rendered judgment on May 27,
1992, dismissing both petitioners complaint and respondents counterclaim
for damages. Petitioner and respondents Turatello and Sani separately
appealed the RTC Decision to the Court of Appeals, which affirmed the
dismissal of petitioners complaint and awarded respondents Turatello and
Sani damages and attorneys fees. The dispositive portion of the Court of
Appeals Decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED,
with the following modification:
Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered to pay
defendants-appellants Turatello and Sani, the sum of P100,000.00 as
31

moral damages; (2) P100,000.00 as exemplary damages;

(3) P135,728.73 as attorneys fees; and (4) P10,000.00 as litigation
expenses. SO ORDERED.[8]
Petitioner brought to this Court the instant petition after the denial of
its motion for reconsideration of the Court of Appeal Decision. The instant
petition imputes the following errors to the Court of Appeals.
I.
IN DEFENDING AGAPITO BURIOLS GOOD FAITH AND IN STATING
THAT ASSUMING THAT HE (BURIOL) WAS IN BAD FAITH PETITIONER WAS
SOLELY RESPONSIBLE FOR ITS INEXCUSABLE CREDULOUSNESS.
II. IN ASSERTING THAT ARTICLES 1542 AND 1539 OF THE NEW CIVIL
CODE ARE, RESPECTIVELY, APPLICABLE AND INAPPLICABLE IN THE CASE
AT BAR.
III. IN NOT GRANTING PETITIONERS CLAIM FOR ACTUAL AND
EXEMPLARY DAMAGES.
IV. IN GRANTING RESPONDENTS TIZIANA TURATELLO AND PAOLA SANI
EXHORBITANT [sic] AMOUNTS AS DAMAGES WHICH ARE EVEN BEREFT OF
EVIDENTIARY BASIS.[9]

Essentially, only two main issues confront this Court, namely: (i) whether
or not petitioner is entitled to the delivery of the entire five hectares or its
equivalent, and (ii) whether or not damages may be awarded to either
party.
Petitioner contends that it is entitled to the corresponding reduction
of the purchase price because the agreement was for the sale of five (5)
hectares although respondent Buriol owned only four (4) hectares. As in its
appeal to the Court of Appeals, petitioner anchors its argument on the
second paragraph of Article 1539 of the Civil Code, which provides:
Art. 1539. The obligation to deliver the thing sold includes
that of placing in the control of the vendee all that is mentioned in
the contract, in conformity with the following rules:
If the sale of real estate should be made with a statement of its
area, at the rate of a certain price for a unit of measure or number, the
vendor shall be obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the contract; but, should this
be not possible, the vendee may choose between a proportional
reduction of the price and the rescission of the contract, provided that, in
the latter case, the lack in the area be not less than one-tenth of that
stated. . . .
The Court of Appeals Decision, however, declared as inapplicable
the abovequoted provision and instead ruled that petitioner is no longer

entitled to a reduction in price based on the provisions of Article 1542 of the

Civil Code, which read:
Art. 1542. In the sale of real estate, made for a lump sum and not at
the rate of a certain sum for a unit of measure or number, there shall be no
increase or decrease of the price, although there be a greater or lesser area or
number than that stated in the contract.
The same rule shall be applied when two or more immovables are
sold for a single price; but if, besides mentioning the boundaries, which is
indispensable in every conveyance of real estate, its area or number should be
designated in the contract, the vendor shall be bound to deliver all that is
included within said boundaries, even when it exceeds the area or number
specified in the contract; and, should he not be able to do so, he shall suffer a
reduction in the price, in proportion to what is lacking in the area or number,
unless the contract is rescinded because the vendee does not accede to the
failure to deliver what has been stipulated.
Article 1539 governs a sale of immovable by the unit, that is, at a stated
rate per unit area. In a unit price contract, the statement of area of immovable is
not conclusive and the price may be reduced or increased depending on the area
actually delivered. If the vendor delivers less than the area agreed upon, the
vendee may oblige the vendor to deliver all that may be stated in the contract or
demand for the proportionate reduction of the purchase price if delivery is not
possible. If the vendor delivers more than the area stated in the contract, the
vendee has the option to accept only the amount agreed upon or to accept the
whole area, provided he pays for the additional area at the contract rate.[10]

In some instances, a sale of an immovable may be made for a

lump sum and not at a rate per unit. The parties agree on a stated
purchase price for an immovable the area of which may be declared based
on an estimate or where both the area and boundaries are stated.
In the case where the area of the immovable is stated in the
contract based on an estimate, the actual area delivered may not measure
up exactly with the area stated in the contract. According to Article
1542[11] of the Civil Code, in the sale of real estate, made for a lump sum
and not at the rate of a certain sum for a unit of measure or number, there
shall be no increase or decrease of the price although there be a greater or
lesser area or number than that stated in the contract. However, the
discrepancy must not be substantial. A vendee of land, when sold in gross
or with the description more or less with reference to its area, does not
thereby ipso facto take all risk of quantity in the land. The use of more or
less or similar words in designating quantity covers only a reasonable
excess or deficiency.[12]
32

Where both the area and the boundaries of the immovable are
declared, the area covered within the boundaries of the immovable prevails
over the stated area. In cases of conflict between areas and boundaries, it
is the latter which should prevail. What really defines a piece of ground is
not the area, calculated with more or less certainty, mentioned in its
description, but the boundaries therein laid down, as enclosing the land
and indicating its limits. In a contract of sale of land in a mass, it is well
established that the specific boundaries stated in the contract must control
over any statement with respect to the area contained within its
boundaries. It is not of vital consequence that a deed or contract of sale of
land should disclose the area with mathematical accuracy. It is sufficient if
its extent is objectively indicated with sufficient precision to enable one to
identify it. An error as to the superficial area is immaterial. [13] Thus, the
obligation of the vendor is to deliver everything within the boundaries,
inasmuch as it is the entirety thereof that distinguishes the determinate
object.[14]
As correctly noted by the trial court and the Court of Appeals, the
sale between petitioner and respondent Buriol involving the latters property
is one made for a lump sum. The Deed of Absolute Sale shows that the
parties agreed on the purchase price on a predetermined area of five
hectares within the specified boundaries and not based on a particular rate
per area. In accordance with Article 1542, there shall be no reduction in the
purchase price even if the area delivered to petitioner is less than that
stated in the contract. In the instant case, the area within the boundaries as
stated in the contract shall control over the area agreed upon in the
contract.
The Court rejects petitioners contention that the propertys
boundaries as stated in the Deed of Absolute Sale are superficial and
unintelligible and, therefore, cannot prevail over the area stated in the
contract. First, as pointed out by the Court of Appeals, at an ocular
inspection prior to the perfection of the contract of sale, respondent Buriol
pointed to petitioner the boundaries of the property. Hence, petitioner
gained a fair estimate of the area of the property sold to him. Second,
petitioner cannot now assail the contents of the Deed of Absolute Sale,
particularly the description of the boundaries of the property, because
petitioners subscription to the Deed of Absolute Sale indicates his assent
to the correct description of the boundaries of the property.
Petitioner also asserts that respondent Buriol is guilty of
misleading petitioner into believing that the latter was buying five hectares

when he knew prior to the sale that he owned only four hectares. The
review of the circumstances of the alleged misrepresentation is factual and,
therefore, beyond the province of the Court. Besides, this issue had
already been raised before and passed upon by the trial court and the
Court of Appeals. The factual finding of the courts below that no sufficient
evidence supports petitioners allegation of misrepresentation is binding on
the Court.
The Court of Appeals reversed the trial courts dismissal of
respondents Turatello and Sanis counterclaim for moral and exemplary
damages, attorneys fees and litigation expenses. In awarding moral
damages in the amount of P100,000 in favor of Turatello and Sani, the
Court of Appeals justified the award to alleviate the suffering caused by
petitioners unfounded civil action. The filing alone of a civil action should
not be a ground for an award of moral damages in the same way that a
clearly unfounded civil action is not among the grounds for moral damages.
[15]

Exemplary or corrective damages are imposed, by way of example

or correction for the public good, in addition to the moral, temperate,
liquidated or compensatory damages.[16] With the deletion of the award for
moral damages, there is no basis for the award of exemplary damages.
WHEREFORE, the instant petition for review on certiorari is
GRANTED in PART. The Court of Appeals Decision in CA-G.R. CV No.
38854 is AFFIRMED with the MODIFICATION that the award of moral and
exemplary damages is DELETED.
SO ORDERED.

33

FIRST DIVISION G.R. No. 173215

CEBU WINLAND DEVELOPMENT
- versus ONG SIAO HUA,
Respondent.

CORPORATION, Petitioner,
Present:
PUNO, C.J., Chairperson,
CARPIO, CORONA, LEONARDO-DE CASTRO, and
BERSAMIN, JJ.
Promulgated:
May 21, 2009

x------------------------------------------------x
DECISION
PUNO, C.J.:
Before us is a Petition for Review[1] filed under Rule 45 of the Rules of Court
assailing the Decision[2] dated February 14, 2006 of the Court of Appeals and its
Resolution[3] dated June 2, 2006 denying petitioners motion for reconsideration of
the said decision.
The facts are undisputed.
Petitioner, Cebu Winland Development Corporation, is the owner and
developer of a condominium project called the Cebu Winland Tower Condominium
located in Juana Osmea Extension, Cebu City.
Respondent, Ong Siao Hua, is a buyer of two condominium units and four
parking slots from petitioner.
Sometime before January 6, 1995 while the Cebu Winland Tower
Condominium was under construction, petitioner offered to sell to respondent
condominium units at promotional prices. As an added incentive, petitioner
offered a 3% discount provided 30% of the purchase price is paid as down
payment and the balance paid in 24 equal monthly installments.
On January 6, 1995, respondent accepted the offer of petitioner and bought
two condominium units designated as Unit Nos. 2405 and 2406, as well as four
parking slots designated as slots 91, 99, 101 and 103 (subject properties).
The area per condominium unit as indicated in petitioners price list is 155
square meters and the price per square meter is P22,378.95. The price for the
parking slot isP240,000 each. Respondent, therefore, paid P2,298,655.08 as
down payment and issued 24 postdated checks in the amount of P223,430.70 per
check for the balance of the purchase price in the total amount of P5,362,385.19
computed as follows:[4]
155 sq.m./unit x 2 units x P22,378.95/sq.m.
4 parking slots at P240,000/slot
Sub-total
Less: 3% discount
Net purchase price
30% down payment
Balance at P223,430.70 per month for 24 months

P6,937,474.50
960,000.00
P 7,897,474.50
( 236,924.23)
P 7,660,550.27
( 2,298,165.08)
P 5,362,385.19

The parties did not execute any written document setting forth the said
transaction.
On October 10, 1996, possession of the subject properties was turned over
to respondent.[5]

After the purchase price was fully paid with the last check dated January 31,
1997, respondent requested petitioner for the condominium certificates of title
evidencing ownership of the units. Petitioner then sent to respondent, for the
latters signature, documents denominated as Deeds of Absolute Sale for the two
condominium units.
Upon examination of the deed of absolute sale of Unit No. 2405 and the
identical document for Unit No. 2406, respondent was distressed to find that the
stated floor area is only 127 square meters contrary to the area indicated in the
price list which was 155 square meters. Respondent caused a verification survey
of the said condominium units and discovered that the actual area is only 110
square meters per unit. Respondent demanded from petitioner to refund the
amount of P2,014,105.50 representing excess payments for the difference in the
area, computed as follows:[6]
155 sq.m.-110 = 45 x 2 units = 90 sq.m. x P22,378.95 = P2,014,105.50
Petitioner refused to refund the said amount to respondent. Consequently,
respondent filed a Complaint[7] on August 7, 1998 in the Regional Office of the
Housing and Land Use Regulatory Board (HLURB) in Cebu City, praying for the
refund of P2,014,105.50 plus interest, moral damages and attorneys fees,
including the suspension of petitioners license to sell. The case was docketed as
HLURB Case No. REM-0220-080798.
On December 6, 1999, the Housing and Land Use Arbiter (the Arbiter)
rendered a Decision[8] dismissing the complaint. The Arbiter found petitioner not
guilty of misrepresentation. Considering further that the subject properties have
been delivered on October 10, 1996 and respondent filed his complaint only on
August 7, 1998, the Arbiter further ruled that respondents action had already
prescribed pursuant to Article 1543,[9] in relation to Articles 1539 and 1542,[10] of
the Civil Code. The dispositive portion of the said decision reads:
WHEREFORE, Premises Considered, judgment is hereby
rendered DISMISSING this Complaint, and ordering the parties to do the
following, to wit:
1. For the Complainant to SIGN the two (2) Deed[s] of Absolute Sale which this
Board finds to be in order within 30 days from finality of this decision; and
2. For the Respondent to DELIVER the corresponding condominium certificate of
title for the two units namely units 2405 and 2406 free from all liens and
encumbrances.

Consequently, the counterclaim is likewise dismissed for it finds no

evidence that Complainant acted in bad faith in filing this complaint.
Cost against the parties.
SO ORDERED.[11]
Aggrieved, respondent filed a Petition for Review of said decision
with the Board of Commissioners of the HLURB (the Board). In the course
of its proceedings, the Board ordered that an ocular inspection of Unit Nos.
2405 and 2406 be conducted by an independent engineer. The Board
34

further ordered that there should be two measurements of the areas in

controversy, one based on the master deed and another based on the
internal surface of the perimeter wall. After the ocular inspection, the
independent geodetic engineer found the following measurements:
Unit 2405- Based on internal face of perimeter wall = 109 sq. m.
Based on master deed
= 115 sq. m.
Unit 2406- Based on internal face of perimeter wall
= 110 sq. m.
Based on master deed
= 116 sq. m.[12]

Thereafter, the Board rendered its Decision[13] dated June 8, 2004 affirming
the Arbiters finding that respondents action had already prescribed. However,
the Board found that there was a mistake regarding the object of the sale
constituting a ground for rescission based on Articles 1330 and 1331[14] of the Civil
Code. Hence, the Board modified the decision of the Arbiter as follows:
Wherefore[,] the decision of the [O]ffice below is hereby modified with the
following additional directive:
In the alternative, and at the option of the complainant, the contract is
rescinded and the respondent is directed to refund to (sic) P7,660,550[.]27 while
complainant is directed to turn over possession of the units 2405, 2406 and the
four parking lots to the respondent.
So ordered.[15]
Not satisfied with the decision of the Board, petitioner filed an appeal to
the Office of the President arguing that the Board erred in granting relief to
respondent considering that the latters action had already prescribed. On March
11, 2005, the Office of the President rendered a Decision [16] finding that
respondents action had already prescribed pursuant to Article 1543 of the Civil
Code. The dispositive portion of said decision reads as follows:
WHEREFORE, premises considered, the Decision dated June 8,
2004 of the HLURB is hereby MODIFIED and the Decision dated
December 6, 1999 of the Housing and Land Use Arbiter is
hereby REINSTATED.
SO ORDERED.[17]
Respondent filed a Motion for Reconsideration but the same was
denied by the Office of the President in a Resolution[18] dated June 20,
2005. Hence, respondent filed a Petition for Review before the Court of
Appeals.
On February 14, 2006, the Court of Appeals rendered the assailed
Decision finding that respondents action has not prescribed. The dispositive
portion of the Decision reads:
WHEREFORE, in view of the foregoing premises, judgment is hereby
rendered by us GRANTING the petition filed in this case, REVERSING and
SETTING ASIDE the assailed Decision and Resolution of the Office of the
President dated March 11, 2005 and June 20, 2005, respectively, and

reinstating the Decision promulgated by the Board of Commissioners of the

HLURB on June 8, 2004.
SO ORDERED.[19]
Petitioners Motion for Reconsideration[20] of the assailed
decision having been denied in the Resolution dated June 2, 2006,
petitioner is now before us, in this petition for review raising the following
grounds:
I.
The Court of Appeals Erred in Holding That in A Contract of Sale Ownership Is
Not Transferred by Delivery[.]
II.
The Court of Appeals Erred in Holding That Respondents Action Has Not
Prescribed.
III.
The Court of Appeals Erred And Exceeded Its Jurisdiction When It Found
Petitioner Guilty Of Misrepresentation As The Decision Of The HLURB Board of
Commissioners On The Same Matter Is Final With Respect To Respondent Who
Did Not Appeal Said Decision That Petitioner Did Not Commit
Misrepresentation.[21]
The issue before us is whether respondents action has prescribed pursuant to
Article 1543, in relation to Articles 1539 and 1542 of the Civil Code, to wit:
ARTICLE 1539. The obligation to deliver the thing sold includes that of placing in
the control of the vendee all that is mentioned in the contract, in conformity with the
following rules:
If the sale of real estate should be made with a statement of its area, at
the rate of a certain price for a unit of measure or number, the vendor shall be
obliged to deliver to the vendee, if the latter should demand it, all that may have been
stated in the contract; but, should this be not possible, the vendee may choose
between a proportional reduction of the price and the rescission of the contract,
provided that, in the latter case, the lack in the area be not less than one-tenth of that
stated.
The same shall be done, even when the area is the same, if any part of the
immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee,
when the inferior value of the thing sold exceeds one-tenth of the price agreed upon.

Nevertheless, if the vendee would not have bought the immovable

had he known of its smaller area or inferior quality, he may rescind the sale.
(1469a) [Emphasis supplied]
ARTICLE 1542.
In the sale of real estate, made for a lump
sum and not at the rate of a certain sum for a unit of measure or number, there
shall be no increase or decrease of the price, although there be a greater or
lesser area or number than that stated in the contract.
The same rule shall be applied when two or more immovables are
sold for a single price; but if, besides mentioning the boundaries, which is
indispensable in every conveyance of real estate, its area or number should be
35

designated in the contract, the vendor shall be bound to deliver all that is
included within said boundaries, even when it exceeds the area or number
specified in the contract; and, should he not be able to do so, he shall suffer a
reduction in the price, in proportion to what is lacking in the area or number,
unless the contract is rescinded because the vendee does not accede to the
failure to deliver what has been stipulated. (1471) [Emphasis supplied]
ARTICLE 1543. The actions arising from Articles 1539 and 1542
shall prescribe in six months, counted from the day of delivery. (1472a)
[Emphasis supplied]
Petitioner argues that it delivered possession of the subject
properties to respondent on October 10, 1996, hence, respondents action filed
on August 7, 1998 has already prescribed.
Respondent, on the one hand, contends that his action has not
prescribed because the prescriptive period has not begun to run as the same
must be reckoned from the execution of the deeds of sale which has not yet
been done.
The resolution of the issue at bar necessitates a scrutiny of the concept
of delivery in the context of the Law on Sales or as used in Article 1543 of the
Civil Code. Under the Civil Code, the vendor is bound to transfer the
ownership of and deliver the thing which is the object of the sale. The pertinent
provisions of the Civil Code on the obligation of the vendor to deliver the object
of the sale provide:
ARTICLE 1495.
The vendor is bound to transfer the ownership of and
deliver, as well as warrant the thing which is the object of the sale. (1461a)
ARTICLE 1496.
The ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways specified in Articles 1497 to
1501, or in any other manner signifying an agreement that the possession is transferred
from the vendor to the vendee. (n)
ARTICLE 1497.
The thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee. (1462a)
ARTICLE 1498.
When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be
inferred. xxx

Under the Civil Code, ownership does not pass by mere stipulation but
only by delivery.[22] Manresa explains, the delivery of the thing . . . signifies
that title has passed from the seller to the buyer."[23] According to Tolentino,
the purpose of delivery is not only for the enjoyment of the thing but also a mode
of acquiring dominion and determines the transmission of ownership, the birth of
the real right. The delivery under any of the forms provided by Articles 1497 to
1505 of the Civil Code signifies that the transmission of ownership from
vendor to vendee has taken place.[24]
Article 1497 above contemplates what is known as real or actual delivery,
when the thing sold is placed in the control and possession of the vendee. Article

1498, on the one hand, refers to symbolic delivery by the execution of a public
instrument. It should be noted, however, that Article 1498 does not say that the
execution of the deed provides a conclusive presumption of the delivery of
possession. It confines itself to providing that the execution thereof is equivalent
to delivery, which means that the presumption therein can be rebutted by means
of clear and convincing evidence. Thus, the presumptive delivery by the
execution of a public instrument can be negated by the failure of the vendee to
take actual possession of the land sold.[25]
In Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,[26] the
concept of delivery was explained as follows:
Delivery has been described as a composite act, a thing in which both
parties must join and the minds of both parties concur. It is an act by which one
party parts with the title to and the possession of the property, and the other
acquires the right to and the possession of the same. In its natural sense,
delivery means something in addition to the delivery of property or title; it means
transfer of possession. In the Law on Sales, delivery may be either actual or
constructive, but both forms of delivery contemplate "the absolute giving up
of the control and custody of the property on the part of the vendor, and the
assumption of the same by the vendee." (Emphasis supplied)
In light of the foregoing, delivery as used in the Law on Sales
refers to the concurrent transfer of two things: (1) possession and (2)
ownership. This is the rationale behind the jurisprudential doctrine that
presumptive delivery via execution of a public instrument is negated by the reality
that the vendee actually failed to obtain material possession of the land subject of
the sale.[27] In the same vein, if the vendee is placed in actual possession of
the property, but by agreement of the parties ownership of the same is
retained by the vendor until the vendee has fully paid the price, the mere
transfer of the possession of the property subject of the sale is not the
delivery contemplated in the Law on Sales or as used in Article 1543 of the
Civil Code.

In the case at bar, it appears that respondent was already placed

in possession of the subject properties. However, it is crystal clear that the
deeds of absolute sale were still to be executed by the parties upon
payment of the last installment. This fact shows that ownership of the said
properties was withheld by petitioner. Following case law, it is evident that
the parties did not intend to immediately transfer ownership of the subject
properties until full payment and the execution of the deeds of absolute
sale.[28] Consequently, there is no delivery to speak of in this case since
what was transferred was possession only and not ownership of the
subject properties.

36

We, therefore, hold that the transfer of possession of the subject

properties on October 10, 1996 to respondent cannot be considered as
delivery within the purview of Article 1543 of the Civil Code. It follows that
since there has been no transfer of ownership of the subject properties
since the deeds of absolute sale have not yet been executed by the
parties, the action filed by respondent has not prescribed.
The next issue is whether the sale in the case at bar is one
made with a statement of its area or at the rate of a certain price for a unit
of measure and not for a lump sum. Article 1539 provides that If the sale
of real estate should be made with a statement of its area, at the rate of a
certain price for a unit of measure or number, the vendor shall be obliged to
deliver to the vendeeall that may have been stated in the contract; but,
should this be not possible, the vendee may choose between a
proportional reduction of the price and the rescission of the
contract. Article 1542, on the one hand, provides that In the sale of real
estate, made for a lump sum and not at the rate of a certain sum for a unit
of measure or number, there shall be no increase or decrease of the price,
although there be a greater or lesser area or number than that stated in the
contract."
The distinction between Article 1539 and Article 1542 was
explained by Manresa[29] as follows:
. . . If the sale was made for a price per unit of measure or
number, the consideration of the contract with respect to the vendee, is the
number of such units, or, if you wish, the thing purchased as determined by
the stipulated number of units. But if, on the other hand, the sale was made
for a lump sum, the consideration of the contract is the object sold,
independently of its number or measure, the thing as determined by the
stipulated boundaries, which has been called in law a determinate object.
This difference in consideration between the two cases implies a
distinct regulation of the obligation to deliver the object, because, for an
acquittance delivery must be made in accordance with the agreement of
the parties, and the performance of the agreement must show the
confirmation, in fact, of the consideration which induces each of the
parties to enter into the contract.
In Rudolf Lietz, Inc. v. Court of Appeals,[30] we held:
Article 1539 governs a sale of immovable by the unit, that is, at a stated rate
per unit area. In a unit price contract, the statement of area of immovable is not
conclusive and the price may be reduced or increased depending on the area actually
delivered. If the vendor delivers less than the area agreed upon, the vendee may oblige
the vendor to deliver all that may be stated in the contract or demand for the

proportionate reduction of the purchase price if delivery is not possible. If the vendor
delivers more than the area stated in the contract, the vendee has the option to accept
only the amount agreed upon or to accept the whole area, provided he pays for the
additional area at the contract rate.

In some instances, a sale of an immovable may be made for a

lump sum and not at a rate per unit. The parties agree on a stated
purchase price for an immovable the area of which may be declared based
on an estimate or where both the area and boundaries are stated.
In the case where the area of the immovable is stated in the
contract based on an estimate, the actual area delivered may not measure
up exactly with the area stated in the contract. According to Article 1542 of
the Civil Code, in the sale of real estate, made for a lump sum and not at
the rate of a certain sum for a unit of measure or number, there shall be no
increase or decrease of the price although there be a greater or lesser area
or number than that stated in the contract. However, the discrepancy must
not be substantial. A vendee of land, when sold in gross or with the
description "more or less" with reference to its area, does not thereby ipso
facto take all risk of quantity in the land. The use of "more or less" or similar
words in designating quantity covers only a reasonable excess or
deficiency.
Where both the area and the boundaries of the immovable are
declared, the area covered within the boundaries of the immovable prevails
over the stated area. In cases of conflict between areas and boundaries, it
is the latter which should prevail. What really defines a piece of ground is
not the area, calculated with more or less certainty, mentioned in its
description, but the boundaries therein laid down, as enclosing the land
and indicating its limits. In a contract of sale of land in a mass, it is well
established that the specific boundaries stated in the contract must control
over any statement with respect to the area contained within its
boundaries. It is not of vital consequence that a deed or contract of sale of
land should disclose the area with mathematical accuracy. It is sufficient if
its extent is objectively indicated with sufficient precision to enable one to
identify it. An error as to the superficial area is immaterial. Thus, the
obligation of the vendor is to deliver everything within the boundaries,
inasmuch as it is the entirety thereof that distinguishes the determinate
object.
In the case at bar, it is undisputed by the parties that the purchase
price of the subject properties was computed based on the price list
prepared by petitioner, or P22,378.95 per square meter. Clearly, the
37

parties agreed on a sale at a rate of a certain price per unit of measure and
not one for a lump sum. Hence, it is Article 1539 and not Article 1542
which is the applicable law. Accordingly, respondent is entitled to the relief
afforded to him under Article 1539, that is, either a proportional reduction of
the price or the rescission of the contract, at his option. Respondent chose
the former remedy since he prayed in his Complaint for the refund of the
amount of P2,014,105.50 representing the proportional reduction of the
price paid to petitioner.
In its decision, the Court of Appeals held that the action filed by
respondent has not prescribed and reinstated the decision of the Board. It
is an error to reinstate the decision of the Board. The Board, in its
decision, held that there was a mistake regarding the object of the sale
constituting a ground for rescission based on Articles 1330 and 1331 of the
Civil Code. It then granted the relief of rescission at the option of
respondent. Articles 1330 and 1331 of the Civil Code provide:

the Court of Appeals erred in affirming the Boards decision to grant

rescission based on Articles 1330 and 1331 of the Civil Code.
IN VIEW WHEREOF, the petition is DENIED. The decision of the
Court of Appeals is AFFIRMED but with the MODIFICATION that the
decision of the HLURB is not reinstated. Petitioner is ordered to refund the
amount of Two Million Fourteen Thousand One Hundred Five Pesos and
Fifty Centavos (P2,014,105.50) to respondent with legal interest of six
percent (6%) per annum from August 7, 1998, the date of judicial
demand. A twelve percent (12%) interest per annum, in lieu of six percent
(6%), shall be imposed on such amount from the date of promulgation of
this decision until the payment thereof. Costs against petitioner.
SO ORDERED.

ARTICLE 1330. A contract where consent is given through

mistake, violence, intimidation, undue influence, or fraud is
voidable. (1265a)
ARTICLE 1331. In order that mistake may invalidate consent, it
should refer to the substance of the thing which is the object of the
contract, or to those conditions which have principally moved one or both
parties to enter into the contract.

We find that these articles are inapplicable to the case at bar. In

order that mistake may invalidate consent and constitute a ground for
annulment of contract based on Article 1331, the mistake must be material
as to go to the essence of the contract; that without such mistake, the
agreement would not have been made. [31] The effect of error must be
determined largely by its influence upon the party. If the party would have
entered into the contract even if he had knowledge of the true fact, then the
error does not vitiate consent.[32]
In the case at bar, the relief sought by respondent was for a refund
and he continued to occupy the subject properties after he found out that
the same were smaller in area. All these show that respondent did not
consider the error in size significant enough to vitiate the contract. Hence,
38

Republic of the PhilippinesSUPREME COURTManilaSECOND DIVISION

G.R. No.
169890
March 12, 2007FELICIANO ESGUERRA, CANUTO ESGUERRA, JUSTA
ESGUERRA, ANGEL ESGUERRA, FIDELA ESGUERRA, CLARA ESGUERRA, and PEDRO
ESGUERRA, Petitioners, vs.
VIRGINIA TRINIDAD, PRIMITIVA TRINIDAD, and THE REGISTER OF DEEDS OF
MEYCAUAYAN, BULACAN,Respondents.

D E C I S I O NCARPIO MORALES, J.:

Involved in the present controversy are two parcels of land
located in Camalig, Meycauayan, Bulacan.
Felipe Esguerra and Praxedes de Vera (Esguerra spouses) were the owners of
several parcels of land in Camalig, Meycauayan, Bulacan among them a 35,284square meter parcel of land covered by Tax Declaration No. 10374, half of which
(17,642 square meters) they sold to their grandchildren, herein petitioners Feliciano,
Canuto, Justa, Angel, Fidela, Clara and Pedro, all surnamed Esguerra; and a 23,989square meter
parcel of land covered by Tax Declaration No. 12080, 23,489 square meters of which
they also sold to petitioners, and the remaining 500 square meters they sold to their
other grandchildren, the brothers Eulalio and Julian Trinidad (Trinidad brothers).
Also sold to the Trinidad brothers were a 7,048-square meter parcel of land covered
by Tax Declaration No. 9059, a 4,618-square meter parcel of land covered by Tax
Declaration No. 12081, and a 768-square meter parcel of land covered by Tax
Declaration No. 13989.
The Esguerra spouses executed the necessary Deed of Sale in favor of petitioners on
August 11, 1937,1 and that in favor of the Trinidad brothers on August 17, 1937. 2 Both
documents were executed before notary public Maximo Abao.
Eulalio Trinidad later sold his share of the land to his daughters-respondents herein,
via a notarized Kasulatan ng Bilihang Tuluyan ng Lupa 3 dated October 13, 1965. A
portion of the land consisting of 1,693 square meters was later assigned Lot No.
3593 during a cadastral survey conducted in the late 1960s.
On respondents application for registration of title, the then Court of First Instance
(CFI) of Bulacan, by Decision4of February 20, 1967, awarded Lot No. 3593 in their
favor in Land Registration Case No. N-323-V. Pursuant to the Decision, the Land
Registration Commission (LRC, now the Land Registration Authority [LRA]) issued
Decree No. N-114039 by virtue of which the Register of Deeds of Bulacan issued
OCT No. 0-36315 in the name of respondents.
Meanwhile, under a notarized Bilihan ng Lupa6 dated November 10, 1958, petitioners
sold to respondents parents Eulalio Trinidad and Damiana Rodeadilla (Trinidad
spouses) a portion of about 5,000 square meters of the 23,489-square meter of land
which they previously acquired from the Esguerra spouses. 7
During the same cadastral survey conducted in the late 1960s, it was discovered that
the about 5,000-square meter portion of petitioners parcel of land sold to the Trinidad
spouses which was assigned Lot No. 3591 actually measured 6,268 square meters.

In a subsequent application for registration of title over Lot No. 3591, docketed as
Land Registration Case No. N-335-V, the CFI, by Decision 8 of August 21, 1972,
awarded Lot No. 3591 in favor of Eulalio Trinidad. Pursuant to the Decision, the LRC
issued Decree No. N-149491 by virtue of which the Register of Deeds of Bulacan
issued OCT No. 0-64989 in the name of Trinidad.
Upon the death of the Trinidad spouses, Lot No. 3591 covered by OCT No. 0-6498
was transmitted to respondents by succession.
Petitioners, alleging that upon verification with the LRA they discovered the issuance
of the above-stated two OCTs, filed on August 29, 1994 before the Regional Trial
Court (RTC) of Malolos, Bulacan two separate complaints for their nullification on the
ground that they were procured through fraud or misrepresentation.
In the first complaint, docketed as Civil Case No. 737-M-94, petitioners sought the
cancellation of OCT No. 0-3631.
In the other complaint, docketed as Civil Case No. 738-M-94, petitioners sought the
cancellation of OCT No. 0-6498.
Both cases were consolidated and tried before Branch 79 of the RTC which, after trial,
dismissed the cases by Joint Decision10 of May 15, 1997.
Their appeal with the Court of Appeals having been dismissed by Decision of
February 28, 2005, a reconsideration of which was, by Resolution of October 3,
2005,11 denied, petitioners filed the instant petition.
Petitioners fault the appellate court
1. . . . in misappreciating the fact that the act of the respondent Eulalio Trinidad in
acquiring the property from Felipe Esguerra constituted fraud.
2. . . . in the [i]nterpretation and application of the provisions of Article 1542 of the New
Civil Code.
3. . . . in ruling that there is prescription, res judicata, and violation of the non-[forum]
shopping.12
In their Comment, respondents assailed the petition as lacking verification and
certification against forum shopping and failing to attach to it an affidavit of service
and material portions of the record in support thereof. Petitioners counter that the
procedural deficiencies have been mooted by the filing of a Compliance.
A check of the rollo shows that attached to the petition are an Affidavit of Service
dated November 21, 2005 and the appellate courts Decision of February 28, 2005
and Resolution of October 3, 2005; and that on January 16, 2006 or almost three
months following the last day to file the petition, petitioners submitted, not at their own
instance,13 a Verification and Sworn Certification on Non-Forum Shopping signed by
petitioner Pedro Esguerra who cited honest and excusable mistake behind the
omission to submit the same.
This Court has strictly enforced the requirement of verification and certification,
obedience to which and to other procedural rules is needed if fair results are to be
expected therefrom.14 While exceptional cases have been considered to correct
patent injustice concomitant to a liberal application of the rules of procedure, there
should be an effort on the part of the party invoking liberality to advance a reasonable

39

or meritorious explanation for his failure to comply with the rules. 15 In petitioners case,
no such explanation has been advanced.
With regard to petitioners failure to attach material portions of the record in support of
the petition, this requirement is not a mere technicality but an essential requisite for
the determination of prima facie basis for giving due course to the petition. 16 As a rule,
a petition which lacks copies of essential pleadings and portions of the case record
may be dismissed. Much discretion is left to the reviewing court, however, to
determine the necessity for such copies as the exact nature of the pleadings and
portions of the case record which must accompany a petition is not specified. 17
At all events, technicality aside, the petition must be denied.
It is settled that fraud is a question of fact and the circumstances constituting the
same must be alleged and proved in the court below. 18
In the present cases, as did the trial court, the appellate court found no fraud in
respondents acquisition and registration of the land, viz:
. . . Appellant Pedro Esguerra even testified that he does not know how appellees
were able to secure a title over the lot in question and that they never sold Lot No.
3593 to Virginia Trinidad since it is part of the whole lot of 23,489 square meters. The
said testimony is a mere conclusion on the part of appellants. On the other hand, the
evidence shows that appellees acquired title over the subject property by virtue of a
deed of sale executed by their father Eulalio Trinidad in their favor.
xxxx
[T]hey failed to establish that appellees acquisition of the certificate of title is
fraudulent. In fact, in their two complaints, appellants acknowledged that appellees
observed and took the initial procedural steps in the registration of the land, thus
ruling out fraud in the acquisition of the certificate of title. . . . 19
Factual findings of the trial court, when affirmed by the Court of Appeals, are final,
conclusive and binding on this Court, 20 which is not a trier of facts, 21 hence, bereft of
function under Rule 45 to examine and weigh the probative value of the evidence
presented,22 its jurisdiction being limited only to the review and revision of errors of
law.23 Albeit there are exceptions 24 to this rule, the cases at bar do not fall thereunder,
there being no showing that the trial and appellate courts overlooked matters which, if
considered, would alter their outcome.
Under the Torrens System, an OCT enjoys a presumption of validity, which
correlatively carries a strong presumption that the provisions of the law governing the
registration of land which led to its issuance have been duly followed. 25 Fraud being a
serious charge, it must be supported by clear and convincing proof. 26 Petitioners failed
to discharge the burden of proof, however.
On the questioned interpretation and application by the appellate court of Article 1542
of the Civil Code reading In the sale of real estate, made for a lump sum and not at
the rate of a certain sum for a unit of measure or number, there shall be no increase
or decrease of the price, although there be a greater or less areas or number than that
stated in the contract.
The same rule shall be applied when two or more immovables are sold for a single
price; but if, besides mentioning the boundaries, which is indispensable in every

conveyance of real estate, its area or number should be designated in the contract,
the vendor shall be bound to deliver all that is included within said boundaries, even
when it exceeds the area or number specified in the contract; and, should he not be
able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in
the area or number, unless the contract is rescinded because the vendee does not
accede to the failure to deliver what has been stipulated. (Emphasis and underscoring
supplied),
while petitioners admittedly sold Lot No. 3591 to the Trinidad spouses, they contend
that what they sold were only 5,000 square meters and not 6,268 square meters, and
thus claim the excess of 1,268 square meters.
In sales involving real estate, the parties may choose between two types of pricing
agreement: a unit price contract wherein the purchase price is determined by way of
reference to a stated rate per unit area (e.g.,P1,000 per square meter), or a lump sum
contract which states a full purchase price for an immovable the area of which may be
declared based on an estimate or where both the area and boundaries are stated
(e.g., P1 million for 1,000 square meters, etc.). In Rudolf Lietz, Inc. v. Court of
Appeals,27 the Court discussed the distinction:
. . . In a unit price contract, the statement of area of immovable is not conclusive and
the price may be reduced or increased depending on the area actually delivered. If the
vendor delivers less than the area agreed upon, the vendee may oblige the vendor to
deliver all that may be stated in the contract or demand for the proportionate reduction
of the purchase price if delivery is not possible. If the vendor delivers more than the
area stated in the contract, the vendee has the option to accept only the amount
agreed upon or to accept the whole area, provided he pays for the additional area at
the contract rate. x x x x
In the case where the area of the immovable is stated in the contract based on an
estimate, the actual area delivered may not measure up exactly with the area stated in
the contract. According to Article 1542 of the Civil Code, in the sale of real estate,
made for a lump sum and not at the rate of a certain sum for a unit of measure or
number, there shall be no increase or decrease of the price, although there be a
greater or less areas or number than that stated in the contract. . . .x x x x
Where both the area and the boundaries of the immovable are declared, the area
covered within the boundaries of the immovable prevails over the stated area. In
cases of conflict between areas and boundaries, it is the latter which should
prevail. What really defines a piece of ground is not the area, calculated with more or
less certainty, mentioned in its description, but the boundaries therein laid down, as
enclosing the land and indicating its limits. In a contract of sale of land in a mass, it is
well established that the specific boundaries stated in the contract must control over
any statement with respect to the area contained within its boundaries. It is not of vital
consequence that a deed or contract of sale of land should disclose the area with
mathematical accuracy. It is sufficient if its extent is objectively indicated with sufficient
precision to enable one to identify it. An error as to the superficial area is immaterial.
Thus, the obligation of the vendor is to deliver everything within the boundaries,

40

inasmuch as it is the entirety thereof that distinguishes the determinate

object.28 (Emphasis and underscoring supplied)
The courts below correctly characterized the sale of Lot No. 3591 as one involving a
lump sum contract. TheBilihan ng Lupa shows that the parties agreed on the
purchase price of P1,000.00 on a predetermined, albeit unsurveyed, area of 5,000
square meters and not on a particular rate per unit area. As noted by the Court of
Appeals, the identity of the realty was sufficiently described as riceland:
It is clear from the afore-quoted Bilihan ng Lupa that what appellants sold to Eulalio
was the "bahaging palayan." Though measured as 5,000 square meters, more or less,
such measurement is only an approximation, and not an exact measurement.
Moreover, we take note of the fact that the said deed of sale mentioned the
boundaries covering the whole area of 33,489 square meters, including the "bahaging
palayan." Had appellants intended to sell only a portion of the "bahaging palayan,"
they could have stated the specific area in the deed of sale and not the entire
"bahaging palayan" . . . .29
In fine, under Article 1542, what is controlling is the entire land included within the
boundaries, regardless of whether the real area should be greater or smaller than that
recited in the deed. This is particularly true since the area of the land in OCT No. 06498 was described in the deed as "humigit kumulang," that is, more or less.30
A caveat is in order, however. The use of "more or less" or similar words in
designating quantity covers only a reasonable excess or deficiency. A vendee of land
sold in gross or with the description "more or less" with reference to its area does not
thereby ipso facto take all risk of quantity in the land.31
Numerical data are not of course the sole gauge of unreasonableness of the excess
or deficiency in area. Courts must consider a host of other factors. In one case, 32 the
Court found substantial discrepancy in area due to contemporaneous circumstances.
Citing change in the physical nature of the property, it was therein established that the
excess area at the southern portion was a product of reclamation, which explained
why the lands technical description in the deed of sale indicated the seashore as its
southern boundary, hence, the inclusion of the reclaimed area was declared
unreasonable.
In OCT No. 0-6498, the increase by a fourth of a fraction of the area indicated in the
deed of sale cannot be considered as an unreasonable excess. Most importantly, the
circumstances attendant to the inclusion of the excess area bare nothing atypical or
significant to hint at unreasonableness. It must be noted that the land was not yet
technically surveyed at the time of the sale. As vendors who themselves executed
the Bilihan ng Lupa, petitioners may rightly be presumed to have acquired a good
estimate of the value and area of the bahaging palayan.
As for the last assigned error, the appellate court, in finding that the complaints were
time-barred, noted that when the complaints were filed in 1994, more than 27 years
had elapsed from the issuance of OCT No. 0-3631 and more than 20 years from the
issuance of OCT No. 0-6498. The prescriptive period of one (1) year had thus set
in.1awphi1.nt

Petitioners reliance on Agne v. Director of Lands33 is misplaced since the cancellation

of title was predicated not on the ground of fraud but on want of jurisdiction. Even
assuming that petitioners actions are in the nature of a suit for quieting of title, which
is imprescriptible, the actions still necessarily fail since petitioners failed to establish
the existence of fraud.
A word on Republic Act No. 7160 34 which was raised by petitioners in their petition. It
expressly requires the parties to undergo a conciliation process under
the Katarungang Pambarangay, as a precondition to filing a complaint in court, 35 noncompliance with this condition precedent does not prevent a court of competent
jurisdiction from exercising its power of adjudication over a case unless the
defendants object thereto. The objection should be seasonably made before the court
first taking cognizance of the complaint, and must be raised in the Answer or in such
other pleading allowed under the Rules of Court. 36
While petitioners admittedly failed to comply with the requirement of barangay
conciliation, they assert that respondents waived such objection when they failed to
raise it in their Answer. Contrary to petitioners claim, however, the records reveal that
respondents raised their objection in their Amended Answers 37 filed in both cases.
IN FINE, it is a fundamental principle in land registration that a certificate of title
serves as evidence of an indefeasible and incontrovertible title to the property in favor
of the person whose name appears therein. Such indefeasibility commences after the
lapse or expiration of one year from the date of entry of the decree of registration
when all persons are considered to have a constructive notice of the title to the
property. After the lapse of one year, therefore, title to the property can no longer be
contested. This system was so effected in order to quiet title to land. 38
WHEREFORE, the petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals are AFFIRMED.Costs
against petitioners.SO ORDERED. Esguerra vs. Trinidad (518
SCRA 186) Unit Price Contract vs. LumpSum.In a unit price
contract, the statement of area of immovable is not
conclusive and the price may be reduced or increased
depending on the area actually delivered. If the vendor
delivers less than the area agreed upon, the vendee may
oblige the vendor to deliver all that may be stated in the
contract or demand for the proportionate reduction of the
purchase price if delivery is not possible. If the vendor
delivers more than the area stated in the contract, the
vendee has the option to accept only the amount agreed
upon or to accept the whole area, provided he pays for the
additional
area
at
the
contract
rate.
In the sale of real estate, made for a lump sum and not at the
rate of a certain sum for a unit of measure or number, there
shall be no increase or decrease of the price, although there
be a greater or less areas or number than that stated in the
contract.

41

In a contract of sale of land in a mass, it is well established

that the specific boundaries stated in the contract must
control over any statement with respect to the area contained
within its boundaries. It is not of vital consequence that a
deed or contract of sale of land should disclose the area with
mathematical accuracy. It is sufficient if its extent is
objectively indicated with sufficient precision to enable one to
identify it. An error as to the superficial area is immaterial.
Thus, the obligation of the vendor is to deliver everything
within the boundaries, inasmuch as it is the entirety thereof
that distinguishes the determinate object.
Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISION
G.R. No. 148225
March 3, 2010
CARMEN DEL PRADO, Petitioner, vs.
SPOUSES ANTONIO L. CABALLERO and LEONARDA CABALLERO, Respondents.
DECISION
NACHURA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals (CA) dated
September 26, 2000 and its resolution denying the motion for reconsideration thereof.
The facts are as follows:In a judgment rendered on February 1, 1985 in Cadastral Case
No. N-6 (LRC Rec. No. N-611), Judge Juan Y. Reyes of the Regional Trial Court (RTC) of
Cebu City, Branch 14, adjudicated in favor of Spouses Antonio L. Caballero and Leonarda
B. Caballero several parcels of land situated in Guba, Cebu City, one of which was
Cadastral Lot No. 11909, the subject of this controversy. 2 On May 21, 1987, Antonio
Caballero moved for the issuance of the final decree of registration for their
lots.3 Consequently, on May 25, 1987, the same court, through then Presiding Judge
Renato C. Dacudao, ordered the National Land Titles and Deeds Registration
Administration to issue the decree of registration and the corresponding titles of the lots in
favor of the Caballeros.4
On June 11, 1990, respondents sold to petitioner, Carmen del Prado, Lot No. 11909 on the
basis of the tax declaration covering the property. The pertinent portion of the deed of sale
reads as follows:
That we, Spouses ANTONIO L. CABALLERO and LEONARDA B. CABALLERO, Filipinos,
both of legal age and residents of Talamban, Cebu City, Philippines, for and in
consideration of the sum of FORTY THOUSAND PESOS (P40,000.00), Philippine
Currency, paid by CARMEN DEL PRADO, Filipino, of legal age, single and a resident of
Sikatuna St., Cebu City, Philippines, the receipt of which is full is hereby acknowledged,
do by these presents SELL, CEDE, TRANSFER, ASSIGN & CONVEY unto the said
CARMEN DEL PRADO, her heirs, assigns and/or successors-in-interest, one (1)
unregistered parcel of land, situated at Guba, Cebu City, Philippines, and more particularly
described and bounded, as follows:
"A parcel of land known as Cad. Lot No. 11909, bounded as follows:
North : Lot 11903East : Lot 11908West : Lot 11910South : Lot 11858 & 11912

containing an area of 4,000 square meters, more or less, covered by Tax Dec. No. 00787
of the Cebu City Assessors Office, Cebu City." of which parcel of land we are the absolute
and lawful owners.
Original Certificate of Title (OCT) No. 1305, covering Lot No. 11909, was issued only on
November 15, 1990, and entered in the "Registration Book" of the City of Cebu on
December 19, 1990.5 Therein, the technical description of Lot No. 11909 states that said
lot measures about 14,457 square meters, more or less. 6
On March 20, 1991, petitioner filed in the same cadastral proceedings a "Petition for
Registration of Document Under Presidential Decree (P.D.) 1529" 7 in order that a
certificate of title be issued in her name, covering the whole Lot No. 11909. In the petition,
petitioner alleged that the tenor of the instrument of sale indicated that the sale was for a
lump sum or cuerpo cierto, in which case, the vendor was bound to deliver all that was
included within said boundaries even when it exceeded the area specified in the contract.
Respondents opposed, on the main ground that only 4,000 sq m of Lot No. 11909 was
sold to petitioner. They claimed that the sale was not for a cuerpo cierto. They moved for
the outright dismissal of the petition on grounds of prescription and lack of jurisdiction.
After trial on the merits, the court found that petitioner had established a clear and positive
right to Lot No. 11909. The intended sale between the parties was for a lump sum, since
there was no evidence presented that the property was sold for a price per unit. It was
apparent that the subject matter of the sale was the parcel of land, known as Cadastral Lot
No. 11909, and not only a portion thereof.8
Thus, on August 2, 1993, the court a quo rendered its decision with the following
dispositive portion:
WHEREFORE, premises considered, the petition is hereby granted and judgment is
hereby rendered in favor of herein petitioner. The Register of Deeds of the City of Cebu is
hereby ordered and directed to effect the registration in his office of the Deed of Absolute
Sale between Spouses Antonio Caballero and Leonarda Caballero and Petitioner, Carmen
del Prado dated June 11, 1990 covering Lot No. 11909 after payment of all fees prescribed
by law. Additionally, the Register of Deeds of the City of Cebu is hereby ordered to cancel
Original Certificate No. 1305 in the name of Antonio Caballero and Leonarda Caballero
and the Transfer Certificate of Title be issued in the name of Petitioner Carmen del Prado
covering the entire parcel of land known as Cadastral Lot No. 11909. 9
An appeal was duly filed. On September 26, 2000, the CA promulgated the assailed
decision, reversing and setting aside the decision of the RTC.
The CA no longer touched on the character of the sale, because it found that petitioner
availed herself of an improper remedy. The "petition for registration of document" is not
one of the remedies provided under P.D. No. 1529, after the original registration has been
effected. Thus, the CA ruled that the lower court committed an error when it assumed
jurisdiction over the petition, which prayed for a remedy not sanctioned under the Property
Registration Decree. Accordingly, the CA disposed, as follows:
IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET
ASIDE and a new one entered dismissing the petition for lack of jurisdiction. No
pronouncement as to costs.10
Aggrieved, petitioner filed the instant petition, raising the following issues:
I. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE ERROR IN
MAKING FINDINGS OF FACT CONTRARY TO THAT OF THE TRIAL COURT[;]

42

II. WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE ERROR IN

FAILING TO RULE THAT THE SALE OF THE LOT IS FOR A LUMP SUM OR CUERPO
CIERTO[;]
III. WHETHER OR NOT THE COURT A QUO HAS JURISDICTION OVER THE
PETITION FOR REGISTRATION OF THE DEED OF ABSOLUTE SALE DATED 11 JUNE
1990 EXECUTED BETWEEN HEREIN PETITIONER AND RESPONDENTS[.]11
The core issue in this case is whether or not the sale of the land was for a lump sum or
not.
Petitioner asserts that the plain language of the Deed of Sale shows that it is a sale of a
real estate for a lump sum, governed under Article 1542 of the Civil Code. 12 In the
contract, it was stated that the land contains an area of 4,000 sq m more or less, bounded
on the North by Lot No. 11903, on the East by Lot No. 11908, on the South by Lot Nos.
11858 & 11912, and on the West by Lot No. 11910. When the OCT was issued, the area of
Lot No. 11909 was declared to be 14,475 sq m, with an excess of 10,475 sq m. In
accordance with Article 1542, respondents are, therefore, duty-bound to deliver the whole
area within the boundaries stated, without any corresponding increase in the price. Thus,
petitioner concludes that she is entitled to have the certificate of title, covering the whole
Lot No. 11909, which was originally issued in the names of respondents, transferred to her
name. We do not agree.
In Esguerra v. Trinidad,13 the Court had occasion to discuss the matter of sales involving
real estates. The Courts pronouncement is quite instructive:
In sales involving real estate, the parties may choose between two types of pricing
agreement: a unit price contract wherein the purchase price is determined by way of
reference to a stated rate per unit area (e.g., P1,000 per square meter), or a lump sum
contract which states a full purchase price for an immovable the area of which may be
declared based on the estimate or where both the area and boundaries are stated
(e.g., P1 million for 1,000 square meters, etc.). In Rudolf Lietz, Inc. v. Court of Appeals
(478 SCRA 451), the Court discussed the distinction:
"In a unit price contract, the statement of area of immovable is not conclusive and the
price may be reduced or increased depending on the area actually delivered. If the vendor
delivers less than the area agreed upon, the vendee may oblige the vendor to deliver all
that may be stated in the contract or demand for the proportionate reduction of the
purchase price if delivery is not possible. If the vendor delivers more than the area stated
in the contract, the vendee has the option to accept only the amount agreed upon or to
accept the whole area, provided he pays for the additional area at the contract rate.
x x x xIn the case where the area of an immovable is stated in the contract based on an
estimate, the actual area delivered may not measure up exactly with the area stated in the
contract. According to Article 1542 of the Civil Code, in the sale of real estate, made for a
lump sum and not at the rate of a certain sum for a unit of measure or number, there shall
be no increase or decrease of the price, although there be a greater or less areas or
number than that stated in the contract. . . .x x x x
Where both the area and the boundaries of the immovable are declared, the area covered
within the boundaries of the immovable prevails over the stated area. In cases of conflict
between areas and boundaries, it is the latter which should prevail. What really defines a
piece of ground is not the area, calculated with more or less certainty, mentioned in its
description, but the boundaries therein laid down, as enclosing the land and indicating its

limits. In a contract of sale of land in a mass, it is well established that the specific
boundaries stated in the contract must control over any statement with respect to the area
contained within its boundaries. It is not of vital consequence that a deed or contract of
sale of land should disclose the area with mathematical accuracy. It is sufficient if its extent
is objectively indicated with sufficient precision to enable one to identify it. An error as to
the superficial area is immaterial. Thus, the obligation of the vendor is to deliver everything
within the boundaries, inasmuch as it is the entirety thereof that distinguishes the
determinate object.14
The Court, however, clarified that the rule laid down in Article 1542 is not hard and fast
and admits of an exception. It held:
A caveat is in order, however. The use of "more or less" or similar words in designating
quantity covers only a reasonable excess or deficiency. A vendee of land sold in gross or
with the description "more or less" with reference to its area does not thereby ipso facto
take all risk of quantity in the land..
Numerical data are not of course the sole gauge of unreasonableness of the excess or
deficiency in area. Courts must consider a host of other factors. In one case (see Roble v.
Arbasa, 414 Phil. 343 [2001]), the Court found substantial discrepancy in area due to
contemporaneous circumstances. Citing change in the physical nature of the property, it
was therein established that the excess area at the southern portion was a product of
reclamation, which explained why the lands technical description in the deed of sale
indicated the seashore as its southern boundary, hence, the inclusion of the reclaimed
area was declared unreasonable.15
In the instant case, the deed of sale is not one of a unit price contract. The parties agreed
on the purchase price of P40,000.00 for a predetermined area of 4,000 sq m, more or
less, bounded on the North by Lot No. 11903, on the East by Lot No. 11908, on the South
by Lot Nos. 11858 & 11912, and on the West by Lot No. 11910. In a contract of sale of
land in a mass, the specific boundaries stated in the contract must control over any other
statement, with respect to the area contained within its boundaries. 16
Blacks Law Dictionary17 defines the phrase "more or less" to mean:
About; substantially; or approximately; implying that both parties assume the risk
of any ordinary discrepancy. The words are intended to cover slight or unimportant
inaccuracies in quantity, Carter v. Finch, 186 Ark. 954, 57 S.W.2d 408; and are
ordinarily to be interpreted as taking care of unsubstantial differences or
differences of small importance compared to the whole number of items
transferred.
Clearly, the discrepancy of 10,475 sq m cannot be considered a slight difference in
quantity. The difference in the area is obviously sizeable and too substantial to be
overlooked. It is not a reasonable excess or deficiency that should be deemed included in
the deed of sale.
We take exception to the avowed rule that this Court is not a trier of facts. After an
assiduous scrutiny of the records, we lend credence to respondents claim that they
intended to sell only 4,000 sq m of the whole Lot No. 11909, contrary to the findings of the
lower court. The records reveal that when the parties made an ocular inspection, petitioner
specifically pointed to that portion of the lot, which she preferred to purchase, since there
were mango trees planted and a deep well thereon. After the sale, respondents delivered

43

and segregated the area of 4,000 sq m in favor of petitioner by fencing off the area of
10,475 sq m belonging to them.18
Contracts are the law between the contracting parties. Sale, by its very nature, is a
consensual contract, because it is perfected by mere consent. The essential elements of a
contract of sale are the following: (a) consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price; (b) determinate subject matter; and (c) price
certain in money or its equivalent. All these elements are present in the instant case. 19
More importantly, we find no reversible error in the decision of the CA. Petitioners
recourse, by filing the petition for registration in the same cadastral case, was improper. It
is a fundamental principle in land registration that a certificate of title serves as evidence of
an indefeasible and incontrovertible title to the property in favor of the person whose name
appears therein. Such indefeasibility commences after one year from the date of entry of
the decree of registration.20 Inasmuch as the petition for registration of document did not
interrupt the running of the period to file the appropriate petition for review and considering
that the prescribed one-year period had long since expired, the decree of registration, as
well as the certificate of title issued in favor of respondents, had become incontrovertible. 21
WHEREFORE, the petition is DENIED.
SO ORDERED.

44

Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISION

G.R. No. 170405
February 2, 2010
RAYMUNDO S. DE LEON, Petitioner, vs.
BENITA T. ONG.1 Respondent.
DECISION
CORONA, J.:
On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land 2 with
improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties
were mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner
and respondent executed a notarized deed of absolute sale with assumption of
mortgage3 stating:
xxx
xxx
xxx
That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND
PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged
from
[RESPONDENT]
to
the
entire
satisfaction
of
[PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner
absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain
real estate together with the buildings and other improvements existing thereon, situated
in [Barrio] Mayamot, Antipolo, Rizal under the following terms and conditions:
1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN
THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of
assumption of mortgage in favor of [respondent] without any further cost whatsoever;
2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED
EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL SAVINGS
AND LOAN,4 Cainta, Rizal (emphasis supplied)x x x
xxx
xxx
Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner,
on the other hand, handed the keys to the properties and wrote a letter informing RSLAI of
the sale and authorizing it to accept payment from respondent and release the certificates
of title.
Thereafter, respondent undertook repairs and made improvements on the
properties.5 Respondent likewise informed RSLAI of her agreement with petitioner for her
to assume petitioners outstanding loan. RSLAI required her to undergo credit
investigation.
Subsequently, respondent learned that petitioner again sold the same properties to one
Leona Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her
useless. Respondent thus proceeded to RSLAI to inquire about the credit investigation.
However, she was informed that petitioner had already paid the amount due and had
taken back the certificates of title.
Respondent persistently contacted petitioner but her efforts proved futile.
On June 18, 1993, respondent filed a complaint for specific performance, declaration of
nullity of the second sale and damages 6 against petitioner and Viloria in the Regional Trial
Court (RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously
sold the properties to her on March 10, 1993, he no longer had the right to sell the same to
Viloria. Thus, petitioner fraudulently deprived her of the properties.
Petitioner, on the other hand, insisted that respondent did not have a cause of action
against him and consequently prayed for the dismissal of the complaint. He claimed that

since the transaction was subject to a condition (i.e., that RSLAI approve the assumption
of mortgage), they only entered into a contract to sell. Inasmuch as respondent did apply
for a loan from RSLAI, the condition did not arise. Consequently, the sale was not
perfected and he could freely dispose of the properties. Furthermore, he made a counterclaim for damages as respondent filed the complaint allegedly with gross and evident bad
faith.
Because respondent was a licensed real estate broker, the RTC concluded that she knew
that the validity of the sale was subject to a condition. The perfection of a contract of sale
depended on RSLAIs approval of the assumption of mortgage. Since RSLAI did not allow
respondent to assume petitioners obligation, the RTC held that the sale was never
perfected.
In a decision dated August 27, 1999, 7 the RTC dismissed the complaint for lack of cause
of action and ordered respondent to pay petitioner P100,000 moral damages, P20,000
attorneys fees and the cost of suit.
Aggrieved, respondent appealed to the Court of Appeals (CA), 8 asserting that the court a
quo erred in dismissing the complaint.
The CA found that the March 10, 2003 contract executed by the parties did not impose
any condition on the sale and held that the parties entered into a contract of sale.
Consequently, because petitioner no longer owned the properties when he sold them to
Viloria, it declared the second sale void. Moreover, it found petitioner liable for moral and
exemplary damages for fraudulently depriving respondent of the properties.
In a decision dated July 22, 2005, 9 the CA upheld the sale to respondent and nullified the
sale to Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the
amount he paid to RSLAI). Petitioner, on the other hand, was ordered to deliver the
certificates of titles to respondent and pay her P50,000 moral damages and P15,000
exemplary damages.
Petitioner moved for reconsideration but it was denied in a resolution dated November 11,
2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a
contract of sale or a contract to sell.
Petitioner insists that he entered into a contract to sell since the validity of the transaction
was subject to a suspensive condition, that is, the approval by RSLAI of respondents
assumption of mortgage. Because RSLAI did not allow respondent to assume his
(petitioners) obligation, the condition never materialized. Consequently, there was no sale.
Respondent, on the other hand, asserts that they entered into a contract of sale as
petitioner already conveyed full ownership of the subject properties upon the execution of
the deed.
We modify the decision of the CA.
Contract of Sale or Contract to Sell?
The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC
ruled that it was a contract to sell while the CA held that it was a contract of sale.
In a contract of sale, the seller conveys ownership of the property to the buyer upon the
perfection of the contract. Should the buyer default in the payment of the purchase price,
the seller may either sue for the collection thereof or have the contract judicially resolved
and set aside. The non-payment of the price is therefore a negative resolutory condition. 12
On the other hand, a contract to sell is subject to a positive suspensive condition. The
buyer does not acquire ownership of the property until he fully pays the purchase price.

45

For this reason, if the buyer defaults in the payment thereof, the seller can only sue for
damages.13
The deed executed by the parties (as previously quoted) stated that petitioner sold the
properties to respondent "in a manner absolute and irrevocable" for a sum of P1.1
million.14 With regard to the manner of payment, it required respondent to pay P415,500 in
cash to petitioner upon the execution of the deed, with the balance 15payable directly to
RSLAI (on behalf of petitioner) within a reasonable time. 16 Nothing in said instrument
implied that petitioner reserved ownership of the properties until the full payment of the
purchase price.17 On the contrary, the terms and conditions of the deed only affected the
manner of payment, not the immediate transfer of ownership (upon the execution of the
notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the
said terms and conditions pertained to the performance of the contract, not the perfection
thereof nor the transfer of ownership.
Settled is the rule that the seller is obliged to transfer title over the properties and deliver
the same to the buyer.18In this regard, Article 1498 of the Civil Code 19 provides that, as a
rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold.
In this instance, petitioner executed a notarized deed of absolute sale in favor of
respondent. Moreover, not only did petitioner turn over the keys to the properties to
respondent, he also authorized RSLAI to receive payment from respondent and release
his certificates of title to her. The totality of petitioners acts clearly indicates that he had
unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly,
it was a contract of sale the parties entered into.
Furthermore, even assuming arguendo that the agreement of the parties was subject to
the condition that RSLAI had to approve the assumption of mortgage, the said condition
was considered fulfilled as petitioner prevented its fulfillment by paying his outstanding
obligation and taking back the certificates of title without even notifying respondent. In this
connection, Article 1186 of the Civil Code provides:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment.
Void Sale Or Double Sale?
Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on
two separate occasions.20 However, the second sale was not void for the sole reason that
petitioner had previously sold the same properties to respondent. On this account, the CA
erred.
This case involves a double sale as the disputed properties were sold validly on two
separate occasions by the same seller to the two different buyers in good faith.
Article 1544 of the Civil Code provides:Article 1544. If the same thing should have been
sold to different vendees, the ownership shall be transferred to the person who may have
first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith. (emphasis supplied)
This provision clearly states that the rules on double or multiple sales apply only to
purchasers in good faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some
other person has a right to, or an interest in, such property and pays a full and fair price for
the same at the time of such purchase, or before he has notice of some other persons
claim or interest in the property. 21 The law requires, on the part of the buyer, lack of notice
of a defect in the title of the seller and payment in full of the fair price at the time of the
sale or prior to having notice of any defect in the sellers title.
Was respondent a purchaser in good faith? Yes.
Respondent purchased the properties, knowing they were encumbered only by the
mortgage to RSLAI. According to her agreement with petitioner, respondent had the
obligation to assume the balance of petitioners outstanding obligation to RSLAI.
Consequently, respondent informed RSLAI of the sale and of her assumption of
petitioners obligation. However, because petitioner surreptitiously paid his outstanding
obligation and took back her certificates of title, petitioner himself rendered respondents
obligation to assume petitioners indebtedness to RSLAI impossible to perform.
Article 1266 of the Civil Code provides:
Article 1266. The debtor in obligations to do shall be released when the prestation become
legally or physically impossible without the fault of the obligor.
Since respondents obligation to assume petitioners outstanding balance with RSLAI
became impossible without her fault, she was released from the said obligation. Moreover,
because petitioner himself willfully prevented the condition vis--vis the payment of the
remainder of the purchase price, the said condition is considered fulfilled pursuant to
Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent
was a purchaser in good faith, she is deemed to have fully complied with the condition of
the payment of the remainder of the purchase price.
Respondent was not aware of any interest in or a claim on the properties other than the
mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the
properties from petitioner after the latter sold them to respondent. Respondent was
therefore a purchaser in good faith. Hence, the rules on double sale are applicable.
Article 1544 of the Civil Code provides that when neither buyer registered the sale of the
properties with the registrar of deeds, the one who took prior possession of the properties
shall be the lawful owner thereof.
In this instance, petitioner delivered the properties to respondent when he executed the
notarized deed22 and handed over to respondent the keys to the properties. For this
reason, respondent took actual possession and exercised control thereof by making
repairs and improvements thereon. Clearly, the sale was perfected and consummated on
March 10, 1993. Thus, respondent became the lawful owner of the properties.
Nonetheless, while the condition as to the payment of the balance of the purchase price
was deemed fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be
unjustly enriched at the expense of petitioner.
Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This
is because the provisions, terms and conditions of the contract constitute the law between
the parties. Moreover, the deed itself provided that the assumption of mortgage "was
without any further cost whatsoever." Petitioner, on the other hand, must deliver the
certificates of title to respondent. We likewise affirm the award of damages.
WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court
of Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar

46

as respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500

representing the balance of the purchase price as provided in their March 10, 1993
agreement.
Costs against petitioner.
SO ORDERED.

47

Republic of the PhilippinesSUPREME

COURTManilaSECOND DIVISION
G.R. No. 132281
September 15, 2006
ROLENDO T. DELFIN, petitioner, vs.
JOSEFINA L. VALDEZ and JOSE V. LAGON, respondents.
DECISION
GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner
Rolendo T. Delfin seeks the annulment and setting aside of the Decision 1 dated December
16, 1997 of the Court of Appeals (CA), as reiterated in its Resolution of January 26,
1998,2 in CA G.R. CV No. 48751, affirming en toto an earlier decision of the Regional Trial
Court (RTC) of Sultan Kudarat, Branch 19, in an action to quiet title thereat commenced
by the petitioner against the herein respondents, Josefina L. Valdez and Jose V. Lagon.

16436

3-A

2,586 sq. meters

16437

3-B

2,802 sq. meters

16438

3-C

2,534 sq. meters

16439

3-D

3,198 sq. meters

16440

3-E

3,359 sq. meters

16441

3-F

2,952 sq. meters

16442

3-G

3,650 sq. meters

16443

3-H

3,644 sq. meters

The material facts are undisputed:

The spouses Carlos Valdez, Sr. and Josefina de Leon-Valdez (Josefina,

hereafter), were the owners of a parcel of land with an area of 24,725 square
meters located in the commercial district of Isulan, Sultan Kudarat. The property
was designated as Lot No. 3 of Pls-208-D-13 and covered by Transfer Certificate
of Title (TCT) No. T-19529 (T-1902) issued on August 18, 1967. Carlos Valdez, Sr.
died intestate on March 26, 1966, survived by his widow, Josefina, and their
children, among whom is Carlos Valdez, Jr., a practicing lawyer.
On December 28, 1978, Josefina caused the subdivision of Lot No. 3 into eight (8)
lots, namely, Lots Nos. 3-A to 3-H, all fronting the national road. To enhance the
value of the property, she decided to sell a 4,094-square meter portion thereof,
more particularly Lot No. 3-C and a portion of Lot No. 3-D to her co-respondent
herein, Jose V. Lagon (Lagon, for short), a successful businessman in Sultan
Kudarat who owned a construction firm and other business enterprises: the Lagon
Enterprises and the Rural Bank of Isulan. He was also one of the clients of
Josefina's son, Carlos Valdez, Jr.
Hence, on May 9, 1979, Josefina, through her attorney-in-fact, Carlos Valdez, Jr.,
and Lagon entered into a contract of sale involving the aforementioned 4,094square meter portion of what used to be Lot No. 3. No transfer certificate of title
could as yet be issued to Lagon because at the time of the sale, the intestate
estate of the late Carlos Valdez, Sr. had still to be settled and partitioned.
On October 9, 1981, TCT No. T-19529, formerly covering Lot No. 3 was cancelled
and superseded by eight (8) titles corresponding to the eight (8) resulting
subdivision lots and bearing the following particulars:
TCT No.

Lot No.

Area

All the foregoing subdivision titles were under the name of

"Josefina L. Valdez, married to Carlos Valdez, Sr."
Later, Josefina further caused the subdivision of Lot No. 3-D covered by TCT No.
16439, resulting in the existence of Lot No. 3-D-1, containing an area of 1,551 square
meters. Lot No. 3-D-1 is the property involved in this case.
On June 4, 1987, Josefina sold Lot No. 3-D-1 to the herein petitioner, Rolendo T.
Delfin (Delfin, for brevity). Delfin registered the sale on June 16, 1987 and obtained
TCT No. 20380 therefor in his name.
It turned out that the area comprising the entirety of Lot No. 3-D-1 (1,551 square
meters) which used to be a portion of Lot No. 3-D was already included in the earlier
sale of May 9, 1979 between Josefina and Lagon over the 4,094-square meter portion
of the mother lot, Lot No. 3.
On September 24, 1990, upon learning that a portion of the property already sold to
him was subsequently sold by Josefina to Delfin, Lagon filed in the RTC of Sultan
Kudarat a complaint for specific performance with damages against Josefina and her

48

attorney-in-fact, Atty. Carlos Valdez, Jr. Lagon's complaint was docketed as Civil Case
No. 778, which eventually reached this Court in G.R. No. 140715, entitled Josefina L.
Valdez and Carlos L. Valdez, Jr. v. Court of Appeals and Jose Lagon ,3 a petition for
review interposed by Josefina and Carlos Valdez, Jr. against an amended decision of
the CA in the aforesaid civil case.
For his part, upon knowing of Civil Case No. 778, Delfin instituted in the same court
an action to quiet title against Josefina and Lagon, docketed as Civil Case No. 779,
now the subject of the present petition.
On January 20, 1995, the RTC of Sultan Kudarat, Branch 90, upon its finding that
Delfin, albeit a prior registrant, was a purchaser in bad faith because he allegedly
knew the prior sale between Josefin and Lagon, came out with its decision in Civil
Case No. 779, dismissing Delfin's complaint for quieting of title and rendering
judgment for Lagon, to wit:
WHEREFORE, upon all the foregoing considerations, judgment is hereby rendered,
dismissing [Delfin's] complaint.
In [Lagon's] counterclaim, judgment is hereby rendered:
(a) declaring [Delfin] a purchaser in bad faith, all consequently, a possessor in bad
faith of Lot No. 3-D-1 xxx;
(b) declaring [Lagon] to have a superior right to the land in question, identified as Lot
No. 3-D-1 xxx, the same being a portion of or is included in the parcel of land priorly
purchased by said [Lagon];
(c) declaring the Deed of Absolute Sale xxx dated June 4, 1987, executed by xxx
Josefina xxx in favor of xxx Delfin, covering Lot No. 3-D-1 xxx together with its
corresponding Transfer Certificate of Title No. T-20380 issued in the name [Delfin],
null and void;
(d) directing the Register of Deeds of Sultan Kudarat to cancel Transfer
Certificate of Title No. T-20380 in favor of [Delfin], covering the disputed lot xxx, and to
issue a new TRANSFER CERTIFICATE OF TITLE in favor of [Lagon] covering said
Lot No. 3-D-1 xxx;
(e) ordering [Delfin], and those acting for and in his behalf to vacate Lot No. 3-D-1 xxx
and surrender possession thereof to [Lagon]: [Delfin] may remove his aforementioned
improvement from the said lot within TWO (2) MONTHS from the finality of this
JUDGMENT, unless [Lagon] elects to acquire the same and pay [Delfin] the amount of
TEN (10) THOUSAND PESOS within TWO (2) MONTHS from finality of this
JUDGMENT. Should [Lagon] fail to pay the said amount within the said period of TWO
(2) MONTHS from the finality of this Judgment, the period of Two (2) Months within
which [Delfin] may remove his aforesaid useful improvement, consisting of a building
housing the IVY PHARMACY and the Medical Specialist Center shall commence from
the expiration of the TWO (2) MONTHS given [Lagon] to pay for the said useful
improvement;
(f) ordering [Delfin] to pay [Lagon] the sums of:
1. P50,000.00 by way of moral and exemplary damages;
2. P50,000.00 by way of attorney's fees;
3. P30,000.00 by way of litigation expenses;

4. P43,191.50 representing the actual airplane transportation expenses incurred by

[Lagon's] lawyer's attendance during the trial of the xxx case; and further ordering
[Delfin] to pay the costs of suit.
IT IS SO ORDERED.4 (Words in brackets added.)
From the above decision of the RTC, Delfin immediately went on appeal to the CA
whereat his appellate recourse was docketed as CA-G.R. CV No. 48751.
As stated at the outset hereof, the CA, in its challenged Decision 5 dated December
16, 1987, affirmed en toto that of the trial court. With his motion for reconsideration
having been denied by the CA in its affirmatory Resolution of January 26, 1998, Delfin
is now with this Court via the present petition, claiming that the appellate court erred 1. when it ruled that petitioner was a buyer in bad faith proceeding from evidence
which are unsubstantiated, hearsay or mere conjectures;
2. when it failed to rule the issue involving [respondent] Josefina L. Valdez, which was
timely raised by petitioner in his appeal brief but effectively brushed aside by
affirmance in toto of the lower court's decision;
3. when it did not leave the parties where they are under the doctrine of pari delicto,
which was timely raised as a question of law in his appeal brief;
4. in awarding by way of reconveyance to respondent Lagon the subject property not
originally pleaded in his counterclaim; and
5. in affirming the award of damages not supported by substantial evidence.
We GRANT the petition, but upon a different ground.
From the very opening statement of the appellate court in the decision under review, it
is obvious that said court, along with the court below it, resolved the controversy on
the premise that there exists a case of double sale. On that premise, the CA and the
trial court applied to this case the provisions of Article 1544 of the Civil Code, which
reads:
ART. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
To the two (2) courts below, the two (2) sales of the lot in question Lot No. 3-D-1
are: (1) the sale entered into on May 9, 1979 between Josefina, through her attorneyin-fact, Atty. Carlos Valdez, Jr., in favor of Lagon over the 4,094-square meter portion
of the former Lot No. 3 which portion covered the entire area of Lot No. 3-D-1,
referred to herein as the first sale; and (2) the sale of Lot No. 3-D-1 entered into

49

between Josefina and Delfin on June 4, 1987, hereinafter referred to as the second
sale.
While on the surface, there is apparently a situation of double sale, in truth and in law,
there is only one: the sale of Lot No. 3-D-1 by Josefina to the petitioner on June 4,
1987. Hence, Article 1544 of the Civil Code finds no application in this case.
The application of Article 1544 of the Civil Code presupposes the existence of two (2)
valid and binding contracts of sale, which, under legal contemplation, is made
possible by the operation of the Torrens System whereunder registration is the
operative act which transfers title or ownership of a titled property, such that before
the first buyer registers his sale to consolidate ownership and title in his favor, the
seller who retains the title and ownership in the meantime can validly transfer such
title and ownership by way of a second sale to another buyer, who, in case he
succeeds in registering said second sale before he acquired notice of the first sale,
can defeat the rights of the first buyer under Article 1544 of the Civil Code.
With our decision6 in Josefina L. Valdez and Carlos L. Valdez, Jr. v. Court of
Appeals and Jose Lagon,7decided on September 24, 2004 and involving, among
others, Lot No. 3-D-1, the factual landscape of this case has completely changed.
We quote the Court's pertinent ruling in the aforesaid case of Valdez:
The respondent [Lagon] admitted in his complaint that he undertook to construct the
said building and transfer the Rural Bank of Isulan to the property he had purchased
from xxx Josefina. The respondent [Lagon] affirmed the authenticity and due
execution of his affidavit and his obligations therein, and testified, thus:
ATTY. VALDEZ:Q
Mr. Lagon, you testified that according to you the construction of
the same, the PCIB Isulan was a compliance of your obligation under your contract
with the Valdezes, do you recall having testified on that?A
Yes, Sir.
Q
With in (sic) how many years, by the say (sic), were you supposed to comply
with that condition by putting up a bank or a commercial building in that area?
A
Supposed to be five years, Sir.
Q
From when?
A
According to the affidavit, from the time I purchased the property up to or from
May 9, 1979 to 1984, Sir.
xxx
xxx
xxx
In his letter to xxx Carlos, Jr., [Lagon], through counsel, admitted the binding effect of
his affidavit as follows:
It is hereby submitted therefore that there is in effect substantial compliance on the
part of Mr. Lagon with regards to the additional condition laid down in his affidavit
herein-referred to. If you deem it that Mr. Lagon has not satisfactorily complied with all
the obligations you imposed upon him to do thereunder, it is made to reasons not of
his own making but due to factors brought about by circumstances then prevailing,
and elaboration on the same can only be properly stated on the proper time to come.
Far from being a mere affidavit, the document embodies the unequivocal undertaking
of [Lagon] to construct a fully operational commercial building and to transfer the
Rural Bank of Isulan to the subject property as part of the consideration of the sale
within five (5) years from the execution of the deed of sale, or until May 9, 1984.

The intractable refusal of [Lagon] to pay the balance of the purchase price of the
property despite the petitioners' (i.e., Josefina and Carlos Valdez, Jr.) demands had
no legal basis. As such, xxx Josefina's refusal to deliver the torrens title over the
subject property under xxx [Lagon's] name was justified, precisely because of xxx
[Lagon's] refusal to comply with his obligation to pay the balance of the purchase
price. Had xxx [Lagon] paid the purchase price of the property, such failure on the part
of xxx Josefina to deliver the torrens title to and under the name of [Lagon] would
have warranted the suspension of the five-year period agreed upon for the
construction of a fully operational commercial building, as well as the transfer of the
aforesaid bank to the property. This is so because absent such torrens title under the
name of xxx [Lagon], no building permit for the construction of the buildings could be
secured.
Considering all the foregoing, the failure of xxx [Lagon] to cause the construction of
the commercial building and the transfer of the bank to the property sold under the
deed of sale executed between him and xxx Josefina was due to xxx [Lagon's] own
fault.
There was no need for xxx Josefina to make a notarized demand to xxx [Lagon] or file
an action to rescind the deed of absolute sale to enable her to recover the ownership
of the property. This is so because xxx Josefina and xxx [Lagon] had agreed that upon
[his] failure to construct a new and fully operational commercial building and to cause
the transfer of the Rural Bank of Isulan to the property on or before May 9, 1984, the
deed of absolute sale would be deemed null and void without need of any demand
from xxx [Josefina and Atty. Calos Valdes, Jr. Such agreement is evidenced by the
affidavit executed by xxx [Lagon] himself on April 27, 1981.
We do not agree with xxx [Lagon's] contentions that xxx Josefina through her son and
attorney-in-fact xxx Carlos, Jr., had agreed to the sale of a portion of the property, the
construction of the PCIB branch office thereon, and the crediting of the amount paid
by the PCIB to xxx [Lagon's] account, and deducted from the balance of the purchase
price. In the first place, xxx [Lagon] failed to adduce a morsel of evidence that xxx
Josefina had knowledge of the said agreement and had agreed thereto. Furthermore,
xxx [Lagon] failed to adduce documentary evidence that xxx Josefina authorized her
son and attorney-in-fact to enter into such an agreement.
It bears stressing that xxx [Josefina] specifically and unequivocally required in the
special power of attorney, as part of the consideration of the sale of the property to
xxx [Lagon], the latter's obligation to construct a new and fully operational commercial
building and transfer the Rural Bank of Isulan to the property. Had she agreed to
modify the Special Power of Attorney she executed in favor of her son, xxx Carlos, Jr.,
for sure, she would have executed a document to that effect. She did not do so. xxx
Carlos, Jr. could not lawfully bind xxx Josefina thereon because he was not so
authorized to enter into such an agreement with xxx [Lagon]; neither can such
authority be implied from the Special Power of Attorney xxx Josefina executed in favor
of her son, xxx Carlos, Jr.
In sum, then, xxx [Lagon] had no cause for specific performance against xxx [Josefina
and Carlos Valdez, Jr.] However, xxx [Josefina and Carlos Valdez, Jr.] are obliged to

50

refund to xxx [Lagon] the latter's partial payments for the subject property. (Words in
brackets and parenthesis added; Emphasis supplied)
Clear it is from the above that on account of Lagon's failure to comply with the terms
and conditions of the so-called first sale, this Court deemed that sale "null and void"
without need of any demand from Josefina and her son Carlos Valdez, Jr. for Lagon to
comply with the agreed terms and conditions attendant to that so-called first sale.
With the reality that this Court in Valdez deemed the so-called first sale as null and
void by reason of Lagon's breach of the express terms and conditions relative thereto
before the second sale was entered into by and between Josefina and Delfin, the
provisions of Article 1544 of the Civil Code on double sales do not apply. Josefina
had full and complete ownership over the subject lot (Lot No. 3-D-1) at the time of
the second sale, the obligation to return to Lagon the sum of money originally
received by her from the latter notwithstanding. This title and ownership of Lot No. 3D-1 was effectively transferred from Josefina to Delfin with the issuance of a clean
new transfer certificate of title in the name of Delfin upon the registration of the second
sale.
Finding the inapplicability of Article 1544 of the Civil Code to the present case, we see
no need to address the legal issues raised in this petition for having become moot and
academic.
WHEREFORE, the instant petition is GRANTED and the assailed CA Decision and
Resolution are herebyANNULLED and SET ASIDE and a new one entered quieting
the title of petitioner Rolendo T. Delfin over Lot No. 3-D-1, now covered by TCT No.
20380 in his name, and DISMISSING all counterclaims in Civil Case No. 779.
Costs against respondent Jose V. Lagon.
SO ORDERED.

51

SECOND DIVISION
KINGS PROPERTIES
CORPORATION,
Petitioner,
- versus CANUTO A. GALIDO,
Respondent.

G.R. No. 170023

Present:
CARPIO, J., Chairperson,
LEONARDO-DE CASTRO,*
BRION,
DEL CASTILLO, and
ABAD, JJ.
Promulgated:
November 27, 2009

x ---------------------------------------------------x
DECISION
CARPIO, J.:

conveyed after five (5) years and before twenty-five (25) years next following the
issuance of title, without the approval of the Secretary of Agriculture and Natural
Resources; that it shall not be incumbered, alienated, or transferred to any person,
corporation, association, or partnership not qualified to acquire public lands under the
said Act and its amendments; x x x [6]
On 10 September 1973, a deed of sale covering the Antipolo property was
executed between Rufina Eniceo and Maria Eniceo as vendors and respondent as
vendee. Rufina Eniceo and Maria Eniceo sold the Antipolo property to respondent
for P250,000.[7] A certain Carmen Aldana delivered the owners duplicate copy of
OCT No. 535 to respondent.[8]
Petitioner alleges that when Maria Eniceo died in June 1975, Rufina Eniceo and
the heirs of Maria Eniceo (Eniceo heirs), [9] who continued to occupy the Antipolo
property as owners, thought that the owners duplicate copy of OCT No. 535 was lost.
[10]

The Case
Kings Properties Corporation (petitioner) filed this Petition for Review on
Certiorari[1] assailing the Court of Appeals Decision [2] dated 20 December 2004 in CAG.R. CV No. 68828 as well as the Resolution [3] dated 10 October 2005 denying the
Motion for Reconsideration. In the assailed decision, the Court of Appeals reversed
the Regional Trial Courts Decision [4] dated 4 July 2000. This case involves an action
for cancellation of certificates of title, registration of deed of sale and issuance of
certificates of title filed by Canuto A. Galido (respondent) before Branch 71 of the
Regional Trial Court of Antipolo City (trial court).
The Facts
On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina Eniceo and Maria
Eniceo, were awarded with Homestead Patent No. 112947 consisting of four parcels
of land located in San Isidro, Antipolo, Rizal (Antipolo property) and particularly
described as follows:
1.
Lot No. 1 containing an area of 96,297 square meters;
Lot No. 3 containing an area of 25,170 square meters;
Lot No. 4 containing an area of 26,812 square meters; and
Lot No. 5 containing an area of 603 square meters.
The Antipolo property with a total area of 14.8882 hectares was registered under
Original Certificate of Title (OCT) No. 535. [5] The issuance of the homestead patent
was subject to the following conditions:
To have and to hold the said tract of land, with the appurtenances thereunto of right
belonging unto the said Heirs of Domingo Eniceo and to his heir or heirs and assigns
forever, subject to the provisions of sections 118, 121, 122 and 124 of Commonwealth
Act No. 141, as amended, which provide that except in favor of the Government or
any of its branches, units or institutions, the land hereby acquired shall be inalienable
and shall not be subject to incumbrance for a period of five (5) years next following the
date of this patent, and shall not be liable for the satisfaction of any debt contracted
prior to the expiration of that period; that it shall not be alienated, transferred or

On 5 April 1988, the Eniceo heirs registered with the Registry of Deeds of
Marikina City (Registry of Deeds) a Notice of Loss dated 2 April 1988 of the owners
copy of OCT No. 535. The Eniceo heirs also filed a petition for the issuance of a new
owners duplicate copy of OCT No. 535 with Branch 72 of the Regional Trial Court
(RTC) of Antipolo, Rizal. The case was docketed as LRC Case No. 584-A. [11]
On 31 January 1989, the RTC rendered a decision finding that the certified true
copy of OCT No. 535 contained no annotation in favor of any person, corporation or
entity. The RTC ordered the Registry of Deeds to issue a second owners copy of
OCT No. 535 in favor of the Eniceo heirs and declared the original owners copy of
OCT NO. 535 cancelled and considered of no further value. [12]
On 6 April 1989, the Registry of Deeds issued a second owners copy of OCT
No. 535 in favor of the Eniceo heirs.[13]
Petitioner states that as early as 1991, respondent knew of the RTC decision in
LRC Case No. 584-A because respondent filed a criminal case against Rufina Eniceo
and Leonila Bolinas (Bolinas) for giving false testimony upon a material fact during the
trial of LRC Case No. 584-A.[14]
Petitioner alleges that sometime in February 1995, Bolinas came to the office of
Alberto Tronio Jr. (Tronio), petitioners general manager, and offered to sell the
Antipolo property. During an on-site inspection, Tronio saw a house and ascertained
that the occupants were Bolinas relatives. Tronio also went to the Registry of Deeds
to verify the records on file. Tronio ascertained that OCT No. 535 was clean and had
no lien and encumbrances. After the necessary verification, petitioner decided to buy
the Antipolo property.[15]
On 14 March 1995, respondent caused the annotation of his adverse claim in
OCT No. 535.[16]
On 20 March 1995, the Eniceo heirs executed a deed of absolute sale in favor
of petitioner covering lots 3 and 4 of the Antipolo property for P500,000.[17]
On the same date, Transfer Certificate of Title (TCT) Nos. 277747 and 277120
were issued. TCT No. 277747 covering lots 1 and 5 of the Antipolo property was
registered in the names of Rufina Eniceo, Ambrosio Eniceo, Rodolfo Calove,

52

Fernando Calove and Leonila Calove Bolinas. [18] TCT No. 277120 covering lots 3
and 4 of the Antipolo property was registered in the name of petitioner. [19]
On 5 April 1995, the Eniceo heirs executed another deed of sale in favor of
petitioner covering lots 1 and 5 of the Antipolo property for P1,000,000. TCT No.
278588 was issued in the name of petitioner and TCT No. 277120 was cancelled. [20]
On 17 August 1995, the Secretary of the Department of Environment and
Natural Resources (DENR Secretary) approved the deed of sale between the Eniceo
heirs and respondent.[21]
On 16 January 1996, respondent filed a civil complaint with the trial court
against the Eniceo heirs and petitioner. Respondent prayed for the cancellation of the
certificates of title issued in favor of petitioner, and the registration of the deed of sale
and issuance of a new transfer certificate of title in favor of respondent. [22]
On 4 July 2000, the trial court rendered its decision dismissing the case for lack
of legal and factual basis.[23]
Respondent appealed to the Court of Appeals (CA). On 20 December 2004, the
CA rendered a decision reversing the trial courts decision. [24] Respondent filed a
motion for reconsideration, which the CA denied in its Resolution dated 10 October
2005.
Aggrieved by the CAs decision and resolution, petitioner elevated the case
before this Court.
The Ruling of the Trial Court
The trial court stated that although respondent claims that the Eniceo heirs sold
to him the Antipolo property, respondent did not testify in court as to the existence,
validity and genuineness of the purported deed of sale and his possession of the
duplicate owners copy of OCT No. 535. The trial court stated that as owner of a
property consisting of hectares of land, respondent should have come to court to
substantiate his claim and show that the allegations of the Eniceo heirs and petitioner
are mere fabrications.[25]
The trial court noticed that respondent did not register the deed of sale with the
Register of Deeds immediately after its alleged execution on 10 September 1973.
Further, respondent waited for 22 long years before he had the sale approved by the
DENR Secretary. The trial court declared that respondent slept on his rights. The trial
court concluded that respondents failure to register the sale and secure the
cancellation of OCT No. 535 militates against his claim of ownership. The trial court
believed that respondent has not established the preponderance of evidence
necessary to justify the relief prayed for in his complaint. [26]
The trial court stated that Bolinas was able to prove that the Eniceo heirs have
remained in actual possession of the land. The filing of a petition for the issuance of a
new owners duplicate copy requires the posting of the petition in three different
places which serves as a notice to the whole world. Respondents failure to oppose
this petition can be deemed as a waiver of his right, which is fatal to his cause. [27]
The trial court noted that petitioner is a buyer in good faith and for value
because petitioner has exercised due diligence in inspecting the property and
verifying the title with the Register of Deeds.[28]

The trial court held that even if the court were to believe that the deed of sale in
favor of respondent were genuine, still it could not be considered a legitimate
disposition of property, but merely an equitable mortgage. The trial court stated that
respondent never obtained possession of the Antipolo property at any given time and
a buyer who does not take possession of a property sold to him is presumed to be a
mortgagee only and not a vendee.[29]
The Ruling of the Court of Appeals
The CA ruled that the deed of sale in favor of respondent, being a notarized
document, has in its favor the presumption of regularity and carries the evidentiary
weight conferred upon it with respect to its due execution. The CA added that whoever
asserts forgery has the burden of proving it by clear, positive and convincing evidence
because forgery can never be presumed. The CA found that petitioner and the Eniceo
heirs have not substantiated the allegation of forgery. [30]
The CA pointed out that laches has not set in. One of the requisites of laches,
which is injury or prejudice to the defendant in the event relief is accorded to the
complainant or the suit is not held to be barred, is wanting in the instant case. The CA
added that unrecorded sales of land brought under the Torrens system are valid
between parties because registration of the instrument is merely intended to bind third
persons.[31]
The CA declared that petitioners contention regarding the validity of the
questioned deed on the ground that it was executed without the approval of the DENR
Secretary is untenable. The DENR Secretary approved the deed of sale on 17 August
1995. However, even supposing that the sale was not approved, the requirement for
the DENR Secretarys approval is merely directory and its absence does not
invalidate any alienation, transfer or conveyance of the homestead after 5 years and
before 25 years from the issuance of the title which can be complied with at any time
in the future.[32]
The CA ruled that petitioner is a buyer in bad faith because it purchased the
disputed properties from the Eniceo heirs after respondent had caused the inscription
on OCT No. 535 of an adverse claim. Registration of the adverse claim serves as a
constructive notice to the whole world. Petitioner cannot feign ignorance of facts which
should have put it on guard and then claim that it acted under the honest belief that
there was no defect in the title of the vendors. Knowing that an adverse claim was
annotated in the certificates of title of the Eniceo heirs, petitioner was forewarned that
someone is claiming an interest in the disputed properties. [33]
The CA found no merit in petitioners contention that the questioned deed of sale
is an equitable mortgage. The CA stated that for the presumption of an equitable
mortgage to arise, one must first satisfy the requirement that the parties entered into a
contract denominated as a contract of sale and that their intention was to secure an
existing debt by way of mortgage.[34]
The CA stated that the execution of the notarized deed of sale, even without
actual delivery of the disputed properties, transferred ownership from the Eniceo heirs
to respondent. The CA held that respondents possession of the owners duplicate

53

copy of OCT No. 535 bolsters the contention that the Eniceo heirs sold the disputed
properties to him by virtue of the questioned deed. [35]
The CA reversed the trial courts decision. The dispositive portion of the CA
decision reads:
WHEREFORE, the appealed decision of the Regional Trial Court of Rizal
(Antipolo, Branch 71) is REVERSED and SET ASIDE and another rendered as
follows:
1.
DECLARING NULL AND VOID TRANSFER CERTIFICATES OF TITLES
NOS. 277747, 277120 AND 278588 OF THE REGISTRY OF DEEDS OF MARIKINA
CITY (THE LAST TWO IN THE NAME OF DEFENDANT-APPELLEE KINGS
PROPERTIES CORPORATION), THE DERIVATIVE TITLES THEREOF AND THE
INSTRUMENTS WHICH WERE THE BASES OF THE ISSUANCE OF SAID
CERTIFICATES OF TITLE; AND
2.
DECLARING PLAINTIFF-APPELLANT CANUTO A. GALIDO THE OWNER
OF FEE SIMPLE OF LOT NOS. 1, 3, 4, 5 FORMERLY REGISTERED UNDER
ORIGINAL CERTIFICATE OF TITLE NO. 535 IN THE NAME OF THE HEIRS OF
DOMINGO ENICEO, REPRESENTED BY RUFINA ENICEO, AND ORDERING THE
REGISTER OF DEEDS OF MARIKINA CITY TO ISSUE NEW TRANSFER
CERTIFICATES OF TITLE FOR SAID PARCELS OF LAND IN THE NAME OF
PLAINTIFF-APPELLANT CANUTO A. GALIDO, UPON PAYMENT OF THE PROPER
FEES AND PRESENTATION OF THE DEED OF SALE DATED SEPTEMBER 10,
1973 EXECUTED BY RUFINA ENICEO AND MARIA ENICEO, AS SOLE HEIRS OF
THE LATE DOMINGO ENICEO, IN FAVOR OF THE LATTER.[36]
The Issues
Petitioner raises two issues in this petition:
1.
Whether the adverse claim of respondent over the
Antipolo property should be barred by laches;[37] and
2.
Whether the deed of sale delivered to respondent
should be presumed an equitable mortgage pursuant to
Article 1602(2) and 1604 of the Civil Code.[38]
The Ruling of the Court
Validity of the deed of sale to respondent
The contract between the Eniceo heirs and respondent executed on 10
September 1973 was a perfected contract of sale. A contract is perfected once there
is consent of the contracting parties on the object certain and on the cause of the
obligation.[39] In the present case, the object of the sale is the Antipolo property and
the price certain isP250,000.
The contract of sale has also been consummated because the vendors and
vendee have performed their respective obligations under the contract. In a contract
of sale, the seller obligates himself to transfer the ownership of the determinate thing
sold, and to deliver the same to the buyer, who obligates himself to pay a price certain
to the seller.[40] The execution of the notarized deed of sale and the delivery of the

owners duplicate copy of OCT No. 535 to respondent is tantamount to a constructive

delivery of the object of the sale. In Navera v. Court of Appeals, the Court ruled that
since the sale was made in a public instrument, it was clearly tantamount to a delivery
of the land resulting in the symbolic possession thereof being transferred to the buyer.
[41]

Petitioner alleges that the deed of sale is a forgery. The Eniceo heirs also
claimed in their answer that the deed of sale is fake and spurious. [42] However, as
correctly held by the CA, forgery can never be presumed. The party alleging forgery is
mandated to prove it with clear and convincing evidence. [43] Whoever alleges forgery
has the burden of proving it. In this case, petitioner and the Eniceo heirs failed to
discharge this burden.
Petitioner invokes the belated approval by the DENR Secretary, made within 25
years from the issuance of the homestead, to nullify the sale of the Antipolo property.
The sale of the Antipolo property cannot be annulled on the ground that the DENR
Secretary gave his approval after 21 years from the date the deed of sale in favor of
respondent was executed. Section 118 of Commonwealth Act No. 141 or the Public
Land Act (CA 141), as amended by Commonwealth Act No. 456, [44] reads:
SEC. 118. EXCEPT IN FAVOR OF THE GOVERNMENT OR ANY OF ITS
BRANCHES, UNITS, OR INSTITUTIONS, OR LEGALLY CONSTITUTED BANKING
CORPORATIONS, LANDS ACQUIRED UNDER FREE PATENT OR HOMESTEAD
PROVISIONS SHALL NOT BE SUBJECT TO ENCUMBRANCE OR ALIENATION
FROM THE DATE OF THE APPROVAL OF THE APPLICATION AND FOR A TERM OF
FIVE YEARS FROM AND AFTER THE DATE OF THE ISSUANCE OF THE PATENT OR
GRANT X X X

No alienation, transfer, or conveyance of any homestead after five

years and before twenty-five years after the issuance of title shall be valid
without the approval of the Secretary of Agriculture and Natural Resources,
[45]
which approval shall not be denied except on constitutional and legal
grounds.
In Spouses Alfredo v. Spouses Borras,[46] the Court explained the implications of
Section 118 of CA 141. Thus:
A grantee or homesteader is prohibited from alienating to a private individual a
land grant within five years from the time that the patent or grant is issued. A violation
of this prohibition renders a sale void. This , however, expires on the fifth year. From
then on until the next 20 years, the land grant may be alienated provided the
Secretary of Agriculture and Natural Resources approves the alienation. The
Secretary is required to approve the alienation unless there are constitutional and
legal grounds to deny the approval. In this case, there are no apparent or legal
grounds for the Secretary to disapprove the sale of the Subject Land.
The failure to secure the approval of the Secretary does not ipso factomake a
sale void. The absence of approval by the Secretary does not a sale made after the
expiration of the 5-year period, for in such event the requirement of Section 118 of
the Public Land Act becomes merely directory or a formality. The approval may be

54

secured later, producing the effect of ratifying and adopting the transaction as if the
sale had been previously authorized. (Underscoring supplied)
Equitable Mortgage
Petitioner contends that the deed of sale in favor of respondent is an equitable
mortgage because the Eniceo heirs remained in possession of the Antipolo property
despite the execution of the deed of sale.
An equitable mortgage is one which although lacking in some formality, or form
or words, or other requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as security for a debt, and contains
nothing impossible or contrary to law. [47] The essential requisites of an equitable
mortgage are:
1.

The parties entered into a contract denominated as a contract of sale; and

2. Their intention was to secure existing debt by way of a mortgage. [48]

In Lim v. Calaguas,[49] the Court held that in order for the presumption of
equitable mortgage to apply, there must be: (1) something in the language of the
contract; or (2) in the conduct of the parties which shows clearly and beyond doubt
that they intended the contract to be a mortgage and not a pacto de retro sale.
[50]
Proof by parol evidence should be presented in court. Parol evidence is
admissible to support the allegation that an instrument in writing, purporting on its
face to transfer the absolute title to property, was in truth and in fact given merely as
security for the payment of a loan. The presumption of equitable mortgage under
Article 1602 of the Civil Code is not conclusive. It may be rebutted by competent
and satisfactory proof of the contrary. [51]
Petitioner claims that an equitable mortgage can be presumed because the
Eniceo heirs remained in possession of the Antipolo property. Apart from the fact that
the Eniceo heirs remained in possession of the Antipolo property, petitioner has failed
to substantiate its claim that the contract of sale was intended to secure an existing
debt by way of mortgage. In fact, mere tolerated possession is not enough to prove
that the transaction was an equitable mortgage. [52]
Furthermore, petitioner has not shown any proof that the Eniceo heirs were
indebted to respondent. On the contrary, the deed of sale executed in favor of
respondent was drafted clearly to convey that the Eniceo heirs sold and transferred
the Antipolo property to respondent. The deed of sale even inserted a provision about
defrayment of registration expenses to effect the transfer of title to respondent.
In any event, as pointed out by respondent in his Memorandum, this defense of
equitable mortgage is available only to petitioners predecessors-in-interest who
should have demanded, but did not, for the reformation of the deed of sale. [53] A
perusal of the records shows that the Eniceo heirs never presented the defense of
equitable mortgage before the trial court. In their Answer[54] and Memorandum[55] filed
before the trial court, the Eniceo heirs claimed that the alleged deed of sale dated 10

September 1973 between Rufina Eniceo and Maria Eniceo was fake and spurious.
The Eniceo heirs contended that even assuming there was a contract, no
consideration was involved. It was only in the Appellees Brief [56] filed before the CA
that the Eniceo heirs claimed as an alternative defense that the deed should be
presumed as an equitable mortgage.
IN PHILIPPINE PORTS AUTHORITY V. CITY OF ILOILO,[57] WE RULED
THAT A PARTY WHO ADOPTS A CERTAIN THEORY UPON WHICH THE CASE IS
TRIED AND DECIDED BY THE LOWER COURT WILL NOT BE PERMITTED TO
CHANGE THE THEORY ON APPEAL. A THEORY OF THE CASE NOT BROUGHT
TO THE ATTENTION OF THE LOWER COURT WILL NOT BE CONSIDERED BY A
REVIEWING COURT, AS A NEW THEORY CANNOT BE RAISED FOR THE FIRST
TIME AT SUCH LATE STAGE.
ALTHOUGH PETITIONER RAISED THE DEFENSE OF EQUITABLE
MORTGAGE IN THE LOWER COURT, HE CANNOT CLAIM THAT THE DEED WAS
AN EQUITABLE MORTGAGE BECAUSE PETITIONER WAS NOT A PRIVY TO THE
DEED OF SALE DATED 10 SEPTEMBER 1973. PETITIONER MERELY STEPPED
INTO THE SHOES OF THE ENICEO HEIRS. PETITIONER, WHO MERELY
ACQUIRED ALL THE RIGHTS OF ITS PREDECESSORS, CANNOT ESPOUSE A
THEORY THAT IS CONTRARY TO THE THEORY OF THE CASE CLAIMED BY THE
ENICEO HEIRS.
The Court notes that the Eniceo heirs have not appealed the CAs decision,
hence, as to the Eniceo heirs, the CAs decision that the contract was a sale and not
an equitable mortgage is now final. Since petitioner merely assumed the rights of the
Eniceo heirs, petitioner is now estopped from questioning the deed of sale dated 10
September 1973.
Petitioner is not a buyer in good faith
Petitioner maintains that the subsequent sale must be upheld because petitioner is a buyer in
good faith, having exercised due diligence by inspecting the property and the title sometime in
February 1995.
In Agricultural and Home Extension Development Group v. Court of Appeals,[58] a buyer in
good faith is defined as one who buys the property of another without notice that some other person
has a right to or interest in such property and pays a full and fair price for the same at the time of
such purchase or before he has notice of the claim or interest of some other person in the property.

In Balatbat v. Court of Appeals,[59] the Court held that in the realm of double
sales, the registration of an adverse claim places any subsequent buyer of the
registered land in bad faith because such annotation was made in the title of the
property before the Register of Deeds and he could have discovered that the subject
property was already sold.[60] The Court explained further, thus:
A purchaser of a valued piece of property cannot just close his eyes to facts
which should put a reasonable man upon his guard and then claim that he acted in
good faith and under the belief that there were no defect in the title of the vendor.
One who purchases real estate with knowledge of a defect or lack of title in his

55

vendor cannot claim that he has acquired title thereto in good faith as against the
true owner of the land or of an interest therein; and the same rule must be applied
to one who has knowledge of facts which should have put him upon such inquiry
and investigation as be necessary to acquaint him with the defects in the title of
his vendor.[61]
Petitioner does not dispute that respondent registered his adverse claim with the
Registry of Deeds on 14 March 1995. The registration of the adverse claim
constituted, by operation of law, notice to the whole world. [62] From that date onwards,
subsequent buyers were deemed to have constructive notice of respondents adverse
claim.
PETITIONER PURCHASED THE ANTIPOLO PROPERTY ONLY ON 20
MARCH 1995 AND 5 APRIL 1995 AS SHOWN BY THE DATES IN THE DEEDS OF
SALE. ON THE SAME DATES, THE REGISTRY OF DEEDS ISSUED NEW TCTS IN
FAVOR
OF
PETITIONER
WITH
THE
ANNOTATED
ADVERSE
CLAIM. CONSEQUENTLY, THE ADVERSE CLAIM REGISTERED PRIOR TO THE
SECOND SALE CHARGED PETITIONER WITH CONSTRUCTIVE NOTICE OF THE
DEFECT IN THE TITLE OF ENICEO HEIRS. THEREFORE, PETITIONER CANNOT
BE DEEMED AS A PURCHASER IN GOOD FAITH WHEN THEY BOUGHT AND
REGISTERED THE ANTIPOLO PROPERTY.
IN CARBONELL V. COURT OF APPEALS,[63] THIS COURT RULED THAT IN
DOUBLE SALES, THE FIRST BUYER ALWAYS HAS PRIORITY RIGHTS OVER
SUBSEQUENT BUYERS OF THE SAME PROPERTY. BEING THE FIRST BUYER,
HE IS NECESSARILY IN GOOD FAITH COMPARED TO SUBSEQUENT
BUYERS. THE GOOD FAITH OF THE FIRST BUYER REMAINS ALL
THROUGHOUT DESPITE HIS SUBSEQUENT ACQUISITION OF KNOWLEDGE OF
THE SUBSEQUENT SALE. ON THE OTHER HAND, THE SUBSEQUENT BUYER,
WHO MAY HAVE ENTERED INTO A CONTRACT OF SALE IN GOOD FAITH,
WOULD BECOME A BUYER IN BAD FAITH BY HIS SUBSEQUENT ACQUISITION
OF ACTUAL OR CONSTRUCTIVE KNOWLEDGE OF THE FIRST SALE. [64] THE
SEPARATE OPINION OF THEN JUSTICE TEEHANKEE IS INSTRUCTIVE, THUS:
The governing principle here is prius tempore, potior jure(first in time, stronger
in right). Knowledge gained by the first buyer of the second sale cannot defeat the first
buyers rights except only as provided by the Code and that is where the second
buyer first registers in good faith the second sale ahead of the first. Such knowledge
of the first buyer does bar her from availing of her rights under the law, among them,
to first her purchase as against the second buyer. But in converso knowledge gained
by the second buyer of the first sale defeats his rights even if he is first to register the
second sale, since such knowledge taints his prior registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the second
buyer being able to displace the first buyer: that before the second buyer can
obtain priority over the first, he must show that he acted in good faith throughout
(i.e., in ignorance of the first sale and of the first buyers rights) from the time of

acquisition until the title is transferred to him by registration or failing registration,

by delivery of possession. The second buyer must show continuing good faith and
innocence or lack of knowledge of the first sale until his contract ripens into full
ownership through prior registration as provided by law. [65]
Laches
PETITIONER CONTENDS THAT RESPONDENT IS GUILTY OF LACHES
BECAUSE HE SLEPT ON HIS RIGHTS BY FAILING TO REGISTER THE SALE OF
THE ANTIPOLO PROPERTY AT THE EARLIEST POSSIBLE TIME. PETITIONER
CLAIMS THAT DESPITE RESPONDENTS KNOWLEDGE OF THE SUBSEQUENT
SALE IN 1991, RESPONDENT STILL FAILED TO HAVE THE DEED OF SALE
REGISTERED WITH THE REGISTRY OF DEEDS.
The essence of laches is the failure or neglect, for an unreasonable and
unexplained length of time, to do that which, through due diligence, could have been
done earlier, thus giving rise to a presumption that the party entitled to assert it had
either abandoned or declined to assert it.[66]
Respondent discovered in 1991 that a new owners copy of OCT No. 535 was
issued to the Eniceo heirs. Respondent filed a criminal case against the Eniceo heirs
for false testimony. When respondent learned that the Eniceo heirs were planning to
sell the Antipolo property, respondent caused the annotation of an adverse claim. On
16 January 1996, when respondent learned that OCT No. 535 was cancelled and new
TCTs were issued, respondent filed a civil complaint with the trial court against the
Eniceo heirs and petitioner. Respondents actions negate petitioners argument that
respondent is guilty of laches.
True, unrecorded sales of land brought under Presidential Decree No. 1529 or
the Property Registration Decree (PD 1529) are effective between and binding only
upon the immediate parties. The registration required in Section 51 of PD 1529 is
intended to protect innocent third persons, that is, persons who, without knowledge of
the sale and in good faith, acquire rights to the property. [67] Petitioner, however, is not
an innocent purchaser for value.
WHEREFORE, we DENY the petition. We AFFIRM the 20 December 2004
Decision and 10 October 2005 Resolution of the Court of Appeals in CA-G.R. CV No.
68828.
SO ORDERED.

56

THIRD DIVISION

On June 5, 1952, all the transferees of Lot 840, namely, Maxima Rodico (for
the
eastern
portion) and Atinedoro Ulep and Valentina Ulep (for the western
SPOUSES SAMUEL ULEP
G.R. No. 125254
portion),
were
jointly issued in their names Transfer Certificate of Title No. 12525.
(Deceased) and SUSANA
REPOGIA-ULEP; SAMUEL ULEP is
Present:
On June 18, 1971, Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep
substituted by his surviving
PANGANIBAN, J., Chairman sold the one-half (1/2) portion of the area sold to them by their father to their
spouses SUSANA REPOGIA-ULEP
SANDOVAL-GUTIERREZ,
brother Samuel Ulep and the latters wife, Susana Repogia-Ulep. The portion
and his children: SALLY, RENATO,
CORONA,
sold to Samuel and Susana has an area of 817.5 square meters. The document of
RODELIO and RICHARD, all
CARPIO MORALES and
sale was registered with the Office of the Registry of Deeds of Pangasinan on
surnamed ULEP, and VALENTINA
GARCIA, JJ.
ULEP,
February 20, 1973.
Petitioners,
Promulgated:
Later, an area of 507.5 square meters of the western portion of Lot 840 was
- versus sold by the spouses Atinedoro Ulep and Beatriz Ulep to respondentWarlito
October 11, 2005
Paringit and the latters spouse Encarnacion Gante, who were then issued TCT
HONORABLE COURT OF APPEALS,
No. 12688 on September 23, 1975.
former Eight Division, IGLESIA NI
CRISTO, MAXIMA RODICO and
Evidently, all the foregoing transactions were done and effected without an
spouses WARLITO PARINGIT and
actual ground partition or formal subdivision of Lot 840.
ENCARNACION PARINGIT- GANTE,
In June 1977, respondent Iglesia ni Cristo (INC) begun constructing its
Respondents.
chapel on Lot 840. In the process, INC encroached portions thereof allegedly
x----------------------------------------------------------------------------------x
pertaining to petitioners and blocked their pathways.
This prompted Samuel Ulep and sister Rosita Ulep to make inquiries with
DECISION
GARCIA, J.:
the
Office
of the Register of Deeds of Pangasinan. To their consternation, they
Under consideration is this petition for review under Rule 45 of the
[1]
discovered
from the records of said office that a deed of sale bearing date
Rules of Court seeking the reversal and setting aside of the Decision dated
December 21, 1954, was purportedly executed by their brother Atinedoro Ulep
August 15, 1995 of the Court of Appeals (CA) in CA-G.R. CV. No. 39333, and its
his, wife Beatriz and their sister Valentina Ulep in favor of INC over a portion
Resolution[2] dated April 25, 1996, denying petitioners motion for reconsideration.
of 620 square meters, more or less, of Lot 840, and that on the basis of said
The assailed decision modified the June 17, 1991 decision[3] of the Regional Trial
deed, INC was issued TCT No. 12689 on September 23, 1975[4] over the portion
Court at Urdaneta, Pangasinan, Branch 48, in its Civil Case No. U-3929, an
allegedly sold to it by the three. Samuel was further shocked to find out that on
action for Quieting of Title, Reconveyance and Declaration of Nullity of Titles and
July 9, 1975, an affidavit of subdivision was executed by
Subdivision Plan, with Damages, thereat commenced by the petitioners against
respondents INC, Maxima Rodico and thespouses Warlito Paringit and
the herein private respondents.
Encarnation Gante, on the basis of which affidavit Lot 840 was subdivided into
The factual antecedents:
four (4) lots, namely: (1) Lot 840-A, covered by TCT No. 16205 in his (Samuels)
Principal petitioners SAMUEL ULEP, now deceased and substituted by his
name that of his wife, Susana Repogia-Ulep; (2) Lot 840-B, covered by TCT No.
heirs, and VALENTINA ULEP are brother-and-sister. Together with their siblings,
12688 in the names of Warlito Paringit and the latters wife Encarnacion Gante;
namely, Atinedoro Ulep and Rosita Ulep, they are children of the late Valentin
(3) Lot-C 840-C, covered by TCT No. 12689 in the name of INC; and (4) Lot 840Ulep.
D, covered by TCT No. 12690[5] in the name of Maxima Rodico.
During his lifetime, the father Valentin Ulep owned a parcel of land, identified
Such was the state of things when, on March 29, 1983, in the Regional Trial
as Lot 840 with an area of 3,270 square meters, located at Asingan, Pangasinan.
Court at Pangasinan, the spouses Samuel Ulep and Susana Repogia-Ulep,
Sometime in 1950, the older Ulep sold the one-half (1/2) eastern portion of
the spouses Atinedoro Ulep and Beatriz Ulep and their sister Valentina Ulep,
Lot 840, comprising an area of 1,635 square meters, to respondent Maxima
filed their complaint for Quieting of Title, Reconveyance and Declaration of Nullity
Rodico, while the remaining one-half (1/2) western portion with the same area,
of Title and Subdivision Plan with Damages against respondents INC, Maxima
to his son Atinedoro Ulep married to Beatriz Ulep, and to his other daughter
Rodico and the spouses Warlito Paringit and Encarnacion Gante. In their
Valentina Ulep.
complaint, docketed as Civil Case No. U-3929, the Uleps basically alleged that
they and respondents are co-owners of Lot 840 in the following proportions:
57

1,635 square meters to Maxima Rodico;

817.5 square meters to spouses Samuel Ulep and Susana Repogia-Ulep;
507.5 square meters to spouses Warlito Paringit and Encarnacion Gante;
210 square meters to spouses Atinedoro Ulep and Beatriz Ulep, and Valentina
Ulep;
100 square meters to Iglesia Ni Cristo.[6]
In the same complaint, the spouses Atinedoro Ulep and Beatriz Ulep and their
sister Valentina Ulep denied having executed a deed of sale in favor of INC over a
portion of 620 square meters of Lot 840, claiming that their signatures appearing
on the deed were forged. At the most, so they claimed, what they sold to INC was
only 100 square meters and not 620 square meters. Petitioners Samuel Ulep and
Valentina Ulep, along with the spouses Atinedoro Ulep and Beatriz Ulep, likewise
averred that the subject lot was subdivided without their knowledge and consent.
In their common Answer, respondents Maxima Rodico and the spouses
Warlito Paringit and Encarnacion Gante maintained that the segregation of their
shares was known to petitioners and that it was done with the consent of Samuel
Ulep himself.
For its part, INC, in its separate Answer, asserted that it purchased from the
spouses Atinedoro Ulep and Beatriz Ulep and their sister Valentina Ulep the
portion containing 620 square meters of Lot 840 on December 21, 1954, as
evidenced by a deed of sale duly registered with the Registry of Deeds of
Pangasinan.
During the pendency of the proceedings in Civil Case No. U-3929, Atinedoro
Ulep died. Less than a month thereafter, or more specifically on November 16,
1987, Atinedoros widow Beatriz Ulep and their children executed a deed of
renunciation, thereunder waiving all their rights and interests over Lot 840 and
relinquishing the same in favor of the spouses Samuel Ulep and Susana RepogiaUlep.[7]
Eventually, in a decision dated June 17, 1991, the trial court rendered
judgment, as follows:
There being no res adjudicata in this case as already decided by
the Court of Appeals, this Court renders judgment as borne out by the evidence
presented in favor of the [petitioners] and against the [respondents], ordering the
latter and all persons claiming title under them to vacate and surrender a portion
of 520 sq. m. of the land in question in favor of the [petitioners] in such a way that
[respondent] INC owns only 100 sq. m.; declaring and annulling the following
documents;
1.
Deed of sale dated December 21, 1954 allegedly executed by plaintiffsspouses Atinedoro Ulep and Beatriz Aguilar and Valentina Ulep in favor of
[respondent] INC, (Exh. A);
2.
TCT No. 12689 issued to Iglesia Ni Cristo (Exh. K-1);
3.
The affidavit of confirmation of subdivision, (Exh. K and Exh. 2); and

4.
TCT No. 12605 (Exh. K-4) and a new TCT No. be issued to include the
original 817.5 sq. m. in favor of Samuel Ulep and Susan Repogia;
Declaring Lot No. 840 to be owned by the following parties in the following
proportions:
(a) 1,635 sq. m. eastern portion to [respondent] Maxima Rodico already
covered by TCT No. 12690 (Exh. K-3);
(b) 817.5 sq. m. to [petitioners] Samuel Ulep and Susana Repogia and a new
TCT to be issued;
(c) of 210 sq. m. to [petitioners] Samuel Ulep and Susana Repogia; and the
other one-half or 105 sq. m. to [petitioner] Valentina Ulep in accordance with Exh.
C, a deed of renunciation executed by the heirs of Atinedoro Ulep who died in
1987 and his surviving spouse Beatriz Aguilar and a new Transfer Certificate of
Title be issued;
(d) 507.5 sq. m. to [respondents] Warlito Paringit and Encarnacion Gante,
already covered by TCT No. 12688 (Exh. K-2);
(e) 100 sq. m. to [respondent] Iglesia Ni Cristo; and a new title to be issued;
and ordering the Register of Deeds of Pangasinan, to issue new Transfer
Certificate of Title in favor of [petitioners] Samuel Ulep and Susana Repogia
covering 817.5 sq. m.; and another new Transfer Certificate of Title covering 105
sq. m. in favor of Valentina Ulep and the other of 210 sq. m. or 105 sq. m. in
favor of Samuel Ulep and Susana Repogia pursuant to Exh. C; and still another
new Transfer Certificate of Title covering 100 sq. m. in favor of Iglesia Ni Cristo
and for the latter to pay the costs.
SO ORDERED.[8] (Words in bracket ours).
Dissatisfied, respondent INC interposed an appeal to the Court of Appeals
(CA), which appellate recourse was thereat docketed as CA-G.R. CV No. 39333.
For their part, respondents Maxima Rodico and the spouses Warlito Paringit and
Encarnacion Gante opted not to appeal.
As stated at the threshold hereof, the appellate court, in its Decision dated
August 15, 1995, modified that of the trial court, thus:
WHEREFORE, premises considered, the appealed judgment is MODIFIED as
above indicated. Accordingly, the decretal portion of said judgment should read as
follows:
1. The Deed of Absolute Sale dated December 21, 1954 executed by plaintiffsspouses Atinedoro Ulep and Beatriz Aguilar and Valentina Ulep in favor of
[respondent] INC is declared valid (Exh. K-1).
2. Lot No. 840 is declared as owned by the following parties in the following
proportions:
(f)
1,635 sq. m. eastern portion to [respondent] Maxima Rodico already
covered by TCT No. 12690 (Exh. K-3);
(g)
297.5 sq. m. to [petitioner]-spouses Samuel Ulep and Susana Repogia;

58

(h)
of 210 sq. m. to [petitioner]-spouses Samuel Ulep and Susana
Repogia; and the other one-half or 105 sq. m. to Valentina Ulep in accordance
with Exh. C, a deed of renunciation executed by the heirs of Atinedoro Ulep who
died in 1987 and his surviving spouse Beatriz Aguilar;
(i)
507.5 sq. m. to [respondents] Warlito Paringit and Encarnacion Gante,
already covered by TCT No. 12688 (Exh. K-2);
(j)
620 sq. m. to [respondent] INC, already covered by TCT No. 12689 (Exh.
K-1).
3. TCT No. 16205 registered in the names of [petitioner-spouses] Samuel and
Susan Ulep (Exh. K-4) is annulled.
The Register of Deeds of Pangasinan is ordered to issue a new TCT in favor of
[petitioner-spouses] Samuel Ulep and Susana Repogia covering only 297.5 sq.
m.; and another new TCT covering 105 sq. m. in favor of Valentina Ulep and the
other of 210 sq. m. or 105 sq. m. in favor of [petitioner-spouses] Samuel Ulep
and Susana Repogia pursuant to Exh. C. NoCosts.
SO ORDERED.[9] (Words in brackets ours).
In so ruling, the Court of Appeals explained:
There is no adequate evidentiary demonstration in the record that the deed of
sale (dated December 21, 1954 executed by Atinedoro Ulep, his wife Beatriz and
sister Valentina Ulep in favor of INC over the 620 square-meter area of the
western portion of Lot 840) is void and inefficacious on account of forgery.
As a public instrument which enjoys the presumption of regularity, clear and
convincing evidence is necessary to contradict the terms thereof.xxx
xxx
xxx
In the present case, the biased, interested testimony of [petitioners] cannot
overcome the evidentiary force of the deed of sale which was acknowledged
before a notary public, and hence, a public document.
xxx
xxx
xxx
The sale of 620 sq. m. in favor of [respondent] INC executed by vendors Atinedoro
and Valentina Ulep is dated December 21, 1954, while the sale of 817.50 sq.
meters by the same vendors to [petitioners] Samuel and Susana Ulep was made
on June 18, 1971. [Respondent] INC registered its 620 sq. meters on December
21, 1954 by reason of which TCT No. 12689 was issued in its name. [Petitionerspouses] Samuel and Susana Ulep registered the land sold to them on February
9, 1977 and TCT No. 16205 was issued in their names. Evidently, applying Article
1544, [petitioner] INCs ownership and title over the 620 sq. meters prevail. The
land consisting of 620 sq. meters was first sold to INC and its title was registered
first. Thus, the same vendors could have sold only the remaining 297.50 sq.
meters of Lot 840 to [petitioner-spouses] Samuel and Susana Ulep and TCT No.
16205 issued in the latters name for 817.50 sq. meters is null and void. There is
no evidence that [respondent] INC is guilty of bad faith in acquiring the 620 sq.
meters portion of Lot 840. (Words in bracket ours).

Their motion for reconsideration having been denied by the same court in its
equally challenged Resolution of April 25, 1996, petitioners are now with
us via the present recourse, faulting the appellate court as follows:
I.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AFFIRMING THE
DECISION DATED JUNE 17, 1991 (ANNEX A) OF THE TRIAL COURT,
REGIONAL TRIAL COURT, FIRST JUDICIAL REGION, BRANCH 48, URDANETA
PANGASINAN IN CIVIL CASE NO. 3929.
II.
AND IN THE ALTERNATIVE, THE HONORABLE COURT OF APPEALS ERRED
IN NOT AWARDING PETITIONERS SAMUEL ULEP AND SUSANA REPOGIA
THE AREA OF 817.5 SQUARE METERS AND IN NOT REDUCING THE SHARE
OF PRIVATE RESPONDENTS, SPOUSES WARLITO PARINGIT AND
ENCARNACION GANTE FROM 507.5 SQUARE METERS TO 197 SQUARE
METERS.[10]
Petitioners initially submit that the factual findings of the trial court should not have
been disturbed by the appellate court, the same being entitled to great weight and
respect.
We have consistently held that factual findings of the Court of Appeals and other
lower courts are, as a rule, final and conclusive upon this Court, except,inter alia,
where their findings are at odd with each other,[11] as here.
Simply put, the issue before us is whether or not the Court of Appeals committed
reversible error in modifying the decision of the trial court.
Evidently, the issue necessitates an inquiry into the facts. While, as a rule, factual
issues are not within the province of this Court, nonetheless, in light of the
conflicting factual findings of the two (2) courts below, an examination of the facts
obtaining in this case is in order.
Petitioners contend that respondent INC is entitled to only 100 square meters and
not 620 square meters of the western portion of Lot 840. To them, the deed of sale
conveying 620 square meters thereof to INC was void as the signatures of the
vendors therein, namely, the spouses Atinedoro Ulep and Beatriz Ulep and
Valentina Ulep, were forged. They submit that what should instead be upheld was
the sale of 817.5 square meters in their favor by the same vendors.
As the Court sees it, the present controversy is a classic case of double sale.
On December 21, 1954, Atinedoro Ulep, his wife Beatriz Ulep and sister Valentina
Ulep sold the disputed area (620 square-meter) of Lot 840 to INC. Subsequently,
on January 18, 1971, a second sale was executed by the same vendors in favor
of spouses Samuel Ulep and Susana Ulep. The Court is, therefore, called upon to
determine which of the two groups of buyers has a better right to the area in
question.
Article 1544 of the Civil Code provides the statutory solution:

59

Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
Otherwise stated, the law provides that a double sale of immovable transfers
ownership to (1) the first registrant in good faith; (2) then, the first possessor in
good faith; and (3) finally, the buyer who in good faith presents the oldest title.[12]
Jurisprudence teaches that the governing principle is primus tempore, potior
jure (first in time, stronger in right). Knowledge gained by the first buyer of the
second sale cannot defeat the first buyers rights except where the second buyer
registers in good faith the second sale ahead of the first, as provided by the
aforequoted provision of the Civil Code. Such knowledge of the first buyer does
not bar him from availing of his rights under the law, among them to
registerfirst his purchase as against the second buyer. In converso, knowledge
gained by the second buyer of the first sale defeats his rights even if he is first to
register the second sale, since such knowledge taints his prior registration with
bad faith. This is the price exacted by the same provision of the Civil Code for the
second buyer to be able to displace the first buyer; before the second buyer can
obtain priority over the first, he must show that he acted in good faith throughout
(i.e. ignorance of the first sale and of the first buyers rights) from the time of
acquisition until the title is transferred to him by registration, or, failing registration,
by delivery of possession.[13]
Per records, the sale of the disputed 620 square-meter portion of Lot 840 to
respondent INC was made on December 21, 1954 and registered with the
Registry of Deeds of Pangasinan on January 5, 1955. In fact, INC was issued a
title over the same portion on September 23, 1975. On the other hand, the
conveyance to the spouses Samuel Ulep and Susana Repogia-Ulep happened
on January 18, 1971 and the spouses registered their document of conveyance
only on February 22, 1973.[14]
Clearly, not only was respondent INC the first buyer of the disputed area. It was
also the first to register the sale in its favor long before petitioners Samuels and
Susanas intrusion as second buyers. Although Samuel and Susana thereafter
registered the sale made to them, they did so only after 18 yearsfrom the time
INC caused the registration of its own document of sale.
Registration means any entry made in the books of the Registry which
records solemnly and permanently the right of ownership and other real rights.[15]
However, mere registration is not sufficient. Good faith must concur with
registration, else registration becomes an exercise in futility.[16] In the instant case,

the registration made by respondent INC of its deed of sale more than satisfies
this requirement. The same thing cannot be said of petitioners Samuel Ulep and
Susana Ulep. Said petitioners, by their own admission, were aware that there
existed an agreement between INC and vendors Atinedoro Ulep, his wife Beatriz
and sister Valentina Ulep involving a portion of 100 square meters of Lot 840.
Knowledge of such transaction should have put the spouses Samuel Ulep and
Susana Ulep upon such inquiry or investigation as might be necessary to acquaint
them with the possible defects in the title of their vendors. They should have acted
with that measure of precaution which may reasonably be required of a prudent
man in a similar situation. After all, good faith, or the lack of it, is, in the last
analysis, a question of intention. But in ascertaining the intention by which one is
actuated on a given occasion, courts are necessarily controlled by the evidence
as to the conduct and outward acts by which the inward motive may, with safety,
be determined. So it is that the honesty of intention, the honest lawful intent,
which constitutes good faith implies a freedom from knowledge and
circumstances which ought to put a person on inquiry. [17] Hence, proof of such
knowledge overcomes the presumption of good faith.
Here, the spouses Samuel Ulep and Susana Ulep were fully aware, or could have
been, if they had chosen to inquire, of the rights of INC under the deed of sale
duly annotated on the common title of the spouses Atinedoro Ulep and Beatriz
Ulep and Valentina Ulep. Verily, the sale to INC should prevail over the sale made
to spouses Samuel and Susana because INC was the first registrant in good
faith.
Petitioners allegation of forgery relative to the deed of sale executed on
December 21, 1954 by the spouses Atinedoro Ulep, his wife Beatriz and sister
Valentina Ulep over the 620 square-meter portion of Lot 840 cannot be sustained.
As a rule, forgery cannot be presumed and must be proved by clear, positive and
convincing evidence, the burden for which lies on the party alleging it. The fact of
forgery can only be established by a comparison between the alleged forged
signature and the authentic and genuine signature of the person whose signature
is theorized o have been forged.[18]
Here, petitioners claim of forgery is unsupported by any substantial
evidence other than their own self-serving testimonies. As it were, they failed to
present handwriting experts and other persons familiar with the handwriting of the
spouses Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep that would
show that their signatures appearing in the questioned deed of sale in favor of
respondent INC were forged. Due to the technicality of the procedure involved in
the examination of forged documents, the expertise of questioned document
examiners is usually helpful. These handwriting experts can help determine
fundamental, significant differences in writing characteristics between the
questioned and the standard or sample specimen signatures, as well as the
movement and manner of execution strokes.
60

Petitioners insist that the conveyance of only 100 square meters to INC was in
fact evidenced by a deed of sale notarized by a certain Atty. Benjamin Fernandez.
[19]
However, they sorely failed to produce in court the said alleged deed of sale.
They could have, at the very least, presented Atty. Fernandez to prove the
existence of that deed, but they did not. The only plausible conclusion is that no
such deed exists.
On the other hand, to bolster its claim of ownership, respondent INC presented
the December 21, 1954 deed of sale executed in its favor by the spouses
Atinedoro and Beatriz Ulep and Valentina Ulep over a portion of 620 square
meters of Lot 840. To be sure, INCs deed of sale was duly notarized by Atty.
Bernabe Salcedo Calimlim.[20] Generally, a notarized document carries the
evidentiary weight conferred upon it with respect to its due execution, and
documents acknowledged before a notary public have in their favor the
presumption of regularity.[21] Thus, the notarized deed of sale executed on
December 21, 1954 by Atinedoro Ulep, his wife Beatriz and sister Valentina Ulep
over the contested area in favor of respondent INC deserves full credence and is
valid and enforceable in the absence, as here, of overwhelming evidence to the
contrary.
In a last-ditch but futile attempt to persuade the Court, petitioners
alternatively pray that INCs portion of 620 square meters of Lot 840, assuming
that INC is entitled to it, should be taken from the western portion of the same lot
sold to respondent spouses Warlito Paringit and Encarnacion Gante, and not from
them. To petitioners, the share of the spouses Warlito and Encarnacion should
accordingly be reduced from 507.5 square meters to only 197 square meters.
We note, however, that petitioners never raised before the trial court nor before
the appellate court the issue of Warlitos and Encarnacions entitlement to 507.5
square meters. Quite the contrary, petitioners even alleged in their complaint that
the spouses Warlito Paringit and Encarnacion Gante are owners of 507.5 square
meters of Lot 840. They never questioned the spouses ownership of said portion.
This issue was only posed by petitioners in the instant petition before this Court. It
is certainly too late for them to raise said issue for the first time at this late stage of
the proceedings.
Points of law, theories, issues and arguments not brought to the
attention of the lower court need not be, and ordinarily will not be,
considered by a reviewing court, as these cannot be raised for the first time on
appeal. Basic considerations of fair play, justice and due process underlie the
rule. It would be unfair to the adverse party who would have no opportunity to
present evidence in contra to the new theory, which it could have done had it been
aware of it at the time of the hearing before the trial court.[22]
Of course, this rule admits of certain exceptions. For one, issues of lack
of jurisdiction, though not raised below, may be considered by the reviewing court
as they may be raised at any stage. For another, the reviewing court may also

consider an issue not properly raised during trial when there is plain error.
Likewise, it may entertain such arguments when there are jurisprudential
developments affecting the issues, or when the issues raised present a matter of
public policy.[23] Unfortunately for petitioners, however, none of these exceptions
exists in this case. It is thus too late in the day for petitioners to raise in this
recourse the sale made by the spouses Atinedoro Ulep and Beatriz Ulep of the
507.5 square-meter area of Lot 840 to the spouses Warlito Paringit and
Encarnacion Gante. To allow petitioners to do so would be utterly unfair to the
latter.
WHEREFORE, the petition is DENIED and the assailed decision and resolution
of the Court of Appeals AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.

61

SECOND DIVISION
[G.R. No. 132161. January 17, 2005]
CONSOLIDATED RURAL BANK (CAGAYAN VALLEY),
INC., petitioner, vs. THE HONORABLE COURT OF APPEALS and
HEIRS OF TEODORO DELA CRUZ, respondents.
DECISION

TINGA, J.:
Petitioner Consolidated Rural Bank, Inc. of Cagayan Valley filed the
instant Petition for Certiorari[1] under Rule 45 of the Revised Rules of Court,
seeking the review of the Decision[2] of the Court of Appeals Twelfth Division in
CA-G.R. CV No. 33662, promulgated on 27 May 1997, which reversed the
judgment[3] of the lower court in favor of petitioner; and the Resolution[4]of the
Court of Appeals, promulgated on 5 January 1998, which reiterated its Decision
insofar as respondents Heirs of Teodoro dela Cruz (the Heirs) are concerned.
From the record, the following are the established facts:
Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid (hereafter
the Madrid brothers), were the registered owners of Lot No. 7036-A of plan Psd10188, Cadastral Survey 211, situated in San Mateo, Isabela per Transfer
Certificate of Title (TCT) No. T-8121 issued by the Register of Deeds of Isabela in
September 1956.[5]
On 23 and 24 October 1956, Lot No. 7036-A was subdivided into several lots
under subdivision plan Psd- 50390. One of the resulting subdivision lots was Lot
No. 7036-A-7 with an area of Five Thousand Nine Hundred Fifty-Eight (5,958)
square meters.[6]
On 15 August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036A-7, to Aleja Gamiao (hereafter Gamiao) and Felisa Dayag (hereafter, Dayag) by
virtue of a Deed of Sale,[7] to which his brothers Anselmo, Gregorio, Filomeno and
Domingo offered no objection as evidenced by their Joint Affidavit dated 14 August
1957.[8] The deed of sale was not registered with the Office of the Register of
Deeds of Isabela. However, Gamiao and Dayag declared the property for taxation
purposes in their names on March 1964 under Tax Declaration No. 7981.[9]
On 28 May 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7,
denominated as Lot No. 7036-A-7-B, to Teodoro dela Cruz,[10] and the northern
half, identified as Lot No. 7036-A-7-A,[11] to Restituto Hernandez.[12] Thereupon,
Teodoro dela Cruz and Restituto Hernandez took possession of and cultivated the
portions of the property respectively sold to them.[13]

Later, on 28 December 1986, Restituto Hernandez donated the northern half to

his daughter, Evangeline Hernandez-del Rosario.[14] The children of Teodoro dela
Cruz continued possession of the southern half after their fathers death on 7 June
1970.
In a Deed of Sale[15] dated 15 June 1976, the Madrid brothers conveyed all their
rights and interests over Lot No. 7036-A-7 to Pacifico Marquez (hereafter,
Marquez), which the former confirmed[16] on 28 February 1983.[17] The deed of sale
was registered with the Office of the Register of Deeds of Isabela on 2 March
1982.[18]
Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely:
Lot Nos. 7036-A-7-A to 7036-A-7-H, for which TCT Nos. T-149375 to T-149382
were issued to him on 29 March 1984.[19] On the same date, Marquez and his
spouse, Mercedita Mariana, mortgaged Lots Nos. 7036-A-7-A to 7036-A-7-D to
the Consolidated Rural Bank, Inc. of Cagayan Valley (hereafter, CRB) to secure a
loan of One Hundred Thousand Pesos (P100,000.00).[20] These deeds of real
estate mortgage were registered with the Office of the Register of Deeds on 2
April 1984.
On 6 February 1985, Marquez mortgaged Lot No. 7036-A-7-E likewise to the
Rural Bank of Cauayan (RBC) to secure a loan of Ten Thousand Pesos
(P10,000.00).[21]
As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of
the mortgages in its favor and the lots were sold to it as the highest bidder on 25
April 1986.[22]
On 31 October 1985, Marquez sold Lot No. 7036-A-7-G to Romeo Calixto
(Calixto).[23]
Claiming to be null and void the issuance of TCT Nos. T-149375 to T-149382; the
foreclosure sale of Lot Nos. 7036-A-7-A to 7036-A-7-D; the mortgage to RBC; and
the sale to Calixto, the Heirs-now respondents herein-represented by Edronel dela
Cruz, filed a case[24] for reconveyance and damages the southern portion of Lot
No. 7036-A (hereafter, the subject property) against Marquez, Calixto, RBC and
CRB in December 1986.
Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filed
with leave of court a Complaint in Intervention[25] wherein she claimed the northern
portion of Lot No. 7036-A-7.
In the Answer to the Amended Complaint,[26] Marquez, as defendant, alleged that
apart from being the first registrant, he was a buyer in good faith and for value.
He also argued that the sale executed by Rizal Madrid to Gamiao and Dayag was
not binding upon him, it being unregistered. For his part, Calixto manifested that
he had no interest in the subject property as he ceased to be the owner thereof,
the same having been reacquired by defendant Marquez.[27]

62

CRB, as defendant, and co-defendant RBC insisted that they were mortgagees in
good faith and that they had the right to rely on the titles of Marquez which were
free from any lien or encumbrance.[28]
After trial, the Regional Trial Court, Branch 19 of Cauayan, Isabela (hereafter,
RTC) handed down a decision in favor of the defendants, disposing as follows:
WHEREFORE, in view of the foregoing considerations, judgment is hereby
rendered:
1.
Dismissing the amended complaint and the complaint in intervention;
2.
Declaring Pacifico V. Marquez the lawful owner of Lots 7036-A-7 now Lots
7036-A-7-A to 7036-A-7-H, inclusive, covered by TCT Nos. T-149375 to T-149382,
inclusive;
3.
Declaring the mortgage of Lots 7036-A-7-A, 7036-A-7-B, 7036-A-7-C and
7036-A-7-D in favor of the defendant Consolidated Rural Bank (Cagayan Valley)
and of Lot 7036-A-7-E in favor of defendant Rural Bank of Cauayan by Pacifico V.
Marquez valid;
4.
Dismissing the counterclaim of Pacifico V. Marquez; and
5.
Declaring the Heirs of Teodoro dela Cruz the lawful owners of the lots
covered by TCT Nos. T-33119, T-33220 and T-7583.
No pronouncement as to costs.
SO ORDERED.[29]
In support of its decision, the RTC made the following findings: With respect to
issues numbers 1-3, the Court therefore holds that the sale of Lot 7036-A-7 made
by Rizal Madrid to Aleja Gamiao and Felisa Dayag and the subsequent
conveyances to the plaintiffs and intervenors are all valid and the Madrid brothers
are bound by said contracts by virtue of the confirmation made by them on August
14, 1957 (Exh. B). Are the defendants Pacifico V. Marquez and Romeo B. Calixto
buyers in good faith and for value of Lot 7036-A-7?
It must be borne in mind that good faith is always presumed and he who imputes
bad faith has the burden of proving the same (Art. 527, Civil Code). The Court has
carefully scrutinized the evidence presented but finds nothing to show that
Marquez was aware of the plaintiffs and intervenors claim of ownership over this
lot. TCT No. T-8121 covering said property, before the issuance of Marquez title,
reveals nothing about the plaintiffs and intervenors right thereto for it is an
admitted fact that the conveyances in their favor are not registered.
The Court is therefore confronted with two sales over the same property.
Article 1544 of the Civil Code provides:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property. x x x
(Underscoring supplied).

From the foregoing provisions and in the absence of proof that Marquez has
actual or constructive knowledge of plaintiffs and intervenors claim, the Court has
to rule that as the vendee who first registered his sale, Marquez ownership over
Lot 7036-A-7 must be upheld.[30]
The Heirs interposed an appeal with the Court of Appeals. In their Appellants
Brief,[31] they ascribed the following errors to the RTC: (1) it erred in finding that
Marquez was a buyer in good faith; (2) it erred in validating the mortgage of the
properties to RBC and CRB; and (3) it erred in not reconveying Lot No. 7036-A-7B to them.[32]
Intervenor Evangeline del Rosario filed a separate appeal with the Court of
Appeals. It was, however, dismissed in a Resolution dated 20 September 1993
for her failure to pay docket fees. Thus, she lost her standing as an appellant.[33]
On 27 May 1997, the Court of Appeals rendered its assailed Decision[34] reversing
the RTCs judgment. The dispositive portion reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET
ASIDE. Accordingly, judgment is hereby rendered as follows:
1.
Declaring the heirs of Teodoro dela Cruz the lawful owners of the southern half portion and
Evangeline Hernandez-del Rosario the northern half portion of Lot No. 7036-A-7, now covered by
TCT Nos. T-149375 to T-149382, inclusive;
2.
Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V. Marquez
and the Madrid brothers covering said Lot 7036-A-7;
3.
Declaring null and void the mortgage made by defendant Pacifico V. Marquez of Lot Nos.
7036-A-7-A, 7036-A-7-B, 7036-A-7-C and 7036-A-7-D in favor of the defendant Consolidated Rural
Bank and of Lot 7036-A-7-E in favor of defendant Rural Bank of Cauayan; and
4.
Ordering Pacifico V. Marquez to reconvey Lot 7036-A-7 to the heirs of Teodoro dela Cruz and
Evangeline Hernandez-del Rosario.
No pronouncement as to costs.SO ORDERED.[35]

In upholding the claim of the Heirs, the Court of Appeals held that Marquez failed
to prove that he was a purchaser in good faith and for value. It noted that while
Marquez was the first registrant, there was no showing that the registration of the
deed of sale in his favor was coupled with good faith. Marquez admitted having
knowledge that the subject property was being taken by the Heirs at the time of
the sale.[36] The Heirs were also in possession of the land at the time. According
to the Decision, these circumstances along with the subject propertys attractive
locationit was situated along the National Highway and was across a gasoline
stationshould have put Marquez on inquiry as to its status. Instead, Marquez
closed his eyes to these matters and failed to exercise the ordinary care expected
of a buyer of real estate.[37]
Anent the mortgagees RBC and CRB, the Court of Appeals found that they merely
relied on the certificates of title of the mortgaged properties. They did not
ascertain the status and condition thereof according to standard banking practice.
For failure to observe the ordinary banking procedure, the Court of Appeals
considered them to have acted in bad faith and on that basis declared null and
void the mortgages made by Marquez in their favor.[38]
63

Dissatisfied, CRB filed a Motion for Reconsideration[39] pointing out, among others,
that the Decision promulgated on 27 May 1997 failed to establish good faith on
the part of the Heirs. Absent proof of possession in good faith, CRB avers, the
Heirs cannot claim ownership over the subject property.
In a Resolution[40] dated 5 January 1998, the Court of Appeals stressed its
disbelief in CRBs allegation that it did not merely rely on the certificates of title of
the properties and that it conducted credit investigation and standard ocular
inspection. But recalling that intervenor Evangeline del Rosario had lost her
standing as an appellant, the Court of Appeals accordingly modified its
previous Decision, as follows:
WHEREFORE, the decision dated May 27, 1997, is hereby MODIFIED to read as
follows:
WHEREFORE, the decision appealed from is hereby REVERSED and SET
ASIDE insofar as plaintiffs-appellants are concerned. Accordingly, judgment is
hereby rendered as follows:
1.
Declaring the Heirs of Teodoro dela Cruz the lawful owners of the southern half
portion of Lot No. 7036-A-7;
2.
Declaring null and void the deed of sale dated June 15, 1976 between Pacifico V.
Marquez and the Madrid brothers insofar as the southern half portion of Lot NO. (sic)
7036-A-7 is concerned;
3.
Declaring the mortgage made by defendant Pacifico V. Marquez in favor of
defendant Consolidated Rural Bank (Cagayan Valley) and defendant Rural Bank of
Cauayan as null and void insofar as the southern half portion of Lot No. 7036-A-7 is
concerned;
4.
Ordering defendant Pacifico V. Marquez to reconvey the southern portion of Lot No.
7036-A-7 to the Heirs of Teodoro dela Cruz.
No pronouncement as to costs.SO ORDERED.[41]

Hence, the instant CRB petition. However, both Marquez and RBC elected
not to challenge the Decision of the appellate court.
Petitioner CRB, in essence, alleges that the Court of Appeals committed serious
error of law in upholding the Heirs ownership claim over the subject property
considering that there was no finding that they acted in good faith in taking
possession thereof nor was there proof that the first buyers, Gamiao and Dayag,
ever took possession of the subject property. CRB also makes issue of the fact
that the sale to Gamiao and Dayag was confirmed a day ahead of the actual sale,
clearly evincing bad faith, it adds. Further, CRB asserts Marquezs right over the
property being its registered owner.
The petition is devoid of merit. However, the dismissal of the petition is justified by
reasons different from those employed by the Court of Appeals.
Like the lower court, the appellate court resolved the present controversy by
applying the rule on double sale provided in Article 1544 of the Civil Code. They,
however, arrived at different conclusions. The RTC made CRB and the other
defendants win, while the Court of Appeals decided the case in favor of the Heirs.

Article 1544 of the Civil Code reads, thus:

ART. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
The provision is not applicable in the present case. It contemplates a case of
double or multiple sales by a single vendor. More specifically, it covers a situation
where a single vendor sold one and the same immovable property to two or more
buyers.[42] According to a noted civil law author, it is necessary that the
conveyance must have been made by a party who has an existing right in the
thing and the power to dispose of it.[43] It cannot be invoked where the two different
contracts of sale are made by two different persons, one of them not being the
owner of the property sold.[44] And even if the sale was made by the same person,
if the second sale was made when such person was no longer the owner of the
property, because it had been acquired by the first purchaser in full dominion, the
second purchaser cannot acquire any right.[45]
In the case at bar, the subject property was not transferred to several purchasers
by a single vendor. In the first deed of sale, the vendors were Gamiao and Dayag
whose right to the subject property originated from their acquisition thereof from
Rizal Madrid with the conformity of all the other Madrid brothers in 1957, followed
by their declaration of the property in its entirety for taxation purposes in their
names. On the other hand, the vendors in the other or later deed were the Madrid
brothers but at that time they were no longer the owners since they had long
before disposed of the property in favor of Gamiao and Dayag.
Citing Manresa, the Court of Appeals in 1936 had occasion to explain the proper
application of Article 1473 of the Old Civil Code (now Article 1544 of the New Civil
Code) in the case ofCarpio v. Exevea,[46] thus:
In order that tradition may be considered performed, it is necessary that the
requisites which it implies must have been fulfilled, and one of the indispensable
requisites, according to the most exact Roman concept, is that the conveyor had
the right and the will to convey the thing. The intention to transfer is not sufficient;
it only constitutes the will. It is, furthermore, necessary that the conveyor could
juridically perform that act; that he had the right to do so, since a right which he
did not possess could not be vested by him in the transferee.
This is what Article 1473 has failed to express: the necessity for the preexistence
of the right on the part of the conveyor. But even if the article does not express it,
it would be understood, in our opinion, that that circumstance constitutes one of
the assumptions upon which the article is based.
64

This construction is not repugnant to the text of Article 1473, and not only is it not
contrary to it, but it explains and justifies the same. (Vol. 10, 4th ed., p. 159)[47]
In that case, the property was transferred to the first purchaser in 1908 by its
original owner, Juan Millante. Thereafter, it was sold to plaintiff Carpio in June
1929. Both conveyances were unregistered. On the same date that the property
was sold to the plaintiff, Juan Millante sold the same to defendant Exevea. This
time, the sale was registered in the Registry of Deeds. But despite the fact of
registration in defendants favor, the Court of Appeals found for the plaintiff and
refused to apply the provisions of Art. 1473 of the Old Civil Code, reasoning that
on the date of the execution of the document, Exhibit 1, Juan Millante did not and
could not have any right whatsoever to the parcel of land in question.[48]
Citing a portion of a judgment dated 24 November 1894 of the Supreme Court of
Spain, the Court of Appeals elucidated further:
Article 1473 of the Civil Code presupposes the right of the vendor to dispose of
the thing sold, and does not limit or alter in this respect the provisions of the
Mortgage Law in force, which upholds the principle that registration does not
validate acts or contracts which are void, and that although acts and contracts
executed by persons who, in the Registry, appear to be entitled to do so are not
invalidated once recorded, even if afterwards the right of such vendor is annulled
or resolved by virtue of a previous unrecorded title, nevertheless this refers only to
third parties.[49]
In a situation where not all the requisites are present which would warrant the
application of Art. 1544, the principle of prior tempore, potior jure or simply he
who is first in time is preferred in right, [50] should apply.[51] The only essential
requisite of this rule is priority in time; in other words, the only one who can invoke
this is the first vendee. Undisputedly, he is a purchaser in good faith because at
the time he bought the real property, there was still no sale to a second vendee.
[52]
In the instant case, the sale to the Heirs by Gamiao and Dayag, who first
bought it from Rizal Madrid, was anterior to the sale by the Madrid brothers to
Marquez. The Heirs also had possessed the subject property first in time. Thus,
applying the principle, the Heirs, without a scintilla of doubt, have a superior right
to the subject property.
Moreover, it is an established principle that no one can give what one does not
havenemo dat quod non habet. Accordingly, one can sell only what one owns or
is authorized to sell, and the buyer can acquire no more than what the seller can
transfer legally.[53] In this case, since the Madrid brothers were no longer the
owners of the subject property at the time of the sale to Marquez, the latter did not
acquire any right to it.
In any event, assuming arguendo that Article 1544 applies to the present case, the
claim of Marquez still cannot prevail over the right of the Heirs since according to
the evidence he was not a purchaser and registrant in good faith.

Following Article 1544, in the double sale of an immovable,

the rules of preference are:
(a) the first registrant in good faith;
(b) should there be no entry, the first in possession in good
faith; and
(c) in the absence thereof, the buyer who presents the
oldest title in good faith. [54]
Prior registration of the subject property does not by itself confer ownership
or a better right over the property. Article 1544 requires that before the second
buyer can obtain priority over the first, he must show that he acted in good faith
throughout (i.e., in ignorance of the first sale and of the first buyers rights)from
the time of acquisition until the title is transferred to him by registration or failing
registration, by delivery of possession.[55]
In the instant case, the actions of Marquez have not
satisfied the requirement of good faith from the time of the
purchase of the subject property to the time of
registration. Found by the Court of Appeals, Marquez knew
at the time of the sale that the subject property was being
claimed or taken by the Heirs. This was a detail which
could indicate a defect in the vendors title which he failed
to inquire into. Marquez also admitted that he did not take
possession of the property and at the time he testified he
did not even know who was in possession. Thus, he testified on direct
examination in the RTC as follows:ATTY. CALIXTO
Q
Can you tell us the circumstances to your buying the land in question?
A
In 1976 the Madrid brothers confessed to me their problems about their lots
in San Mateo that they were being taken by Teodoro dela Cruz and Atty. Teofilo A.
Leonin; that they have to pay the lawyers fee of P10,000.00 otherwise Atty.
Leonin will confiscate the land. So they begged me to buy their properties, some
of it. So that on June 3, 1976, they came to Cabagan where I was and gave
them P14,000.00, I think. We have talked that they will execute the deed of sale.
Q
Why is it, doctor, that you have already this deed of sale, Exh. 14, why did
you find it necessary to have this Deed of Confirmation of a Prior Sale, Exh. 15?
A
Because as I said a while ago that the first deed of sale was submitted to
the Register of Deeds by Romeo Badua so that I said that because when I
became a Municipal Health Officer in San Mateo, Isabela, I heard so many
rumors, so many things about the land and so I requested them to execute a deed
of confirmation.[56]
...
ATTY. CALIXTO65

Q
At present, who is in possession on the Riceland portion of the lot in
question?
A
I can not say because the people working on that are changing from time to
time.
Q
Why, have you not taken over the cultivation of the land in question?
A
Well, the Dela Cruzes are prohibiting that we will occupy the place.
Q
So, you do not have any possession?
A
None, sir.[57]
One who purchases real property which is in actual possession of others should,
at least, make some inquiry concerning the rights of those in possession. The
actual possession by people other than the vendor should, at least, put the
purchaser upon inquiry. He can scarcely, in the absence of such inquiry, be
regarded as a bona fide purchaser as against such possessions.[58] The rule
of caveat emptor requires the purchaser to be aware of the supposed title of the
vendor and one who buys without checking the vendors title takes all the risks
and losses consequent to such failure.[59]
It is further perplexing that Marquez did not fight for the possession of the property
if it were true that he had a better right to it. In our opinion, there were
circumstances at the time of the sale, and even at the time of registration, which
would reasonably require a purchaser of real property to investigate to determine
whether defects existed in his vendors title. Instead, Marquez willfully closed his
eyes to the possibility of the existence of these flaws. For failure to exercise the
measure of precaution which may be required of a prudent man in a like situation,
he cannot be called a purchaser in good faith.[60]
As this Court explained in the case of Spouses Mathay v. Court of Appeals:[61]
Although it is a recognized principle that a person dealing on a registered land
need not go beyond its certificate of title, it is also a firmly settled rule that where
there are circumstances which would put a party on guard and prompt him to
investigate or inspect the property being sold to him, such as the presence of
occupants/tenants thereon, it is, of course, expected from the purchaser of a
valued piece of land to inquire first into the status or nature of possession of the
occupants, i.e., whether or not the occupants possess the land en concepto de
dueo, in concept of owner. As is the common practice in the real estate industry,
an ocular inspection of the premises involved is a safeguard a cautious and
prudent purchaser usually takes. Should he find out that the land he intends to
buy is occupied by anybody else other than the seller who, as in this case, is not
in actual possession, it would then be incumbent upon the purchaser to verify the
extent of the occupants possessory rights. The failure of a prospective buyer to
take such precautionary steps would mean negligence on his part and would
thereby preclude him from claiming or invoking the rights of a purchaser in good
faith.[62]

This rule equally applies to mortgagees of real property. In the case of

Crisostomo v. Court of Appeals,[63] the Court held:
It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to
facts which should put a reasonable man upon his guard, and then claim that he
acted in good faith under the belief that there was no defect in the title of the
vendor or mortgagor. His mere refusal to believe that such defect exists, or his
willful closing of his eyes to the possibility of the existence of a defect in the
vendors or mortgagors title, will not make him an innocent purchaser or
mortgagee for value, if it afterwards develops that the title was in fact defective,
and it appears that he had such notice of the defects as would have led to its
discovery had he acted with the measure of a prudent man in a like situation.[64]
Banks, their business being impressed with public interest, are expected to
exercise more care and prudence than private individuals in their dealings, even
those involving registered lands. Hence, for merely relying on the certificates of
title and for its failure to ascertain the status of the mortgaged properties as is the
standard procedure in its operations, we agree with the Court of Appeals that CRB
is a mortgagee in bad faith.
In this connection, Marquezs obstention of title to the property and the
subsequent transfer thereof to CRB cannot help the latters cause. In a situation
where a party has actual knowledge of the claimants actual, open and notorious
possession of the disputed property at the time of registration, as in this case, the
actual notice and knowledge are equivalent to registration, because to hold
otherwise would be to tolerate fraud and the Torrens system cannot be used to
shield fraud. [65]
While certificates of title are indefeasible, unassailable and binding against the
whole world, they merely confirm or record title already existing and vested. They
cannot be used to protect a usurper from the true owner, nor can they be used for
the perpetration of fraud; neither do they permit one to enrich himself at the
expense of others.[66]
We also find that the Court of Appeals did not err in awarding the subject property
to the Heirs absent proof of good faith in their possession of the subject property
and without any showing of possession thereof by Gamiao and Dayag.
As correctly argued by the Heirs in their Comment,[67] the requirement of good
faith in the possession of the property finds no application in cases where there is
no second sale.[68] In the case at bar, Teodoro dela Cruz took possession of the
property in 1964 long before the sale to Marquez transpired in 1976 and a
considerable length of timeeighteen (18) years in factbefore the Heirs had
knowledge of the registration of said sale in 1982. As Article 526 of the Civil Code
aptly provides, (H)e is deemed a possessor in good faith who is not aware that
there exists in his title or mode of acquisition any flaw which invalidates it. Thus,
there was no need for the appellate court to consider the issue of good faith or
bad faith with regard to Teodoro dela Cruzs possession of the subject property.
66

Likewise, we are of the opinion that it is not necessary that there should be any
finding of possession by Gamiao and Dayag of the subject property. It should be
recalled that the regularity of the sale to Gamiao and Dayag was never contested
by Marquez.[69] In fact the RTC upheld the validity of this sale, holding that the
Madrid brothers are bound by the sale by virtue of their confirmation thereof in
the Joint Affidavit dated 14 August 1957. That this was executed a day ahead of
the actual sale on 15 August 1957 does not diminish its integrity as it was made
before there was even any shadow of controversy regarding the ownership of the
subject property.
Moreover, as this Court declared in the case of Heirs of Simplicio Santiago v.
Heirs of Mariano E. Santiago,[70] tax declarations are good indicia of possession
in the concept of an owner, for no one in his right mind would be paying taxes for
a property that is not in his actual or constructive possession.[71]
WHEREFORE, the Petition is DENIED. The dispositive portion of the Court of
Appeals Decision, as modified by its Resolution dated 5 January 1998, is
AFFIRMED. Costs against petitioner.
SO ORDERED.

67

Republic of the PhilippinesSupreme CourtBaguio City

SECOND DIVISION
THE ROMAN CATHOLIC CHURCH,
G.R. No. 174118
represented by the Archbishop of
Caceres,
Present:
Petitioner
CARPIO, J., Chairperson,
,
BRION,
PEREZ,
SERENO, and
REYES, JJ.
- versus Promulgated:
April
11, 2012
REGINO
PANTE,
Respond
ent.

x------------------------------------------------------------------------------x
DECISION
BRION, J.:
Through a petition for review on certiorari,[1] the petitioner Roman Catholic
Church (Church) seeks to set aside the May 18, 2006 decision[2] and the August
11, 2006 resolution[3] of the Court of Appeals (CA) in CA-G.R.-CV No. 65069. The
CA reversed the July 30, 1999 decision [4] of the Regional Trial Court (RTC) of
Naga City, Branch 24, in Civil Case No. 94-3286.
THE FACTUAL ANTECEDENTS
The Church, represented by the Archbishop of Caceres, owned a 32-square meter
lot that measured 2x16 meters located in Barangay Dinaga, Canaman, Camarines
Sur.[5]On September 25, 1992, the Church contracted with respondent Regino
Pante for the sale of the lot (thru a Contract to Sell and to Buy [6]) on the belief that
the latter was an actual occupant of the lot. The contract between them fixed the
purchase price at P11,200.00, with the initial P1,120.00 payable as down
payment, and the remaining balance payable in three years or until September 25,
1995.
On June 28, 1994, the Church sold in favor of the spouses Nestor and
Fidela Rubi (spouses Rubi) a 215-square meter lot that included the lot previously
sold to Pante. The spouses Rubi asserted their ownership by erecting a concrete
fence over the lot sold to Pante, effectively blocking Pante and his familys access
from their family home to the municipal road. As no settlement could be reached
between the parties, Pante instituted with the RTC an action to annul the sale
between the Church and the spouses Rubi, insofar as it included the lot previously
sold to him.[7]
The Church filed its answer with a counterclaim, seeking the annulment of its
contract with Pante. The Church alleged that its consent to the contract was obtained by
fraud when Pante, in bad faith, misrepresented that he had been an actual occupant of the
lot sold to him, when in truth, he was merely using the 32-square meter lot as a
passageway from his house to the town proper. It contended that it was its policy to sell

its lots only to actual occupants. Since the spouses Rubi and their predecessors-ininterest have long been occupying the 215-square meter lot that included the 32-square
meter lot sold to Pante, the Church claimed that the spouses Rubi were the rightful
buyers.

During pre-trial, the following admissions and stipulations of facts were

made:
1. The lot claimed by Pante is a strip of land measuring only 2x16 meters;
2. The lot had been sold by the Church to Pante on September 25, 1992;
3. The lot was included in the sale to the spouses Rubi by the Church; and
4. Pante expressly manifested and represented to the Church that he had been actually
occupying the lot he offered to buy.[8]

In a decision dated July 30, 1999,[9] the RTC ruled in favor of the Church, finding
that the Churchs consent to the sale was secured through Pantes misrepresentation that
he was an occupant of the 32-square meter lot. Contrary to his claim, Pante was only
using the lot as a passageway; the Churchs policy, however, was to sell its lots only to
those who actually occupy and reside thereon. As the Churchs consent was secured
through its mistaken belief that Pante was a qualified occupant, the RTC annulled the
contract between the Church and Pante, pursuant to Article 1390 of the Civil Code. [10]
The RTC further noted that full payment of the purchase price was made only on
September 23, 1995, when Pante consigned the balance of P10,905.00 with the RTC,
after the Church refused to accept the tendered amount. It considered the three-year
delay in completing the payment fatal to Pantes claim over the subject lot; it ruled that if
Pante had been prompt in paying the price, then the Church would have been estopped
from selling the lot to the spouses Rubi. In light of Pantes delay and his admission that
the subject lot had been actually occupied by the spouses Rubis predecessors, the RTC
upheld the sale in favor of the spouses Rubi.

Pante appealed the RTCs decision with the CA. In a decision dated May
18, 2006,[11] the CA granted Pantes appeal and reversed the RTCs ruling. The
CA characterized the contract between Pante and the Church as a contract of
sale, since the Church made no express reservation of ownership until full
payment of the price is made. In fact, the contract gave the Church the right to
repurchase in case Pante fails to pay the installments within the grace period
provided; the CA ruled that the right to repurchase is unnecessary if ownership
has not already been transferred to the buyer.
Even assuming that the contract had been a contract to sell, the CA declared that
Pante fulfilled the condition precedent when he consigned the balance within the
three-year period allowed under the parties agreement; upon full payment, Pante
fully complied with the terms of his contract with the Church.
After recognizing the validity of the sale to Pante and noting the subsequent sale
to the spouses Rubi, the CA proceeded to apply the rules on double sales in
Article 1544 of the Civil Code:
Article 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
68

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is good faith.
[Emphasis ours.]
Since neither of the two sales was registered, the CA upheld the full effectiveness
of the sale in favor of Pante who first possessed the lot by using it as a
passageway since 1963.

mistake, violence, intimidation, undue influence, or fraud, the contract is deemed

voidable.[15] However, not every mistake renders a contract voidable. The Civil
Code clarifies the nature of mistake that vitiates consent:
Article 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have been the principal
cause of the contract.

The Church filed the present petition for review on certiorari under Rule 45 of the
Rules of Court to contest the CAs ruling.
THE PETITION
The Church contends that the sale of the lot to Pante is voidable under Article 1390
of the Civil Code, which states:

A simple mistake of account shall give rise to its correction. [Emphasis ours.]
For mistake as to the qualification of one of the parties to vitiate consent, two requisites must concur:
1. the mistake must be either with regard to the identity or with regard to the qualification of one of
the contracting parties; and
2. the identity or qualification must have been the principal consideration for the celebration of the
contract.[16]

Article 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court.
They are susceptible of ratification. [Emphasis ours.]
It points out that, during trial, Pante already admitted knowing that the spouses
Rubi have been residing on the lot. Despite this knowledge, Pante
misrepresented himself as an occupant because he knew of the Churchs policy to
sell lands only to occupants or residents thereof. It thus claims that Pantes
misrepresentation effectively vitiated its consent to the sale; hence, the contract
should be nullified.
For the Church, the presence of fraud and misrepresentation that would suffice to
annul the sale is the primary issue that the tribunals below should have
resolved. Instead, the CA opted to characterize the contract between the Church
and Pante, considered it as a contract of sale, and, after such characterization,
proceeded to resolve the case in Pantes favor. The Church objects to this
approach, on the principal argument that there could not have been a contract at
all considering that its consent had been vitiated.
THE COURTS RULING
The Court resolves to deny the petition.
No misrepresentation existed vitiating thesellers consent and invalidating
the contract
Consent is an essential requisite of contracts[12] as it pertains to the meeting of the
offer and the acceptance upon the thing and the cause which constitute the
contract.[13] To create a valid contract, the meeting of the minds must be free,
voluntary, willful and with a reasonable understanding of the various obligations
the parties assumed for themselves.[14] Where consent, however, is given through

In the present case, the Church contends that its consent to sell the lot was given
on the mistaken impression arising from Pantes fraudulent misrepresentation that
he had been the actual occupant of the lot. Willful misrepresentation existed
because of its policy to sell its lands only to their actual occupants or residents.
Thus, it considers the buyers actual occupancy or residence over the subject lot a
qualification necessary to induce it to sell the lot.
Whether the facts, established during trial, support this contention shall determine
if the contract between the Church and Pante should be annulled. In the process
of weighing the evidentiary value of these established facts, the courts should
consider both the parties objectives and the subjective aspects of the transaction,
specifically, the parties circumstances their condition, relationship, and other
attributes and their conduct at the time of and subsequent to the contract. These
considerations will show what influence the alleged error exerted on the parties
and their intelligent, free, and voluntary consent to the contract.[17]
Contrary to the Churchs contention, the actual occupancy or residency of a buyer
over the land does not appear to be a necessary qualification that the Church
requires before it could sell its land. Had this been indeed its policy, then neither
Pante nor the spouses Rubi would qualify as buyers of the 32-square meter lot, as
none of them actually occupied or resided on the lot. We note in this regard that
the lot was only a 2x16-meter strip of rural land used as a passageway from
Pantes house to the municipal road.
We find well-taken Pantes argument that, given the size of the lot, it could serve no other
purpose than as a mere passageway; it is unthinkable to consider that a 2x16-meter strip
of land could be mistaken as anyones residence. In fact, the spouses Rubi were in
possession of the adjacent lot, but they never asserted possession over the 2x16-meter lot
when the 1994 sale was made in their favor; it was only then that they constructed the
concrete fence blocking the passageway.

We find it unlikely that Pante could successfully misrepresent himself as the

actual occupant of the lot; this was a fact that the Church (which has a parish
69

chapel in the same barangay where the lot was located) could easily verify had it
conducted an ocular inspection of its own property. The surrounding
circumstances actually indicate that the Church was aware that Pante was using
the lot merely as a passageway.
The above view is supported by the sketch plan, [18] attached to the contract
executed by the Church and Pante, which clearly labeled the 2x16-meter lot as a
RIGHT OF WAY; below these words was written the name of Mr. Regino
Pante. Asked during cross-examination where the sketch plan came from, Pante
answered that it was from the Archbishops Palace; neither the Church nor the
spouses Rubi contradicted this statement.[19]
The records further reveal that the sales of the Churchs lots were made after a series of
conferences with the occupants of the lots. [20] The then parish priest of Canaman, Fr.
Marcaida, was apparently aware that Pante was not an actual occupant, but nonetheless,
he allowed the sale of the lot to Pante, subject to the approval of the Archdioceses
Oeconomous. Relying on Fr. Marcaidas recommendation and finding nothing
objectionable, Fr. Ragay (the Archdioceses Oeconomous) approved the sale to Pante.
The above facts, in our view, establish that there could not have been a deliberate,
willful, or fraudulent act committed by Pante that misled the Church into giving its
consent to the sale of the subject lot in his favor. That Pante was not an actual
occupant of the lot he purchased was a fact that the Church either ignored or waived as a
requirement. In any case, the Church was by no means led to believe or do so by Pantes
act; there had been no vitiation of the Churchs consent to the sale of the lot to
Pante.
From another perspective, any finding of bad faith, if one is to be made , should be

imputed to the Church. Without securing a court ruling on the validity of its
contract with Pante, the Church sold the subject property to the spouses Rubi.
Article 1390 of the Civil Code declares that voidable contracts are binding, unless
annulled by a proper court action. From the time the sale to Pante was made and
up until it sold the subject property to the spouses Rubi, the Church made no
move to reject the contract with Pante; it did not even return the down payment he
paid. The Churchs bad faith in selling the lot to Rubi without annulling its contract
with Pante negates its claim for damages.
In the absence of any vitiation of consent, the contract between the Church and Pante
stands valid and existing. Any delay by Pante in paying the full price could not nullify the
contract, since (as correctly observed by the CA) it was a contract of sale. By its terms,
the contract did not provide a stipulation that the Church retained ownership until full
payment of the price.[21] The right to repurchase given to the Church in case Pante fails to
pay within the grace period provided [22] would have been unnecessary had ownership not
already passed to Pante.
The rule on double sales
The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale that
called for the application of the rules in Article 1544 of the Civil Code:

Article 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who
in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person

who in good faith was first in the possession; and, in the absence thereof, to
the person who presents the oldest title, provided there is good faith. [Emphasis
ours.]
As neither Pante nor the spouses Rubi registered the sale in their favor, the
question now is who, between the two, was first in possession of the property in
good faith.
Jurisprudence has interpreted possession in Article 1544 of the Civil Code to
mean both actual physical delivery and constructive delivery.[23] Under either
mode of delivery, the facts show that Pante was the first to acquire possession of
the lot.
Actual delivery of a thing sold occurs when it is placed under the control
and possession of the vendee.[24] Pante claimed that he had been using the lot as
a passageway, with the Churchs permission, since 1963. After purchasing the lot
in 1992, he continued using it as a passageway until he was prevented by the
spouses Rubis concrete fence over the lot in 1994. Pantes use of the lot as a
passageway after the 1992 sale in his favor was a clear assertion of his right of
ownership that preceded the spouses Rubis claim of ownership.
Pante also stated that he had placed electric connections and water pipes on the
lot, even before he purchased it in 1992, and the existence of these connections
and pipes was known to the spouses Rubi.[25] Thus, any assertion of possession
over the lot by the spouses Rubi (e.g., the construction of a concrete fence) would
be considered as made in bad faith because works had already existed on the lot
indicating possession by another. [A] buyer of real property in the possession of
persons other than the seller must be wary and should investigate the rights of
those in possession. Without such inquiry, the buyer can hardly be regarded as a
buyer in good faith and cannot have any right over the property."[26]
Delivery of a thing sold may also be made constructively. Article 1498 of the Civil
Code states that:
Article 1498. When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be inferred .

Under this provision, the sale in favor of Pante would have to be upheld since the
contract executed between the Church and Pante was duly notarized, converting
the deed into a public instrument.[27] In Navera v. Court of Appeals,[28] the Court
ruled that:
[A]fter the sale of a realty by means of a public instrument, the vendor, who resells it to
another, does not transmit anything to the second vendee, and if the latter, by virtue of this

70

second sale, takes material possession of the thing, he does it as mere detainer, and it
would be unjust to protect this detention against the rights of the thing lawfully acquired by
the first vendee.
Thus, under either mode of delivery, Pante acquired prior possession of the lot.
WHEREFORE, we DENY the petition for review on certiorari, and AFFIRM the decision of
the Court of Appeals dated May 18, 2006, and its resolution dated August 11, 2006, issued
in CA-G.R.-CV No. 65069. Costs against the Roman Catholic Church.
SO ORDERED.

71

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[1] 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 Tuguegarao Cadastre, located
at the Poblacion of Tuguegarao and covered by Transfer Certificate of Title No. T5790. The parties executed a Deed of Sale[2] 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.[3]
When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao sent
a letter[4] to Iringan 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, [5] 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.[6]

In response, Palao sent a letter dated January 10, 1986, [7] 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[8] 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.[9] The parties failed to arrive at an agreement.
On July 1, 1991, Palao filed a Complaint[10] for Judicial Confirmation of Rescission
of Contract and Damages against Iringan and his wife.
In their Answer,[11] 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[12] 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.[13]
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.[14]
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[15] 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.[16]
In the case of Villaruel v. Tan King,[17] 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. [18]

72

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.[19]

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[20] 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,[21] 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,
[22]
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.[23] The right cannot be exercised solely on a
partys own judgment that the other committed a breach of the obligation.[24] The
operative act which produces the resolution of the contract is the decree of the
court and not the mere act of the vendor. [25] 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[26] before the RTC, he
complied with the requirement of the law for judicial decree of rescission. The
complaint[27] 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.[28] In Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.,[29] we held
that even a crossclaim found in the Answer could constitute a judicial demand for
rescission that satisfies the requirement of the law.[30]
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.[31]
This provision of law applies to rescissible contracts,[32] as enumerated and defined in Articles
1380[33] and 1381.[34] We must stress however, that the rescission in Article 1381 is not akin to the
term rescission in Article 1191 and Article 1592.[35] 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. [36]

The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in
Article 1144,[37] 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 [38] 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.
[39]
Petitioner would have us reverse the said CA findings based on the exception [40] 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[41] and in the deposition[42] of respondent, such fact was made known to
petitioner during their negotiations as well as in the letters sent to petitioner by
Palao.[43] 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.[44] 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
73

Trial Court decision and deleting the award of attorneys fees, is hereby
AFFIRMED. Costs against the petitioner.
SO ORDERED.

74

SECOND DIVISION
[G.R. No. 120747. September 21, 2000]
VICENTE GOMEZ, as successor-in-interest of awardee LUISA GOMEZ, petitioner, vs. COURT
OF APPEALS, City of MANILA acting thru the City Tenants Security Committee now the Urban
Settlement Office, Register of Deeds of Manila, respondents.
DECISION
BUENA, J.:

Sought to be reversed in this petition for review on certiorari under Rule 45 of the Rules of
Court is the decision[1] of the Court of Appeals in C.A. G.R. Sp. No. 32101 promulgated on
22 February 1995 which annulled and set aside the decision of the Regional Trial Court of
Manila, Branch 12 in Civil Case No. 51930.
Impugned similarly is the resolution [2] of the Court of Appeals dated 29 June 1995 denying
petitioners motion for reconsideration.
From the records, we find the following antecedents:
Pursuant to the Land for the Landless Program of the City of Manila and in accordance
with City Ordinance No. 6880, the Office of City Mayor issued Resolution No. 16-A,
[3]
Series of 1978, dated 17 May 1978, which effectively set guidelines and criteria for the
award of city home lots to qualified and deserving applicants. Attached to said resolution
and made as integral part thereof was a Contract to Sell [4] that further laid down terms and
conditions which the lot awardee must comply with.

On 30 June 1978, the City of Manila, through the City Tenants Security Committee
(CTSC) presently known as the Urban Settlement Office (URBAN), passed
Resolution 17-78[5]which in effect awarded to 46 applicants, 37 homelots in the
former Ampil-Gorospe estate located in Tondo, Manila. Luisa Gomez,
predecessor-in-interest of herein petitioner Vicente Gomez, was awarded Lot 4,
Block 1, subject to the provisions of Resolution No. 3-78 of the CTSC and
building, subdivision and zoning rules and regulations.
Consequently, a certificate of award[6]dated 02 July 1978 was granted by the
CTSC in favor of Luisa Gomez, who paid the purchase price of the lot in the
amount of P3,556.00 on installment basis,[7] said payments being duly covered by
official receipts.
In 1979, Luisa Gomez traveled to the Unites States of America but returned to the
Philippines in the same year.
On 18 January 1980, Luisa Gomez finally paid in full the P 3,556.00 purchase
price of the lot. Despite the full payment, Luisa still paid in installment an amount
of P8,244.00, in excess of the purchase price, which the City of Manila, through
the CTSC, accepted. Additionally, the lot was declared for taxation purposes and
the corresponding real estate taxes thereon paid from 1980-1988. In 1982, Luisa,
together with her spouse Daniel, left again for the United States of America where
she died[8] on 09 January 1983. She is survived by her husband and four children,
namely, Ramona G. Takorda, Edgardo Gomez, Erlinda G. Pena, and Rebecca G.
Dizon.[9]
Subsequently, in a memorandum dated 07 February 1984, the Urban Settlements Officer and
Member-Executive Secretary of the CTSC directed the Western Police District, City Hall

Detachment, to conduct an investigation regarding reported violations of the terms and conditions of
the award committed by the lot awardees.
Thus, on 23 November 1984, a team headed by Pfc. Reynaldo Cristobal of the Western Police
District, proceeded to the former Ampil-Gorospe estate where the subject lots are located, and
conducted an investigation of alleged violations thereat.
On 19 December 1984, team leader Pfc. Reynaldo Cristobal rendered an investigation
report[10] addressed to the City Mayor of Manila, as Chairman of the CTSC, stating, among others,
the following findings:
X X X After the said operation, it was found out that of all the lot awardees in the said estate, the
following were confirmed to have violated the terms and conditions of their respective awards as
indicated opposite their names, to wit:
X X X 2. Name of awardee : Daniel Gomez

Address : No. 2557-C Juan Luna St. Tondo, Manila

Violation: The place was found actually occupied by Mrs. Erlinda Perez and her
family together with Mr. Mignony Lorghas and family, who are paying monthly
rentals of P 210.00 each to Vicente Gomez, brother of awardee. Daniel Gomez is
now presently residing in the United States of America and only returns for
vacation once in a while as a Balikbayan X X X.
Thus, on 01 July 1986, the CTSC, headed by then City Mayor Gemiliano Lopez,
Jr. as Chairman, issued Resolution No. 015-86,[11] adopting the findings of the
investigation report submitted by Pfc. Cristobal, and ordering the cancellation of
the lot awards of Daniel Gomez and other awardees who were found to have
committed violations, and further declaring the forfeiture of payments made by
said awardees as reasonable compensation for the use of the homelots.
In a letter[12] dated 04 August 1986, herein petitioner Vicente Gomez, acting as
attorney-in-fact[13] of his brother Daniel Gomez (spouse of Luisa Gomez) asked for
reconsideration of the CTSC resolution revoking the award of the lot.
On 28 June 1988, Daniel Gomez, spouse of awardee Luisa Gomez, died in the
United States of America. Eventually, on 01 February 1989, the surviving children
of the deceased spouses, who were American citizens and residents of the United
States of America, executed an affidavit of adjudication with deed of
donation[14] disposing gratuitously Lot No. 1, Block 4, in favor of their uncle Vicente
Gomez.
On 20 February 1989, petitioner Vicente Gomez filed a memorandum[15] before the
CTSC praying that Resolution 15-86 be set aside and that the award of the lot be
restored to Luisa Gomez, or her heirs or successor-in-interest , preferably Vicente
Gomez.
Thereafter, two supplemental memoranda, dated 26 July 1989[16] and 10 January
1990,[17] were submitted by petitioner before the CTSC reiterating the prayer in the
initial memorandum.
On 05 February 1990, herein petitioner filed before the Regional Trial Court (RTC)
of Manila, Branch 12, a petition for certiorari, prohibition and mandamus docketed
as Civil Case No. 90-51930, entitled Vicente Gomez, as successor-in-interest of

75

Awardee, Luisa Gomez, petitioner, versus City Tenants Security Committee (now
Urban Settlement Office) and Register of Deeds of Manila, respondents.
In an order[18] dated 24 April 1990, the lower court directed the petitioner to amend
its petition so as to implead the proper government agency.
Hence, petitioner filed an amended petition[19] impleading the City of Manila as
respondent, to which the latter submitted an answer.[20]
Accordingly, after the presentation of evidence, the lower court promulgated its
decision[21] dated 20 January 1993, the decretal portion of which reads:
Wherefore, the petition is hereby granted :
1. Ordering the City of Manila through its agency the City Tenants Security Committee (now Urban
Settlement Office) to set aside the order of cancellation of the award for Lot No. 4, Block 1 (formerly
of the Ampil-Gorospe estate) in favor of Luisa Gomez, her heirs and successor-in-interest, the herein
petitioner;
2. Prohibiting the City of Manila through its agency including the Register of Deeds of Manila from
awarding the same lot and issuing the corresponding certificate of title therefor to any other person;
3. Ordering the City of Manila through its agency the City Tenants Security Committee (now Urban
Settlement Office) to execute a Deed of Absolute Sale over the aforementioned lot in favor of the
petitioner as successor-in-interest of the awardee and further ordering them to stop and/or refrain
from disturbing the peaceful physical possession thereof of (sic) the petitioner; and
4. Ordering the City of Manila through its agency the City Tenants Security Committee (now Urban
Settlement Office) to refund to the petitioner his overpayments amounting to P8,244.00 and to pay
the costs of suit.

On appeal, the Court of Appeals reversed the lower courts decision prompting
petitioner to file a motion for reconsideration which the appellate court
denied via its assailed resolution dated 29 June 1995.
Hence, the instant appeal where the core of controversy revolves around the
propriety of CTSCs act of canceling the lot award, through Resolution No. 015-86,
and further declaring the forfeiture of amounts paid by the awardee, as reasonable
compensation for the use of the home lot.
The petition is unmeritorious.
A thorough scrutiny of the records and an even more exhaustive perusal of the
evidence, both documentary and testimonial, would lead to the inevitable
conclusion that the fact of cancellation of the award covering Lot 4, Block 1, by the
City of Manila, acting through the CTSC, was properly exercised within the
bounds of law and contractual stipulation between the parties.
Viewed broadly, petitioner anchors his case on the premise, albeit erroneous, that
upon full payment of the purchase price of the lot in January 1980, Luisa Gomez,
actual awardee, already acquired a vested right over the real property subject of
the present controversy. Thus, according to petitioner, upon the death of Luisa
Gomez on 09 January 1983, the alleged vested right was transmitted by operation
of law to her lawful heirs, pursuant to Article 777 of the Civil Code. Additionally,
petitioner submits that by virtue of the affidavit of adjudication with Deed of
Donation executed on 01 February 1989 in his favor by the surviving children of
Luisa, he, in effect, became the successor-in-interest of Luisa and thus entitled to
whatever rights enjoyed by the latter over the property.

In the light of existing law and jurisprudence and based on the evidence adduced,
this Court finds difficulty giving credence and weight to petitioners
submissions. We therefore rule that the cancellation of the award of Lot 4, Block
1, through the expediency of Resolution No. 015-86, was proper.
Primarily, it must be stressed that the contract entered into between the City of
Manila and awardee Luisa Gomez was not one of sale but a contract to sell,
which, under both statutory and case law, has its own attributes, peculiarities and
effects.
Speaking through Mr. Justice Florenz Regalado, this Court in Adelfa Properties,
Inc. vs. Court of Appeals,[22] mapped out the bold distinctions between these
species of contracts, to wit:
In a contract of sale, the title passes to the vendee upon the delivery of the thing
sold; whereas in a contract to sell, by agreement, the ownership is reserved in the
vendor and is not to pass until the full payment of the price. In a contract of sale,
the vendor has lost and cannot recover ownership until and unless the contract is
resolved or rescinded; whereas in a contract to sell, title is retained by the vendor
until the full payment of the purchase price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from being effective. Thus, a
deed of sale is considered absolute in nature where there is neither a stipulation in
the deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period.
To our mind, however, this pronouncement should not curtail the right of the
parties in a contract to sell to provide additional stipulations, nor bar them from
imposing conditions relative to the transfer of ownership.
To be sure, a contract of sale may either be absolute or conditional. One form of
conditional sales is what is now popularly termed as a Contract to Sell, where
ownership or title is retained until the fulfillment of a positive suspensive
condition normally the payment of the purchase price in the manner agreed upon.
[23]
(Emphasis ours)
From the above disquisition in Galang and applying Article 1306 of the Civil Code,
the contracting parties are accorded the liberality and freedom to establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided the same are not contrary to law, morals, good custom, public order or
public policy. In the law on contracts, such fundamental principle is known as the
autonomy of contracts.
Under the present circumstances, we see no hindrance that prohibits the parties
from stipulating other lawful conditions, aside from full payment of the purchase
price, which they pledge to bind themselves and upon which transfer of ownership
depends.

76

In the instant case, we uphold the Contract to Sell, duly annexed and attached to
Resolution 16-A, which explicitly provides for additional terms and conditions upon which
the lot awardees are bound. Although unsigned, the Contract to Sell, in addition to the
provisions of Resolution 16-A, constitutes the law between the contracting parties. After
all, under the law there exists a binding contract between the parties whose minds have
met on a certain matter notwithstanding that they did not affix their signatures to its written
form.[24]
For a contract, like a contract to sell, involves a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. Contracts, in general, are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance absolute. [25]

As to the matter of acceptance, the same may be evidenced by some acts, or

conduct, communicated to the offeror, either in a formal or an informal manner,
that clearly manifest the intention or determination to accept the offer to buy or
sell.[26]
In the case at bar, acceptance on the part of the vendee was manifested through
a plethora of acts, such as payment of the purchase price, declaration of the
property for taxation purposes, and payment of real estate taxes thereon, and
similar acts showing vendee's assent to the contract.
Verily, Resolution 16-A and the Contract to Sell which was annexed, attached and
made to form part of said resolution, clearly laid down the terms and conditions
which the awardee-vendee must comply with. Accordingly, as an awardee, Luisa
Gomez, her heirs and successors-in-interest alike, are duty-bound to perform the
correlative obligations embodied in Resolution 16-A and the Contract to Sell.
Resolution 16-A, Series of 1978, explicitly provides that aside from the
requirement of Filipino citizenship and legal age, the basic criteria for award of the
lot pursuant to the Land for the Landless Program of the City of Manila shall be
the following:
a) Occupancy - The applicant must be the legal and actual or physical occupant
of the lot in question at the time of its acquisition by the City. He must be the
owner of the house and lot, must be using the same for his residential purposes,
and must have had a lessee-lessor relationship with the previous owner of the
land or landed estate of which the subject lot is a part.
b) Non-ownership of land - The applicant and/or his spouse, if he is married,
must not be an owner of any parcel of land in Manila, Metropolitan Manila or
elsewhere in the Philippines. Neither must he and/or his spouse be a prospective
owner or a buyer on installment basis of any lot other than that which he is
occupying and for which he is applying for award from the City.
c) Capacity to pay- The applicant must have such financial means and/or
support as will enable him to make regular payments of amortizations or
installments for the lot if the same is awarded to him.

Of equal importance are the essential terms and conditions embraced in the
Contract to Sell, which awardee Luisa Gomez, her heirs and successors-ininterest, violated, to wit:
X X X Par.(3). The vendee shall occupy and use the lot exclusively for
his/her residential purpose . X X X
X X X Par. (5). The vendee hereby warrants and declares under oath that he/she
is a bonafide and actual occupant and tenant of the lot; X X X and that he/she fully
understands that any false statement or misrepresentation hereof (sic) shall be
sufficient cause for the automatic cancellation of his/her rights under this
agreement as well as ground for criminal prosecution.
Par. (6). Until complete payment of the purchase price and compliance with
all the vendees obligations herein, title to the lot remains in the name of the
owner. During the effectivity of this agreement, however, the owner may transfer
its title or assign its rights and interest under this agreement to any person,
corporation, bank or financial institution.
Title shall pass to the vendee upon execution of a final deed of sale in his/her
favor. X X X
Par. (8). In order not to defeat the purpose of this social land reform
program of the City of Manila, and to prevent real estate speculations within
twenty years from complete payment of the purchase price and execution of
the final deed of sale, the lot and residential house or improvement
thereon shall not be sold, transferred, mortgaged, leased or otherwise
alienated or encumbered without the written consent of the City Mayor.
Par. (9). During the effectivity of this agreement, the residential house or
improvement thereon shall not be leased, sold, transferred or otherwise
alienated by the vendee without the written consent of the owner. X X X
Par. (14). In the event that the vendee dies before full payment of the purchase
price of the lot, his/her surviving spouse, children heirs and/or successors-ininterest shall succeed in all his/her rights and interest, as well as assume
all/his/her obligations under this agreement.
Par. (15). This agreement shall be binding upon the heirs, executors and administrators of the
vendee. (emphasis ours)

Petitioner urges that awardee Luisa Gomez did not commit any violation of the lot award.
On the contrary, the records would indubitably show that Luisa Gomez, including her heirs
and successors-in-interest, have performed acts that constitute gross, if not brazen,
violation of the aforementioned terms and conditions of the award, as evidenced by the
investigation report submitted by Pfc. Cristobal, dated 19 December 1984.

Results of the investigation conducted on 23 November 1984, reveal that the lot
was actually occupied and leased by a certain Erlinda Perez and Mignony
Lorghas, together with their respective families, who were paying rentals to
petitioner Vicente Gomez for the lease of the subject premises.

77

Moreover, in a conference held on 13 January 1989 at the Office of the Acting

Urban Settlement Officer, Lorghas admitted that she has been leasing the
property and paying rent to petitioner Vicente Gomez, thus:[27]
Atty. Bernardo: Mrs. Lorghas, how long have you been renting the property?
Mrs. Lorghas: I was living there since 1960 until today. I was renting a small room downfloor (sic). When the
family of Mr. Gomez died, kami na ang tumira sa itaas until now.
Atty. Bernardo : Magkano ang upa mo?
Mrs. Lorghas: P300 a month.
Atty. Bernardo: Kanino?
Mrs. Lorghas: Kay Vicente Gomez.
Atty. Bernardo: Meron bang resibo?
Mrs. Lorghas: Wala po.
Atty. Bernardo: Noong 1973, kayo na rin ang nakatira sa lugar ni Gomez.
Mrs. Lorghas: Opo.

Certainly, said acts constitute a brazen transgression of Resolution 16-A and clear
contravention of the Contract to Sell, specifically par. (3), (8) and (9) thereof.
The contract provides in no uncertain terms, that the abovementioned terms and
conditions shall bind the heirs, executors and administrators of the vendee. The
contract further states that breach thereof would result to the automatic
cancellation of the vendees rights thereunder.
Thus, par.(10) (b) (a) of the Contract to Sell, which reads:
X X X any violation of the terms and conditions of this agreement shall automatically
cause the cancellation of the vendees rights under this agreement without necessity of
prior notice or judicial declaration X X X.
Such kind of stipulation was upheld by this Court in the Adelfa case where we
categorically declared that Article 1592 of the Civil Code, which requires rescission either
by judicial action, or notarial act, does not apply to a contract to sell. [28]
Moreover, judicial action for rescission of a contract is not necessary where the contract
provides for automatic rescission in case of breach, [29] as in the contract involved in the
present controversy.

Likewise, this Court sustains the forfeiture of the payments made by awardee as
reasonable compensation for the use of the lot. At this juncture, par. (1) of the
Contract to Sell furnishes support to this conclusion:
X X X In case of the cancellation of the vendees rights under this agreement as
hereinafter stipulated, all payments made by him/her shall be forfeited and
considered as rentals for the use of the lot X X X.
Further, Article 1486 of the Civil Code provides that a stipulation that the
installments or rents paid shall not be returned to the vendee or lessee shall be
valid insofar as the same may not be unconscionable under the circumstances.[30]
Applying the foregoing, we are of the considered view that the payment of the
purchase price of P3,556.00, constitutes fair and reasonable rental for the period
in which said property was under the control of awardee Luisa Gomez, her heirs
and successors-in-interest. Undeniably, the awardee together with her heirs and
successors-in-interest, have gained benefits, financial or otherwise, for a period of
eight years - from the time of actual award of the lot to the time of cancellation
thereof (1978-1986).

Nonetheless, we ought to stress that in the present case, forfeiture of the installments paid
as rentals, only applies to the purchase price of P3,556.00 and not to the overpayment of
the amount of P8,244.00.
Under these circumstances, the vendor should refund the amount of P8,244.00
representing the overpayment made, plus interest, to be computed in accordance with the
rule of thumb enunciated in the landmark case of Eastern Shipping Lines, Inc. vs. Court
of Appeals[31] and reiterated in the case of Philippine National Bank vs. Court of Appeals.[32]

For us to uphold the forfeiture of the amount representing the overpayment would
be to revolt against the dictates of justice and fairness. A contrary ruling would
unjustly enrich the vendor to the prejudice of the vendee.
In the same vein, the provisions of Article 777 of the Civil Code notwithstanding,
we hold that the surviving children of awardee Luisa Gomez are not qualified
transferees of Lot 4, Block 1 for failure to conform with the prerequisites set by
Resolution 16-A, to wit, Filipino citizenship and actual occupancy, which in the
present case, are basic criteria for the award of the lot, pursuant to the Land for
the Landless Program of the City of Manila.
The records reveal that the children of Luisa Gomez are American citizens and
permanent residents of the United States of America. Notably, Resolution 16-A
specifically enumerates Filipino citizenship and actual occupancy of the lot for
residential purposes, as qualifications for entitlement to the lot award. For this
court to consider said surviving children as qualified awardee-transferees would
render illusory the purposes for which Resolution 16-A and the Land for the
Landless Program of the City of Manila were adopted.
Even assuming arguendo that the surviving children of Luisa Gomez are entitled
to the lot by virtue of Article 777 of the Civil Code, said heirs nevertheless
abandoned their right when they violated the terms and conditions of the award by
donating the subject property to petitioner Vicente Gomez.
As paragraph (15) of the agreement provides that the heirs of the vendee shall be
bound thereby, it is then incumbent upon said heirs to render strict compliance
with the provisions thereof.
In particular, paragraph (8) of the Contract proscribes the sale, transfer, mortgage,
lease, alienation or encumbrance of the lot, residential house, or improvement
thereon, without the written consent of the City Mayor, within a period of twenty
(20) years from complete payment of the purchase price and execution of the final
deed of sale. The execution of the Deed of Donation by the surviving children of
Luisa Gomez on February 1, 1989, in favor of Vicente Gomez, was clearly within
the prohibited period of 20 years from the full payment of the purchase price on
January 18, 1980.
Without doubt, the prohibition applies to them.
Furthermore, the subject lot and residential house were occupied by, and leased
to, third persons, in crystalline and evident derogation of the terms of the award.
WHEREFORE, premises considered, the instant petition is DISMISSED for lack of
merit, and the assailed decision of the Court of Appeals with respect to the
78

cancellation of the award of Lot 4, Block 1, is AFFIRMED SUBJECT TO

MODIFICATION as to the forfeiture of amounts paid by the vendee.
As modified, the City of Manila, is hereby ordered to refund with dispatch the
amount of P8,244.00 representing the overpayment made by petitioner plus
interest.
SO ORDERED.

79

SECOND DIVISION
VIRGILIO A. CADUNGOG,
Petitioner,
- versus -

G.R. No. 161223

Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and CHICO-NAZARIO, JJ.
JOCELYN O. YAP,
Promulgated:
Respondent.
September 12, 2005
x------------------------------------ ----------- - - - x

DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of
Appeals (CA) in CA-G.R. CV No. 72761 which reversed and set aside the
Decision of the Regional Trial Court (RTC) of Oslob, Cebu, Branch 62, in Civil
Case No. OS-96-46.
Antecedents
Franklin Ong and his sister, Jocelyn Ong-Yap, are first cousins of Virgilio
Cadungog. Cresenciano Ong Aranas, the Municipal Mayor of Ginatilan, Cebu,
from 1955 to 1978,[2] is their uncle.
On August 17, 1979, Virgilio executed a Deed of Sale with Right of
Repurchase[3] in which he sold to his cousin, Franklin Ong, the following six
parcels of land located in Ginatilan, Cebu for P7,144.28:
Parcel Number
Tax Dec. No.
Area
1
2
3
4
5
6

000821
4978
29586
5478
5486
5486

1,170 square meters

1,444 square meters
4,257 square meters
1,140 square meters
980 square meters
1,020 square meters

Parcel Nos. 5 and 6 are located in Sitio Cayam, Ginatilan, Cebu.[4]

Under the deed, Virgilio had the right to repurchase the property within
10 years from the said date.[5]
Virgilio failed to redeem the property. Nevertheless, upon the prodding of
Franklin, Virgilio, who was merely a letter-carrier, executed a Deed of Absolute
Sale[6] in favor of Jocelyn in which it appears that he sold Parcel Nos. 1, 2 and 3
for the price of P5,000.00. Virgilio declared therein that he inherited Parcel Nos. 2
and 3 from his mother, Soledad, who inherited the same from her parents, Jose
Aranas and Basilia Rocaberte, under a Deed of Partition executed by their heirs.
Franklin signed as one of the witnesses to the deed.[7]
On December 23, 1996, Cresenciano Ong executed a Deed of Absolute
Sale of Parcel No. 2 in favor of the APC Group, Inc. for P32,380.00. Cresenciano
declared that he was the sole and absolute owner, in fee simple, of the said lot. [8]

On January 23, 1997, Virgilio executed a Deed of Absolute Sale of Parcel No. 1 in
favor of the APC Group, Inc. for P35,400.00, alleging therein that he was the sole
and exclusive owner of the property.[9]
When Franklin learned of the said sales, he objected. Virgilio, thus,
delivered to Franklin Check No. 0000997[10] dated May 24, 1997, drawn and
issued by Cresenciano against his account with the Prudential Bank, in the
amount of P25,000.00. Virgilio also delivered to Franklin Check No.
0000999[11] drawn and issued by Cresenciano against his account with the same
bank in the amount of P25,000.00. On May 26, 1997, Franklin signed Receipts
dated May 25 and 26, 1997, embodied in a piece of paper.[12] In the Receipt dated
May 26, 1997, Franklin acknowledged to have received the P25,000.00 check
representing full payment for the refund of the lot sold in Ginatilan.[13]
When Jocelyn learned that Virgilio had sold Parcel No. 1 to the APC
Group, Inc., she filed a criminal complaint for estafa against him. After the
requisite preliminary investigation, an Information for estafa was filed against
Virgilio with the RTC.
By way of riposte, Virgilio filed a Complaint before the RTC, on
December 8, 1998, against Jocelyn for the declaration of nullity of the September
30, 1991 Deed of Absolute Sale. He alleged therein that he had executed the
subject deed in favor of Jocelyn only because her brother, Franklin, had requested
him to do so to lessen Jocelyns tax liability in Canada. He also alleged that he
agreed to execute the deed on the belief that it would not be notarized, as no
consideration was involved. He further claimed that he informed Franklins
emissary (who brought the deed for his signature) that he owned Parcel No. 1,
Cresenciano owned Parcel No. 2, and he did not know who owned Parcel No. 3.
To his surprise, Jocelyn filed a criminal complaint for estafa against him before the
Provincial Prosecutors Office, and later an Information before the RTC of Oslob,
Cebu. He further claimed that he and his wife signed a one-page document; the
acknowledgment page was merely added to it, as it, in fact, did not contain their
signatures.
Virgilio further stated that his uncle, Cresenciano Ong, sold Parcel No. 2,
one of the lots included in the Deed of Sale dated September 30, 1991, to
the APC Group, Inc. He himself then sold Parcel No. 1, with an area of 1,770
square meters, to the same vendee for P35,400.00.
Virgilio prayed for the following reliefs:
WHEREFORE, in view of the foregoing premises, it is most respectfully prayed of
this Honorable Court that after notice and hearing judgment be rendered in favor
of plaintiff and against the defendant declaring the aforesaid Deed of Absolute
Sale as null and void from the very beginning for being without consideration and
the defendant be ordered to pay the plaintiff the following:
P200,000.00 as moral damages;
100,000.00 as exemplary damages;
20,000.00 as attorneys fee plus

80

P1,500.00 per court appearance;

10,000.00 as litigation expenses;

Other reliefs and remedies consistent with justice and equity are likewise rayed
for.[14]
In her answer with special and affirmative defenses, Jocelyn averred that the
Deed of Absolute Sale dated September 30, 1991 was genuine, and reflected the
true and correct intention of Virgilio as the vendor. She pointed out that the
document was notarized, a public document which carried evidentiary weight. She
further alleged that Virgilio had, in fact, previously sold the questioned lots through
a Deed of Sale with Right of Repurchase in favor of her brother Franklin. Her
brother then told her that, since Virgilio could no longer repurchase the subject
properties, it would be better for him to execute a Deed of Absolute Sale in her
favor. She denied Virgilios allegations that the subject deed was fictitious, and
averred that it was genuine in all respects and amply supported by valuable
consideration.
Jocelyn further averred that the filing of the instant case was a
subterfuge or a mere afterthought on the part of Virgilio, as a defense in the
criminal case for estafa she had filed against him. Moreover, Virgilio was in
estoppel, and could not now be heard to negate the contents of the deed of
absolute sale which he had previously executed in her favor.
Alleging that the complaint was filed in evident gross bad faith and that
she suffered untold mental anguish, sleepless nights, anxiety and besmirched
reputation, Jocelyn prayed that the case be dismissed, and that the following
amounts in damages be awarded to her: P500,000.00 as moral
damages; P100,000.00 as exemplary damage; P50,000.00 as attorneys fees;
and P100,000.00 as actual litigation expenses.[15]
The Testimonies of the Witnesses
Cresenciano Ong Aranas testified that he was the owner of Parcel No. 2,
which Virgilio had sold to Jocelyn. The said lot was part of a bigger parcel, with
an area of 1,619 square meters situated in Malatbo, Ginatilan Cebu. He sold the
said lot on December 23, 1996 to the APC Group, Inc., a mining company,
for P32,380.00 as evidenced by a Deed of Absolute Sale.[16] He admitted that he
allowed Virgilio to include the said lot in the Deed of Sale with Right of
Repurchase which Virgilio executed in favor of Franklin on August 17, 1979. He,
however, admitted that he did not execute any document authorizing Virgilio to sell
Parcel No. 2 since the latter was his nephew.[17]
Upon Virgilios prodding, he issued two checks: Check No.
[18]
0000997 for P25,000.00 on May 24, 1997, and Check No.
0000999[19] for P25,000.00 on May 26, 1997. These checks were issued to
redeem Parcel Nos. 1, 2 and 3, the lots subject of the Deed of Sale dated
September 30, 1991.[20] Franklin signed receipts for said checks.[21]

Ricardo Acojedo, caretaker of Virgilios properties and that of the Yap siblings,
testified that he was in Virgilios house when a certain Emok Dacillo brought a
deed of sale to be signed by Virgilio and his wife. He saw the couple sign the
document, but did not get to read it. There was no other person who signed the
document. After Virgilio said the document should not be notarized, he
immediately handed it over to Emok.[22]
Virgilio testified that he and his wife, Rebecca, were in their house on the
last week of September 1991, when Emok, an emissary of Franklin, arrived.
Emok showed him the Deed of Absolute Sale dated September 30, 1991, and told
him that Franklin wanted him and Rebecca to sign the deed. He read the
document and was sure that it consisted of only one page. He told the emissary
that he was the owner of Parcel No. 1; Parcel No. 2 was in the name of his uncle,
Cresenciano; while the records of Parcel No. 3 could no longer be found at the
Municipal Assessors Office. Nevertheless, he and his wife signed the deed. He
also claimed that he was able to repurchase the lots subject of the Deed of Sale
with Right of Repurchase on May 26, 1997 for P50,000.00 at the house of his
aunt, Tasiana Belarmino.
Virgilio admitted, however, that at the time he made the two payments, the period
to repurchase the subject parcels of land had already expired.[23]
The defendant did not testify in her behalf. Atty. Emmanuel P. Rama testified for
the defendant and declared that he notarized the subject deed, which to his
knowledge was prepared by Franklin Ong. He was then in the office of his
brother, who was the Vice-Governor of Cebu, when Franklin and Virgilio and his
wife, Rebecca, arrived to have the deed notarized.[24] However, Virgilio, his wife,
and the witnesses to the deed failed to sign on the left margin of its second page.
Franklin, a bachelor of laws graduate, testified that he was employed as
an Interpreter in Branch 14 of the Court of First Instance of Cebu;[25] he prepared
the deed of sale with right of repurchase which Virgilio executed on August 17,
1979 and the September 30, 1991 Deed of Absolute Sale which Virgilio and his
wife executed.[26] According to him, the lots subject of the complaint, together with
the other lots sold under the first deed of sale, were not repurchased by Virgilio.[27]
Franklin further narrated that sometime in 1991, Virgilio sought financial
help because his house was about to be foreclosed by the Development Bank of
the Philippines. He then gave P7,000.00 to Virgilio,and suggested that Parcel
Nos. 1, 2 and 3 be sold to Jocelyn to augment his contribution. Franklin, however,
agreed to buy Parcel Nos. 5 and 6 and inquired from Jocelyn if she was interested
to buy Parcel Nos. 1, 2 and 3; Jocelyn replied that she was.[28] He then prepared
a Deed of Absolute Sale over Parcel Nos. 1, 2 and 3, which Virgilio and his wife
signed on September 30, 1991 before Notary Public Emmanuel P. Rama. [29]
Virgilio agreed to sell the three lots for P5,000.00 only because the said amount
was in addition to the P7,144.28 paid for the six parcels of land earlier sold to
81

Franklin in 1979.[30] Franklin claimed he gave the P5,000.00 purchase price of the
property to Virgilio on September 30, 1991.[31]
Franklin declared that the receipts[32] for P50,000.00 which he signed
(and which Virgilio adduced in evidence) were refunds for Parcel Nos. 5 and 6
which he bought from Virgilio and later sold by the latter to the APC Group, Inc.;
they were not payments for the repurchase of the six parcels of land subject of the
first sale as Virgilio claimed.[33] After Jocelyn purchased Parcel Nos. 1, 2 and 3,
their sister Loreta and their mother took charge and administered the property,
and paid the realty taxes thereon.[34]
Taciana Aranas Belarmino, an aunt of Virgilio, Franklin and Jocelyn,
testified that she and her son, Fermin Belarmino, as well as her brother
Cresenciano, witnessed Franklin sign the receipts dated May 25 and 26, 1997, for
the total amount of P50,000.00, in their house. The payment was made to redeem
Parcel Nos. 5 and 6, which Virgilio sold to the APC Group, Inc. [35] Franklin
demanded P200,000.00, but Virgilio had only P50,000.00, (inclusive of
the P25,000.00 Virgilio borrowed from Cresenciano).[36]
By way of rebuttal, Virgilio presented Federico Erac, the Postmaster of Ginatilan,
who testified that he (Virgilio) was a letter-carrier and was at his place of work at
the post office on September 30, 1991; hence, he could not have signed the Deed
of Absolute Sale of Parcel Nos. 1, 2 and 3 in favor of Jocelyn in the Office of the
Vice-Governor on the said date before Notary Public Emmanuel Rama. [37] He
adduced in evidence his daily time record for September 30, 1991.[38]
After the trial, the court rendered judgment in favor of Virgilio.
The fallo of the decision reads:
WHEREFORE, the Deed of Absolute Sale dated September 30, 1991 allegedly
executed by plaintiff in favor of defendant is declared NULL and VOID. SO
ORDERED.[39]
The trial court held that, since Franklin failed to consolidate his title to the
parcels of land following the lapse of the 10-year period for Virgilio to redeem the
same, the period for redemption was deemed extended until the said lots were
repurchased on May 25 and 26, 1997, upon payment of P50,000.00 to Franklin.
The trial court ruled that there was a need for Franklin to consolidate the title over
the parcels of land by court proceedings. It also held that the Deed of Absolute
Sale dated September 30, 1991 had no consideration because the P5,000.00
stated therein, as the price of the property, was insufficient. Since the deed was
not supported by any consideration, it was null and void.
Jocelyn appealed the decision to the CA, assailing the trial courts ruling on the
following grounds:
-IThe Honorable Trial Court erred in ruling that there was no action on
the part of the defendant-appellant to consolidate the title in her name when
plaintiff-appellee failed to repurchase the properties subject matter of the deed of
sale with right to repurchase executed on August 17, 1979.

-IIThe Honorable Trial Court erred in ruling that on May 25 and 26, 1997
the amount of P50,000.00 was paid to the defendant-appellant through Franklin
Ong and upon acceptance of the latter the real properties subject matter of the
deed of sale with right to repurchase was deemed repurchased.
- III The Honorable Trial Court erred in ruling that the amount
of P5,000.00 is not sufficient consideration for the purchase of three parcels of
land.[40]
The CA reversed the ruling of the trial court. The dispositive portion reads:
WHEREFORE, the foregoing considered, the May 4, 2001 Decision of the
Regional Trial Court of Oslob, Cebu is REVERSED AND SET ASIDE. A new one
is entered declaring the Deed of Absolute Sale dated September 30, 1991
executed by Virgilio Cadungog in favor of Jocelyn Yap, valid and binding.
SO ORDERED.[41]
The appellate court held that the period to redeem the subject properties
had already elapsed as early as 1989, or 10 years after the execution of the Deed
of Sale with Right of Repurchase on August 17, 1979. In view of Virgilios failure to
redeem the same, he lost ownership over the disputed lots. Jocelyn acquired
ownership over the property when she purchased the same from Virgilio on
September 30, 1991 under the Deed of Absolute Sale. Citing Cruz v. Leis,[42] the
CA ruled that Jocelyn could not be faulted for not consolidating the title over the
subject lots, as the act of consolidating title is not a condition sine qua non to the
transfer of ownership. The appellate court declared that theP50,000.00 Franklin
received from Virgilio on May 25 and 26, 1997 was the refund of the cost of Parcel
Nos. 5 and 6 which Virgilio sold to the APC Group, Inc., the same lots sold to
Franklin in 1999.
The CA further stated that the inadequacy of the purchase price does ot per
se support the conclusion that the contract was a loan, or that the property was
not at all sold. Citing Abapo v. Court of Appeals[43] and Article 1355 of the Civil
Code, the CA ruled that such inadequacy of price is not sufficient to set aside the
sale, unless it is grossly inadequate or purely shocking to the conscience.
Moreover, except for his own self-serving testimony, Virgilio did not submit any
other testimony to refute the said sale.
Finally, the CA ruled that the subject deed of sale is a public document,
having been executed and attested through the intervention of a notary public; as
such, it is evidence of the facts therein expressed. While Virgilios officemate
testified that he could not have been present for the notarization of the said
document because he was at work on the said date, such testimony could not
negate the existence of the said deed.
Virgilio filed a motion for reconsideration, which the CA denied.
Virgilio, now the petitioner, assails the said ruling and ascribes to the appellate
court the following errors:
GROUND I

82

THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN

REVERSING THE DECISION OF THE RTC BRANCH 62 OF OSLOB, CEBU, DECLARING THE
DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991, COVERING THREE (3) PARCELS
OF LAND VALID AND BINDING AND IN NOT TAKING INTO ACCOUNT ITS FINDINGS WHICH
CONSIDERED THAT THE DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991,
COVERING THREE (3) PARCELS OF LAND IS NOT SUPPORTED BY ANY
CONSIDERATION AND DID NOT REFLECT THE TRUE INTENTION OF THE PARTIES, A
FICTITIOUS AND SIMULATED ONE, HENCE NON-EXISTENT AND VOIDAB INITIO.
GROUND II
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ALSO ERRED IN NOT
TAKING INTO CONSIDERATION THAT THE DEED OF ABSOLUTE SALE DATED SEPTEMBER
30, 1991, COVERING THREE (3) PARCELS OF LAND WAS TAINTED WITH DECEPTION AS
THE CONSENT WAS OBTAINED THROUGH DECEIT ANDDISHONEST MEANS.
GROUND III
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN NOT
TAKING INTO CONSIDERATION THAT SINCE THE DEED OF ABSOLUTE SALE DATED
SEPTEMBER 30, 1991, COVERING THREE PARCELS OF LAND, WHICH WAS COMPOSED
ORIGINALLY
OF
ONLY ONE (1) PAGE,
WAS
NOT
INTENDED
TO
BE
ACKNOWLEDGED AND NOTARIZED BY A NOTARY PUBLIC, WAS ALREADY COMPOSED OF
TWO (2) PAGES AND ACKNOWLEDGED AND NOTARIZED BY A NOTARY PUBLIC, THE
SECOND PAGE OF WHICH DID NOT CONTAIN THE SIGNATURES OF THE
PARTIES AND THEIR INSTRUMENTAL WITNESSES. APPARENTLY, THIS INDICATES A
FRAUDULENT ACT WORTHY OF CONSIDERATION OF THE HONORABLE COURT OF
APPEALS.
GROUND IV
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN NOT
TAKING INTO ACCOUNT OVER THE FACT THAT RESPONDENT FAILED TO CONSOLIDATE
HER
OWNERSHIP
OVER
THE
DISPUTED LAND SUBJECT
TO
THE
FICTITIOUS AND SIMULATED SALE DATED SEPTEMBER 30, 1991, COVERING THREE (3)
PARCELS OF LAND. APPARENTLY, INDICATING AN ACT CONTRADICTORY TO WHAT A
NORMAL PERSON MIGHT HAVE ACTED UNDER SIMILAR CIRCUMSTANCE.
GROUND V
THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN FAILING
TO UPHOLD THE FACTUAL FINDINGS OF THE RTC BRANCH 62 OF OSLOB, CEBU WHICH
WAS IN THE POSITION TO EVALUATE AND APPRECIATE THE MERITS OF THE CASE AND
HAD THE OPPORTUNITY OF OBSERVING THE DEMEANORAND SINCERITY OF THE
WITNESSES.[44]

The petitioner reiterates that the subject deed is fictitious and simulated,
having been executed merely to afford respondent Jocelyn Yap a claim for the
reduction of her tax liabilities in Canada. The petitioner points out that the true
intention of the parties was never that of sale, but only for accommodation
purposes.
The petitioner, likewise, points out that his cousin Franklin added a
second page to the one-page agreement and had it notarized; the second page of
the deed bore the acknowledgment of the notary public, which, however, did not
contain the signatures of the supposed parties and their instrumental witnesses.
According to the petitioner, Franklin, through false pretenses, succeeded in
obtaining his consent in executing a simulated deed of sale over the subject
parcel of land. Moreover, considering the clear and convincing evidence that he

was at work on the date the deed of sale was purportedly executed, the notary
public could not have notarized the document in his presence and the other
parties concerned. The petitioner insists that the transaction subject of the dispute
is wantonly devoid of any consideration, did not reflect the true intention of the
parties, and was obtained through fraudulent means, fictitious and simulated;
hence, void from the very beginning.
The petitioner further points out that after the supposed sale, the
respondent made no move to consolidate her ownership over the property, or
other similar behavior or acts of dominion.
Finally, the petitioner contends that it is the findings of the trial court
which should prevail, considering that it was in a better position to evaluate and
appreciate the merits of the case and had the opportunity to observe the
demeanor and sincerity of the witnesses presented.
The respondent, for her part, avers that the petitioner and his wife
appeared before Notary Public Emmanuel P. Rama and acknowledged the Deed
of Absolute Sale dated September 30, 1991. Such notarized deed enjoys the
presumption of regularity; there must be clear and convincing evidence to
contradict the same. The respondent insists that the petitioner failed to overturn
the testimony of Atty. Rama, and that his bare denial will not suffice to overcome
the positive value of the notarized document. The respondent further posits that
the appellate court correctly ruled that the consideration of the three lots
was P5,000.00, and that mere inadequacy of price is not sufficient to set aside a
contract of sale.
The respondent further alleges that the petition is one under Rule 45 of
the Rules of Court. Only errors of law, not of facts, are reviewable under the said
rule, and in this case, no error of law was alleged by the petitioner. Moreover, the
CA correctly held that the P50,000.00 was not a redemption price, but a refund of
the costs of Parcel Nos. 5 and 6, which the petitioner sold to APC Group, Inc.
The petition is meritorious.
We note that the issues raised by the petitioner are factual. Under Rule 45 of the
Rules of Court, only questions of law may be raised in a petition for review
on certiorari. However, the Court may delve into and resolve factual issues in
exceptional cases, such as when the finding of facts and the conclusions based
therein by the trial court are frontally inconsistent with those of the appellate court,
or that the factual findings of the trial court and appellate court are not based on
the evidence on record, or arbitrary or capricious.[45]
In the present case, the trial court held that the petitioner was able to
repurchase the 6 parcels of land on May 25 and 26, 1997, after the lapse of 18
years from the execution of the deed of sale with right of repurchase (August 17,
1979) when he paid to Franklin the total amount of P50,000.00. The court held
that the 10-year period fixed in the deed for the petitioner to repurchase the
property was deemed extended because Franklin failed to consolidate his title
83

over the property. On the other hand, the CA held that the petitioner failed to
repurchase the property, and that the respondent acquired ownership over Parcel
Nos. 1, 2 and 3 when the petitioner sold the same to her under the September 30,
1991 Deed of Absolute Sale.
We agree with the CA that the petitioner, as vendor a retro, failed to
repurchase the property within the 10-year period fixed by the parties in the Deed
of Sale with Right of Repurchase. Consequently, Franklin Ong, the vendee a
retro, had acquired absolute title and ownership over the six parcels of land after
August 17, 1979 when the petitioner, as vendor a retro, failed to repurchase the
same within the stipulated period.
A sale with pacto de retro transfers the legal title to the vendee a retro.
[46]
The essence of a pacto de retro sale is that the title and ownership of the
property sold are immediately vested in the vendee a retro, subject to the
resolutory condition of repurchase by a vendor a retro within the stipulated period.
[47]
Failure on the part of a vendor a retro to repurchase the property within the
period agreed upon by them, or, in the absence thereof, as provided for by law,
vests upon the vendee a retro absolute title and ownership over the property sold
by operation of law.[48] The failure of the vendee a retro to consolidate his title
under Art. 1607 of the New Civil Code does not impair such title and ownership
because the method prescribed thereunder is merely for the purpose of
registering and consolidating titles to the property.[49] Franklin Ong, and not the
petitioner, was the lawful owner of the six parcels of land. The petitioner, thus,
had no right to mortgage or sell the same to the respondent on September 30,
1991 under the deed of absolute sale. As the Latin adage goes: NEMO DAT
QUOD NON HABET.[50] Hence, the ruling of the CA that the respondent acquired
ownership over the three parcels of land from the petitioner under the Deed of
Absolute Sale dated September 30, 1991 is erroneous. Not being the owner of
the parcels of land, the petitioner could not have lawfully sold the same to the
respondent.

What is so worrisome is that Franklin, a law graduate, even induced the petitioner
to execute the deed of sale in favor of his sister, the respondent herein, despite
the fact that he, and not the petitioner, was the owner of the three parcels of land.
Franklin even falsely declared in the September 30, 1991 deed, which he
prepared for the petitioner, that the latter was the owner of the parcels of land,
when he knew, for a fact, that he was the lawful owner of the property. In fact,
when he learned that Cresenciano Ong Aranas had sold Parcel No. 2 to the APC
Group, Inc. and that the petitioner had also sold Parcel No. 1, Franklin vehemently
objected. He relented only when the petitioner gave theP50,000.00 to him in
consideration for his agreement to the said sale of Parcel Nos. 1 and 2 to the APC
Group, Inc. There is no evidence on record that the P50,000.00 which the
petitioner paid was a refund of the purchase price of Parcel Nos. 5 and 6 as
regards the sale to APC Group, Inc. In fact, there is no evidence on record to
show that the petitioner had sold Parcel Nos. 5 and 6 to the APC Group, Inc.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The decision of
the Court of Appeals in CA-G.R. CV No. 72761 is REVERSED and SET ASIDE.
The decision of the Regional Trial Court nullifying the September 30, 1991 Deed
of Absolute Sale executed by the petitioner in favor of the respondent
isREINSTATED. No costs.
SO ORDERED.

We are not convinced that the petitioner and the respondent had agreed to the
sale of Parcel Nos. 1, 2 and 3 for P5,000.00. The respondent was a resident of
Canada on September 30, 1991. There is no evidence that on or before said
date, the petitioner had talked to the respondent relative to the sale of the said
lots. Although Franklin testified that he talked to the respondent relative to the
sale and that the latter had agreed, no evidence was adduced to show a special
power of attorney authorizing him (Franklin) to agree to the purchase of the
property for P5,000.00. The declaration in the September 30, 1991 Deed of
Absolute Sale with Right of Repurchase, that the petitioner receivedP5,000.00
from the respondent on September 30, 1991, or prior thereto, is negated by the
fact that the respondent was then in Canada.

84

Republic of the Philippinesupreme CourtManilaTHIRD DIVISION

HEIRS OF JOSE REYES, JR., namely: MAGDALENA C.
REYES, OSCAR C. REYES, GAMALIEL C. REYES, NENITA
R. DELA CRUZ, RODOLFO C. REYES, and RODRIGO C.
REYES,
Petitioners,
-versus AMANDA S. REYES, CONSOLACION S. REYES, EUGENIA
R. ELVAMBUENA, LUCINA R. MENDOZA, PEDRITO S.
REYES, MERLINDA R. FAMODULAN, EDUARDO S. REYES,
and JUNE S. REYES,
Respondents.

G.R. No. 158377

Present:
CARPIO MORALES., Chairperson,
BRION,
BERSAMIN,
ABAD,* and
VILLARAMA, JR., JJ.
Promulgated:
August 13, 2010

x-----------------------------------------------------------------------------------------x
DECISION
BERSAMIN, J.:
The petitioners[1] assail the decision dated July 31, 2002 rendered in C.A.G.R. CV No. 53039,[2] by which the Court of Appeals (CA) affirmed the decision
dated May 21, 1996 of the Regional Trial Court (RTC), Branch 9, in Malolos,
Bulacan.[3]
Antecedents
Antonio Reyes and his wife, Leoncia Mag-isa Reyes (Leoncia), were owners of a
parcel of residential land with an area of 442 square meters, more or less, located
in Pulilan, Bulacan and covered by Tax Declaration No. 7590. On that land they
constructed their dwelling. The couple had four children, namely: Jose Reyes, Sr.
(Jose, Sr.), Teofilo Reyes (Teofilo), Jose Reyes, Jr. (Jose, Jr.) and Potenciana
Reyes-Valenzuela (Potenciana). Antonio Reyes died intestate, and was survived
by Leoncia and their three sons, Potenciana having predeceased her father.
Potenciana also died intestate, survived by her children, namely: Gloria
ReyesValenzuela, Maria Reyes Valenzuela, and Alfredo Reyes
Valenzuela.
Jose, Jr., and his family resided in the house of the parents, but
Teofilo constructed on the property his own house, where he and his family
resided.
On July 9, 1955, Leoncia and her three sons executed a deed
denominated Kasulatan ng Biling Mabibiling Muli,[4] whereby they sold the land
and its existing improvements to the Spouses Benedicto Francia and Monica
Ajoco (Spouses Francia) for P500.00, subject to the vendors right to repurchase
for the same amount sa oras na sila'y makinabang. Potencianas heirs did not
assent to that deed. Nonetheless, Teofilo and Jose, Jr. and their respective
families remained in possession of the property and paid the realty taxes thereon.
Leoncia and her children did not repay the amount of P500.00.
The Spouses Francia both died intestate (i.e., Monica Ajoco on September 16,
1963, and Benedicto Francia on January 13, 1964).

Alejandro Reyes (Alejandro), the son of Jose, Sr., first partially paid to the
Spouses Francia the amount of P265.00 for the obligation of Leoncia, his uncles
and his father. Alejandro later paid the balance of P235.00. Thus, on August 11,
1970, the heirs of Spouses Francia executed a deed entitled Pagsasa-ayos ng
Pag-aari at Pagsasalin,[5]whereby they transferred and conveyed to Alejandro all
their rights and interests in the property for P500.00.
On August 21, 1970, Alejandro excuted a Kasulatan ng Pagmeme-ari,[6] wherein
he declared that he had acquired all the rights and interests of the heirs of the
Spouses Francia, including the ownership of the property, after the vendors had
failed to repurchase within the given period. On the basis of the Kasulatan ng
Pagmeme-ari, Tax Declaration No. 3703 covering the property [7] was canceled by
Tax Declaration No. 8715,[8] effective 1971, issued to Alejandro. From then on, he
had paid the realty taxes for the property.
Nevertheless, on October 17, 1970, Alejandro, his grandmother (Leoncia),
and his father (Jose, Sr.) executed a Magkakalakip na Salaysay,[9] by which
Alejandro acknowledged the right of Leoncia, Jose, Jr., and Jose, Sr. to
repurchase the property at any time for the same amount of P500.00.
On October 22, 1970, Leoncia died intestate.[10] She was survived by
Jose, Sr., Teofilo, Jose, Jr. and the heirs of Potenciana. Even after Leonicas
death, Teofilo and Jose, Jr., with their respective families, continued to reside in
the property.
Subsequently, Tax Declaration 1228,[11] under the name of Alejandro, was
issued effective 1980. All of Leoncias sons eventually died intestate, survived by
their respective heirs, namely:
Name of Decedent
Teofilo
Jose,
Reyes,
Reyes,
herein),
Jose, Sr.

Jr.

Surviving Heirs
Romeo Reyes, Leonardo Reyes,
Rodrigo
Oscar

Reyes,

and Leonora C. Reyes

Nenita

ReyesReyes,

dela

Magdalena
Reyes
Efren Reyes and Amado Reyes dela

Cruz,

Rodolfo
Gamaliel
(petitioners

Cruz
Alejandro Reyes (respondents
predecessor)[12]

On September 2, 1993, Alejandro also died intestate.[13] Surviving him

were his wife, Amanda Reyes, and their children, namely: Consolacion Reyes,
Eugenia Reyes-Elvambuena, Luciana Reyes-Mendoza, Pedrito S. Reyes,
Merlinda Reyes-Famodulan, Eduardo Reyes and June S. Reyes (respondents
herein).
In 1994, respondent Amanda Reyes asked the heirs of Teofilo and Jose, Jr.,
to vacate the property because she and her children already needed it. After the
petitioners refused to comply, she filed a complaint against the petitioners in
85

the barangay, seeking their eviction from the property. When no amicable
settlement was reached, the Barangay Lupon issued a certification to file action to
the respondents on September 26, 1994.[14]
In the interim, petitioner Nenita R. de la Cruz and her brother Romeo Reyes also
constructed their respective houses on the property.[15]
RTC Proceedings and Ruling
On September 28, 1994, the respondents initiated ths suit for quieting of
title and reconveyance in the RTC.[16] The complaint, docketed as Civil Case No.
817-M-94 and entitled Amanda Reyes, et al. v. Heirs of Jose Reyes, Jr., et al., was
later amended.[17] They alleged that their predecessor Alejandro had acquired
ownership of the property by virtue of the deed Pagsasa-ayos ng Pag-aari at
Pagsasalin executed on August 11, 1970 by the heirs of the Spouses Francia; that
on the basis of such deed of assignment, Alejandro had consolidated his
ownership of the property via his Kasulatan ng Pagmeme-ari; and that under
the Magkasanib na Salaysay, Alejandro had granted to Leoncia, his father Jose,
Sr., and his uncles, Teofilo and Jose, Jr. the right to repurchase the property, but
they had failed to do so.
The respondents prayed for judgment in their favor, as follows:
WHEREFORE, it is respectfully prayed that judgment be rendered:
1. Quieting the title to the property by declaring the plaintiffs (respondents
herein) as the rightful and lawful owners thereof;
2. Ordering the defendants (petitioners herein) to vacate subject premises and
reconvey and or surrender possession thereof to the plaintiffs;
3. Ordering the defendants to recognize the right of the plaintiffs as the lawful
owners of subject property;
4. Ordering the defendants to pay plaintiffs the following:
a.
Moral damages in the amount of P50,000.00;
b. Exemplary damages in the amount of P20,000.00;
c.
Attorney's fees of P20,000.00, acceptance fee of P10,000.00 and P500.00
per recorded Court appearance of counsel;
d. The costs of this suit.
Plaintiffs further pray for such other relief which the Honorable Court may deem
just and equitable under the premises.[18]
In their answer,[19] the petitioners averred that the Kasulatan ng Biling
Mabibiling Muli was an equitable mortgage, not a pacto de retro sale; that the
mortgagors had retained ownership of the property; that the heirs of the Spouses
Francia could not have validly sold the property to Alejandro through
the Pagsasaayos ng Pag-aari at Pagsasalin; that Alejandros right was only to
seek reimbursement of the P500.00 he had paid from the co-owners, namely:
Leoncia, Teofilo, Jose, Jr. and Jose, Sr. and the heirs of Potenciana; and that
Alejandro could not have also validly consolidated ownership through

the Kasulatan ng Pagmeme-ari, because a consolidation of ownership could only

be effected via a court order.
The petitioners interposed a counterclaim for the declaration of the
transaction as an equitable mortgage, and of their property as owned in common
by all the heirs of Leoncia, Teofilo, Jose, Jr. and Jose, Sr.
On May 21, 1996, the RTC ruled in favor of the respondents, declaring that
Alejandro had acquired ownership of the property in 1965 by operation of law
upon the failure of the petitioners predecessors to repurchase the property; that
the joint affidavit executed by Alejandro, Leoncia and Jose, Jr. and Jose, Sr., to
extend the period of redemption was inefficacious, because there was no more
period to extend due to the redemption period having long lapsed by the time of its
execution; and that the action should be dismissed insofar as the heirs of
Potenciana were concerned, considering that Potenciana, who had predeceased
her parents, had no successional rights in the property.
Accordingly, the RTC decreed as follows:
WHEREFORE, on the basis of the evidence adduced and the law/jurisprudence
applicable thereon, judgment is hereby rendered:
a) sustaining the validity of the Kasulatan ng Biling Mabibiling Muli (Exh. B/Exh.
1) executed on July 9, 1955 by Leoncia Mag-isa and her sons Teofilo, Jose, Sr.
and Jose, Jr., all surnamed Reyes, in favor of Spouses Benedicto Francia and
Monica Ajoco as well as the Pagsasa-ayos ng Pag-aari at
Pagsasalin (Settlement of Estate and Assignment) [Exh. C/Exh. 4] executed
on August 11, 1970 by the heirs of spouses Benedicto Francia and Monica Ajoco
in favor of the spouses Alejandro Reyes and Amanda Salonga;
b) declaring the aforementioned Kasulatan Ng Biling Mabibili Muli (Exh. B/ Exh.
1) to be a contract of sale with right to repurchase and not an equitable
mortgage;
c) confirming the consolidation of ownership, by operation of law, of spouses
Alejandro M. Reyes and Amanda Salonga over the residential lot mentioned and
referred to in Exhibit B/Exhibit 1 and Exhibit C/Exhibit 4;
d) allowing the registration with the Registry of Deeds for
the Province of Bulacan of the Kasulatan ng Pagmeme-ari (Document of
Ownership) [Exh. E/Exh. 5] executed by Alejandro M. Reyes on August 21, 1970
or of any appropriate deed of consolidation of ownership over the residential lot
covered by Exhibit E/Exhibit 5 which the plaintiffs, as eventual owners by
succession of the aforementioned proeprty, may deem proper to execute;
e) ordering the defendants and all persons claiming rights under them to vacate
the residential lot subject of the above-entitled case and to restore possession
thereof unto the plaintiffs;
f) directing the defendants (except the heirs of Potenciana Reyes-Valenzuela) to
pay unto the plaintiffs the amount of P20,000.00 as attorney's fees; and

86

g) dismissing the complaint in so far as the defendant heirs of Potenciana

Reyes-Valenzuela are concerned as well as their counterclaim for damages and
attorney's fees.
No pronouncement as to costs.SO ORDERED. [20]
Aggrieved, the petitioners appealed to the CA.
CA Ruling
In the CA, the petitioners assailed the RTCs dispositions, except the
dismissal of the complaint as against Potencianas heirs.
In its decision dated July 31, 2002, the CA ruled that the transaction
covered by the Kasulatan ng Biling Mabibiling Muli was not a pacto de retro
sale but an equitable mortgage under Article 1602 of the Civil Code; that even
after the deeds execution, Leoncia, Teofilo, Jose, Jr. and their families had
remained in possession of the property and continued paying realty taxes for the
property; that the purported vendees had not declared the property for taxation
purposes under their own names; and that such circumstances proved that the
parties envisaged an equitable mortgage in the Kasulatan ng Biling Mabibiling
Muli.
The CA observed that the heirs of the Spouses Francia had themselves
admitted in paragraph 5 of the Pagsasa-ayos ng Pag-aari at Pagsasalin that the
property had been mortgaged to their predecessors-in-interest, viz:
Na, sa oras ng kamatayan ay nakaiwan sila ng isang lagay na lupang nakasanla sa
kanila na makikilala sa kasulatang kalakip nito sa halagang LIMANG DAANG PISO
(P500.00). Ngunit nuong nabubuhay pa ang magasawang Benedicto Francia at Monica
Ajoco ay nakatanggap na ng halagang P265.00 kay Alejandro Reyes - Filipino, kasal kay
Amanda Salonga, may sapat na gulang at naninirahan sa Pulilan, Bulacan.[21]
However, the CA held that the appellants (petitioners herein) failure to file an action
for the reformation of the Kasulatan ng Biling Mabibiling Muli to reflect the true intention of
the parties within ten years from the deeds execution on July 9, 1955, pursuant to Article
1144 of the Civil Code,[22] already barred them from claiming that the transaction executed
between Leoncia and her children, on one hand, and the Spouses Francia, on the other
hand, was an equitable mortgage. The CA agreed with the RTC that the Magkakalakip na
Salaysay did not effectively extend the period for Leoncia and her children to repurchase
the property, considering that the period to repurchase had long lapsed by the time the
agreement to extend it was executed on October 17, 1970.

Issues
In this appeal, therefore, the petitioners insist that:[23]
I.The Honorable Court of Appeals erred in finding that respondents (were) already
barred from claiming that the transaction entered into by their predecessors-ininterest was an equitable mortgage and not a pacto de retro sale;
II.The Honorable Court of Appeals erred in affirming the findings of the court a
quo that the Magkasanib na Salaysay (Joint Affidavit), executed by Alejandro,
Leoncia and Jose, Jr., wherein Leoncia and her children were granted by

Alejandro the right to repurchase the property at anytime for the amount of
P500.00, was of no legal significance.
Ruling of the Court
The petition is meritorious.
A.
The CA correctly concluded that the true agreement of the parties vis-vis the Kasulatan ng Biling Mabibiling Muli was an equitable mortgage, not
a pacto de retro sale. There was no dispute that the purported vendors had
continued in the possession of the property even after the execution of the
agreement; and that the property had remained declared for taxation purposes
under Leoncias name, with the realty taxes due being paid by Leoncia, despite
the execution of the agreement. Such established circumstances are among the
badges of an equitable mortgage enumerated in Article 1602, paragraphs 2 and 5
of the Civil Code, to wit:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of
the following cases:x x x
(2) When the vendor remains in possession as lessee or otherwise;x x x
(5) When the vendor binds himself to pay the taxes on the thing sold;x x x
The existence of any one of the conditions enumerated under Article 1602
of the Civil Code, not a concurrence of all or of a majority thereof, suffices to give
rise to the presumption that the contract is an equitable mortgage.
[24]
Consequently, the contract between the vendors and vendees (Spouses
Francia) was an equitable mortgage.
B Are the petitioners now barred from claiming that the transaction under
the Kasulatan ng Biling Mabibiling Muli was an equitable mortgage by their failure
to redeem the property for a long period of time?
The petitioners contend that prescription, if it must apply to them, should as
well be applied to the respondents, who had similarly failed to enforce their right
under the equitable mortgage within ten years from its execution on July 9, 1955.
Consequently, they urge the upholding of the original intention of the parties to
the Kasulatan ng Biling Mabibiling Muli, without taking prescription into account,
because both parties did not enforce their respective rights within the ten-year
prescriptive period, is more in keeping with fairness and equity.
We
agree with the petitioners.
Considering that sa oras na silay makinabang, the period of redemption
stated in the Kasulatan ng Biling Mabibiling Muli, signified that no definite period
had been stated, the period to redeem should be ten years from the execution of
the contract, pursuant to Articles 1142 and 1144 of the Civil Code.[25] Thus, the full
redemption price should have been paid by July 9, 1955; and upon the expiration
of said 10-year period, mortgagees Spouses Francia or their heirs should
have foreclosed the mortgage, but they did not do so. Instead, they accepted
Alejandros payments, until the debt was fully satisfied by August 11, 1970.
The acceptance of the payments even beyond the 10-year period of redemption
estopped the mortgagees heirs from insisting that the period to redeem the
87

property had already expired. Their actions impliedly recognized the continued
existence of the equitable mortgage. The conduct of the original parties as well as
of their successors-in-interest manifested that the parties to the Kasulatan ng
Biling Mabibiling Muli really intended their transaction to be an equitable
mortgage, not a pacto de retro sale.
In Cuyugan v. Santos,[26] the purported buyer under a so-called contract to sell with
right to repurchase also accepted partial payments from the purported seller. We held that
the acceptance of partial payments was absolutely incompatible with the idea of
irrevocability of the title of ownership of the purchaser upon the expiration of the term
stipulated in the original contract for the exercise of the right of redemption. Thereby, the
conduct of the parties manifested that they had intended the contract to be a mortgage,
not a pacto de retro sale.

C.
When Alejandro redeemed the property on August 11, 1970, he did not
thereby become a co-owner thereof, because his father Jose, Sr. was then still
alive. Alejandro merely became the assignee of the mortgage, and the property
continued to be co-owned by Leoncia and her sons Jose, Sr., Jose Jr., and
Teofilo. As an assignee of the mortgage and the mortgage credit, Alejandro
acquired only the rights of his assignors, nothing more. He himself confirmed so in
the Magkasanib na Salaysay, whereby he acknowledged the co-owners right to
redeem the property from him at any time (sa ano mang oras) for the
same redemption price of P500.00.
It is worthy to note that Alejandros confirmation in the Magkasanib na
Salaysay of the co-owners right to redeem was made despite 15 years having
meanwhile elapsed from the execution of the original Kasulatan ng Biling
Mabibiling Muli (July 9, 1955) until the execution of the Magkasanib na
Salaysay (August 21, 1970).
D.
Neither did the petitioners failure to initiate an action for reformation
within ten years from the execution of the Kasulatan ng Biling Mabibiling Muli bar
them from insisting on their rights in the property. The records show that the
parties in the Kasulatan ng Biling Mabibiling Muli had abided by their true
agreement under the deed, to the extent that they and their successors-in-interest
still deemed the agreement as an equitable mortgage despite the lapse of 15
years from the execution of the purported pacto de retro sale. Hence, an action for
reformation of the Kasulatan ng Biling Mabibiling Muli was unnecessary, if not
superfluous, considering that the reason underlying the requirement for an action
for reformation of instrument has been to ensure that the parties to a contract
abide by their true intended agreement.
The Kasulatan ng Pagmeme-ari executed by Alejandro on August 21,
1970 was ineffectual to predicate the exclusion of the petitioners and their
predecessors in interest from insisting on their claim to the property. Alejandros
being an assignee of the mortgage did not authorize him or his heirs to
appropriate the mortgaged property for himself without violating the prohibition
against pactum commissorium contained in Article 2088 of the Civil Code, to the

effect that [t]he creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them[;] [a]ny stipulation to the contrary is null and void.
Aptly did the Court hold in Montevirgen v. Court of Appeals:[27]
The declaration, therefore, in the decision of July 1, 1971 to the effect that
absolute ownership over the subject premises has become consolidated in the
respondents upon failure of the petitioners to pay their obligation within the
specified period, is a nullity, for consolidation of ownership is an improper and
inappropriate remedy to enforce a transaction declared to be one of mortgage. It
is the duty of respondents, as mortgagees, to foreclose the mortgage if he wishes
to secure a perfect title to the mortgaged property if he buys it in the foreclosure
sale.
Moreover, the respondents, as Alejandros heirs, were entirely bound by his previous acts as
their predecessors-in-interest. Thus, Alejandros acknowledgment of the effectivity of the equitable
mortgage agreement precluded the respondents from claiming that the property had been sold to
him with right to repurchase.[28]
E. What was the effect of the Magkasanib na Salaysay?

Both the trial court and the CA declared that the Magkasanib na
Salaysay, which extended the redemption period of the mortgaged property, was
inefficacious, because the period to redeem could no longer be extended after the
original redemption period had already expired.
In contrast, the petitioners submit that disregarding the Magkasanib na
Salaysay made no sense, considering that the respondents predecessors-ininterest admitted therein that the petitioners had a right to redeem the property.
The respondents counter, however, that the Magkasanib na Salaysay, which
acknowledged the other co-owners right to redeem the property, was void; that the
petitioners could no longer claim to be co-owners entitled to redeem the property, because
the co-ownership had come to an end by Alejandro having openly repudiated the coownership; that Alejandros acts of repudiation had consisted of: (a) redeeming the
property from the Spouses Francia; (b) acquiring the property from the heirs of
Spouses Francia by virtue of a deed of assignment denominated as Pag-aayos ng Pagaari at Pagsasalin; (c) executing an affidavit of consolidation of ownership over the
property (Kasulatan ng Pagmeme-ari); (d) applying for the cancellation of the tax
declaration of property in the name of Leoncia, and the subsequent issuance of a new tax
declaration in his name; (e) his continuous possession of the property from 1955, which
possession the respondents as his heirs had continued up to the present time, or for a
period of almost 50 years already; and (f) the payment of the taxes by Alejandro and the
respondents for more than 30 years without any contribution from the petitioners; and that
such repudiation established that Alejandro and his successors-in-interest had already
acquired sole title over the property through acquisitive prescription.

The respondents and the lower courts positions cannot be sustained.

The provisions of the Civil Code governing equitable ortgages disguised as sale contracts,
like the one herein, are primarily designed to curtail the evils brought about by contracts of sale with
right to repurchase, particularly the circumvention of the usury law and pactum commissorium.
[29]
Courts have taken judicial notice of the well-known fact that contracts of sale with right to
repurchase have been frequently resorted to in order to conceal the true nature of a contract, that is,

88

a loan secured by a mortgage. It is a reality that grave financial distress renders persons hardpressed to meet even their basic needs or to respond to an emergency, leaving no choice to them
but to sign deeds of absolute sale of property or deeds of sale with pacto de retro if only to obtain
the much-needed loan from unscrupulous money lenders. [30] This reality precisely explains why the
pertinent provision of the Civil Code includes a peculiar rule concerning the period of redemption, to
wit:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:x x x

(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;x x x
Ostensibly, the law allows a new period of redemption to be agreed upon or
granted even after the expiration of the equitable mortgagors right to repurchase,
and treats such extension as one of the indicators that the true agreement
between the parties is an equitable mortgage, not a sale with right to repurchase.
It was indubitable, therefore, that the Magkasanib na Salaysay effectively afforded
to Leoncia, Teofilo, Jose, Sr. and Jose, Jr. a fresh period within which to pay to
Alejandro the redemption price of P500.00.
F.Did Alejandro and his heirs (respondents herein) acquire the mortgaged
property through prescription?
It is true that Alejandro became a co-owner of the property by right of representation upon the
death of his father, Jose Sr. [31] As a co-owner, however, his possession was like that of a trustee and
was not regarded as adverse to his co-owners but in fact beneficial to all of them.[32]
Yet, the respondents except to the general rule, asserting that Alejandro, having earlier repudiated
the co-ownership, acquired ownership of the property through prescription.
The Court cannot accept the respondents posture.

In order that a co-owners possession may be deemed adverse to that of the cestui
que trust or the other co-owners, the following elements must concur:
1. The co-owner has performed unequivocal acts of repudiation of the co-ownership
amounting to an ouster of the cestui que trust or the other co-owners;
2. Such positive acts of repudiation have been made known to the cestui que trust or
the other co-owners;
3. The evidence on the repudiation is clear and conclusive; and
4. His possession is open, continuous, exclusive, and notorious.[33]

The concurrence of the foregoing elements was not established herein. For
one, Alejandro did not have adverse and exclusive possession of the property, as,
in fact, the other co-owners had continued to possess it, with Alejandro and his
heirs occupying only a portion of it. Neither did the cancellation of the previous tax
declarations in the name of Leoncia, the previous co-owner, and the issuance of a
new one in Alejandros name, and Alejandros payment of the realty taxes
constitute repudiation of the co-ownership. The sole fact of a co-owner declaring
the land in question in his name for taxation purposes and paying the land taxes
did not constitute an unequivocal act of repudiation amounting to an ouster of the
other co-owner and could not constitute adverse possession as basis for title by
prescription.[34] Moreover, according to Blatero v. Intermediate Appellate Court,[35] if

a sale a retro is construed as an equitable mortgage, then the execution of an

affidavit of consolidation by the purported buyer to consolidate ownership of the
parcel of land is of no consequence and the constructive possession of the
parcel of land will not ripen into ownership, because only possession acquired and
enjoyed in the concept of owner can serve as title for acquiring dominion.[36]
In fine, the respondents did not present proof showing that Alejandro
had effectively repudiated the co-ownership. Their bare claim that Alejandro had
made oral demands to vacate to his co-owners was self-serving and insufficient.
Alejandros execution of the affidavit of consolidation of ownership on August 21,
1970[37] and his subsequent execution on October 17, 1970 of the joint
affidavit[38] were really equivocal and ambivalent acts that did not manifest his
desire to repudiate the co-ownership.
The only unequivocal act of repudiation was done by the respondents
when they filed the instant action for quieting of title on September 28, 1994,
nearly a year after Alejandros death on September 2, 1993. However, their
possession could not ripen into ownership considering that their act of repudiation
was not coupled with their exclusivepossession of the property
G.
The respondents can only demand from the petitioners the partition of
the co-owned property and the reimbursement from their co-owners of the amount
advanced by Alejandro to repay the obligation. They may also seek from their coowners the proportional reimbursement of the realty taxes paid for the property,
pursuant to Article 488 of the Civil Code.[39] In the alternative, they may opt to
foreclose the equitable mortgage, considering that the petitioners period to
redeem the mortgaged property, which was ten years from the execution on
October 17, 1970 of the Magkakasanib na Salaysay, had already long lapsed. We
clarify, however, that the respondents may take these recourses only through the
appropriate actions commenced in court.
H.
The petitioners counterclaim for damages is dismissed for their failure
to prove their entitlement to it.[40]
WHEREFORE, we grant the petition for review on certiorari.
The decision dated July 31, 2002 rendered by the Court of Appeals is reversed
and set aside, and another judgment is rendered:
a) Upholding the validity of the Kasulatan ng Biling Mabibiling Muli (Deed of Sale
with Right of Repurchase) executed on July 9, 1955 by Leoncia Mag-isa Reyes
and her sons Teofilo, Jose, Sr. and Jose, Jr., all surnamed Reyes, in favor of the
late Spouses Benedicto Francia and Monica Ajoco as well as the Pagsasa-ayos
ng Pag-aari at Pagsasalin (Settlement of Estate and Assignment) executed on
August 11, 1970 by the heirs of the late Spouses Benedicto Francia and Monica
Ajoco in favor of the spouses Alejandro Reyes and Amanda Salonga;
b) Declaring the Kasulatan ng Biling Mabibili Muli to be an equitable mortgage,
not a contract of sale with right to repurchase;

89

c) Finding the Magkakalakip na Salaysay executed on October 17, 1970 by and

among Leoncia Mag-isa Reyes, Jose Reyes, Sr. and Alejandro Reyes valid and
effective;
c) Nullifying the Kasulatan ng Pagmeme-ari executed by Alejandro M. Reyes
on August 21, 1970; and

d) Dismissing the petitioners counterclaim.

Costs of suit to be paid by the respondents.
SO ORDERED.

90