Republic of the Philippines In May 1992, Napala offered to purchase from the Spouses

SUPREME COURT Tongson their 364-square meter parcel of land, situated in Davao
Manila City and covered by Transfer Certificate of Title (TCT) No.
143020, for P3,000,000. Finding the offer acceptable, the
SECOND DIVISION Spouses Tongson executed with Napala a Memorandum of
Agreement4 dated 8 May 1992.
G.R. No. 167874 January 15, 2010
On 2 December 1992, respondents lawyer Atty. Petronilo A.
SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON Raganas, Jr. prepared a Deed of Absolute Sale5 indicating the
substituted by his children namely: JOSE TONGSON, JR., consideration as only P400,000. When Carmen Tongson "noticed
RAUL TONGSON, TITA TONGSON, GLORIA TONGSON that the consideration was very low, she [complained] and called
ALMA TONGSON, Petitioners, the attention of Napala but the latter told her not to worry as he
vs. would be the one to pay for the taxes and she would receive the
EMERGENCY PAWNSHOP BULA, INC. and DANILO R. net amount of P3,000,000."6
NAPALA, Respondents.
To conform with the consideration stated in the Deed of Absolute
DECISION Sale, the parties executed another Memorandum of Agreement,
which allegedly replaced the first Memorandum of Agreement,7
CARPIO, J.: showing that the selling price of the land was only P400,000.8

The Case
Before the Court is a petition for review1 of the 31 August 2004
Decision2 and 10 March 2005 Resolution3 of the Court of Appeals
in CA-G.R. CV No. 58242. In the 31 August 2004 Decision, the
Court of Appeals partially granted the appeal filed by Emergency
Pawnshop Bula, Inc. (EPBI) and Danilo R. Napala (Napala) by
modifying the decision of the trial court. In the 10 March 2005
Resolution, the Court of Appeals denied the motion for partial
reconsideration filed by the Spouses Jose C. Tongson and
Carmen S. Tongson (Spouses Tongson).
The Facts
1
Upon signing the Deed of Absolute Sale, Napala paid P200,000
in cash to the Spouses Tongson and issued a postdated
Philippine National Bank (PNB) check in the amount of
P2,800,000,9 representing the remaining balance of the purchase
price of the subject property. Thereafter, TCT No. 143020 was
cancelled and TCT No. T-186128 was issued in the name of
EPBI.10
When presented for payment, the PNB check was dishonored for
the reason "Drawn Against Insufficient Funds." Despite the
Spouses Tongson's repeated demands to either pay the full value
of the check or to return the subject parcel of land, Napala failed
to do either. Left with no other recourse, the Spouses Tongson
filed with the Regional Trial Court, Branch 16, Davao City a
Complaint for Annulment of Contract and Damages with a Prayer
for the Issuance of a Temporary Restraining Order and a Writ of I Annulling the contract entered into by the plaintiffs with
Preliminary Injunction.11 the defendants;

In their Answer, respondents countered that Napala had already II Declaring the writs of preliminary injunctions issued
delivered to the Spouses Tongson the amount of P2,800,000 permanent;
representing the face value of the PNB check, as evidenced by a
receipt issued by the Spouses Tongson. Respondents pointed III Ordering defendants to:
out that the Spouses Tongson never returned the PNB check
claiming that it was misplaced. Respondents asserted that the 1) reconvey the property subject matter of the case
payment they made rendered the filing of the complaint to the plaintiffs;
baseless.12
2) pay plaintiffs:
At the pre-trial, Napala admitted, among others, issuing the
postdated PNB check in the sum of P2,800,000.13 The Spouses a) P100,000 as moral damages;
Tongson, on the other hand, admitted issuing a receipt which
showed that they received the PNB check from Napala. b) P50,000 as exemplary damages;
Thereafter, trial ensued.
c) P20,000 as attorneys fees; and
The Ruling of the Trial Court
d) P35,602.50 cost of suit broken down as
The trial court found that the purchase price of the subject follows:
property has not been fully paid and that Napalas assurance to
the Spouses Tongson that the PNB check would not bounce P70.00 bond fee
constituted fraud that induced the Spouses Tongson to enter into
the sale. Without such assurance, the Spouses Tongson would P60.00 lis pendens fee
not have agreed to the contract of sale. Accordingly, there was
fraud within the ambit of Article 1338 of the Civil Code,14 justifying P902.00 docket fee
the annulment of the contract of sale, the award of damages and
attorneys fees, and payment of costs. P390.00 docket fee

The dispositive portion of the 9 December 1996 Decision of the P8.00 summons fee
trial court reads:
P12.00 SDF
WHEREFORE, judgment is hereby rendered
P178.50 Xerox
2
 P9,000 Sidcor Insurance Bond fee
P25,000 Sidcor Insurance Bond fee
or the total sum of P205,602.50.
It is further ordered that the monetary award be offsetted [sic] to
defendants downpayment of P200,000 thereby leaving a
balance of P5,602.50.15
Respondents appealed to the Court of Appeals.
The Ruling of the Court of Appeals
The Court of Appeals agreed with the trial courts finding that
Napala employed fraud when he misrepresented to the Spouses
Tongson that the PNB check in the amount of P2,800,000 would
be properly funded at its maturity. However, the Court of Appeals
found that the issuance and delivery of the PNB check and
fraudulent representation made by Napala could not be
considered as the determining cause for the sale of the subject
parcel of land. Hence, such fraud could not be made the basis for
annulling the contract of sale. Nevertheless, the fraud employed
by Napala is a proper and valid basis for the entitlement of the
Spouses Tongson to the balance of the purchase price in the
amount of P2,800,000 plus interest at the legal rate of 6% per
annum computed from the date of filing of the complaint on 11
February 1993.
Finding the trial courts award of damages unconscionable, the
Court of Appeals reduced the moral damages from P100,000 to
P50,000 and the exemplary damages from P50,000 to P25,000.
The dispositive portion of the 31 August 2004 Decision of the
Court of Appeals reads:
3
WHEREFORE, the instant appeal is PARTIALLY GRANTED.
The assailed decision of the Regional Trial Court, 11th Judicial
Region, Branch 16, Davao City, in Civil Case No. 21,858-93, is
hereby MODIFIED, to read:
WHEREFORE, judgment is hereby rendered ordering
defendants to pay plaintiffs:
a) the sum of P2,800,000.00 representing the balance of
the purchase price of the subject parcel of land, plus
interest at the legal rate of 6% per annum computed from
the date of filing of the complaint on 11 February 1993,
until the finality of the assailed decision; thereafter, the
interest due shall be at the legal rate of 12% per annum
until fully paid;
b) P50,000 as moral damages;
c) P25,000 as exemplary damages;
d) P20,000 as attorneys fees; and
e) The costs of suit in the total amount of P35,602.50.
It is understood, however, that plaintiffs entitlement to items a to
d, is subject to the condition that they have not received the same
or equivalent amounts in criminal case for Violation of Batas
Pambansa Bilang 22, docketed as Criminal Case No. 30508-93,
before the Regional Trial Court of Davao City, Branch 12,
instituted against the defendant Danilo R. Napala by plaintiff
Carmen S. Tongson.
SO ORDERED.16
The Spouses Tongson filed a partial motion for reconsideration
which was denied by the Court of Appeals in its Resolution dated
10 March 2005.
The Issues
The Spouses Tongson raise the following issues:
1. WHETHER THE CONTRACT OF SALE CAN BE
ANNULLED BASED ON THE FRAUD EMPLOYED BY
NAPALA; and
2. WHETHER THE COURT OF APPEALS ERRED IN
REDUCING THE AMOUNT OF DAMAGES AWARDED
BY THE TRIAL COURT.
The Ruling of the Court
The petition has merit.
On the existence of fraud
A contract is a meeting of the minds between two persons,
whereby one is bound to give something or to render some
service to the other.17 A valid contract requires the concurrence
of the following essential elements: (1) consent or meeting of the
minds, that is, consent to transfer ownership in exchange for the
price; (2) determinate subject matter; and (3) price certain in
money or its equivalent.18
In the present case, there is no question that the subject matter
of the sale is the 364-square meter Davao lot owned by the
Spouses Tongson and the selling price agreed upon by the
parties is P3,000,000. Thus, there is no dispute as regards the
4
presence of the two requisites for a valid sales contract, namely,
(1) a determinate subject matter and (2) a price certain in money.
The problem lies with the existence of the remaining element,
which is consent of the contracting parties, specifically, the
consent of the Spouses Tongson to sell the property to Napala.
Claiming that their consent was vitiated, the Spouses Tongson
point out that Napalas fraudulent representations of sufficient
funds to pay for the property induced them into signing the
contract of sale. Such fraud, according to the Spouses Tongson,
renders the contract of sale void.
On the contrary, Napala insists that the Spouses Tongson
willingly consented to the sale of the subject property making the
contract of sale valid. Napala maintains that no fraud attended
the execution of the sales contract.
The trial and appellate courts had conflicting findings on the
question of whether the consent of the Spouses Tongson was
vitiated by fraud. While the Court of Appeals agreed with the trial
courts finding that Napala employed fraud when he assured the
Spouses Tongson that the postdated PNB check was fully funded
when it fact it was not, the Court of Appeals disagreed with the
trial courts ruling that such fraud could be the basis for the
annulment of the contract of sale between the parties.
Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them,
he would not have agreed to. In order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely the
incidental (dolo incidente), inducement to the making of the
contract.19 Additionally, the fraud must be serious.20
We find no causal fraud in this case to justify the annulment of
the contract of sale between the parties. It is clear from the
records that the Spouses Tongson agreed to sell their 364-
square meter Davao property to Napala who offered to pay
P3,000,000 as purchase price therefor. Contrary to the Spouses
Tongsons belief that the fraud employed by Napala was "already
operational at the time of the perfection of the contract of sale,"
the misrepresentation by Napala that the postdated PNB check
would not bounce on its maturity hardly equates to dolo causante.
Napalas assurance that the check he issued was fully funded
was not the principal inducement for the Spouses Tongson to
sign the Deed of Absolute Sale. Even before Napala issued the
check, the parties had already consented and agreed to the sale
transaction. The Spouses Tongson were never tricked into selling
their property to Napala. On the contrary, they willingly accepted
Napalas offer to purchase the property at P3,000,000. In short,
there was a meeting of the minds as to the object of the sale as
well as the consideration therefor.
Some of the instances where this Court found the existence of
causal fraud include: (1) when the seller, who had no intention to
part with her property, was "tricked into believing" that what she
signed were papers pertinent to her application for the
reconstitution of her burned certificate of title, not a deed of sale;21
(2) when the signature of the authorized corporate officer was
forged;22 or (3) when the seller was seriously ill, and died a week
after signing the deed of sale raising doubts on whether the seller
could have read, or fully understood, the contents of the
documents he signed or of the consequences of his act.23 Suffice
it to state that nothing analogous to these badges of causal fraud
exists in this case.
However, while no causal fraud attended the execution of the
sales contract, there is fraud in its general sense, which involves
a false representation of a fact,24 when Napala inveigled the
5
Spouses Tongson to accept the postdated PNB check on the
representation that the check would be sufficiently funded at its
maturity. In other words, the fraud surfaced when Napala issued
the worthless check to the Spouses Tongson, which is definitely
not during the negotiation and perfection stages of the sale.
Rather, the fraud existed in the consummation stage of the sale
when the parties are in the process of performing their respective
obligations under the perfected contract of sale. In Swedish
Match, AB v. Court of Appeals,25 the Court explained the three
stages of a contract, thus:
I n general, contracts undergo three distinct stages, to wit:
negotiation; perfection or birth; and consummation. Negotiation
begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of
agreement of the parties. Perfection or birth of the contract takes
place when the parties agree upon the essential elements of the
contract. Consummation occurs when the parties fulfill or perform
the terms agreed upon in the contract, culminating in the
extinguishment thereof.
Indisputably, the Spouses Tongson as the sellers had already
performed their obligation of executing the Deed of Sale, which
led to the cancellation of their title in favor of EPBI. Respondents
as the buyers, on the other hand, failed to perform their
correlative obligation of paying the full amount of the contract
price. While Napala paid P200,000 cash to the Spouses Tongson
as partial payment, Napala issued an insufficiently funded PNB
check to pay the remaining balance of P2.8 million. Despite
repeated demands and the filing of the complaint, Napala failed
to pay the P2.8 million until the present. Clearly, respondents
committed a substantial breach of their reciprocal obligation,
entitling the Spouses Tongson to the rescission of the sales
contract. The law grants this relief to the aggrieved party, thus:
Article 1191 of the Civil Code provides:
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.
Article 1385 of the Civil Code provides the effects of rescission,
viz:
ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried out
only when he who demands rescission can return whatever he
may be obliged to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third
persons who did not act in bad faith.
While they did not file an action for the rescission of the sales
contract, the Spouses Tongson specifically prayed in their
complaint for the annulment of the sales contract, for the
immediate execution of a deed of reconveyance, and for the
return of the subject property to them.26 The Spouses Tongson
likewise prayed "for such other reliefs which may be deemed just
and equitable in the premises." In view of such prayer, and
considering respondents substantial breach of their obligation
under the sales contract, the rescission of the sales contract is
but proper and justified. Accordingly, respondents must reconvey
6
the subject property to the Spouses Tongson, who in turn shall
refund the initial payment of P200,000 less the costs of suit.
Napalas claims that rescission is not proper and that he should
be given more time to pay for the unpaid remaining balance of
P2,800,000 cannot be countenanced. Having acted fraudulently
in performing his obligation, Napala is not entitled to more time to
pay the remaining balance of P2,800,000, and thereby erase the
default or breach that he had deliberately incurred.27 To do
otherwise would be to sanction a deliberate and reiterated
infringement of the contractual obligations incurred by Napala, an
attitude repugnant to the stability and obligatory force of
contracts.28
The Court notes that the selling price indicated in the Deed of
Absolute Sale was only P400,000, instead of the true purchase
price of P3,000,000. The undervaluation of the selling price
operates to defraud the government of the taxes due on the basis
of the correct purchase price. Under the law,29 the sellers have
the obligation to pay the capital gains tax. In this case, Napala
undertook to "advance" the capital gains tax, among other fees,
under the Memorandum of Agreement, thus:
ATTY. ALABASTRO:
Q Is it not a fact that you were the one who paid for the
capital gains tax?
A No, I only advanced the money.
Q To whom?
A To BIR.
COURT:
Q You were the one who went to the BIR to pay the capital
gains tax?
A It is embodied in the memorandum agreement.30
While Carmen Tongson protested against the "very low
consideration," she eventually agreed to the "reduced"
selling price indicated in the Deed of Absolute since
Napala assured her not to worry about the taxes and
expenses, as he had allegedly made arrangements with
the Bureau of Internal Revenue (BIR) regarding the
payment of the taxes, thus:
Q What is the amount in the Deed of Absolute Sale?
A It was only Four Hundred Thousand. And he told me not
to worry because x x x the BIR and not to worry because
he will pay me what was agreed the amount of Three
Million and he will be paying all these expenses so I was
thinking, if that is the case, anyway he paid me the Two
Hundred Thousand cash and a subsequent Two Point
Eight Million downpayment check so I really thought that
he was paying the whole amount.
COURT:
Proceed.
ATTY. LIZA:
Q So you eventually agreed that this consideration be
reduced to Four Hundred Thousand Pesos and to be
reflected in the Deed of Absolute Sale?
7
A Yes, but when I was complaining to him why it is so
because I was worried why that was like that but Mr.
Napala told me dont worry because [he] can remedy this.
And I asked him how can [he] remedy this? And he told
me we can make another Memorandum of Agreement.
COURT:
Q Before you signed the Deed of Absolute Sale, you found
out the amount?
A Yes, sir.
Q And you complained?
A Yes.31
Considering that the undervaluation of the selling price of the
subject property, initiated by Napala, operates to defraud the
government of the correct amount of taxes due on the sale, the
BIR must therefore be informed of this Decision for its appropriate
action.
On the award of damages
Citing Article 1338 of the Civil Code, the trial court awarded
P100,000 moral damages and P50,000 exemplary damages to
the Spouses Tongson. While agreeing with the trial court on the
Spouses Tongsons entitlement to moral and exemplary
damages, the Court of Appeals reduced such awards for being
unconscionable. Thus, the moral damages was reduced from
P100,000 to P50,000, and the exemplary damages was reduced
from P50,000 to P25,000.
As discussed above, Napala defrauded the Spouses Tongson in
his acts of issuing a worthless check and representing to the
Spouses Tongson that the check was funded, committing in the
process a substantial breach of his obligation as a buyer. For
such fraudulent acts, the law, specifically the Civil Code, awards
moral damages to the injured party, thus:
ART. 2220. Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted
fraudulently or in bad faith. (Emphasis supplied)
Considering that the Spouses Tongson are entitled to moral
damages, the Court may also award exemplary damages, thus:
Accordingly, we affirm the Court of Appeals awards of moral and
exemplary damages, which we find equitable under the
circumstances in this case.
WHEREFORE, we PARTIALLY GRANT the petition. We SET
ASIDE the 31 August 2004 Decision and 10 March 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 58242,
except as to the award of moral and exemplary damages, and
ORDER the rescission of the contract of sale between the
Spouses Tongson and Emergency Pawnshop Bula, Inc.
Let a copy of this Decision be forwarded to the Bureau of Internal
Revenue for its appropriate action.
SO ORDERED.

ART. 2232. In contracts and quasi-contracts, the court may award ANTONIO T. CARPIO
exemplary damages if the defendant acted in a wanton, Associate Justice
fraudulent, reckless, oppressive, or malevolent manner.

Article 2234. When the amount of the exemplary damages need

not be proved, the plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages
would be awarded. In case liquidated damages have been
agreed upon, although no proof of loss is necessary in order that
such liquidated damages may be recovered, nevertheless, before
the court may consider the question of granting exemplary in
addition to the liquidated damages, the plaintiff must show that
he would be entitled to moral, temperate or compensatory
damages were it not for the stipulation for liquidated damages.
(Emphasis supplied)

8
Republic of the Philippines of registration and the corresponding titles of the lots in favor of
SUPREME COURT the Caballeros.4
Manila
On June 11, 1990, respondents sold to petitioner, Carmen del
THIRD DIVISION Prado, Lot No. 11909 on the basis of the tax declaration covering
the property. The pertinent portion of the deed of sale reads as
G.R. No. 148225 March 3, 2010 follows:

CARMEN DEL PRADO, Petitioner, That we, Spouses ANTONIO L. CABALLERO and LEONARDA
vs. B. CABALLERO, Filipinos, both of legal age and residents of
SPOUSES ANTONIO L. CABALLERO and LEONARDA Talamban, Cebu City, Philippines, for and in consideration of the
CABALLERO, Respondents. sum of FORTY THOUSAND PESOS (P40,000.00), Philippine
Currency, paid by CARMEN DEL PRADO, Filipino, of legal age,
DECISION single and a resident of Sikatuna St., Cebu City, Philippines, the
receipt of which is full is hereby acknowledged, do by these
NACHURA, J.: presents SELL, CEDE, TRANSFER, ASSIGN & CONVEY unto
the said CARMEN DEL PRADO, her heirs, assigns and/or
This is a petition for review on certiorari of the decision 1 of the successors-in-interest, one (1) unregistered parcel of land,
Court of Appeals (CA) dated September 26, 2000 and its situated at Guba, Cebu City, Philippines, and more particularly
resolution denying the motion for reconsideration thereof. described and bounded, as follows:

The facts are as follows: "A parcel of land known as Cad. Lot No. 11909, bounded 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 North : Lot 11903
Regional Trial Court (RTC) of Cebu City, Branch 14, adjudicated
in favor of Spouses Antonio L. Caballero and Leonarda B. East : Lot 11908
Caballero several parcels of land situated in Guba, Cebu City,
one of which was Cadastral Lot No. 11909, the subject of this West : Lot 11910
controversy.2 On May 21, 1987, Antonio Caballero moved for the
issuance of the final decree of registration for their lots.3 South : Lot 11858 & 11912
Consequently, on May 25, 1987, the same court, through then
Presiding Judge Renato C. Dacudao, ordered the National Land containing an area of 4,000 square meters, more or less, covered
Titles and Deeds Registration Administration to issue the decree by Tax Dec. No. 00787 of the Cebu City Assessors Office, Cebu

9
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:
10
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[;]
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.
11
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.
xxxx
In 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. . . .
xxxx
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.
12
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.161avvphi1
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 SO ORDERED.
of facts. After an assiduous scrutiny of the records, we lend
credence to respondents claim that they intended to sell only ANTONIO EDUARDO B. NACHURA
4,000 sq m of the whole Lot No. 11909, contrary to the findings Associate Justice
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 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.

13
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 71122 March 25, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ARNOLDUS CARPENTRY SHOP, INC. and COURT OF TAX
APPEALS, respondents.
The Solicitor General for petitioner.
Generoso Jacinto for respondents.
CORTES, J.:
Assailed in this petition is the decision of the Court of Tax Appeals
in CTA case No. 3357 entitled "ARNOLDUS CARPENTRY
SHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE."
The facts are simple.
Arnoldus Carpentry Shop, Inc. (private respondent herein) is a
domestic corporation which has been in existence since 1960. It
has for its secondary purpose the "preparing, processing, buying,
selling, exporting, importing, manufacturing, trading and dealing
in cabinet shop products, wood and metal home and office
furniture, cabinets, doors, windows, etc., including their
component parts and materials, of any and all nature and
14
description" (Rollo, pp. 160-161). These furniture, cabinets and
other woodwork were sold locally and exported abroad.
For this business venture, private respondent kept samples or
models of its woodwork on display from where its customers may
refer to when placing their orders.
Sometime in March 1979, the examiners of the petitioner
Commissioner of Internal Revenue conducted an investigation of
the business tax liabilities of private respondent pursuant to Letter
of Authority No. 08307 NA dated November 23, 1978. As per the
examination, the total gross sales of private respondent for the
year 1977 from both its local and foreign dealings amounted to
P5,162,787.59 (Rollo. p. 60). From this amount, private
respondent reported in its quarterly percentage tax returns
P2,471,981.62 for its gross local sales. The balance of
P2,690,805.97, which is 52% of the total gross sales, was
considered as its gross export sales (CTA Decision, p. 12).
Based on such an examination, BIR examiners Honesto A.
Vergel de Dios and Voltaire Trinidad made a report to the
Commissioner classifying private respondent as an "other
independent contractor" under Sec. 205 (16) [now Sec. 169 (q)]
of the Tax Code. The relevant portion of the report reads:
Examination of the records show that per purchase orders, which
are hereby attached, of the taxpayer's customers during the
period under review, subject corporation should be considered a
contractor and not a manufacturer. The corporation renders
service in the course of an independent occupation representing
the will of his employer only as to the result of his work, and not
as to the means by which it is accomplished, (Luzon Stevedoring
Co. v. Trinidad, 43 Phil. 803). Hence, in the computation of the
percentage tax, the 3% contractor's tax should be imposed
instead of the 7% manufacturer's tax. [Rollo, p. 591 (Emphasis
supplied.)
xxx xxx xxx
As a result thereof, the examiners assessed private respondent
for deficiency tax in the amount of EIGHTY EIGHT THOUSAND
NINE HUNDRED SEVENTY TWO PESOS AND TWENTY
THREE CENTAVOS ( P88,972.23 ). Later, on January 31, 1981,
private respondent received a letter/notice of tax deficiency
assessment inclusive of charges and interest for the year 1977 in
the amount of ONE HUNDRED EIGHT THOUSAND SEVEN
HUNDRED TWENTY PESOS AND NINETY TWO CENTAVOS (
P 108,720.92 ). This tax deficiency was a consequence of the 3%
tax imposed on private respondent's gross export sales which, in
turn, resulted from the examiners' finding that categorized private
respondent as a contractor (CTA decision, p.2).
Against this assessment, private respondent filed on February
19, 1981 a protest with the petitioner Commissioner of Internal
Revenue. In the protest letter, private respondent's manager
maintained that the carpentry shop is a manufacturer and therefor
entitled to tax exemption on its gross export sales under Section
202 (e) of the National Internal Revenue Code. He explained that
it was the 7% tax exemption on export sales which prompted
private respondent to exploit the foreign market which resulted in
the increase of its foreign sales to at least 52% of its total gross
sales in 1977 (CTA decision, pp. 1213).
On June 23, 1981, private respondent received the final decision
of the petitioner stating:
It is the stand of this Office that you are considered a contractor
an not a manufacturer. Records show that you manufacture
woodworks only upon previous order from supposed
15
manufacturers and only in accordance with the latter's own
design, model number, color, etc. [Rollo p. 64] (Emphasis
supplied.)
On July 22, 1981, private respondent appealed to the Court of
Tax Appeals alleging that the decision of the Commissioner was
contrary to law and the facts of the case.
On April 22, 1985, respondent Court of Tax Appeals rendered the
questioned decision holding that private respondent was a
manufacturer thereby reversing the decision of the petitioner.
Hence, this petition for review wherein petitioner raises the sole
issue of. Whether or not the Court of Tax Appeals erred in holding
that private respondent is a manufacturer and not a contractor
and therefore not liable for the amount of P108,720.92, as
deficiency contractor's tax, inclusive of surcharge and interest, for
the year 1977.
The petition is without merit.
1. Private respondent is a "manufacturer" as defined in the Tax
Code and not a "contractor" under Section 205(e) of the Tax
Code as petitioner would have this Court decide.
(a) Section 205 (16) [now Sec. 170 (q)] of the Tax Code defines
"independent contractors" as:
... persons (juridical and natural) not enumerated above (but not
including individuals subject to the occupation tax under Section
12 of the Local Tax Code) whose activity consists essentially of
the sale of all kinds of services for a fee regardless of whether or
not the performance of the service calls for the exercise or use of
the physical or mental faculties of such contractors or their
employees. (Emphasis supplied.)
Private respondent's business does not fall under this definition.
Petitioner contends that the fact that private respondent "designs
and makes samples or models that are 'displayed' or presented
or 'submitted' to prospective buyers who 'might choose'
therefrom" signifies that what private respondent is selling is a
kind of service its shop is capable of rendering in terms of
woodwork skills and craftsmanship (Brief for Petitioner, p. 6). He
further stresses the point that if there are no orders placed for
goods as represented by the sample or model, the shop does not
produce anything; on the other hand, if there are orders placed,
the shop goes into fall production to fill up the quantity ordered
(Petitioner's Brief, p. 7).
The facts of the case do not support petitioner's claim. Petitioner
is ignoring the fact that private respondent sells goods which it
keeps in stock and not services. As the respondent Tax Court had
found:
xxx xxx xxx
Petitioner [private respondent herein] claims, and the records
bear petitioner out, that it had a ready stock of its shop products
for sale to its foreign and local buyers. As a matter of fact, the
purchase orders from its foreign buyers showed that they ordered
by referring to the models designated by petitioner. Even
purchases by local buyers for television cabinets (Exhs. '2 to13',
pp. 1-13, BIR records) were by orders for existing models except
only for some adjustments in sizes and accessories utilized.
With regard to the television cabinets, petitioner presented three
witnesses its bookkeeper, production manager and manager who
testified that samples of television cabinets were designed and
made by petitioner, from which models the television companies
such as Hitachi National and others might choose, then specified
16
whatever innovations they desired. If found to be saleable, some
television cabinets were manufactured for display and sold to the
general public. These cabinets were not exported but only sold
locally. (t.s.n., pp. 2235, February 18,1982; t.s.n., pp. 7-10, March
25, 1982; t.s.n., pp. 3-6, August 10, 1983.)
xxx xxx xxx
In the case of petitioner's other woodwork products such as
barometer cases, knife racks, church furniture, school furniture,
knock down chairs, etc., petitioner's above-mentioned witnesses
testified that these were manufactured without previous orders.
Samples were displayed, and if in stock, were available for
immediate sale to local and foreign customers. Such testimony
was not contradicted by respondent (petitioner herein). And in all
the purchase orders presented as exhibits, whether from foreign
or local buyers, reference was made to the model number of the
product being ordered or to the sample submitted by petitioner.
Respondent's examiners, in their memorandum to the
Commissioner of Internal Revenue, stated that petitioner
manufactured only upon previous orders from customers and
"only in accordance with the latter's own design, model number,
color, etc." (Exh. '1', p. 27, BIR records.) Their bare statement
that the model numbers and designs were the customers' own,
unaccompanied by adequate evidence, is difficult to believe. It
ignores commonly accepted and recognized business practices
that it is not the customer but the manufacturer who furnishes the
samples or models from which the customers select when placing
their orders, The evidence adduced by petitioner to prove that the
model numbers and designs were its own is more convincing
[CTA decision, pp. 6-8.] (Emphasis supplied)
xxx xxx xxx
This Court finds no reason to disagree with the Tax Court's finding
of fact. It has been consistently held that while the decisions of
the Court of Tax Appeals are appealable to the Supreme Court,
the former's finding of fact are entitled to the highest respect. The
factual findings can only be disturbed on the part of the tax court
[Collector of Intern. al Revenue v. Henderson, L-12954, February
28, 1961, 1 SCRA 649; Aznar v. Court of Tax Appeals, L-20569,
Aug. 23, 1974, 58 SCRA 519; Raymundo v. de Joya, L-27733,
Dec. 3, 1980, 101 SCRA 495; Industrial Textiles Manufacturing
Co. of the Phils. , Inc. v. Commissioner of Internal Revenue, L-
27718 and L-27768, May 27,1985,136 SCRA 549.]
(b) Neither can Article 1467 of the New Civil Code help
petitioner's cause. Article 1467 states:
A contract for the delivery at a certain price of an article Which
the vendor in the ordinary course of his business manufactures
or procures for the - general market, whether the same is on hand
at the time or not, is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special
order, and not for the general market, it is a contract for a piece
of work.
Petitioner alleged that what exists prior to any order is but the
sample model only, nothing more, nothing less and the ordered
quantity would never have come into existence but for the
particular order as represented by the sample or model [Brief for
Petitioner, pp. 9-101.]
Petitioner wants to impress upon this Court that under Article
1467, the true test of whether or not the contract is a piece of
work (and thus classifying private respondent as a contractor) or
a contract of sale (which would classify private respondent as a
manufacturer) is the mere existence of the product at the time of
17
the perfection of the contract such that if the thing already exists,
the contract is of sale, if not, it is work.
This is not the test followed in this jurisdiction. As can be clearly
seen from the wordings of Art. 1467, what determines whether
the contract is one of work or of sale is whether the thing has
been manufactured specially for the customer and upon his
special order." Thus, if the thing is specially done at the order of
another, this is a contract for a piece of work. If, on the other hand,
the thing is manufactured or procured for the general market in
the ordinary course of one's business, it is a b contract of sale.
Jurisprudence has followed this criterion. As held in
Commissioner of Internal Revenue v. Engineering Equipment
and Supply Co. (L-27044 and L-27452, June 30, 1975, 64 SCRA
590, 597), "the distinction between a contract of sale and one for
work, labor and materials is tested by the inquiry whether the
thing transferred is one not in existence and which never would
have existed but for the order of the party desiring to acquire it,
or a thing which would have existed and has been the subject of
sale to some other persons even if the order had not been given."
(Emphasis supplied.) And in a BIR ruling, which as per Sec. 326
(now Sec. 277) of the Tax Court the Commissioner has the power
to make and which, as per settled jurisprudence is entitled to the
greatest weight as an administrative view [National Federation of
Sugar Workers (NFSW) v. Ovejera, G.R. No. 59743, May 31,
1982, 114 SCRA 354, 391; Sierra Madre Trust v. Hon. Sec. of
Agriculture and Natural Resources, Nos. 32370 and 32767, April
20, 1983,121 SCRA 384; Espanol v. Chairman and Members of
the Board of Administrators, Phil. Veterans Administration, L-
44616, June 29, 1985, 137 SCRA 3141, "one who has ready for
the sale to the general public finished furniture is a manufacturer,
and the mere fact that he did not have on hand a particular piece
or pieces of furniture ordered does not make him a contractor
only" (BIR Ruling No. 33-1, series of 1960). Likewise,
xxx xxx xxx
When the vendor enters into a contract for the delivery of an
article which in the ordinary course of his business he
manufactures or procures for the general market at a price certain
(Art. 1458) such contract is one of sale even if at the time of
contracting he may not have such article on hand. Such articles
fall within the meaning of "future goods" mentioned in Art. 1462,
par. 1. [5 Padilla, Civil Law: Civil Code Annotated 139 (1974)
xxx xxx xxx
These considerations were what precisely moved the respondent
Court of Tax Appeals to rule that 'the fact that [private respondent]
kept models of its products... indicate that these products were
for sale to the general public and not for special orders,' citing
Celestino Co and Co. v. Collector of Internal Revenue [99 Phil,
841 (1956)]. (CTA Decision, pp. 8-9.)
Petitioner alleges that the error of the respondent Tax Court was
due to the 'heavy albeit misplaced and indiscriminate reliance on
the case of Celestino Co and Co. v. Collector of Internal Revenue
[99 Phil. 841, 842 (1956)] which is not a case in point' 1 Brief for
Petitioner, pp. 14-15). The Commissioner of Internal Revenue
made capital of the difference between the kinds of business
establishments involved a FACTORY in the Celestino Co case
and a CARPENTRY SHOP in this case (Brief for Petitioner, pp.
14-18). Petitioner seems to have missed the whole point in the
former case.
True, the former case did mention the fact of the business
concern being a FACTORY, Thus:
xxx xxx xxx
18
... I cannot believe that petitioner company would take, as in fact
it has taken, all the trouble and expense of registering a special
trade name for its sash business and then orders company
stationery carrying the bold print "Oriental Sash Factory
(Celestino Co and Company, Prop.) 926 Raon St., Quiapo,
Manila, Tel. No. 33076, Manufacturers of all kinds of doors,
windows, sashes furniture, etc. used season dried and kiln-dried
lumber, of the best quality workmanship" solely for the purpose
of supplying the need for doors, windows and sash of its special
and limited customers. One will note that petitioner has chosen
for its trade name and has offered itself to the public as a
FACTORY, which means it is out to do business in its chosen
lines on a big scale. As a general rule, sash factories receive
orders for doors and windows of special design only in particular
cases but the bulk of their sales is derived from ready-made doors
and windows of standard sizes for the average home. [Emphasis
supplied.]
xxx xxx xxx
However, these findings were merely attendant facts to show
what the Court was really driving at the habituality of the
production of the goods involved for the general public.
In the instant case, it may be that what is involved is a
CARPENTRY SHOP. But, in the same vein, there are also
attendant facts herein to show habituality of the production for the
general public.
In this wise, it is noteworthy to again cite the findings of fact of the
respondent Tax Court:
xxx xxx xxx
Petitioner [private respondent herein] claims, and the records
bear petitioner out, that it had a ready stock of its shop products
for sale to its foreign and local buyers. As a matter of fact, the
purchase orders from its foreign buyers showed that they ordered
by referring to the models designed by petitioner. Even
purchases by local buyers for television cabinets... were by
orders for existing models. ...
With regard to the television cabinets, petitioner presented three
witnesses... who testified that samples of television cabinets were
designed and made by petitioner, from which models the
television companies ... might choose, then specified whatever
innovations they desired. If found to be saleable, some television
cabinets were manufactured for display and sold to the general
public.
xxx xxx xxx
In the case of petitioner's other woodwork products... these were
manufactured without previous orders. Samples were displayed,
and if in stock, were available for immediate sale to local and
foreign customers. (CTA decision, pp. 6-8.1 [Emphasis supplied.]
(c) The private respondent not being a "contractor" as defined by
the Tax Code or of the New Civil Code, is it a 'manufacturer' as
countered by the carpentry shop?
Sec. 187 (x) [now Sec. 157 (x)] of the Tax Code defines a
manufacturer' as follows:
"Manufacturer" includes every person who by physical or
chemical process alters the exterior texture or form or inner
substance of any raw material or manufactured or partially
manufactured product in such manner as to prepare it for a
special use or uses to which it could not have been in its original
19
condition, or who by any such process alters the quality or any
such raw material or manufactured or partially manufactured
product so as to reduce it to marketable shape or prepare it for
any of the uses of industry, or who by any such process combines
any such raw material or manufactured or partially manufactured
products with other materials or products of the same or different
kinds and in such manner that the finished product of such
process or manufacture can be put to a special use or uses to
which such raw material or manufactured or partially
manufactured products in their original condition would not have
been put, and who in addition alters such raw material or
manufactured or partially manufactured products, or combines
the same to produce such finished products for the purpose of
their sale or distribution to others and not for his own use or
consumption.
It is a basic rule in statutory construction that when the language
of the law is clear and unequivocal, the law must be taken to
mean exactly what it says [Banawa et al. v. Mirano et al., L-
24750, May 16, 1980, 97 SCRA 517, 533].
The term "manufacturer" had been considered in its ordinary and
general usage. The term has been construed broadly to include
such processes as buying and converting duck eggs to salted
eggs ('balut") [Ngo Shiek v. Collector of Internal Revenue, 100
Phil. 60 (1956)1; the processing of unhusked kapok into clean
kapok fiber [Oriental Kapok Industries v. Commissioner of
Internal Revenue, L-17837, Jan. 31, 1963, 7 SCRA 132]; or
making charcoal out of firewood Bermejo v. Collector of Internal
Revenue, 87 Phil. 96 (1950)].
2. As the Court of Tax Appeals did not err in holding that private
respondent is a "manufacturer," then private respondent is
entitled to the tax exemption under See. 202 (d) and (e) mow Sec.
167 (d) and (e)] of the Tax Code which states:
Sec. 202. Articles not subject to percentage tax on sales. The
following shall be exempt from the percentage taxes imposed in
Sections 194, 195, 196, 197, 198, 199, and 201:
xxx xxx xxx
(d) Articles shipped or exported by the manufacturer or producer,
irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership
of the articles so exported.
(e) Articles sold by "registered export producers" to (1) other"
registered export producers" (2) "registered export traders' or (3)
foreign tourists or travelers, which are considered as "export
sales."
The law is clear on this point. It is conceded that as a rule, as
argued by petitioner, any claim for tax exemption from tax
statutes is strictly construed against the taxpayer and it is
contingent upon private respondent as taxpayer to establish a
clear right to tax exemption [Brief for Petitioners, p. 181. Tax
exemptions are strictly construed against the grantee and
generally in favor of the taxing authority [City of Baguio v.
Busuego, L-29772, Sept. 18, 1980, 100 SCRA 1161; they are
looked upon with disfavor [Western Minolco Corp. v.
Commissioner Internal Revenue, G.R. No. 61632, Aug.
16,1983,124 1211. They are held strictly against the taxpayer and
if expressly mentioned in the law, must at least be within its
purview by clear legislative intent [Commissioner of Customs v.
Phil., Acetylene Co., L-22443, May 29, 1971, 39 SCRA 70, Light
and Power Co. v. Commissioner of Customs, G.R. L-28739 and
L-28902, March 29, 1972, 44 SCRA 122].
Conversely therefore, if there is an express mention or if the
taxpayer falls within the purview of the exemption by clear
20
legislative intent, then the rule on strict construction will not apply.
In the present case the respondent Tax Court did not err in
classifying private respondent as a "manufacturer". Clearly, the
'latter falls with the term 'manufacturer' mentioned in Art. 202 (d)
and (e) of the Tax Code. As the only question raised by petitioner
in relation to this tax exemption claim by private respondent is the
classification of the latter as a manufacturer, this Court affirms the
holding of respondent Tax Court that private respondent is
entitled to the percentage tax exemption on its export sales.
There is nothing illegal in taking advantage of tax exemptions.
When the private respondent was still exporting less and
producing locally more, the petitioner did not question its
classification as a manufacturer. But when in 1977 the private
respondent produced locally less and exported more, petitioner
did a turnabout and imposed the contractor's tax. By classifying
the private respondent as a contractor, petitioner would likewise
take away the tax exemptions granted under Sec. 202 for
manufacturers. Petitioner's action finds no support in the
applicable law.
WHEREFORE, the Court hereby DENIES the Petition for lack of
merit and AFFIRMS the Court of Tax Appeals decision in CTA
Case No. 3357.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Feliciano and Bidin, concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL,
respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of
the: (1) Decision * of the 9th Division, Court of Appeals dated July
31,1981, affirming with modification the Decision, dated August
25, 1972 of the Court of First Instance ** of Cebu in civil Case No.
23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela
Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact
of Luciano Cabigas and Jovita L. de Cabigas; and (2) its
Resolution dated December 16, 1981, denying defendant-
appellant's (Petitioner's) motion for reconsideration, for lack of
merit.
The undisputed facts as found by the Court of Appeals are as
follows:
The Dignos spouses were owners of a parcel of land, known as
Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City.
On June 7, 1965, appellants (petitioners) Dignos spouses sold
the said parcel of land to plaintiff-appellant (respondent Atilano J.
21
Jabil) for the sum of P28,000.00, payable in two installments, with
an assumption of indebtedness with the First Insular Bank of
Cebu in the sum of P12,000.00, which was paid and
acknowledged by the vendors in the deed of sale (Exh. C)
executed in favor of plaintiff-appellant, and the next installment in
the sum of P4,000.00 to be paid on or before September 15,
1965.
On November 25, 1965, the Dignos spouses sold the same land
in favor of defendants spouses, Luciano Cabigas and Jovita L.
De Cabigas, who were then U.S. citizens, for the price of
P35,000.00. A deed of absolute sale (Exh. J, also marked Exh.
3) was executed by the Dignos spouses in favor of the Cabigas
spouses, and which was registered in the Office of the Register
of Deeds pursuant to the provisions of Act No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant
the balance of the purchase price of the land, and as plaintiff-
appellant discovered the second sale made by defendants-
appellants to the Cabigas spouses, plaintiff-appellant brought the
present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its
Decision on August 25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale
executed on November 25, 1965 by defendant Isabela L. de
Dignos in favor of defendant Luciano Cabigas, a citizen of the
United States of America, null and void ab initio, and the deed of
sale executed by defendants Silvestre T. Dignos and Isabela
Lumungsod de Dignos not rescinded. Consequently, the plaintiff
Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen
Thousand Pesos (P16,000.00) to the defendants-spouses upon
the execution of the Deed of absolute Sale of Lot No. 3453, Opon
Cadastre and when the decision of this case becomes final and
executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the
defendants Luciano Cabigas and Jovita L. de Cabigas, through
their attorney-in-fact, Panfilo Jabalde, reasonable amount
corresponding to the expenses or costs of the hollow block fence,
so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos
and Isabela Lumungsod de Dignos should return to defendants-
spouses Luciano Cabigas and Jovita L. de Cabigas the sum of
P35,000.00, as equity demands that nobody shall enrich himself
at the expense of another.
The writ of preliminary injunction issued on September 23, 1966,
automatically becomes permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and
defendants-spouss (petitioners herein) appealed to the Court of
Appeals, which appeal was docketed therein as CA-G.R. No.
54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of
the lower court except as to the portion ordering Jabil to pay for
the expenses incurred by the Cabigas spouses for the building of
a fence upon the land in question. The disposive portion of said
decision of the Court of Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as
to the modification of the judgment as pertains to plaintiff-
appellant above indicated, the judgment appealed from is hereby
AFFIRMED in all other respects.
22
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the
defendants- appellants (petitioners) Dignos spouses, but on
December 16, 1981, a resolution was issued by the Court of
Appeals denying the motion for lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this
Court denied the petition for lack of merit. A motion for
reconsideration of said resolution was filed on March 16, 1982. In
the resolution dated April 26,1982, respondents were required to
comment thereon, which comment was filed on May 11, 1982 and
a reply thereto was filed on July 26, 1982 in compliance with the
resolution of June 16,1 982. On August 9,1982, acting on the
motion for reconsideration and on all subsequent pleadings filed,
this Court resolved to reconsider its resolution of February 10,
1982 and to give due course to the instant petition. On September
6, 1982, respondents filed a rejoinder to reply of petitioners which
was noted on the resolution of September 20, 1982.
Petitioners raised the following assignment of errors:
I
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF
LAW IN GROSSLY, INCORRECTLY INTERPRETING THE
TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN
ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP
OVER THE PROPERTY IN QUESTION TO THE RESPONDENT
AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO OF THE TRIAL COURT DUE TO GRAVE
SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE MISINTERPRETATION, MISAPPLICATION AND
1371 AS WARRANTING READING OF THE AGREEMENT, MISAPPREHENSION OF THE TERMS OF THE QUESTIONED
EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CONTRACT AND THE LAW APPLICABLE THERETO.
CLARITY OF THE TERMS THEREOF SHOWING IT IS A
CONTRACT OF PROMISE TO SELL. The foregoing assignment of errors may be synthesized into two
main issues, to wit:
II
I. Whether or not subject contract is a deed of absolute sale or a
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW contract Lot sell.
IN INCORRECTLY APPLYING AND OR IN MISAPPLYING
ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING II. Whether or not there was a valid rescission thereof.
THE ERRONEOUS CONCLUSION THAT THE NOTICE OF
RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS There is no merit in this petition.
NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL
ACT. It is significant to note that this petition was denied by the Second
Division of this Court in its Resolution dated February 1 0, 1 982
III for lack of merit, but on motion for reconsideration and on the
basis of all subsequent pleadings filed, the petition was given due
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW course.
IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217
and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED I.
JURISPRUDENCE AS TO WARRANT THE AWARD OF
DAMAGES AND ATTORNEY'S FEES TO PETITIONERS. The contract in question (Exhibit C) is a Deed of Sale, with the
following conditions:
IV
1. That Atilano G..Jabilis to pay the amount of Twelve Thousand
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE Pesos P12,000.00) Phil. Philippine Currency as advance
SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO payment;
COURT WITH UNCLEAN HANDS.
2. That Atilano G. Jabil is to assume the balance of Twelve
V Thousand Pesos (P12,000.00) Loan from the First Insular Bank
of Cebu;
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN
ERROR IN AFFIRMING WITH MODIFICATION THE DECISION
23
3. That Atilano G. Jabil is to pay the said spouses the balance of
Four. Thousand Pesos (P4,000.00) on or before September
15,1965;
4. That the said spouses agrees to defend the said Atilano G.
Jabil from other claims on the said property;
5. That the spouses agrees to sign a final deed of absolute sale
in favor of Atilano G. Jabil over the above-mentioned property
upon the payment of the balance of Four Thousand Pesos.
(Original Record, pp. 10-11)
In their motion for reconsideration, petitioners reiterated their
contention that the Deed of Sale (Exhibit "C") is a mere contract
to sell and not an absolute sale; that the same is subject to two
(2) positive suspensive conditions, namely: the payment of the
balance of P4,000.00 on or before September 15,1965 and the
immediate assumption of the mortgage of P12,000.00 with the
First Insular Bank of Cebu. It is further contended that in said
contract, title or ownership over the property was expressly
reserved in the vendor, the Dignos spouses until the suspensive
condition of full and punctual payment of the balance of the
purchase price shall have been met. So that there is no actual
sale until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract
to sell, petitioners aver that there is absolutely nothing in Exhibit
"C" that indicates that the vendors thereby sell, convey or transfer
their ownership to the alleged vendee. Petitioners insist that
Exhibit "C" (or 6) is a private instrument and the absence of a
formal deed of conveyance is a very strong indication that the
parties did not intend "transfer of ownership and title but only a
transfer after full payment" (Rollo, p. 52). Moreover, petitioners
anchored their contention on the very terms and conditions of the
contract, more particularly paragraph four which reads, "that said
24
spouses has agreed to sell the herein mentioned property to
Atilano G. Jabil ..." and condition number five which reads, "that
the spouses agrees to sign a final deed of absolute sale over the
mentioned property upon the payment of the balance of four
thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled
by this Court in analogous cases.
Thus, it has been held that a deed of sale is absolute in nature
although denominated as a "Deed of Conditional Sale" where
nowhere in the contract in question is a proviso or stipulation to
the effect that title to the property sold is reserved in the vendor
until full payment of the purchase price, nor is there a stipulation
giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period Taguba v.
Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v.
Maritime Building Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such
stipulation reserving the title of the property on the vendors nor
does it give them the right to unilaterally rescind the contract upon
non-payment of the balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under
Article 1458 of the Civil Code, are present, such as: (1) consent
or meeting of the minds; (2) determinate subject matter; and (3)
price certain in money or its equivalent. In addition, Article 1477
of the same Code provides that "The ownership of the thing sold
shall be transferred to the vendee upon actual or constructive
delivery thereof." As applied in the case of Froilan v. Pan Oriental
Shipping Co., et al. (12 SCRA 276), this Court held that in the
absence of stipulation to the contrary, the ownership of the thing
sold passes to the vendee upon actual or constructive delivery
thereof.
While it may be conceded that there was no constructive delivery
of the land sold in the case at bar, as subject Deed of Sale is a
private instrument, it is beyond question that there was actual
delivery thereof. As found by the trial court, the Dignos spouses
delivered the possession of the land in question to Jabil as early
as March 27,1965 so that the latter constructed thereon Sally's
Beach Resort also known as Jabil's Beach Resort in March,
1965; Mactan White Beach Resort on January 15,1966 and
Bevirlyn's Beach Resort on September 1, 1965. Such facts were
admitted by petitioner spouses (Decision, Civil Case No. 23-L;
Record on Appeal, p. 108).
Moreover, the Court of Appeals in its resolution dated December
16,1981 found that the acts of petitioners, contemporaneous with
the contract, clearly show that an absolute deed of sale was
intended by the parties and not a contract to sell.
Be that as it may, it is evident that when petitioners sold said land
to the Cabigas spouses, they were no longer owners of the same
and the sale is null and void.
II.
Petitioners claim that when they sold the land to the Cabigas
spouses, the contract of sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon
(supra) which is on all fours with the case at bar, the contract of
sale being absolute in nature is governed by Article 1592 of the
Civil Code. It is undisputed that petitioners never notified private
respondents Jabil by notarial act that they were rescinding the
contract, and neither did they file a suit in court to rescind the
25
sale. The most that they were able to show is a letter of Cipriano
Amistad who, claiming to be an emissary of Jabil, informed the
Dignos spouses not to go to the house of Jabil because the latter
had no money and further advised petitioners to sell the land in
litigation to another party (Record on Appeal, p. 23). As correctly
found by the Court of Appeals, there is no showing that Amistad
was properly authorized by Jabil to make such extra-judicial
rescission for the latter who, on the contrary, vigorously denied
having sent Amistad to tell petitioners that he was already waiving
his rights to the land in question. Under Article 1358 of the Civil
Code, it is required that acts and contracts which have for their
object the extinguishment of real rights over immovable property
must appear in a public document.
Petitioners laid considerable emphasis on the fact that private
respondent Jabil had no money on the stipulated date of payment
on September 15,1965 and was able to raise the necessary
amount only by mid-October 1965.
It has been ruled, however, that "where time is not of the essence
of the agreement, a slight delay on the part of one party in the
performance of his obligation is not a sufficient ground for the
rescission of the agreement" (Taguba v. Vda. de Leon, supra).
Considering that private respondent has only a balance of
P4,000.00 and was delayed in payment only for one month,
equity and justice mandate as in the aforecited case that Jabil be
given an additional period within which to complete payment of
the purchase price.
WHEREFORE, the petition filed is hereby Dismissed for lack of
merit and the assailed decision of the Court of Appeals is Affirmed
in toto.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE
A. CORONEL, ANNABELLE C. GONZALES (for herself and
on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO
A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA
BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ,
and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F.
NOEL as attorney-in-fact, respondents.
MELO, J.:p
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last named,
Catalina Balais Mabanag) to consummate the sale of a parcel of
land with its improvements located along Roosevelt Avenue in
Quezon City entered into by the parties sometime in January
1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et
al. (hereinafter referred to as Coronels) executed a document
entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff
26
Ramona Patricia Alcaraz (hereinafter referred to as Ramona)
which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment
P1,190,000.00 Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT No. 119627 of the
Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in our names from our
deceased father, Constancio P. Coronel, the transfer certificate
of title immediately upon receipt of the down payment above-
stated.
On our presentation of the TCT already in or name, We will
immediately execute the deed of absolute sale of said property
and Miss Ramona Patricia Alcaraz shall immediately pay the
balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand
(P50,000.00) Pesos upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title
of the property registered in the name of their deceased father
upon receipt of the Fifty Thousand (P50,000.00) Pesos down
payment;
3. Upon the transfer in their names of the subject property, the
Coronels will execute the deed of absolute sale in favor of
Ramona and the latter will pay the former the whole balance of
One Million One Hundred Ninety Thousand (P1,190,000.00)
Pesos.
On the same date (January 15, 1985), plaintiff-appellee
Concepcion D. Alcaraz (hereinafter referred to as Concepcion),
mother of Ramona, paid the down payment of Fifty Thousand
(P50,000.00) Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property originally registered in the
name of the Coronels' father was transferred in their names under
TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by
TCT No. 327043 to intervenor-appellant Catalina B. Mabanag
(hereinafter referred to as Catalina) for One Million Five Hundred
Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3";
Exh. "6-C")
For this reason, Coronels canceled and rescinded the contract
(Exh. "A") with Ramona by depositing the down payment paid by
Concepcion in the bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for
specific performance against the Coronels and caused the
annotation of a notice of lis pendens at the back of TCT No.
327403 (Exh. "E"; Exh. "5").
27
On April 2, 1985, Catalina caused the annotation of a notice of
adverse claim covering the same property with the Registry of
Deeds of Quezon City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute
Sale over the subject property in favor of Catalina (Exh. "G"; Exh.
"7").
On June 5, 1985, a new title over the subject property was issued
in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh.
"8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83,
RTC, Quezon City) the parties agreed to submit the case for
decision solely on the basis of documentary exhibits. Thus,
plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits "A"
through "J", inclusive of their corresponding submarkings.
Adopting these same exhibits as their own, then defendants (now
petitioners) accordingly offered and marked them as Exhibits "1"
through "10", likewise inclusive of their corresponding
submarkings. Upon motion of the parties, the trial court gave
them thirty (30) days within which to simultaneously submit their
respective memoranda, and an additional 15 days within which
to submit their corresponding comment or reply thereof, after
which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before
Judge Reynaldo Roura, who was then temporarily detailed to
preside over Branch 82 of the RTC of Quezon City. On March 1,
1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City
branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby
rendered ordering defendant to execute in favor of plaintiffs a
deed of absolute sale covering that parcel of land embraced in
and covered by Transfer Certificate of Title No. 327403 (now TCT
No. 331582) of the Registry of Deeds for Quezon City, together
with all the improvements existing thereon free from all liens and
encumbrances, and once accomplished, to immediately deliver
the said document of sale to plaintiffs and upon receipt thereof,
the said document of sale to plaintiffs and upon receipt thereof,
the plaintiffs are ordered to pay defendants the whole balance of
the purchase price amounting to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the Registry of Deeds for
Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and
intervenor and all other persons claiming under them are hereby
ordered to vacate the subject property and deliver possession
thereof to plaintiffs. Plaintiffs' claim for damages and attorney's
fees, as well as the counterclaims of defendants and intervenors
are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the
new presiding judge of the Quezon City RTC but the same was
denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the
decision and to render anew decision by the undersigned
Presiding Judge should be denied for the following reasons: (1)
28
The instant case became submitted for decision as of April 14,
1988 when the parties terminated the presentation of their
respective documentary evidence and when the Presiding Judge
at that time was Judge Reynaldo Roura. The fact that they were
allowed to file memoranda at some future date did not change the
fact that the hearing of the case was terminated before Judge
Roura and therefore the same should be submitted to him for
decision; (2) When the defendants and intervenor did not object
to the authority of Judge Reynaldo Roura to decide the case prior
to the rendition of the decision, when they met for the first time
before the undersigned Presiding Judge at the hearing of a
pending incident in Civil Case No. Q-46145 on November 11,
1988, they were deemed to have acquiesced thereto and they
are now estopped from questioning said authority of Judge Roura
after they received the decision in question which happens to be
adverse to them; (3) While it is true that Judge Reynaldo Roura
was merely a Judge-on-detail at this Branch of the Court, he was
in all respects the Presiding Judge with full authority to act on any
pending incident submitted before this Court during his
incumbency. When he returned to his Official Station at
Macabebe, Pampanga, he did not lose his authority to decide or
resolve such cases submitted to him for decision or resolution
because he continued as Judge of the Regional Trial Court and
is of co-equal rank with the undersigned Presiding Judge. The
standing rule and supported by jurisprudence is that a Judge to
whom a case is submitted for decision has the authority to decide
the case notwithstanding his transfer to another branch or region
of the same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision
dated March 1, 1989 rendered in the instant case, resolution of
which now pertains to the undersigned Presiding Judge, after a
meticulous examination of the documentary evidence presented
by the parties, she is convinced that the Decision of March 1,
1989 is supported by evidence and, therefore, should not be
disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration
and/or to Annul Decision and Render Anew Decision by the
Incumbent Presiding Judge" dated March 20, 1989 is hereby
DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16,
1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad
Santos (P), JJ.) rendered its decision fully agreeing with the trial
court.
Hence, the instant petition which was filed on March 5, 1992. The
last pleading, private respondents' Reply Memorandum, was filed
on September 15, 1993. The case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to the
voluntary inhibition of the Justice to whom the case was last
assigned.
While we deem it necessary to introduce certain refinements in
the disquisition of respondent court in the affirmance of the trial
court's decision, we definitely find the instant petition bereft of
merit.
The heart of the controversy which is the ultimate key in the
resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document entitled
"Receipt of Down Payment" which was offered in evidence by
29
both parties. There is no dispute as to the fact that said document
embodied the binding contract between Ramona Patricia Alcaraz
on the one hand, and the heirs of Constancio P. Coronel on the
other, pertaining to a particular house and lot covered by TCT No.
119627, as defined in Article 1305 of the Civil Code of the
Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service.
While, it is the position of private respondents that the "Receipt of
Down Payment" embodied a perfected contract of sale, which
perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the
document signified was a mere executory contract to sell, subject
to certain suspensive conditions, and because of the absence of
Ramona P. Alcaraz, who left for the United States of America,
said contract could not possibly ripen into a contract absolute
sale.
Plainly, such variance in the contending parties' contentions is
brought about by the way each interprets the terms and/or
conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available on
record, this, Court, as were the courts below, is now called upon
to adjudge what the real intent of the parties was at the time the
said document was executed.
The Civil Code defines a contract of sale, thus:
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.
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.
Under this definition, a Contract to Sell may not be considered as
a Contract of Sale because the first essential element is lacking.
In a contract to sell, the prospective seller explicity reserves the
transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of
the property subject of the contract to sell until the happening of
an event, which for present purposes we shall take as the full
payment of the purchase price. What the seller agrees or obliges
himself to do is to fulfill is promise to sell the subject property
when the entire amount of the purchase price is delivered to him.
In other words the full payment of the purchase price partakes of
a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by
the prospective seller without further remedies by the prospective
buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had
occasion to rule:
Hence, We hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title is
retained by the seller and is not to pass until the full payment of
the price, such payment being a positive suspensive condition
and failure of which is not a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to convey
title from acquiring binding force.
30
Stated positively, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, the prospective
seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable
as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although
it is conditioned upon the happening of a contingent event which
may or may not occur. If the suspensive condition is not fulfilled,
the perfection of the contract of sale is completely abated (cf.
Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777
[1984]). However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had
already been previous delivery of the property subject of the sale
to the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to be
performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although the
property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the subject
property is sold by the owner not to the party the seller contracted
with, but to a third person, as in the case at bench. In a contract
to sell, there being no previous sale of the property, a third person
buying such property despite the fulfillment of the suspensive
condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the
property will transfer to the buyer after registration because there
is no defect in the owner-seller's title per se, but the latter, of
course, may be used for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of
the suspensive condition, the sale becomes absolute and this will
definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership
or title to the property is automatically transferred to the buyer
such that, the seller will no longer have any title to transfer to any
third person. Applying Article 1544 of the Civil Code, such second
buyer of the property who may have had actual or constructive
knowledge of such defect in the seller's title, or at least was
charged with the obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot defeat the first
buyer's title. In case a title is issued to the second buyer, the first
buyer may seek reconveyance of the property subject of the sale.
31
With the above postulates as guidelines, we now proceed to the
task of deciphering the real nature of the contract entered into by
petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used
therein should be given their natural and ordinary meaning unless
a technical meaning was intended (Tan vs. Court of Appeals, 212
SCRA 586 [1992]). Thus, when petitioners declared in the said
"Receipt of Down Payment" that they
Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT No. 1199627 of the
Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
without any reservation of title until full payment of the entire
purchase price, the natural and ordinary idea conveyed is that
they sold their property.
When the "Receipt of Down Payment" is considered in its entirety,
it becomes more manifest that there was a clear intent on the part
of petitioners to transfer title to the buyer, but since the transfer
certificate of title was still in the name of petitioner's father, they
could not fully effect such transfer although the buyer was then
willing and able to immediately pay the purchase price.
Therefore, petitioners-sellers undertook upon receipt of the down
payment from private respondent Ramona P. Alcaraz, to cause
the issuance of a new certificate of title in their names from that
of their father, after which, they promised to present said title, now
in their names, to the latter and to execute the deed of absolute
sale whereupon, the latter shall, in turn, pay the entire balance of
the purchase price.
The agreement could not have been a contract to sell because
the sellers herein made no express reservation of ownership or
title to the subject parcel of land. Furthermore, the circumstance
which prevented the parties from entering into an absolute
contract of sale pertained to the sellers themselves (the certificate
of title was not in their names) and not the full payment of the
purchase price. Under the established facts and circumstances
of the case, the Court may safely presume that, had the certificate
of title been in the names of petitioners-sellers at that time, there
would have been no reason why an absolute contract of sale
could not have been executed and consummated right there and
then.
Moreover, unlike in a contract to sell, petitioners in the case at
bar did not merely promise to sell the properly to private
respondent upon the fulfillment of the suspensive condition. On
the contrary, having already agreed to sell the subject property,
they undertook to have the certificate of title changed to their
names and immediately thereafter, to execute the written deed of
absolute sale.
Thus, the parties did not merely enter into a contract to sell where
the sellers, after compliance by the buyer with certain terms and
conditions, promised to sell the property to the latter. What may
be perceived from the respective undertakings of the parties to
the contract is that petitioners had already agreed to sell the
house and lot they inherited from their father, completely willing
to transfer full ownership of the subject house and lot to the buyer
if the documents were then in order. It just happened, however,
that the transfer certificate of title was then still in the name of
their father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the
certificate of title in their names upon receipt of the down payment
in the amount of P50,000.00. As soon as the new certificate of
32
title is issued in their names, petitioners were committed to
immediately execute the deed of absolute sale. Only then will the
obligation of the buyer to pay the remainder of the purchase price
arise.
There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a buyer
who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment
therefor, in the contract entered into in the case at bar, the sellers
were the one who were unable to enter into a contract of absolute
sale by reason of the fact that the certificate of title to the property
was still in the name of their father. It was the sellers in this case
who, as it were, had the impediment which prevented, so to
speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject
document is that when the said "Receipt of Down Payment" was
prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful transfer
of the certificate of title from the name of petitioners' father,
Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in
fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on
said date, the conditional contract of sale between petitioners and
private respondent Ramona P. Alcaraz became obligatory, the
only act required for the consummation thereof being the delivery
of the property by means of the execution of the deed of absolute
sale in a public instrument, which petitioners unequivocally
committed themselves to do as evidenced by the "Receipt of
Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil
Code, plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there
is a meeting of minds upon the thing which is the object of the
contract and upon the price.
From the moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts.
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.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners' names was fulfilled
on February 6, 1985, the respective obligations of the parties
under the contract of sale became mutually demandable, that is,
petitioners, as sellers, were obliged to present the transfer
certificate of title already in their names to private respondent
Ramona P. Alcaraz, the buyer, and to immediately execute the
deed of absolute sale, while the buyer on her part, was obliged to
forthwith pay the balance of the purchase price amounting to
P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of
their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the
transfer in our names from our deceased father Constancio P.
Coronel, the transfer certificate of title immediately upon receipt
of the downpayment above-stated". The sale was still subject to
this suspensive condition. (Emphasis supplied.)
33
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a
contract of sale subject to a suspensive condition. Only, they
contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there could
be no perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for Article
1186 of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact
that the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the
names of petitioners as evidenced by TCT No. 327403 (Exh. "D";
Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of Down
Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract
of sale subject only to the suspensive condition that the sellers
shall effect the issuance of new certificate title from that of their
father's name to their names and that, on February 6, 1985, this
condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides
Art. 1187. The effects of conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the
constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine, in each
case, the retroactive effect of the condition that has been
complied with.
the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and demandable
as of the time of fulfillment or occurrence of the suspensive
condition on February 6, 1985. As of that point in time, reciprocal
obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on
January 19, 1985 because they were then not yet the absolute
owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of
transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which
the property, rights and obligations to be extent and value of the
inheritance of a person are transmitted through his death to
another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and
daughters of the decedent Constancio P. Coronel are compulsory
heirs who were called to succession by operation of law. Thus, at
the point their father drew his last breath, petitioners stepped into
his shoes insofar as the subject property is concerned, such that
any rights or obligations pertaining thereto became binding and
enforceable upon them. It is expressly provided that rights to the
34
succession are transmitted from the moment of death of the
decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil.
850 [1952]).
Be it also noted that petitioners' claim that succession may not be
declared unless the creditors have been paid is rendered moot
by the fact that they were able to effect the transfer of the title to
the property from the decedent's name to their names on
February 6, 1985.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that time
and they cannot be allowed to now take a posture contrary to that
which they took when they entered into the agreement with
private respondent Ramona P. Alcaraz. The Civil Code expressly
states that:
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
Having represented themselves as the true owners of the subject
property at the time of sale, petitioners cannot claim now that they
were not yet the absolute owners thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P. Alcaraz,
the latter breached her reciprocal obligation when she rendered
impossible the consummation thereof by going to the United
States of America, without leaving her address, telephone
number, and Special Power of Attorney (Paragraphs 14 and 15,
Answer with Compulsory Counterclaim to the Amended
Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners
conclude, they were correct in unilaterally rescinding rescinding
the contract of sale.
We do not agree with petitioners that there was a valid rescission
of the contract of sale in the instant case. We note that these
supposed grounds for petitioners' rescission, are mere
allegations found only in their responsive pleadings, which by
express provision of the rules, are deemed controverted even if
no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules
of Court). The records are absolutely bereft of any supporting
evidence to substantiate petitioners' allegations. We have
stressed time and again that allegations must be proven by
sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882
[1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation
is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the
United States of America on February 6, 1985, we cannot justify
petitioner-sellers' act of unilaterally and extradicially rescinding
the contract of sale, there being no express stipulation
authorizing the sellers to extarjudicially rescind the contract of
sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda.
de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged
absence of Ramona P. Alcaraz because although the evidence
on record shows that the sale was in the name of Ramona P.
Alcaraz as the buyer, the sellers had been dealing with
Concepcion D. Alcaraz, Ramona's mother, who had acted for and
in behalf of her daughter, if not also in her own behalf. Indeed,
the down payment was made by Concepcion D. Alcaraz with her
own personal check (Exh. "B"; Exh. "2") for and in behalf of
Ramona P. Alcaraz. There is no evidence showing that
petitioners ever questioned Concepcion's authority to represent
Ramona P. Alcaraz when they accepted her personal check.
Neither did they raise any objection as regards payment being
effected by a third person. Accordingly, as far as petitioners are
35
concerned, the physical absence of Ramona P. Alcaraz is not a
ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
default, insofar as her obligation to pay the full purchase price is
concerned. Petitioners who are precluded from setting up the
defense of the physical absence of Ramona P. Alcaraz as above-
explained offered no proof whatsoever to show that they actually
presented the new transfer certificate of title in their names and
signified their willingness and readiness to execute the deed of
absolute sale in accordance with their agreement. Ramona's
corresponding obligation to pay the balance of the purchase price
in the amount of P1,190,000.00 (as buyer) never became due
and demandable and, therefore, she cannot be deemed to have
been in default.
Article 1169 of the Civil Code defines when a party in a contract
involving reciprocal obligations may be considered in default, to
wit:
Art. 1169. Those obliged to deliver or to do something, incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfill his obligation, delay by the other begins. (Emphasis
supplied.)
There is thus neither factual nor legal basis to rescind the contract
of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner,
Catalina B. Mabanag, gave rise to a case of double sale where
Article 1544 of the Civil Code will apply, to wit:
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 if be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof to the person who presents the oldest title,
provided there is good faith.
The record of the case shows that the Deed of Absolute Sale
dated April 25, 1985 as proof of the second contract of sale was
registered with the Registry of Deeds of Quezon City giving rise
to the issuance of a new certificate of title in the name of Catalina
B. Mabanag on June 5, 1985. Thus, the second paragraph of
Article 1544 shall apply.
The above-cited provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead of
the first buyer, and (b) should there be no inscription by either of
the two buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer. Unless, the
second buyer satisfies these requirements, title or ownership will
not transfer to him to the prejudice of the first buyer.
36
In his commentaries on the Civil Code, an accepted authority on
the subject, now a distinguished member of the Court, Justice
Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time,
stronger in right). Knowledge by the first buyer of the second sale
cannot defeat the first buyer's rights except when the second
buyer first registers in good faith the second sale (Olivares vs.
Gonzales, 159 SCRA 33). Conversely, knowledge gained by the
second buyer of the first sale defeats his rights even if he is first
to register, since knowledge taints his registration with bad faith
(see also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June
1984, 129 SCRA 656), it has held that it is essential, to merit the
protection of Art. 1544, second paragraph, that the second realty
buyer must act in good faith in registering his deed of sale (citing
Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA,
G.R. No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993
Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at
bar was annoted on the title of the subject property only on
February 22, 1985, whereas, the second sale between petitioners
Coronels and petitioner Mabanag was supposedly perfected prior
thereto or on February 18, 1985. The idea conveyed is that at the
time petitioner Mabanag, the second buyer, bought the property
under a clean title, she was unaware of any adverse claim or
previous sale, for which reason she is buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is
not whether or not the second buyer was a buyer in good faith but
whether or not said second buyer registers such second sale in
good faith, that is, without knowledge of any defect in the title of concerned, the issue of whether or not Concepcion was also
the property sold. acting in her own behalf as a co-buyer is not squarely raised in
the instant petition, nor in such assumption disputed between
As clearly borne out by the evidence in this case, petitioner mother and daughter. Thus, We will not touch this issue and no
Mabanag could not have in good faith, registered the sale entered longer disturb the lower courts' ruling on this point.
into on February 18, 1985 because as early as February 22,
1985, a notice of lis pendens had been annotated on the transfer WHEREFORE, premises considered, the instant petition is
certificate of title in the names of petitioners, whereas petitioner hereby DISMISSED and the appealed judgment AFFIRMED.
Mabanag registered the said sale sometime in April, 1985. At the
time of registration, therefore, petitioner Mabanag knew that the
same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge that a
previous buyer is claiming title to the same property. Petitioner
Mabanag cannot close her eyes to the defect in petitioners' title
to the property at the time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he has

acquired knowledge that there was a previous sale of the same
property to a third party or that another person claims said
property in a pervious sale, the registration will constitute a
registration in bad faith and will not confer upon him any right.
(Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs.
Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil.
554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners

and Ramona P. Alcaraz, perfected on February 6, 1985, prior to
that between petitioners and Catalina B. Mabanag on February
18, 1985, was correctly upheld by both the courts below.

Although there may be ample indications that there was in fact an

agency between Ramona as principal and Concepcion, her
mother, as agent insofar as the subject contract of sale is
37
Republic of the Philippines in a manner that disregards or defeats such purpose is to nullify
SUPREME COURT or destroy the law."1
Manila
These cases involve the separate appeals of Luzon Development
FIRST DIVISION Bank2 (BANK) and Delta Development and Management
Services, Inc.3 (DELTA) from the November 30, 2004 Decision of
G.R. No. 168646 January 12, 2011 the Court of Appeals (CA), as well as its June 22, 2005 Resolution
in CA-G.R. SP No. 81280. The dispositive portion of the assailed
LUZON DEVELOPMENT BANK, Petitioner, Decision reads:
vs.
ANGELES CATHERINE ENRIQUEZ, Respondent. WHEREFORE, premises considered, the Decision dated June
17, 2003 and Resolution dated November 24, 2003 are
x - - - - - - - - - - - - - - - - - - - - - - -x AFFIRMED with [m]odification in so far as Delta Development
and Management Services, Inc. is liable and directed to pay
G.R. No. 168666 petitioner Luzon Development Bank the value of the subject lot
subject matter of the Contract to Sell between Delta Development
DELTA DEVELOPMENT and MANAGEMENT SERVICES, and Management Services, Inc. and the private respondent
INC., Petitioner, [Catherine Angeles Enriquez].
vs.
ANGELES CATHERINE ENRIQUEZ and LUZON SO ORDERED.4
DEVELOPMENT BANK, Respondents.
Factual Antecedents
DECISION
The BANK is a domestic financial corporation that extends loans
DEL CASTILLO, J.: to subdivision developers/owners.5

The protection afforded to a subdivision lot buyer under
Presidential Decree (PD) No. 957 or The Subdivision and
Condominium Buyers Protective Decree will not be defeated by
someone who is not an innocent purchaser for value. The lofty
aspirations of PD 957 should be read in every provision of the
statute, in every contract that undermines its objects, in every
transaction which threatens its fruition. "For a statute derives its
vitality from the purpose for which it is enacted and to construe it
Petitioner DELTA is a domestic corporation engaged in the
business of developing and selling real estate properties,
particularly Delta Homes I in Cavite. DELTA is owned by Ricardo
De Leon (De Leon),6 who is the registered owner of a parcel of
land covered by Transfer Certificate of Title (TCT) No. T-6371837
of the Registry of Deeds of the Province of Cavite, which
corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject
matter of these cases.

38
On July 3, 1995, De Leon and his spouse obtained a P4 million
loan from the BANK for the express purpose of developing Delta
Homes I.8 To secure the loan, the spouses De Leon executed in
favor of the BANK a real estate mortgage (REM) on several of
their properties,9 including Lot 4. Subsequently, this REM was
amended10 by increasing the amount of the secured loan from P4
million to P8 million. Both the REM and the amendment were
annotated on TCT No. T-637183.11
DELTA then obtained a Certificate of Registration12 and a
License to Sell13 from the Housing and Land Use Regulatory
Board (HLURB).
Sometime in 1997, DELTA executed a Contract to Sell with
respondent Angeles Catherine Enriquez (Enriquez)14 over the
house and lot in Lot 4 for the purchase price of P614,950.00.
Enriquez made a downpayment of P114,950.00. The Contract to
Sell contained the following provisions:
That the vendee/s offered to buy and the Owner agreed to sell
the above-described property subject to the following terms and
conditions to wit:
xxxx
6. That the (sic) warning shall be served upon the Vendee/s for
failure to pay x x x Provided, however, that for failure to pay three
(3) successive monthly installment payments, the Owner may
consider this Contract to Sell null and void ab initio without further
proceedings or court action and all payments shall be forfeited in
favor of the Owner as liquidated damages and expenses for
documentations. x x x
That upon full payment of the total consideration if payable in
cash, the Owner shall execute a final deed of sale in favor of the
39
Vendee/s. However, if the term of the contract is for a certain
period of time, only upon full payment of the total consideration
that a final deed of sale shall be executed by the Owner in favor
of the Vendee/s.15
When DELTA defaulted on its loan obligation, the BANK, instead
of foreclosing the REM, agreed to a dation in payment or a dacion
en pago. The Deed of Assignment in Payment of Debt was
executed on September 30, 1998 and stated that DELTA
"assigns, transfers, and conveys and sets over [to] the assignee
that real estate with the building and improvements existing
thereon x x x in payment of the total obligation owing to [the Bank]
x x x."16 Unknown to Enriquez, among the properties assigned to
the BANK was the house and lot of Lot 4,17 which is the subject
of her Contract to Sell with DELTA. The records do not bear out
and the parties are silent on whether the BANK was able to
transfer title to its name. It appears, however, that the dacion en
pago was not annotated on the TCT of Lot 4.18
On November 18, 1999, Enriquez filed a complaint against
DELTA and the BANK before the Region IV Office of the
HLURB19 alleging that DELTA violated the terms of its License to
Sell by: (a) selling the house and lots for a price exceeding that
prescribed in Batas Pambansa (BP) Bilang 220;20 and (b) failing
to get a clearance for the mortgage from the HLURB. Enriquez
sought a full refund of the P301,063.42 that she had already paid
to DELTA, award of damages, and the imposition of
administrative fines on DELTA and the BANK.
In his June 1, 2000 Decision,21 HLURB Arbiter Atty. Raymundo
A. Foronda upheld the validity of the purchase price, but ordered
DELTA to accept payment of the balance of P108,013.36 from
Enriquez, and (upon such payment) to deliver to Enriquez the title
to the house and lot free from liens and encumbrances. The
dispositive portion reads:
WHEREFORE, premises considered, a decision is hereby
rendered as follows:
1. Ordering [DELTA] to accept complainant[]s payments in the
amount of P108,013.36 representing her balance based on the
maximum selling price of P375,000.00;
2. Upon full payment, ordering Delta to deliver the title in favor of
the complainant free from any liens and encumbrances;
3. Ordering [DELTA] to pay complainant the amount of
P50,000.00 as and by way of moral damages;
4. Ordering [DELTA] to pay complainant the amount of
P50,000.00 as and by way of exemplary damages;
5. Ordering [DELTA] to pay complainant P10,000.00 as costs of
suit; and
6. Respondent DELTA to pay administrative fine of P10,000.00[22]
for violation of Section 18 of P.D. 957[23] and another P10,000.00
for violation of Section 22 of P.D. 957.[24
SO ORDERED.25
DELTA appealed the arbiters Decision to the HLURB Board of
Commissioners.26 DELTA questioned the imposition of an
administrative fine for its alleged violation of Section 18 of PD
957. It argued that clearance was not required for mortgages that
were constituted on a subdivision project prior to registration.
According to DELTA, it did not violate the terms of its license
because it did not obtain a new mortgage over the subdivision
project. It likewise assailed the award of moral and exemplary
damages to Enriquez on the ground that the latter has no cause
of action.27
40
Ruling of the Board of Commissioners (Board)28
The Board held that all developers should obtain a clearance for
mortgage from the HLURB, regardless of the date when the
mortgage was secured, because the law does not distinguish.
Having violated this legal requirement, DELTA was held liable to
pay the administrative fine.
The Board upheld the validity of the contract to sell between
DELTA and Enriquez despite the alleged violation of the price
ceilings in BP 220. The Board held that DELTA and Enriquez
were presumed to have had a meeting of the minds on the object
of the sale and the purchase price. Absent any circumstance
vitiating Enriquezconsent, she was presumed to have willingly
and voluntarily agreed to the higher purchase price; hence, she
was bound by the terms of the contract.
The Board, however, deleted the arbiters award of damages to
Enriquez on the ground that the latter was not free from liability
herself, given that she was remiss in her monthly amortizations
to DELTA.
The dispositive portion of the Boards Decision reads:
Wherefore, in view of the foregoing, the Office belows decision
dated June 01, 2000 is hereby modified to read as follows:
1. Ordering [Enriquez] to pay [DELTA] the amount due from the
time she suspended payment up to filing of the complaint with
12% interest thereon per annum; thereafter the provisions of the
Contract to Sell shall apply until full payment is made;
2. Ordering [DELTA] to pay an [a]dministrative [f]ine of
P10,000.00 for violation of its license to sell and for violation of
Section 18 of P.D. 957.
SO ORDERED. Quezon City.29
Enriquez moved for a reconsideration of the Boards Decision 30
upholding the contractual purchase price. She maintained that
the price for Lot 4 should not exceed the price ceiling provided in
BP 220.31lawph!l
Finding Enriquezs arguments as having already been passed
upon in the decision, the Board denied reconsideration. The
board, however, modified its decision, with respect to the period
for the imposition of interest payments. The Boards resolution 32
reads:
WHEREFORE, premises considered, to [sic] directive No. 1 of
the dispositive portion of the decision of our decision [sic] is
MODIFIED as follows:
1. Ordering complainant to pay respondent DELTA the amount
due from the time she suspended (sic) at 12% interest per
annum, reckoned from finality of this decision[,] thereafter the
provisions of the Contract to Sell shall apply until full payment is
made.
In all other respects, the decision is AFFIRMED.
SO ORDERED.33
Both Enriquez and the BANK appealed to the Office of the
President (OP).34 The BANK disagreed with the ruling upholding
Enriquezs Contract to Sell; and insisted on its ownership over Lot
4. It argued that it has become impossible for DELTA to comply
with the terms of the contract to sell and to deliver Lot 4s title to
Enriquez given that DELTA had already relinquished all its rights
to Lot 4 in favor of the BANK35 via the dation in payment.
41
Meanwhile, Enriquez insisted that the Board erred in not applying
the ceiling price as prescribed in BP 220.36
Ruling of the Office of the President37
The OP adopted by reference the findings of fact and conclusions
of law of the HLURB Decisions, which it affirmed in toto.
Enriquez filed a motion for reconsideration, insisting that she was
entitled to a reduction of the purchase price, in order to conform
to the provisions of BP 220.38 The motion was denied for lack of
merit.39
Only the BANK appealed the OPs Decision to the CA.40 The
BANK reiterated that DELTA can no longer deliver Lot 4 to
Enriquez because DELTA had sold the same to the BANK by
virtue of the dacion en pago.41 As an alternative argument, in
case the appellate court should find that DELTA retained
ownership over Lot 4 and could convey the same to Enriquez, the
BANK prayed that its REM over Lot 4 be respected such that
DELTA would have to redeem it first before it could convey the
same to Enriquez in accordance with Section 2542 of PD 957.43
The BANK likewise sought an award of exemplary damages and
attorneys fees in its favor because of the baseless suit filed by
Enriquez against it.44
Ruling of the Court of Appeals45
The CA ruled against the validity of the dacion en pago executed
in favor of the BANK on the ground that DELTA had earlier
relinquished its ownership over Lot 4 in favor of Enriquez via the
Contract to Sell.46
Since the dacion en pago is invalid with respect to Lot 4, the
appellate court held that DELTA remained indebted to the BANK
to the extent of Lot 4s value. Thus, the CA ordered DELTA to pay
the corresponding value of Lot 4 to the BANK.47
The CA also rejected the BANKs argument that, before DELTA
can deliver the title to Lot 4 to Enriquez, DELTA should first
redeem the mortgaged property from the BANK. The CA held that
the BANK does not have a first lien on Lot 4 because its real
estate mortgage over the same had already been extinguished
by the dacion en pago. Without a mortgage, the BANK cannot
require DELTA to redeem Lot 4 prior to delivery of title to
Enriquez.48
The CA denied the BANKs prayer for the award of exemplary
damages and attorneys fees for lack of factual and legal basis.49
Both DELTA50 and the BANK51 moved for a reconsideration of
the CAs Decision, but both were denied.52
Hence, these separate petitions of the BANK and DELTA.
Petitioner Deltas arguments53
DELTA assails the CA Decision for holding that DELTA conveyed
its ownership over Lot 4 to Enriquez via the Contract to Sell.
DELTA points out that the Contract to Sell contained a condition
that ownership shall only be transferred to Enriquez upon the
latters full payment of the purchase price to DELTA. Since
Enriquez has yet to comply with this suspensive condition,
ownership is retained by DELTA.54 As the owner of Lot 4, DELTA
had every right to enter into a dation in payment to extinguish its
loan obligation to the BANK. The BANKs acceptance of the
assignment, without any reservation or exception, resulted in the
extinguishment of the entire loan obligation; hence, DELTA has
42
no more obligation to pay the value of Enriquezs house and lot
to the BANK.55
DELTA prays for the reinstatement of the OP Decision.
The BANKs arguments56
Echoing the argument of DELTA, the BANK argues that the
Contract to Sell did not involve a conveyance of DELTAs
ownership over Lot 4 to Enriquez. The Contract to Sell expressly
provides that DELTA retained ownership over Lot 4 until Enriquez
paid the full purchase price. Since Enriquez has not yet made
such full payment, DELTA retained ownership over Lot 4 and
could validly convey the same to the BANK via dacion en pago.57
Should the dacion en pago over Lot 4 be invalidated and the
property ordered to be delivered to Enriquez, the BANK contends
that DELTA should pay the corresponding value of Lot 4 to the
BANK. It maintains that the loan obligation extinguished by the
dacion en pago only extends to the value of the properties
delivered; if Lot 4 cannot be delivered to the BANK, then the loan
obligation of DELTA remains to the extent of Lot 4s value.58
The BANK prays to be declared the rightful owner of the subject
house and lot and asks for an award of exemplary damages and
attorneys fees.
Enriquezs waiver
Enriquez did not file comments59 or memoranda in both cases;
instead, she manifested that she will just await the outcome of the
case.60
Issues
The following are the issues raised by the two petitions:
1. Whether the Contract to Sell conveys ownership;
2. Whether the dacion en pago extinguished the loan obligation,
such that DELTA has no more obligations to the BANK;
3. Whether the BANK is entitled to damages and attorneys fees
for being compelled to litigate; and
4. What is the effect of Enriquezs failure to appeal the OPs
Decision regarding her obligation to pay the balance on the
purchase price.
Our Ruling
Mortgage contract void
As the HLURB Arbiter and Board of Commissioners both found,
DELTA violated Section 18 of PD 957 in mortgaging the
properties in Delta Homes I (including Lot 4) to the BANK without
prior clearance from the HLURB. This point need not be
belabored since the parties have chosen not to appeal the
administrative fine imposed on DELTA for violation of Section 18.
This violation of Section 18 renders the mortgage executed by
DELTA void. We have held before that "a mortgage contract
executed in breach of Section 18 of [PD 957] is null and void." 61
Considering that "PD 957 aims to protect innocent subdivision lot
and condominium unit buyers against fraudulent real estate
practices," we have construed Section 18 thereof as "prohibitory
and acts committed contrary to it are void."62
Because of the nullity of the mortgage, neither DELTA nor the
BANK could assert any right arising therefrom. The BANKs loan
43
of P8 million to DELTA has effectively become unsecured due to
the nullity of the mortgage. The said loan, however, was
eventually settled by the two contracting parties via a dation in
payment. In the appealed Decision, the CA invalidated this dation
in payment on the ground that DELTA, by previously entering into
a Contract to Sell, had already conveyed its ownership over Lot
4 to Enriquez and could no longer convey the same to the BANK.
This is error, prescinding from a wrong understanding of the
nature of a contract to sell.
Contract to sell does not transfer ownership
Both parties are correct in arguing that the Contract to Sell
executed by DELTA in favor of Enriquez did not transfer
ownership over Lot 4 to Enriquez. A contract to sell is one where
the prospective seller reserves the transfer of title to the
prospective buyer until the happening of an event, such as full
payment of the purchase price. What the seller obliges himself to
do is to sell the subject property only when the entire amount of
the purchase price has already been delivered to him. "In other
words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by
the prospective seller without further remedies by the prospective
buyer."63 It does not, by itself, transfer ownership to the buyer.64
In the instant case, there is nothing in the provisions of the
contract entered into by DELTA and Enriquez that would exempt
it from the general definition of a contract to sell. The terms
thereof provide for the reservation of DELTAs ownership until full
payment of the purchase price; such that DELTA even reserved
the right to unilaterally void the contract should Enriquez fail to
pay three successive monthly amortizations.
Since the Contract to Sell did not transfer ownership of Lot 4 to
Enriquez, said ownership remained with DELTA. DELTA could
then validly transfer such ownership (as it did) to another person
(the BANK). However, the transferee BANK is bound by the
Contract to Sell and has to respect Enriquezs rights thereunder.
This is because the Contract to Sell, involving a subdivision lot, is
covered and protected by PD 957. One of the protections
afforded by PD 957 to buyers such as Enriquez is the right to
have her contract to sell registered with the Register of Deeds in
order to make it binding on third parties. Thus, Section 17 of PD
957 provides:
Section 17. Registration. All contracts to sell, deeds of sale, and
other similar instruments relative to the sale or conveyance of the
subdivision lots and condominium units, whether or not the
purchase price is paid in full, shall be registered by the seller in
the Office of the Register of Deeds of the province or city where
the property is situated.
x x x x (Emphasis supplied.)
The purpose of registration is to protect the buyers from any
future unscrupulous transactions involving the object of the sale
or contract to sell, whether the purchase price therefor has been
fully paid or not. Registration of the sale or contract to sell makes
it binding on third parties; it serves as a notice to the whole world
that the property is subject to the prior right of the buyer of the
property (under a contract to sell or an absolute sale), and anyone
who wishes to deal with the said property will be held bound by
such prior right.
While DELTA, in the instant case, failed to register Enriquezs
Contract to Sell with the Register of Deeds, this failure will not
prejudice Enriquez or relieve the BANK from its obligation to
respect Enriquezs Contract to Sell. Despite the non-registration,
44
the BANK cannot be considered, under the circumstances, an
innocent purchaser for value of Lot 4 when it accepted the latter
(together with other assigned properties) as payment for
DELTAs obligation. The BANK was well aware that the assigned
properties, including Lot 4, were subdivision lots and therefore
within the purview of PD 957. It knew that the loaned amounts
were to be used for the development of DELTAs subdivision
project, for this was indicated in the corresponding promissory
notes. The technical description of Lot 4 indicates its location,
which can easily be determined as included within the subdivision
development. Under these circumstances, the BANK knew or
should have known of the possibility and risk that the assigned
properties were already covered by existing contracts to sell in
favor of subdivision lot buyers. As observed by the Court in
another case involving a bank regarding a subdivision lot that was
already subject of a contract to sell with a third party:
[The Bank] should have considered that it was dealing with a
property subject of a real estate development project. A
reasonable person, particularly a financial institution x x x, should
have been aware that, to finance the project, funds other than
those obtained from the loan could have been used to serve the
purpose, albeit partially. Hence, there was a need to verify
whether any part of the property was already intended to be the
subject of any other contract involving buyers or potential buyers.
In granting the loan, [the Bank] should not have been content
merely with a clean title, considering the presence of
circumstances indicating the need for a thorough investigation of
the existence of buyers x x x. Wanting in care and prudence, the
[Bank] cannot be deemed to be an innocent mortgagee. x x x65
Further, as an entity engaged in the banking business, the BANK
is required to observe more care and prudence when dealing with
registered properties. The Court cannot accept that the BANK
was unaware of the Contract to Sell existing in favor of Enriquez.
In Keppel Bank Philippines, Inc. v. Adao,66 we held that a bank
dealing with a property that is already subject of a contract to sell
and is protected by the provisions of PD 957, is bound by the
contract to sell (even if the contract to sell in that case was not
registered). In the Courts words:
It is true that persons dealing with registered property can rely
solely on the certificate of title and need not go beyond it.
However, x x x, this rule does not apply to banks. Banks are
required to exercise more care and prudence than private
individuals in dealing even with registered properties for their
business is affected with public interest. As master of its
business, petitioner should have sent its representatives to check
the assigned properties before signing the compromise
agreement and it would have discovered that respondent was
already occupying one of the condominium units and that a
contract to sell existed between [the vendee] and [the developer].
In our view, petitioner was not a purchaser in good faith and we
are constrained to rule that petitioner is bound by the contract to
sell.67
Bound by the terms of the Contract to Sell, the BANK is obliged
to respect the same and honor the payments already made by
Enriquez for the purchase price of Lot 4. Thus, the BANK can only
collect the balance of the purchase price from Enriquez and has
the obligation, upon full payment, to deliver to Enriquez a clean
title over the subject property.68
Dacion en pago extinguished the loan obligation
The BANK then posits that, if title to Lot 4 is ordered delivered to
Enriquez, DELTA has the obligation to pay the BANK the
corresponding value of Lot 4. According to the BANK, the dation
in payment extinguished the loan only to the extent of the value
of the thing delivered. Since Lot 4 would have no value to the
45
BANK if it will be delivered to Enriquez, DELTA would remain
indebted to that extent.
We are not persuaded. Like in all contracts, the intention of the
parties to the dation in payment is paramount and controlling. The
contractual intention determines whether the property subject of
the dation will be considered as the full equivalent of the debt and
will therefore serve as full satisfaction for the debt. "The dation in
payment extinguishes the obligation to the extent of the value of
the thing delivered, either as agreed upon by the parties or as
may be proved, unless the parties by agreement, express or
implied, or by their silence, consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished."69
In the case at bar, the Dacion en Pago executed by DELTA and
the BANK indicates a clear intention by the parties that the
assigned properties would serve as full payment for DELTAs
entire obligation:
KNOW ALL MEN BY THESE PRESENTS:
This instrument, made and executed by and between:
xxxx
THAT, the ASSIGNOR acknowledges to be justly indebted to the
ASSIGNEE in the sum of ELEVEN MILLION EIGHT HUNDRED
SEVENTY-EIGHT THOUSAND EIGHT HUNDRED PESOS
(P11,878,800.00), Philippine Currency as of August 25, 1998.
Therefore, by virtue of this instrument, ASSIGNOR hereby
ASSIGNS, TRANSFERS, and CONVEYS AND SETS OVER
[TO] the ASSIGNEE that real estate with the building and
improvements existing thereon, more particularly described as
follows:
xxxx
of which the ASSIGNOR is the registered owner being evidenced
by TCT No. x x x issued by the Registry of Deeds of Trece
Martires City.
THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN
PAYMENT OF THE TOTAL OBLIGATION owing to him by the
ASSIGNOR as above-stated;70
Without any reservation or condition, the Dacion stated that the
assigned properties served as full payment of DELTAs "total
obligation" to the BANK. The BANK accepted said properties as
equivalent of the loaned amount and as full satisfaction of
DELTAs debt. The BANK cannot complain if, as it turned out,
some of those assigned properties (such as Lot 4) are covered
by existing contracts to sell. As noted earlier, the BANK knew that
the assigned properties were subdivision lots and covered by PD
957. It was aware of the nature of DELTAs business, of the
location of the assigned properties within DELTAs subdivision
development, and the possibility that some of the properties may
be subjects of existing contracts to sell which enjoy protection
under PD 957. Banks dealing with subdivision properties are
expected to conduct a thorough due diligence review to discover
the status of the properties they deal with. It may thus be said that
the BANK, in accepting the assigned properties as full payment
of DELTAs "total obligation," has assumed the risk that some of
the assigned properties (such as Lot 4) are covered by contracts
to sell which it is bound to honor under PD 957.
A dacion en pago is governed by the law of sales. 71 Contracts of
sale come with warranties, either express (if explicitly stipulated
by the parties) or implied (under Article 1547 et seq. of the Civil
Code). In this case, however, the BANK does not even point to
any breach of warranty by DELTA in connection with the Dation
46
in Payment. To be sure, the Dation in Payment has no express
warranties relating to existing contracts to sell over the assigned
properties. As to the implied warranty in case of eviction, it is
waivable72 and cannot be invoked if the buyer knew of the risks
or danger of eviction and assumed its consequences.73 As we
have noted earlier, the BANK, in accepting the assigned
properties as full payment of DELTAs "total obligation," has
assumed the risk that some of the assigned properties are
covered by contracts to sell which must be honored under PD
957.
Award of damages
There is nothing on record that warrants the award of exemplary
damages74 as well as attorneys fees75 in favor of the BANK.
Balance to be paid by Enriquez
As already mentioned, the Contract to Sell in favor of Enriquez
must be respected by the BANK.1avvphi1 Upon Enriquezs full
payment of the balance of the purchase price, the BANK is bound
to deliver the title over Lot 4 to her. As to the amount of the
balance which Enriquez must pay, we adopt the OPs ruling
thereon which sustained the amount stipulated in the Contract to
Sell. We will not review Enriquezs initial claims about the
supposed violation of the price ceiling in BP 220, since this issue
was no longer pursued by the parties, not even by Enriquez, who
chose not to file the required pleadings76 before the Court. The
parties were informed in the Courts September 5, 2007
Resolution that issues that are not included in their memoranda
shall be deemed waived or abandoned. Since Enriquez did not
file a memorandum in either petition, she is deemed to have
waived the said issue.
WHEREFORE, premises considered, the appealed November
30, 2004 Decision of the Court of Appeals, as well as its June 22,
2005 Resolution in CA-G.R. SP No. 81280 are hereby
AFFIRMED with the MODIFICATIONS that Delta Development
and Management Services, Inc. is NOT LIABLE TO PAY Luzon
Development Bank the value of the subject lot; and respondent
Angeles Catherine Enriquez is ordered to PAY the balance of the
purchase price and the interests accruing thereon, as decreed by
the Court of Appeals, to the Luzon Development Bank, instead of
Delta Development and Management Services, Inc., within thirty
(30) days from finality of this Decision. The Luzon Development
Bank is ordered to DELIVER a CLEAN TITLE to Angeles
Catherine Enriquez upon the latters full payment of the balance
of the purchase price and the accrued interests.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

47
Republic of the Philippines
SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 190823 April 4, 2011
DOMINGO CARABEO, Petitioner,
vs.
SPOUSES NORBERTO and SUSAN DINGCO, Respondents.
DECISION
CARPIO MORALES, J.:
On July 10, 1990, Domingo Carabeo (petitioner) entered into a
contract denominated as "Kasunduan sa Bilihan ng Karapatan sa
Lupa"1 (kasunduan) with Spouses Norberto and Susan Dingco
(respondents) whereby petitioner agreed to sell his rights over a
648 square meter parcel of unregistered land situated in Purok
III, Tugatog, Orani, Bataan to respondents for P38,000.
Respondents tendered their initial payment of P10,000 upon
signing of the contract, the remaining balance to be paid on
September 1990.
Respondents were later to claim that when they were about to
hand in the balance of the purchase price, petitioner requested
them to keep it first as he was yet to settle an on-going "squabble"
over the land.
Nevertheless, respondents gave petitioner small sums of money
from time to time which totaled P9,100, on petitioners request
48
according to them; due to respondents inability to pay the amount
of the remaining balance in full, according to petitioner.
By respondents claim, despite the alleged problem over the land,
they insisted on petitioners acceptance of the remaining balance
of P18,900 but petitioner remained firm in his refusal, proffering
as reason therefor that he would register the land first.
Sometime in 1994, respondents learned that the alleged problem
over the land had been settled and that petitioner had caused its
registration in his name on December 21, 1993 under Transfer
Certificate of Title No. 161806. They thereupon offered to pay the
balance but petitioner declined, drawing them to file a complaint
before the Katarungan Pambarangay. No settlement was
reached, however, hence, respondent filed a complaint for
specific performance before the Regional Trial Court (RTC) of
Balanga, Bataan.
Petitioner countered in his Answer to the Complaint that the sale
was void for lack of object certain, the kasunduan not having
specified the metes and bounds of the land. In any event,
petitioner alleged that if the validity of the kasunduan is upheld,
respondents failure to comply with their reciprocal obligation to
pay the balance of the purchase price would render the action
premature. For, contrary to respondents claim, petitioner
maintained that they failed to pay the balance of P28,000 on
September 1990 to thus constrain him to accept installment
payments totaling P9,100.
After the case was submitted for decision or on January 31,
2001,2 petitioner passed away. The records do not show that
petitioners counsel informed Branch 1 of the Bataan RTC, where
the complaint was lodged, of his death and that proper
substitution was effected in accordance with Section 16, Rule 3,
Rules of Court.3
By Decision of February 25, 2001,4 the trial court ruled in favor of
respondents, disposing as follows:
WHEREFORE, premises considered, judgment is hereby
rendered ordering:
1. The defendant to sell his right over 648 square meters of land
pursuant to the contract dated July 10, 1990 by executing a Deed
of Sale thereof after the payment of P18,900 by the plaintiffs;
2. The defendant to pay the costs of the suit.
SO ORDERED.5
Petitioners counsel filed a Notice of Appeal on March 20, 2001.
By the herein challenged Decision dated July 20, 2009,6 the Court
of Appeals affirmed that of the trial court.
Petitioners motion for reconsideration having been denied by
Resolution of January 8, 2010, the present petition for review was
filed by Antonio Carabeo, petitioners son,7 faulting the appellate
court:
(A)
in holding that the element of a contract, i.e., an object certain
is present in this case.
(B)
in considering it unfair to expect respondents who are not
lawyers to make judicial consignation after herein petitioner
allegedly refused to accept payment of the balance of the
purchase price.
49
(C)
in upholding the validity of the contract, "Kasunduan sa Bilihan
ng Karapatan sa Lupa," despite the lack of spousal consent,
(underscoring supplied)
and proffering that
(D)
[t]he death of herein petitioner causes the dismissal of the action
filed by respondents; respondents cause of action being an
action in personam. (underscoring supplied)
The petition fails.
The pertinent portion of the kasunduan reads:8
xxxx
Na ako ay may isang partial na lupa na matatagpuan sa Purok
111, Tugatog, Orani Bataan, na may sukat na 27 x 24 metro
kuwadrado, ang nasabing lupa ay may sakop na dalawang
punong santol at isang punong mangga, kayat ako ay
nakipagkasundo sa mag-asawang Norby Dingco at Susan
Dingco na ipagbili sa kanila ang karapatan ng nasabing lupa sa
halagang P38,000.00.
x x x x (underscoring supplied)
That the kasunduan did not specify the technical boundaries of
the property did not render the sale a nullity. The requirement that
a sale must have for its object a determinate thing is satisfied as
long as, at the time the contract is entered into, the object of the
sale is capable of being made determinate without the necessity
of a new or further agreement between the parties. 9 As the
above-quoted portion of the kasunduan shows, there is no doubt
that the object of the sale is determinate.
Clutching at straws, petitioner proffers lack of spousal consent.
This was raised only on appeal, hence, will not be considered, in
the present case, in the interest of fair play, justice and due
process.10
Respecting the argument that petitioners death rendered
respondents complaint against him dismissible, Bonilla v.
Barcena11 enlightens:
successors-in-interest, insofar as his interest in the property
subject of the action is concerned.13
In another vein, the death of a client immediately divests the
counsel of authority.14 Thus, in filing a Notice of Appeal,
petitioners counsel of record had no personality to act on behalf
of the already deceased client who, it bears reiteration, had not
been substituted as a party after his death. The trial courts
decision had thereby become final and executory, no appeal
having been perfected.
WHEREFORE, the petition is DENIED.

The question as to whether an action survives or not depends on SO ORDERED.

the nature of the action and the damage sued for. In the causes
of action which survive, the wrong complained [of] affects CONCHITA CARPIO MORALES
primarily and principally property and property rights, the injuries Associate Justice
to the person being merely incidental, while in the causes of
action which do not survive, the injury complained of is to the
person, the property and rights of property affected being
incidental. (emphasis and underscoring supplied)

In the present case, respondents are pursuing a property right

arising from the kasunduan, whereas petitioner is invoking nullity
of the kasunduan to protect his proprietary interest. Assuming
arguendo, however, that the kasunduan is deemed void, there is
a corollary obligation of petitioner to return the money paid by
respondents, and since the action involves property rights, 12 it
survives.1avvphi1

It bears noting that trial on the merits was already concluded

before petitioner died. Since the trial court was not informed of
petitioners death, it may not be faulted for proceeding to render
judgment without ordering his substitution. Its judgment is thus
valid and binding upon petitioners legal representatives or
50
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 74470 March 8, 1989
NATIONAL GRAINS AUTHORITY and WILLLAM CABAL,
petitioners
vs.
THE INTERMEDIATE APPELLATE COURT and LEON
SORIANO, respondents.
Cordoba, Zapanta, Rola & Garcia for petitioner National Grains
Authority.
Plaridel Mar Israel for respondent Leon Soriano.
MEDIALDEA, J.:
This is a petition for review of the decision (pp. 9-21, Rollo) of the
Intermediate Appellate Court (now Court of Appeals) dated
December 23, 1985 in A.C. G.R. CV No. 03812 entitled, "Leon
Soriano, Plaintiff- Appellee versus National Grains Authority and
William Cabal, Defendants Appellants", which affirmed the
decision of the Court of First Instance of Cagayan, in Civil Case
No. 2754 and its resolution (p. 28, Rollo) dated April 17, 1986
which denied the Motion for Reconsideration filed therein.
The antecedent facts of the instant case are as follows:
51
Petitioner National Grains Authority (now National Food
Authority, NFA for short) is a government agency created under
Presidential Decree No. 4. One of its incidental functions is the
buying of palay grains from qualified farmers.
On August 23, 1979, private respondent Leon Soriano offered to
sell palay grains to the NFA, through William Cabal, the Provincial
Manager of NFA stationed at Tuguegarao, Cagayan. He
submitted the documents required by the NFA for pre-qualifying
as a seller, namely: (1) Farmer's Information Sheet accomplished
by Soriano and certified by a Bureau of Agricultural Extension
(BAEX) technician, Napoleon Callangan, (2) Xerox copies of four
(4) tax declarations of the riceland leased to him and copies of
the lease contract between him and Judge Concepcion Salud,
and (3) his Residence Tax Certificate. Private respondent
Soriano's documents were processed and accordingly, he was
given a quota of 2,640 cavans of palay. The quota noted in the
Farmer's Information Sheet represented the maximum number of
cavans of palay that Soriano may sell to the NFA.
In the afternoon of August 23, 1979 and on the following day,
August 24, 1979, Soriano delivered 630 cavans of palay. The
palay delivered during these two days were not rebagged,
classified and weighed. when Soriano demanded payment of the
630 cavans of palay, he was informed that its payment will be
held in abeyance since Mr. Cabal was still investigating on an
information he received that Soriano was not a bona tide farmer
and the palay delivered by him was not produced from his
farmland but was taken from the warehouse of a rice trader, Ben
de Guzman. On August 28, 1979, Cabal wrote Soriano advising
him to withdraw from the NFA warehouse the 630 cavans Soriano
delivered stating that NFA cannot legally accept the said delivery
on the basis of the subsequent certification of the BAEX
technician, Napoleon Callangan that Soriano is not a bona fide
farmer.
Instead of withdrawing the 630 cavans of palay, private
respondent Soriano insisted that the palay grains delivered be
paid. He then filed a complaint for specific performance and/or
collection of money with damages on November 2, 1979, against
the National Food Authority and Mr. William Cabal, Provincial
Manager of NFA with the Court of First Instance of Tuguegarao,
and docketed as Civil Case No. 2754.
Meanwhile, by agreement of the parties and upon order of the
trial court, the 630 cavans of palay in question were withdrawn
from the warehouse of NFA. An inventory was made by the sheriff
as representative of the Court, a representative of Soriano and a
representative of NFA (p. 13, Rollo).
On September 30, 1982, the trial court rendered judgment
ordering petitioner National Food Authority, its officers and
agents to pay respondent Soriano (as plaintiff in Civil Case No.
2754) the amount of P 47,250.00 representing the unpaid price
of the 630 cavans of palay plus legal interest thereof (p. 1-2, CA
Decision). The dispositive portion reads as follows:
WHEREFORE, the Court renders judgment in favor of the plaintiff
and against the defendants National Grains Authority, and
William Cabal and hereby orders:
1. The National Grains Authority, now the National Food
Authority, its officers and agents, and Mr. William Cabal, the
Provincial Manager of the National Grains Authority at the time of
the filing of this case, assigned at Tuguegarao, Cagayan,
whomsoever is his successors, to pay to the plaintiff Leon T.
Soriano, the amount of P47,250.00, representing the unpaid price
of the palay deliveries made by the plaintiff to the defendants
consisting of 630 cavans at the rate Pl.50 per kilo of 50 kilos per
cavan of palay;
52
2. That the defendants National Grains Authority, now National
Food Authority, its officer and/or agents, and Mr. William Cabal,
the Provincial Manager of the National Grains Authority, at the
time of the filing of this case assigned at Tuguegarao, Cagayan
or whomsoever is his successors, are likewise ordered to pay the
plaintiff Leon T. Soriano, the legal interest at the rate of TWELVE
(12%) percent per annum, of the amount of P 47,250.00 from the
filing of the complaint on November 20, 1979, up to the final
payment of the price of P 47,250.00;
3. That the defendants National Grains Authority, now National
Food Authority, or their agents and duly authorized
representatives can now withdraw the total number of bags (630
bags with an excess of 13 bags) now on deposit in the bonded
warehouse of Eng. Ben de Guzman at Tuguegarao, Cagayan
pursuant to the order of this court, and as appearing in the written
inventory dated October 10, 1980, (Exhibit F for the plaintiff and
Exhibit 20 for the defendants) upon payment of the price of P
47,250.00 and TWELVE PERCENT (12%) legal interest to the
plaintiff,
4. That the counterclaim of the defendants is hereby dismissed;
5. That there is no pronouncement as to the award of moral and
exemplary damages and attorney's fees; and
6. That there is no pronouncement as to costs.
SO ORDERED (pp. 9-10, Rollo)
Petitioners' motion for reconsideration of the decision was denied
on December 6, 1982.
Petitioners' appealed the trial court's decision to the Intermediate
Appellate Court. In a decision promulgated on December 23,
1986 (pp. 9-21, Rollo) the then Intermediate Appellate Court
upheld the findings of the trial court and affirmed the decision
ordering NFA and its officers to pay Soriano the price of the 630
cavans of rice plus interest. Petitioners' motion for
reconsideration of the appellate court's decision was denied in a
resolution dated April 17, 1986 (p. 28, Rollo).
Hence, this petition for review filed by the National Food Authority
and Mr. William Cabal on May 15, 1986 assailing the decision of
the Intermediate Appellate Court on the sole issue of whether or
not there was a contract of sale in the case at bar.
Petitioners contend that the 630 cavans of palay delivered by
Soriano on August 23, 1979 was made only for purposes of
having it offered for sale. Further, petitioners stated that the
procedure then prevailing in matters of palay procurement from
qualified farmers were: firstly, there is a rebagging wherein the
palay is transferred from a private sack of a farmer to the NFA
sack; secondly, after the rebagging has been undertaken,
classification of the palay is made to determine its variety; thirdly,
after the determination of its variety and convinced that it passed
the quality standard, the same will be weighed to determine the
number of kilos; and finally, it will be piled inside the warehouse
after the preparation of the Warehouse Stock Receipt (WSP)
indicating therein the number of kilos, the variety and the number
of bags. Under this procedure, rebagging is the initial operative
act signifying acceptance, and acceptance will be considered
complete only after the preparation of the Warehouse Stock
Receipt (WSR). When the 630 cavans of palay were brought by
Soriano to the Carig warehouse of NFA they were only offered
for sale. Since the same were not rebagged, classified and
weighed in accordance with the palay procurement program of
NFA, there was no acceptance of the offer which, to petitioners'
mind is a clear case of solicitation or an unaccepted offer to sell.
53
The petition is not impressed with merit.
Article 1458 of the Civil Code of the Philippines defines sale as a
contract whereby one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing,
and the other party to pay therefore a price certain in money or
its equivalent. A contract, on the other hand, is a meeting of minds
between two (2) persons whereby one binds himself, with respect
to the other, to give something or to render some service (Art.
1305, Civil Code of the Philippines). The essential requisites of
contracts are: (1) consent of the contracting parties, (2) object
certain which is the subject matter of the contract, and (3) cause
of the obligation which is established (Art. 1318, Civil Code of the
Philippines.
In the case at bar, Soriano initially offered to sell palay grains
produced in his farmland to NFA. When the latter accepted the
offer by noting in Soriano's Farmer's Information Sheet a quota
of 2,640 cavans, there was already a meeting of the minds
between the parties. The object of the contract, being the palay
grains produced in Soriano's farmland and the NFA was to pay
the same depending upon its quality. The fact that the exact
number of cavans of palay to be delivered has not been
determined does not affect the perfection of the contract. Article
1349 of the New Civil Code provides: ". . .. The fact that the
quantity is not determinate shall not be an obstacle to the
existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties."
In this case, there was no need for NFA and Soriano to enter into
a new contract to determine the exact number of cavans of palay
to be sold. Soriano can deliver so much of his produce as long as
it does not exceed 2,640 cavans.
In its memorandum (pp. 66-71, Rollo) dated December 4, 1986,
petitioners further contend that there was no contract of sale
because of the absence of an essential requisite in contracts,
namely, consent. It cited Section 1319 of the Civil Code which
states: "Consent is manifested by the meeting of the offer and the
acceptance of the thing and the cause which are to constitute the
contract. ... " Following this line, petitioners contend that there
was no consent because there was no acceptance of the 630
cavans of palay in question.
The above contention of petitioner is not correct Sale is a
consensual contract, " ... , there is perfection when there is
consent upon the subject matter and price, even if neither is
delivered." (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA
557, 560) This is provided by Article 1475 of the Civil Code which
states:
that Soriano was a bona fide farmer and therefore, he was
qualified to sell palay grains to NFA.
Both courts likewise agree that NFA's refusal to accept was
without just cause. The above factual findings which are
supported by the record should not be disturbed on appeal.
ACCORDINGLY, the instant petition for review is DISMISSED.
The assailed decision of the then Intermediate Appellate Court
(now Court of Appeals) is affirmed. No costs.
SO ORDERED.

Art. 1475. The contract of sale is perfected at the moment there

is a meeting of minds upon the thing which is the object of the
contract and upon the price.

xxx

The acceptance referred to which determines consent is the

acceptance of the offer of one party by the other and not of the
goods delivered as contended by petitioners.

From the moment the contract of sale is perfected, it is incumbent

upon the parties to comply with their mutual obligations or "the
parties may reciprocally demand performance" thereof. (Article
1475, Civil Code, 2nd par.).

The reason why NFA initially refused acceptance of the 630

cavans of palay delivered by Soriano is that it (NFA) cannot
legally accept the said delivery because Soriano is allegedly not
a bona fide farmer. The trial court and the appellate court found

54
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 74553 June 8, 1989
SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT,
GALICANO SITON AND JUDGE JUSTINIANO DE DUMO
respondents.
Labaguis, Loyola, Angara & Associates for petitioner.
Godofredo de Guzman for respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of a decision of the
Intermediate Appellate Court (now Court of Appeals) in ACG.R.
CV No. 03876 affirming in toto the decision of the Regional Trial
Court of Manila in Civil Case No. 82-4364 entitled, "Servicewide
Specialists, Inc. vs. Galicano Siton and John Doe."
The antecedent facts in this case as found by the lower court are
as follows:
The private respondent Galicano Siton purchased from Car
Traders Philippines, Inc. a vehicle described as Mitsubishi
Celeste two-door with air-conditioning, Engine 2M-62799, Serial
No. A73-2652 and paid P 25,000.00 as downpayment of the
55
price. The remaining balance of P 68,400.00, includes not only
the remaining principal obligation but also advance interests and
premiums for motor vehicle insurance policies.
On August 14, 1979, Siton executed a promissory note in favor
of Car Traders Philippines, Inc. expressly stipulating that the face
value of the note which is P 68,400. 00, shall "be payable, without
need of notice of demand, in installments of the amounts
following and at the dates hereinafter set forth, to wit: P 1,900.00
monthly for 36 months due and payable on the 14th day of each
month starting September 14, 1979, thru and inclusive of August
14, 1982" (p. 84, Rollo). There are additional stipulations in the
Promissory Note consisting of, among others:
1 Interest at the rate of 14% per annum to be added on each
unpaid installment from maturity;
2 If default is made in the payment of any of the installments or
interest thereon, the total principal sum then remaining unpaid,
together with accrued interest thereon shall at once become due
and demandable;
3 In case of default, and attorney's services are availed of, there
shall be added a sum equal to 25% of the total sum due thereon
to cover attorney's fees, aside from expenses of collection and
legal costs (p. 84, Rollo).
As further security, Siton executed a Chattel Mortgage over the
subject motor vehicle in favor of Car Traders Philippines, Inc. (pp.
85-88, Rollo). The Chattel Mortgage Contract provides additional
stipulations, such as: a) the waiver by the mortgagor of his rights
under Art. 1252 of the Civil Code to designate the application of
his payments and authorize the mortgagee or its assigns to apply
such payments to either his promissory note or to any of his
existing obligations to the mortgagee or its assigns at the latter's
discretion; and b) concerning the insurance of the subject motor
vehicle, the mortgagor is under obligation to secure the
necessary policy in an amount not less than the outstanding
balance of the mortgage obligation and that loss thereof shall be
made payable to the mortgagee or its assigns as its interest may
appear, with the further obligation of the mortgagor to deliver the
policy to the mortgagee. The mortgagor further agrees that in
default of his effecting or renewing the insurance and delivering
the policy as endorsed to the mortgagee within five (5) days after
the execution of the mortgage or the expiry date of the insurance,
the mortgagee may, at his option but without any obligation to do
so, effect such insurance or obtain such renewal for the account
of the mortgagor.
The credit covered by the promissory note and chattel mortgage
executed by respondent Galicano Siton was first assigned by Car
Traders Philippines, Inc. in favor of Filinvest Credit Corporation.
Subsequently, Filinvest Credit Corporation likewise reassigned
said credit in favor of petitioner Servicewide Specialists, Inc. and
respondent Siton was advised of this second assignment.
Alleging that Siton failed to pay the part of the installment which
fell due on November 2, 1981 as well as the subsequent
installments which fell due on December 2, 1981 and January 2,
1982, respectively, the petitioner filed this action against Galicano
Siton and "John Doe."
The relief sought by the plaintiff is a Writ of Replevin over subject
motor vehicle or, in the alternative, for a sum of money of P
20,319.42 plus interest thereon at the rate of 14% per annum
from January 11, 1982 until fully paid; and in either case, for
defendants to pay certain sum of money for attorney's fees,
liquidated damages, bonding fees and other expenses incurred
in the seizure of the motor vehicle plus costs of suit.
56
After the service of summons, Justiniano de Dumo, identifying
himself as the "John Doe" in the Complaint, inasmuch as he is in
possession of the subject vehicle, filed his Answer with
Counterclaim and with Opposition to the prayer for a Writ of
Replevin. Said defendant, alleged the fact that he has bought the
motor vehicle from Galicano Siton on November 24, 1979; that
as such successor, he stepped into the rights and obligations of
the seller; that he has religiously paid the installments as
stipulated upon in the promissory note. He also manifested that
the Answer he has filed in his behalf should likewise serve as a
responsive pleading for his co-defendant Galicano Siton.
On January 12, 1984, the Regional Trial Court rendered a
decision, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered as follows:
1. Denying the issuance of a Writ of Replevin in this case;
2. Ordering defendants to pay jointly and severally, the plaintiff,
the remaining balance on the motor vehicle reckoned as of
January 25, 1982, without additional interest and charges, and
the same to be paid by installments, per the terms of the
Promissory Note, payable on the 14th day of each month starting
the month after this Decision shall have become final, until the full
payment of the remaining obligation;
3. The Chattel Mortgage contract is deemed to cover the
obligation petition stated in par. 2, supra, without prejudice to the
parties, including defendant de Dumo, to now execute a new
promissory note and/or chattel mortgage contract;
4. Ordering defendants to pay, jointly and severally, the sum of
another P 3,859.90 to the plaintiff by way of refunding the
premium payments in the past on insurance policies over subject
car;
5. Each party shall bear his own expenses and attorney's fees;
and
6. The claim of one party against the other(s) for damages, and
vice-versa are hereby denied and dismissed. There is no
pronouncement as to costs.
SO ORDERED. (pp. 95-96, Rollo)
Not satisfied with the decision of the trial court, the petitioner
appealed to the Intermediate Appellate Court.
On April 25, 1986, the respondent Appellate Court rendered
judgment affirming in toto the decision of the trial court. The
dispositive portion of the judgment states:
WHEREFORE, the appealed judgment is in full accord with the
evidence and the law is hereby therefore affirmed in all its parts.
Costs against plaintiff-appellant.
SO ORDERED. (p. 42, Rollo).
Hence, the instant petition was filed, praying for a reversal of the
above-mentioned decision in favor of private respondents, with
the petitioner assigning the following errors:
2.1 The Honorable Respondent, the Intermediate Appellate Court
erred and gravely abused its discretion in concluding that there
was a valid sale of the mortgaged vehicle between Siton and De
Dumo;
57
2.2 The Honorable Respondent, the Intermediate Appellate Court
erred and gravely abused its discretion in holding that the
petitioner (plaintiff) and its predecessors-in-interest are bound by
the questionable and invalid unnotarized Deed of Sale between
Siton and De Dumo, even as neither petitioner (plaintiff) nor its
predecessors-in-interest had knowledge nor had they given their
written or verbal consent thereto;
2.3 The Honorable Respondent, the Intermediate Appellate Court
erred and gravely abused its discretion in ruling that the
mortgagee (petitioner) has the obligation to make demands to De
Dumo for payment on the Promissory Note when De Dumo is not
privy thereto;
2.4 The Honorable Respondent, the Intermediate Appellate Court
erred and acted with grave abuse of discretion in refusing to issue
the Writ of Replevin despite due compliance by petitioner of the
requirements of Rule 60, Sections 1 and 2 of REVISED RULES
OF COURT;
2.5 The Honorable Respondent, the Intermediate Appellate Court
acted with grave abuse of discretion in ruling that petitioner
(creditor-mortgagee) is obliged to inform respondent De Dumo
(not privy to the mortgage) to submit the insurance policy over the
mortgaged "res" and to demand the payor-third-party (De Dumo)
to redeem his rubber check; (pp. 4-5, Rollo).
In its first assigned error, petitioner alleges that the sale of the
mortgaged vehicle between the mortgagor Siton and De Dumo
was void, as the sale is prohibited under the provisions of the
Deed of Chattel Mortgage, the Chattel Mortgage Act (Act 1508)
and the Revised Penal Code. The Deed of Chattel Mortgage
executed by the petitioner and Siton stipulates:
The Mortgagor shall not sell, mortgage or in any other way,
encumber or dispose of the property herein mortgaged without
the previous written consent of the Mortgagee. (p. 85, Rollo).
The rule is settled that the chattel mortgagor continues to be the
owner of the property, and therefore, has the power to alienate
the same; however, he is obliged under pain of penal liability, to
secure the written consent of the mortgagee. (Francisco, Vicente,
Jr., Revised Rules of Court in the Philippines, (1972), Volume IV-
B Part I, p. 525). Thus, the instruments of mortgage are binding,
while they subsist, not only upon the parties executing them but
also upon those who later, by purchase or otherwise, acquire the
properties referred to therein.
The absence of the written consent of the mortgagee to the sale
of the mortgaged property in favor of a third person, therefore,
affects not the validity of the sale but only the penal liability of the
mortgagor under the Revised Penal Code and the binding effect
of such sale on the mortgagee under the Deed of Chattel
Mortgage.
Anent its second, third and fifth assigned errors, petitioner
submits that it is not bound by the deed of sale made by Siton in
favor of De Dumo, as neither petitioner nor its predecessor has
given their written or verbal consent thereto pursuant to the Deed
of Chattel Mortgage.
On this matter, the appellate court upheld the findings of the trial
court, as follows, to wit:
The first issue is whether or not the sale and transfer of the motor
vehicle, subject matter of the chattel mortgage, made by Siton in
favor of Atty. de Dumo is illegal and violative of the Chattel
Mortgage Law. The supposition is that if it were illegal, then
plaintiff has all the right to file this action and to foreclose on the
58
chattel mortgage. Both defendants testified that, before the
projected sale, they went to a certain. Atty. Villa of Filinvest Credit
Corporation advising the latter of the intended sale and transfer.
Defendants were accordingly advised that the verbal information
given to the corporation would suffice, and that it would be tedious
and impractical to effect a change of transfer of ownership as that
would require a new credit investigation as to the capacity and
worthiness of Atty. De Dumo, being the new debtor. The further
suggestion given by Atty. Villa is that the account should be
maintained in the name of Galicano Siton. Plaintiff claims that it
and its predecessor had never been notified of the sale much less
were they notified in writing as required by the contract. On this
particular issue, it would really appear that, since the transfer, it
was Atty. de Dumo who had been paying said account, almost
invariably with his personal checks. In fact, one of the checks that
supposedly bounced, marked Exhibit J and the relative receipt as
Exhibit 16, was Atty. de Dumo's personal check. Note that plaintiff
has been accepting such payments by defendant de Dumo. It
would appear, therefore, that there was an implied acceptance by
the plaintiff and its predecessor of the transfer. Another
reasonable conclusion is that, while there was failure on the part
of defendants to comply strictly and literaly with their contract,
there was substantial compliance therewith. (pp. 92-93, Rollo)
We agree with the aforequoted findings and conclusions of the
lower court which were affirmed on appeal by the Court of
Appeals. The conclusions and findings of facts by the trial court
are entitled to great weight and will not be disturbed on appeal
unless for strong and cogent reasons because the trial court is in
a better position to examine real evidence as well as to observe
the demeanor of witnesses while testifying on the case. (Macua
vs. Intermediate Appellate Court, No. L-70810, October 26,
1987,155 SCRA 29)
There is no dispute that the Deed of Chattel Mortgage executed
between Siton and the petitioner requires the written consent of
the latter as mortgagee in the sale or transfer of the mortgaged
vehicle. We cannot ignore the findings, however, that before the
sale, prompt inquiries were made by private respondents with
Filinvest Credit Corporation regarding any possible future sale of
the mortgaged property; and that it was upon the advice of the
company's credit lawyer that such a verbal notice is sufficient and
that it would be convenient if the account would remain in the
name of the mortgagor Siton.
Even the personal checks of de Dumo were accepted by
petitioner as payment of some of the installments under the
promissory note (p. 92, Rollo). If it is true that petitioner has not
acquiesced in the sale, then, it should have inquired as to why de
Dumo's checks were being used to pay Siton's obligations.
Based on the foregoing circumstances, the petitioner is bound by
its predecessor company's representations. This is based on the
doctrine of estoppel, through which, "an admission or
representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying
thereon" (Art. 1431, Civil Code). Like the related principles of
volenti non lit injuria (consent to injury), waiver and acquiescence,
estoppel finds its origin generally in the equitable notion that one
may not change his position, and profit from his own wrongdoing
when he has caused another to rely on his former representations
(Sy vs. Central Bank, No. L-41480, April 30, 1976, 70 SCRA 570).
Further, it is worthy to note that despite the arguments of
petitioner that it is not bound by the sale of the vehicle to de
Dumo, and that the latter is a stranger to the transaction between
Filinvest and Siton, nevertheless, it admitted de Dumo's
obligation as purchaser of the property when it named the latter
as one of the defendants in the lower court. Petitioner even
59
manifested in its prayer in the appellant's brief and in the petition
before Us, that de Dumo be ordered to pay petitioner, jointly and
severally with Siton the unpaid balance on the promissory note
(pp. 32 and 72, Rollo).
In the fourth assigned error by petitioner, the latter claims that the
appellate court gravely erred in upholding the trial court's refusal
to issue that Writ of Replevin despite compliance with the
requirements of the Rules. This contention is devoid of merit.
Article 1484 of the New Civil Code prescribes three remedies
which a vendor may pursue in a contract of sale of personal
property the price of which is payable in installments, to wit: 1) to
exact fulfillment of the obligation; 2) cancel the sale; and 3)
foreclose the mortgage on the thing sold. These remedies are
alternative and the vendor cannot avail of them at the same time.
It is clear from the prayer of petitioner in its brief on appeal to the
appellate court that it had chosen the remedy of fulfillment when
it asked the appellate court to order private respondents to pay
the remaining unpaid sums under the promissory note (p. 31,
Rollo). By having done so, it has deemed waived the third remedy
of foreclosure, and it cannot therefore ask at the same time for a
Writ of Replevin as preparatory remedy to foreclosure of
mortgage. In a similar case, where the vendor filed an action
containing three remedies: to collect the purchase price; to seize
the property purchased by suing for replevin and to foreclose the
mortgage executed thereon, We held that such a scheme is not
only irregular but is a flagrant circumvention of the prohibition of
the law (Luneta Motor Company vs. Dimagiba No. L-17061,
December 30, 1961, 3 SCRA 884).
Finally, the petitioner argues that the judgment of the appellate
court was not in accordance with its own findings and those of the
trial court showing private respondents' default in the payment of
three monthly installments as a result of the dishonor of three
checks issued as payments; and that as a consequence thereof,
the full amount of the unpaid balance under the promissory note
became due and demandable pursuant to the terms of the
promissory note.
This contention is impressed with merit. The findings of the trial
court on this issue, which were affirmed by the appellate court,
state, as follows:
The second point of issue is whether or not defendants were in
arrears when the complaint was filed on January 25, 1982.
Plaintiff claims that there were three payments by checks made
by defendants, which are ineffective (Art. 1249, Civil Code) as
said checks bounced for insufficient finding. .... The
debtor/obligor is allegedly obliged, as per the Chattel Mortgage
Contract, to have the motor vehicle insured and, failing which, the
creditor may insure the same for the account of the debtor. Such
payments, therefore, together with the value of the three checks
that had been dishonored, are the reasons for defendants'
delinquency. On defendant's part, more particularly Atty. de
Dumo's, they submit that there was no delinquency as, in fact,
defendants have receipts to evidence payment for the months of
November 1981 (Exhibit 18 dated November 3, 1981), December
1981 (Exhibit 17 dated December 2, 1981), and January, 1982
(Exhibit 30, dated January 5, 1982).
On cross-examination, Atty. de Dumo admitted that really one of
his checks (Exhibit J) was dishonored. There is no evidence on
way [or] the other whether said check was replaced subsequently
with a good one. Likewise, there is no clarification in the record
as to whether the two other dishonored checks had been
replaced. As to the insurance policies, defendants claimed on the
witness stand that they were the ones who had the vehicle
insured, for, otherwise, defendant de Dumo could not have
60
registered the motor vehicle for the years 1980 up to 1982.
Defendants further contend that they complied with their
undertaking by notifying verbally the creditor of that fact. There is
no denying the fact however, that the insurance policies obtained
were not endorsed, much less surrendered, to the plaintiff; in fact
such policies were not shown in court to evidence the proper
indorsement of the policies in favor of the creditor. (pp. 93-94,
Rollo). (Emphasis supplied)
It is evident from the foregoing findings that the checks issued by
the defendants as payment for the installments for November and
December, 1981 and January, 1982 were dishonored and were
not shown to have been replaced. The delivery of promissory
notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they
have been cashed. (Art. 1249, Civil Code). When the existence
of the debt is fully established by the evidence contained in the
record, the burden of proving that it has been extinguished by
payment devolves upon the debtor who offers such a defense to
the claim of the creditor. (Chua Chienco vs. Vargas, 11 Phil. 219).
In the absence of any showing that the aforestated checks were
replaced and subsequently cashed, We can only infer that the
monthly installments for November, 1981, December, 1981 and
January, 1982 have not been paid. In view of the above, it is not
correct for the appellate court to ignore the evidence on record
showing the default of private respondents in their obligations.
The fact that Siton and de Dumo were not advised or notified of
their failure to comply with their obligations under the note and
under the Deed of Chattel Mortgage is of no importance. Article
1169 of the Civil Code provides:
Those obliged to deliver or to do something incur in delay from
the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in SCRA 671; Dungo vs. Lopena, et al., L-18377, December 29,
order that delay may exist: 1962, 6 SCRA 1007).

1. When the obligation or the law expressly so declares; ACCORDINGLY, the petition is GRANTED and the assailed
decision of the Court of Appeals dated April 25, 1986 is hereby
xxx xxx xxx REVERSED and SET ASIDE, and a new one entered, ordering
the private respondents Galicano Siton and Justiniano de Dumo,
The promissory note executed by Siton in favor of Car Traders jointly to pay to petitioner Servicewide Specialists, Incorporated,
Philippines, Inc. expressly stipulates that the unpaid balance shall the total sum of the remaining unpaid balance on the promissory
be payable, without need of notice or demand, in fixed monthly note with interest thereon at fourteen percent per annum from
installments; and that if default be made in the payment of any of January 25, 1982 until fully paid, as well as stipulated attorney's
the installments or interest thereon as and when the same fees and liquidated damages; and to reimburse to petitioner the
becomes due and payable as specified above, the total principal sum of P 3,859.90 for the premium payments on the insurance
sum then remaining unpaid, together with accrued interest policies over the subject vehicle. Costs against private
thereon, shall at once become due and payable (p. 84, Rollo). respondents.
The parties are bound by this agreement.
SO ORDERED.
In view of the foregoing, We find it correct to hold both the
respondents Galicano Siton and Justiniano de Dumo liable for
their obligations to petitioner herein. In the case at bar, the
purchase of the car by respondent de Dumo from respondent
Siton does not necessarily imply the extinguishment of the liability
of the latter. Since it was neither established nor shown that Siton
was released from responsibility under the promissory note, the
same does not constitute novation by substitution of debtors
under Article 1293 of the Civil Code. Likewise, the fact that
petitioner company accepts payments from a third person like
respondent de Dumo, who has assumed the obligation, will result
merely to the addition of debtors and not novation. Hence, the
creditor may therefore enforce the obligation against both
debtors. (Straight vs. Hashell, 49 Phil. 614; Mata vs. Serra, 47
Phil. 464; McCullough vs. Veloso, 46 Phil. 1; Pacific Commercial
vs. Sotto, 34 Phil. 237). If there is no agreement as to solidarity,
the first and new debtors are considered obligated jointly. (Lopez
vs. Court of Appeals, et al., No. L-33157, June 29, 1982, 114
61
Republic of the Philippines he requested that his name be included in the waiting
SUPREME COURT list.1avvphi1
Manila
It appears that sometime in November 1995, McFoods expressed
SECOND DIVISION interest in acquiring a share of the plaintiff, and one was acquired
with the payment to the plaintiff by McFoods of P1,800,000
G.R. No. 178523 June 16, 2010 through Urban Bank (Exhibit 3). On December 15, 1995, the
Deed of Absolute Sale, Exhibit 1, was executed by the plaintiff
MAKATI SPORTS CLUB, INC., Petitioner, and McFoods Stock Certificate No. A 2243 was issued to
vs. McFoods on January 5, 1996. On December 27, 1995, McFoods
CECILE H. CHENG, MC FOODS, INC., and RAMON sent a letter to the plaintiff giving advise (sic) of its offer to resell
SABARRE, Respondents. the share.

DECISION
NACHURA, J.:
This is a petition for review on certiorari1 under Rule 45 of the
Rules of Court, assailing the Decision2 dated June 25, 2007 of
the Court of Appeals (CA) in CA-G.R. CV No. 80631, affirming
the decision3 dated August 20, 2003 of the Regional Trial Court
(RTC), Branch 138, Makati City in Civil Case No. 01-837.
The facts of the case, as narrated by the RTC and adopted by the
CA, are as follows:
On October 20, 1994, plaintiffs Board of Directors adopted a
resolution (Exhibit 7) authorizing the sale of 19 unissued shares
at a floor price of P400,000 and P450,000 per share for Class A
and B, respectively.
Defendant Cheng was a Treasurer and Director of plaintiff in
1985. On July 7, 1995, Hodreal expressed his interest to buy a
share, for this purpose he sent the letter, Exhibit 13. In said letter,
62
It appears that while the sale between the plaintiff and McFoods
was still under negotiations, there were negotiations between
McFoods and Hodreal for the purchase by the latter of a share of
the plaintiff. On November 24, 1995, Hodreal paid McFoods
P1,400,000. Another payment of P1,400,000 was made by
Hodreal to McFoods on December 27, 1995, to complete the
purchase price of P2,800,000.
On February 7, 1996, plaintiff was advised of the sale by
McFoods to Hodreal of the share evidenced by Certificate No.
2243 for P2.8 Million. Upon request, a new certificate was issued.
In 1997, an investigation was conducted and the committee held
that there is prima facie evidence to show that defendant Cheng
profited from the transaction because of her knowledge.
xxxx
Plaintiffs evidence of fraud are [a] letter of Hodreal dated July
7, 1995 where he expressed interest in buying one (1) share from
the plaintiff with the request that he be included in the waiting list
of buyers; [b] declaration of Lolita Hodreal in her Affidavit that in
October 1995, she talked to Cheng who assured her that there
was one (1) available share at the price of P2,800,000. The
purchase to be validated by paying 50% immediately and the
balance after thirty (30) days; [c] Marian Punzalan, Head,
Membership Section of the plaintiff declared that she informed
Cheng of the intention of Hodreal to purchase one (1) share and
she gave to Cheng the contact telephone number of Hodreal; and
[d] the authorization from Sabarre to claim the stock certificate. 4
Thus, petitioner sought judgment that would order respondents
to pay the sum of P1,000,000.00, representing the amount
allegedly defrauded, together with interest and damages.
After trial on the merits, the RTC rendered its August 20, 2003
decision, dismissing the complaint, including all counterclaims.
Aggrieved, Makati Sports Club, Inc. (MSCI) appealed to the CA,
arguing that the RTC erred in finding neither direct nor
circumstantial evidence that Cecile H. Cheng (Cheng) had any
fraudulent participation in the transaction between MSCI and Mc
Foods, Inc. (Mc Foods), while it allegedly ignored MSCIs
overwhelming evidence that Cheng and Mc Foods confabulated
with one another at the expense of MSCI.
After the submission of the parties respective briefs, the CA
promulgated its assailed Decision, affirming the August 20, 2003
decision of the RTC. Hence, this petition anchored on the
grounds that
THE APPELLATE COURT ERRED IN UPHOLDING THE
CONCLUSION OF THE TRIAL COURT THAT PETITIONER DID
NOT PROFFER CLEAR AND CONVINCING EVIDENCE
SHOWING THAT THE RESPONDENTS DEFRAUDED THE
PETITIONER DESPITE OVERWHELMING EVIDENCE TO THE
CONTRARY AS SHOWN BY THE FOLLOWING:
63
(A) RESPONDENTS CHENG AND SABARRES OWN
ADMISSIONS, MARIAN PUNZALANS AFFIDAVIT, AND
OTHER PERTINENT DOCUMENTARY EVIDENCE ALL
UNEQUIVOCALLY PROVE THAT RESPONDENT CHENG HAD
INTIMATE
PARTICIPATION IN THE SALE OF MSCIS UNISSUED CLASS
"A" SHARE TO MC FOODS, INC. FOR THE CONSIDERATION
OF ONE MILLION EIGHT HUNDRED THOUSAND PESOS
(PHP1,800,000.00).
(B) RESPONDENT CHENGS ADMISSIONS AND OTHER
PERTINENT DOCUMENTARY EVIDENCE RELATED TO THE
SALE OF MSCIS UNISSUED CLASS "A" SHARE TO
RESPONDENT MC FOODS, INC. AND THE RESALE OF THE
SAME TO SPOUSES HODREAL PROVE THAT THE SALE OF
THE SAID UNISSUED SHARE TO MC FOODS, INC. AT ONE
MILLION EIGHT HUNDRED THOUSAND PESOS
(PHP1,800,000.00) WAS MADE WITH A VIEW TO RESELL THE
SAME AT A PROFIT TO THE HODREAL SPOUSES AT THE
AMOUNT OF TWO MILLION EIGHT HUNDRED PESOS
(PHP2,800,000.00); THE "RESALE" OF THE SAID SHARE TO
THE SPOUSES HODREAL OCCURRING EVEN BEFORE MC
FOODS, INC. GAINED OWNERSHIP OVER THE SAID
UNISSUED SHARE.
(C) THE UTTER LACK OF DOCUMENTARY EVIDENCE
SHOWING THAT MC FOODS, INC. EVINCED A DESIRE TO
PURCHASE PETITIONERS UNISSUED SHARES
CONCLUSIVELY PROVES THAT MC FOODS, INC. NEVER
MADE ANY FORMAL OFFER TO BUY AN UNISSUED M[SC]I
SHARE FROM PETITIONERS BOARD OF DIRECTORS
AND/OR MEMBERSHIP COMMITTEE, COURSING THE SAID
TRANSACTION CLANDESTINELY THROUGH RESPONDENT
CHENG.
(D) RESPONDENT CHENGS OWN ADMISSIONS
INDUBITABLY PROVE THAT SHE DELIBERATELY
CONCEALED THE FACT THAT THERE WERE OTHER
UNISSUED M[SC]I SHARES AVAILABLE FOR PURCHASE BY
THE SPOUSES HODREAL, CHOOSING INSTEAD TO
BROKER THE "RESALE" OF THE SHARE PURCHASED BY
MC FOODS, INC. FROM MSCI TO THE SPOUSES HODREAL
AT THE PRICE OF TWO MILLION EIGHT HUNDRED
THOUSAND PESOS (PHP2,800,000.00) TO THE DETRIMENT
OF THE PETITIONER.
(E) RESPONDENTS CHENG AND SABARRES ADMISSIONS,
MSCIS BY-LAWS AND DOCUMENTARY EVIDENCE
RELATING TO THE TWO IRREGULAR SALES
TRANSACTIONS ALL POINT TO THE CONCLUSION THAT MC
FOODS, INC. IN RESELLING ITS MSCI SHARE TO SPOUSES
HODREAL FAILED TO GIVE MSCI A CREDIBLE
OPPORTUNITY TO REPURCHASE THE SAME IN
ACCORDANCE WITH SECTION 30 (E) OF MSCIS BY-LAWS.
(F) RESPONDENT CHENGS OWN DOCUMENTARY
EVIDENCE PROVES THAT RESPONDENTS FALSIFIED AN
ENTRY IN MC FOODS, INC.S "OFFER" TO SELL ITS SHARE
TO MSCI IN AN EFFORT TO COAT THE RESELLING OF THE
SAID SHARE TO SPOUSES HODREAL WITH A SEMBLANCE
OF REGULARITY[.]
(G) FINALLY, PERHAPS THE MOST OVERLOOKED MATTER
BY THE TRIAL COURT AND THE APPELLATE COURT IS THE
SINGULAR UNDENIABLE FACT THAT RESPONDENT CHENG
DURING THE PERIOD IN WHICH THE ABOVE-MENTIONED
TRANSACTIONS CAME INTO FRUITION WAS A MEMBER OF
THE BOARD OF DIRECTORS AND THE TREASURER OF
MSCI, THIS FACT ALONE TAINTS THE PARTICIPATION OF
64
RESPONDENT CHENG IN THE SAID IRREGULAR
TRANSACTIONS WITH BAD FAITH.5
The petition should be denied.
At the outset, we note that this recourse is a petition for review on
certiorari under Rule 45 of the Rules of Court. Under Section 1 of
the Rule, such a petition shall raise only questions of law which
must be distinctly alleged in the appropriate pleading. In a case
involving a question of law, the resolution of the issue must rest
solely on what the law provides for a given set of facts drawn from
the evidence presented. Stated differently, there should be
nothing in dispute as to the state of facts; the issue to be resolved
is merely the correctness of the conclusion drawn from the said
facts. Once it is clear that the issue invites a review of the
probative value of the evidence presented, the question posed is
one of fact. If the query requires a reevaluation of the credibility
of witnesses, or the existence or relevance of surrounding
circumstances and their relation to each other, then the issue is
necessarily factual.6
A perusal of the assignment of errors and the discussion set forth
by MSCI would readily show that the petition seeks a review of
all the evidence presented before the RTC and reviewed by the
CA; therefore, the issue is factual. Accordingly, the petition
should be dismissed outright, especially considering that the very
same factual circumstances in this petition have already been
ruled upon by the CA.
However, MSCI seeks to evade this rule that the findings of fact
made by the trial court, particularly when affirmed by the appellate
court, are entitled to great weight and even finality, claiming that
its case falls under two of the well-recognized exceptions, to wit:
(1) that the judgment of the appellate court is premised on a
misapprehension of facts or that it has failed to consider certain
relevant facts which, if properly considered, will justify a different
conclusion; and (2) that the findings of fact of the appellate court
are ostensibly premised on the absence of evidence, but are
contradicted by the evidence on record.7
MSCI insists that Cheng, in collaboration with Mc Foods,
committed fraud in transacting the transfers involving Stock
Certificate No. A 2243 (Certificate A 2243) on account of the
following circumstances(1) on November 24, 1995, Joseph L.
Hodreal (Hodreal) paid the first installment of P1,400,000.00 for
the purchase of a Class "A" share in favor of Mc Foods; 8 (2) on
November 28, 1995, Mc Foods deposited to MSCIs account an
Allied Banking Corporation managers check for the purchase of
the same share in the amount of P1,800,000.00,9 sans an official
receipt from MSCI;10 (3) on December 15, 1995, MSCI and Mc
Foods executed a Deed of Sale for the purchase of a Class "A"
share;11 (4) on December 27, 1995, Hodreal paid the last
installment of P1,400,000.00 to Mc Foods;12 (5) on December 27,
1995, Mc Foods sent a letter to MSCI, offering to sell its
purchased share of stock in the amount of P2,800,000.00;13 (6)
on January 5, 1996, Certificate A 2243 was issued to Mc Foods
by MSCI;14 and (7) on January 29, 1996, Mc Foods and Hodreal
executed a Deed of Sale for the same share of stock.15
Based on the above incidents, MSCI asserts that Mc Foods never
intended to become a legitimate holder of its purchased Class "A"
share but did so only for the purpose of realizing a profit in the
amount of P1,000,000.00 at the expense of the former. MSCI
further claims that Cheng confabulated with Mc Foods by
providing it with an insiders information as to the status of the
shares of stock of MSCI and even, allegedly with unusual interest,
facilitated the transfer of ownership of the subject share of stock
from Mc Foods to Hodreal, instead of an original, unissued share
of stock. According to MSCI, Chengs fraudulent participation was
clearly and overwhelmingly proven by the following
65
circumstances: (1) sometime in October 1995, Lolita Hodreal,
wife of Hodreal, talked to Cheng about the purchase of one Class
"A" share of stock and the latter assured her that there was
already an available share for P2,800,000.00;16 (2) the second
installment payment of P1,400,000.00 of spouses Hodreal to Mc
Foods was received by Cheng on the latters behalf;17 (3) Marian
N. Punzalan (Punzalan), head of MSCIs membership section,
informed Cheng about Hodreals intention to purchase a share of
stock and Cheng asked her if there was a quoted price for it, and
for Hodreals contact number;18 and (4) on January 29, 1996,
Cheng claimed Certificate A 2243 on behalf of Mc Foods, 19 per
letter of authority dated January 26, 1996, executed by Mc Foods
in favor of Cheng.20
The Court is not convinced.
It is noteworthy that, as early as July 7, 1995, Hodreal already
expressed to the MSCI Membership Committee his intent to
purchase one Class "A" share and even requested if he could be
included in the waiting list of buyers. However, there is no
evidence on record that the Membership Committee acted on this
letter by replying to Hodreal if there still were original, unissued
shares then or if he would indeed be included in the waiting list21
of buyers. All that Punzalan did was to inform Cheng of Hodreals
intent and nothing more, even as Cheng asked for Hodreals
contact number. It may also be observed that, although
established by Punzalans affidavit that she informed Cheng
about Hodreals desire to purchase a Class "A" share and that
Cheng asked for Hodreals contact number, it is not clear when
Punzalan relayed the information to Cheng or if Cheng indeed
initiated contact with Hodreal to peddle Mc Foods purchased
share.
While Punzalan declared that, in December 1995, she received a
Deed of Absolute Sale between MSCI and Mc Foods of a Class
"A" share for P1,800,000.00 signed by Atty. Rico Domingo and
Cheng, in their respective capacities as then President and
Treasurer of MSCI, and by Ramon Sabarre, as President of Mc
Foods, what she merely did was to inquire from her immediate
superior Becky Pearanda what share to issue; and the latter, in
turn, replied that it should be an original share. Thereafter,
Punzalan prepared a letter, signed by then corporate secretary,
Atty. Rafael Abiera, to be sent to MSCIs stock transfer agent for
the issuance of the corresponding certificate of stock. Then,
Certificate A 2243 was issued in favor of Mc Foods on January 5,
1996.
Also in point are the powers and duties of the MSCIs
Membership Committee, viz.:
SEC. 29. (a) The Membership Committee shall process
applications for membership; ascertain that the requirements for
stock ownership, including citizenship, are complied with; submit
to the Board its recommended on applicants for inclusion in the
Waiting List; take charge of auction sales of shares of stock; and
exercise such other powers and perform such other functions as
may be authorized by the Board.22
Charged with ascertaining the compliance of all the requirements
for the purchase of MSCIs shares of stock, the Membership
Committee failed to question the alleged irregularities attending
Mc Foods purchase of one Class "A" share at P1,800,000.00. If
there was really any irregularity in the transaction, this inaction of
the Management Committee belies MSCIs cry of foul play on Mc
Foods purchase of the subject share of stock. In fact, the
purchase price of P1,800,000.00 cannot be said to be detrimental
to MSCI, considering that it is the same price paid for a Class "A"
share in the last sale of an original share to Land Bank of the
Philippines on September 25, 1995, and in the sale by Marina
Properties Corporation to Xanland Properties, Inc. on October 23,
66
1995.23 These circumstances have not been denied by MSCI.
What is more, the purchase price of P1,800,000.00 is
P1,400,000.00 more than the floor price set by the MSCI Board
of Directors for a Class "A" share in its resolution dated October
20, 1994.24
Further, considering that Mc Foods tendered its payment of
P1,800,000.00 to MSCI on November 28, 1995, even assuming
arguendo that it was driven solely by the intent to speculate on
the price of the share of stock, it had all the right to negotiate and
transact, at least on the anticipated and expected ownership of
the share, with Hodreal.25 In other words, there is nothing wrong
with the fact that the first installment paid by Hodreal preceded
the payment of Mc Foods for the same share of stock to MSCI
because eventually Mc Foods became the owner of a Class "A"
share covered by Certificate A 2243. Upon payment by Mc Foods
of P1,800,000.00 to MSCI and the execution of the Deed of
Absolute Sale on December 15, 1995, it then had the right to
demand the delivery of the stock certificate in its name. The right
of a transferee to have stocks transferred to its name is an
inherent right flowing from its ownership of the stocks.26
It is MSCIs stance that Mc Foods violated Section 30(e) of
MSCIs Amended By-Laws on its pre-emptive rights, which
provides
SEC. 30. x x x .
(e) Sale of Shares of Stockholder. Where the registered owner of
share of stock desires to sell his share of stock, he shall first offer
the same in writing to the Club at fair market value and the club
shall have thirty (30) days from receipt of written offer within which
to purchase such share, and only if the club has excess revenues
over expenses (unrestricted retained earning) and with the
approval of two-thirds (2/3) vote of the Board of Directors. If the
Club fails to purchase the share, the stockholder may dispose of
the same to other persons who are qualified to own and hold
shares in the club. If the share is not purchased at the price
quoted by the stockholder and he reduces said price, then the
Club shall have the same pre-emptive right subject to the same
conditions for the same period of thirty (30) days. Any transfer of
share, except by hereditary succession, made in violation of
these conditions shall be null and void and shall not be recorded
in the books of the Club.
The share of stock so acquired shall be offered and sold by the
Club to those in the Waiting List in the order that their names
appear in such list, or in the absence of a Waiting List, to any
applicant.27
We disagree.
Undeniably, on December 27, 1995, when Mc Foods offered for
sale one Class "A" share of stock to MSCI for the price of
P2,800,000.00 for the latter to exercise its pre-emptive right as
required by Section 30(e) of MSCIs Amended By-Laws, it legally
had the right to do so since it was already an owner of a Class
"A" share by virtue of its payment on November 28, 1995, and the
Deed of Absolute Share dated December 15, 1995,
notwithstanding the fact that the stock certificate was issued only
on January 5, 1996. A certificate of stock is the paper
representative or tangible evidence of the stock itself and of the
various interests therein. The certificate is not a stock in the
corporation but is merely evidence of the holders interest and
status in the corporation, his ownership of the share represented
thereby. It is not in law the equivalent of such ownership. It
expresses the contract between the corporation and the
stockholder, but is not essential to the existence of a share of
stock or the nature of the relation of shareholder to the
corporation.28
67
Therefore, Mc Foods properly complied with the requirement of
Section 30(e) of the Amended By-Laws on MSCIs pre-emptive
rights. Without doubt, MSCI failed to repurchase Mc Foods Class
"A" share within the thirty (30) day pre-emptive period as provided
by the Amended By-Laws. It was only on January 29, 1996, or 32
days after December 28, 1995, when MSCI received Mc Foods
letter of offer to sell the share, that Mc Foods and Hodreal
executed the Deed of Absolute Sale over the said share of stock.
While Hodreal had the right to demand the immediate execution
of the Deed of Absolute Sale after his full payment of Mc Foods
Class "A" share, he did not do so. Perhaps, he wanted to wait for
Mc Foods to first comply with the pre-emptive requirement as set
forth in the Amended By-Laws. Neither can MSCI argue that Mc
Foods was not yet a registered owner of the share of stock when
the latter offered it for resale, in order to void the transfer from Mc
Foods to Hodreal. The corporations obligation to register is
ministerial upon the buyers acquisition of ownership of the share
of stock. The corporation, either by its board, its by-laws, or the
act of its officers, cannot create restrictions in stock transfers.29
Moreover, MSCIs ardent position that Cheng was in cahoots with
Mc Foods in depriving it of selling an original, unissued Class "A"
share of stock for P2,800,000.00 is not supported by the evidence
on record. The mere fact that she performed acts upon authority
of Mc Foods, i.e., receiving the payments of Hodreal in her office
and claiming the stock certificate on behalf of Mc Foods, do not
by themselves, individually or taken together, show badges of
fraud, since Mc Foods did acts well within its rights and there is
no proof that Cheng personally profited from the assailed
transaction. Even the statement of MSCI that Cheng doctored the
books to give a semblance of regularity to the transfers involving
the share of stock covered by Certificate A 2243 remains merely
a plain statement not buttressed by convincing proof.
Fraud is deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a breach
of legal or equitable duty, trust or confidence justly reposed,
resulting in the damage to another or by which an undue and
unconscionable advantage is taken of another.30 It is a question
of fact that must be alleged and proved. It cannot be presumed
and must be established by clear and convincing evidence, not
by mere preponderance of evidence.31 The party alleging the
existence of fraud has the burden of proof. 32 On the basis of the
above disquisitions, this Court finds that petitioner has failed to
discharge this burden. No matter how strong the suspicion is on
the part of petitioner, such suspicion does not translate into
tangible evidence sufficient to nullify the assailed transactions
involving the subject MSCI Class "A" share of stock.

WHEREFORE, the petition is DENIED for lack of merit. The

Decision dated June 25, 2007 of the Court of Appeals in CA-G.R.
CV No. 80631, affirming the decision dated August 20, 2003 of
the Regional Trial Court, Branch 138, Makati City in Civil Case
No. 01-837, is AFFIRMED. Costs against petitioner.

SO ORDERED.

68
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-10141 January 31, 1958
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
PHILIPPINE RESOURCES DEVELOPMENT CORPORATION
and the COURT OF APPEALS, respondents.
Office of the Solicitor General Ambrosio Padilla, and Solicitor
Frine C. Zaballero for petitioner.
Vicente L. Santiago for respondent Corporation.
PADILLA, J.:
This is a petition under Rule 46 to review a judgment rendered by
the Court of Appeals,in CA-GR No. 15767-R, Philippine
Resources Development Corporation vs. The Hon. Judge Magno
Gatmaitan et al.
The findings of the Court of Appeals are, as follows.
It appears that on May 6, 1955, the Republic of the Philippines in
representation of the Bureau of Prisons instituted against Macario
Apostol and the Empire Insurance Co. a complaint docketed as
Civil Case No. 26166 of the Court of First instance of Manila. The
complaint alleges as the first cause of action, that defendant
Apostol submitted the highest bid the amount P450.00 per ton for
the purchase of 100 tons of Palawan Almaciga from the Bureau
of Prisons; that a contract therefor was drawn and by virtue of
which, Apostol obtained goods from the Bureau of Prisons valued
69
P15,878.59; that of said account, Apostol paid only P691.10
leaving a balane obligation of P15,187.49. The complaint further
averes, as second cause of action, that Apostol submitted the
best bid with the Bureau of Prisons for the purchase of three
million board feet of logs at P88.00 per 1,000 board feet; that a
contract was executed between the Director of Prisons and
Apostol pursuant to which contract Apostol obtained deliveries of
logs valued at P65.830.00, and that Apostol failed to pay a
balance account Of P18,827.57. All told, for the total demand set
forth in complaint against Apostol is for P34,015.06 with legal
interests thereon from January 8, 1952. The Empire lnsurance
Company was included in the complaint having executed a
performance bond of P10,000.00 in favor of Apostol.
In his answer, Apostol interposed payment as a defense and
sought the dismissal of the complaint.
On July 19, 1955, the Philippine Resources Development
Corporation moved to intervene, appending to its motion, the
complaint in the intervention of even date. The complaint recites
that for sometime prior to Apostol's transactions the corporate
had some goods deposited in a warehouse at 1201 Herran,
Manila; that Apostol, then the president of the corporation but
without the knowledge or consent of the stockholders thereof,
disposed of said goods by delivering the same to the Bureau of
Prisons of in an attempt to settle his personal debts with the latter
entity; that upon discovery of Apodol's act, the corporation took
steps to recover said goods by demanding from the Bureau of
Prisons the return thereof; and that upon the refusal of the Bureau
to return said goods, the corporation sought leave to intervene in
Civil Case No. 26166.
As aforestated, His Honor denied the motion for intervention and
thereby issued an order to this effect on July 23, 1955. A motion
for the reconsideration of said order was filed by the movant
corporation and the same was likewise denied by His Honor on
August 18, 1955 . . . (Annex L.).
On 3 September 1955, in a petition for a writ of certiorari filed in
the Court of Appeals, the herein respondent corporation prayed
for the setting aside of the order of the Court of First Instance that
had denied the admission of its complaint-in-intervention and for
an order directing the latter Court to allow the herein respondent
corporation to intervene in the action (Annex G). On 12 December
1955 the Court of Appeals set aside the order denying the motion
to intervene and ordered the respondent court to admit the herein
respondent corporation's complaint-in-intervention with costs
against Macario Apostol.
On 9 January 1956 the Republic of the Philippines filed this
petition in this Court for the purpose stated at the beginning of
this opinion.
The Goverment contends that the intervenor has no legal interest
in the matter in litigation, because the action brought in the Court
of First Instance of Manila against Macario Apostol and the
Empire Insurance Company (Civil Case No. 26166, Annex A) is
just for the collection from the defendant Apostol of a sum of
money, the unpaid balance of the purchase price of logs and
almaciga bought by him from the Bureau of Prisons, whereas the
intervenor seeks to recover ownership and possession of G. I.
sheets, black sheets, M. S. plates, round bars and G. I. pipes that
it claims its owns-an intervention which would change a personal
action into one ad rem and would unduly delay the disposition of
the case.
The Court of Appeals held that:
Petitioner ardently claims that the reason behind its motion to
intervene is the desire to protect its rights and interests over some
70
materials purportedly belonging to it; that said material were
unauthorizedly and illegally assigned and delivered to the Bureau
of Prisons by petitioning corporation's president Macario Apostol
in payment of the latter's personal accounts with the said entity;
and that the Bureau of Prisons refused to return said materials
despite petitioner's demands to do so.
Petitioner refers to the particulars recited in Apostol's answer
dated July 12, 1955 to the effect that Apostol had paid unto the
Bureau of Prisons his accounts covered, among others, by BPPO
1077 for the sum of P4,638.40 and BPPO 1549 for the amount of
P4,398.54. Petitioner moreover, points to the State of Paid and
Unpaid accounts of Apostol dated January 16, 1954 prepared by
the accounting of officer of the Bureau of Prisons (Annex B.
Complaint in Intervention), wherein it appears that the
aforementioned accounts covered respectively by BPPO Nos.
1077 for 892 pieces of GI sheets and 1549 for 399 pieces of GI
pipes in the total sum of P9,036.94 have not been credited to
Apostol's account in view of lack of supporting papers; and that
according to the reply letter of the Undersecretary of Justice, said
GI sheets and pipes were delivered by Macario Apostol to the
Bureau of Prisons allegedly in Apostol's capacity as owner and
that the black iron sheets were delivered by Apostol as President
of the petitioner corporation.
Respondents, on the other hand, assert that the subject matter of
the original litigation is a sum of money allegedly due to the
Bureau of Prisons from Macario Apostol and not the goods or the
materials reportedly turned over by Apostol as payment of his
private debts to the Bureau of Prisons and the recovery of which
is sought by the petitioner; and that for this reason, petitioner has
no legal interest in the very subject matter in litigation as to entitle
it to intervene.
We find no merit in respondents' contention. It is true that the very
subject matter of the original case is a sum of money. But it is
likewise true as borne out by the records, that the materials
purportedly belonging to the petitioner corporation have been
assessed and evaluated and their price equivalent in terms of
money have been determined; and that said materials for
whatever price they have been assigned by defendant now
respondent Apostol as tokens of payment of his private debts with
the Bureau of Prisons. In view of these considerations, it
becomes enormously plain in the event the respondent judge
decides to credit Macario Apostol with the value of the goods
delivered by the latter to the Bureau of Prisons, the petitioner
corporation stands to be adversely affected by such judgment.
The conclusion, therefore, is inescapable that the petitioner
possesses a legal interest in the matter in litigation and that such
interest is of an actual, material, direct and immediate nature as
to entitle petitioner to intervene.
xxx xxx xxx
Section 3 of Rule 13 of the Rules of Court endows the lower Court
with discretion to allow or disapprove the motion for intrvention
(Santarromana et al. vs. Barrios, 63 Phil. 456); and that in the
exercise of such discretion, the court shall consider whether or
not the intervention will unduly delay or prejudice the adjudicatio
of the rights of the original parties and whether or not the
intervenors the rights may be fully protected in a separate
proceeding. The petitioner in the instant case positively
authorized to a separate action against any of all the
respondents. But considering that the resolution of the issues
raised in and enjoined by the pleadings in the main case, would
virtally affect the rights not only the original parties but also of the
berein petitioner: that far from unduly delaying or prejudicing the
adjudication of the rights of the original parties or bringing about
confusion in the original case, the adnission of the complaint in
71
intervention would help clarify the vital issue of the true and real
ownership of the materials involved, besides preventing an
abhorrent munltiplicity of suit, we believe that the motion to
intervene should be given due to cause.
We find no reason for disturbing the foregoing pronouncements.
The Government argues that "Price . . . is always paid in terms of
money and the supposed payment beeing in kind, it is no
payment at all, "citing Article 1458 of the new Civil Code.
However, the same Article provides that the purschaser may pay
"a price certain in money or its equivalent," which means that they
meant of the price need not be in money. Whether the G.I. sheets,
black sheets, M. S. Plates, round bars and G. I. pipes claimed by
the respondent corporation to belong to it and delivered to the
Bureau of Prison by Macario Apostol in payment of his account is
sufficient payment therefore, is for the court to pass upon and
decide after hearing all the parties in the case. Should the trial
court hold that it is as to credit Apostol with the value or price of
the materials delivered by him, certainly the herein respondent
corporation would be affected adversely if its claim of ownership
of such sheets, plates, bars and pipes is true.
The Government reiterates in its original stand that counsel
appearing for the respondent corporation has no authority to
represent it or/and sue in its behalf, the Court of Appeals held
that:
Respondents aver also that petitioner lacks legal capacity to sue
and that its counsel is acting merely in an individual capacity
without the benefit of the corporate act authorizing him to bring
sue. In this connection, respondents invoked among others
section 20 of Rule 127 which provision, in our opinion, squarely
disproves their claim as by virtue thereof, the authority of
petitioner's counsel is pressumed. Withal, the claim of the
counsel for the petitioner that a resolution to proceed against
Apostol, had been unanonimously adopted by the stockholders
of the corporation, has not been refuted.
Evidently, petitioner is a duly organized corporation with offices
at the Samanillo Building and that as such, it is endowed with a
personality distinct and separate from that of its president or
stockholders. It has the right to bring suit to safeguard its interests
and ordinarily, such right is exercised at the instance of the
president. However, under the circumstance now obtaining, such
right properly devolves upon the other officers of the corporations
as said right is sought to be exercised against the president
himself who is the very object of the intended suit.
respondent corporation and member of the board of directors;
and that the other members of the board, namely, Macario
Apostol, the president, and his wife Pacita R. Apostol, who shuold
normally initiate the action to protect the corporate properties and
in interest are the ones to be adversely affected thereby, a single
stockholder under such circumstances may sue in behalf of the
corporation.2 Counsel as a stockholder and director of the
respondent corporation may sue in its behalf and file the
complaint in intervention in the proper court.
The judgment under review is affirmed, without pronouncements
as to costs.

The power of a corporation to sue and be sued in any court 1 is Bengzon, Paras, C.J., Montemayor, Reyes, A., Bautista Angelo,
lodged in the board of directors which exercises it corporater Labrador, Concepcion, Reyes, J.B.L., Endencia, and Felix, JJ.,
powers,2 and not in the president, as contended by the concur.
Government. The "motion for admission of complaint in
intervention" (Annex C) and the "complaint in intervention"
attached thereto, signed by counsel and filed in the Court of First
Instance begin with the following statement: "COMES NOW the
above-name Intervenor, by its undersigned counsel, . . . , "and
underneath his typewritten name is affixed the description"
Counsel for the Intervenor." As counsels authority to appeal for
the respondent corporation was newer questioned in the Court of
First Instance, it is to be pressumed that he was properly
authorized to file the complaint in intervention and appeal for his
client.1 It was only in the Court of Appeals where his authority to
appear was questioned. As the Court of Appeals was satisfied
that counsel was duly authorized by his client to file the complaint
does in intervention and to appear in its behalf, hte resolution of
the Court of Appeals on this point should not be disturbed.

Granting that counsel has not been actually authorized by the

board of directors to appear for and in behalf of the respondent
corporation, the fact that counsel is the secretary treasurer of the
72
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 144576 May 28, 2004
SPOUSES ISABELO and ERLINDA PAYONGAYONG,
petitioners,
vs.
HON. COURT OF APPEALS, SPOUSES CLEMENTE and
ROSALIA SALVADOR, respondents.
DECISION
CARPIO MORALES, J.:
Being assailed by petition for review on certiorari under Rule 45
of the Rules of Court1 is the June 29, 2000 Decision2 of the Court
of Appeals in CA-G.R. CV No. 52917 affirming that of the
Regional Trial Court (RTC), Branch 217, Quezon City dismissing
Civil Case No. Q-93-16891,3 the complaint of spouses Isabelo
and Erlinda Payongayong (petitioners) against spouses
Clemente and Rosalia Salvador (respondents).
Eduardo Mendoza (Mendoza) was the registered owner of a two
hundred square meter parcel of land situated in Barrio San
Bartolome, Caloocan, covered by and described in Transfer
Certificate of Title No. 3295094 of the Registry of Deeds of
Quezon City.
On April 18, 1985, Mendoza mortgaged the parcel of land to the
Meralco Employees Savings and Loan Association (MESALA) to
secure a loan in the amount of P81,700.00. The mortgage was
73
duly annotated on the title as Primary Entry No. 28725 on April
23, 1985.
On July 11, 1987, Mendoza executed a Deed of Sale with
Assumption of Mortgage6 over the parcel of land together with all
the improvements thereon (hereinafter referred to as the
property) in favor of petitioners in consideration of P50,000.00. It
is stated in the deed that petitioners bound themselves to assume
payment of the balance of the mortgage indebtedness of
Mendoza to MESALA.7
On December 7, 1987, Mendoza, without the knowledge of
petitioners, mortgaged the same property to MESALA to secure
a loan in the amount of P758,000.00. On even date, the second
mortgage was duly annotated as Primary Entry No. 8697 8 on
Mendozas title.
On November 28, 1991, Mendoza executed a Deed of Absolute
Sale9 over still the same property in favor of respondents in
consideration of P50,000.00. The sale was duly annotated as
Primary Entry No. 100510 on Mendozas title. On even date,
MESALA issued a Cancellation of Mortgage11 acknowledging
that for sufficient and valuable consideration which it received
from Mendoza, it was cancelling and releasing the real estate
mortgage over the property. The cancellation was annotated as
Primary Entry No. 100312 on Mendozas title.
Respondents caused the cancellation of Mendozas title and the
issuance of Transfer Certificate Title No. 6743213 in their name.
Getting wind of the sale of the property to respondents,
petitioners filed on July 16, 1993 a complaint 14 for annulment of
deed of absolute sale and transfer certificate of title with recovery
of possession and damages against Mendoza, his wife Sally
Mendoza, and respondents before the Quezon City RTC.
In their complaint, petitioners alleged that the spouses Mendoza
maliciously sold to respondents the property which was priorly
sold to them and that respondents acted in bad faith in acquiring
it, the latter having had knowledge of the existence of the Deed
of Absolute Sale with Assumption of Mortgage between them
(petitioners) and Mendoza.
Branch 217 of the Quezon City RTC, by Order15 of December 3,
1993, archived the case in view of the failure to determine the
whereabouts of the spouses Mendoza.
A motion16 for the revival of the case as against respondents and
its dismissal as against the spouses Mendoza was later filed on
December 17, 1993 by petitioners, which motion was granted by
the trial court by Order17 of December 27, 1993.
By Decision of February 5, 1996, the trial court found for
respondents.
Dissatisfied, petitioners appealed the decision to the Court of
Appeals (CA) which, as stated early on, affirmed the same.
Petitioners Motion for Reconsideration18 having been denied by
the CA by Resolution of August 25, 2000,19 the petition at bar was
lodged.
Petitioners assign to the CA the following errors:20
I emanating from the court, a resort to other modes must be
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING IN (sic)
EXCESS OF JURISDICTION WHEN IT FAILED TO RULE THAT
THE DEED OF SALE EXECUTED BY EDUARDO MENDOZA IN
74
FAVOR OF PRIVATE RESPONDENTS WAS SIMULATED AND
THEREFORE NULL AND VOID.
II
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING IN (sic)
EXCESS OF JURISDICTION WHEN IT GAVE CREDENCE TO
THE THEORY OF THE PRIVATE RESPONDENTS THUS
FOUND TO BE INNOCENT PURCHASERS FOR VALUE.
III
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED
ITS DISCRETION AMOUNTING IN (sic) EXCESS OF ITS
JURISDICTION BY HOLDING THAT PETITIONERS ARE
BARRED BY LACHES.21
On procedural and substantive grounds, the petition fails.
The petition which was filed by registered mail was not
accompanied by a written explanation why such service was not
done personally, in contravention of Section 11, Rule 13 of the
Revised Rules of Court which provides:
SEC. 11. Priorities in modes of service and filing. Whenever
practicable, the service and filing of pleadings and other papers
shall be done personally. Except with respect to papers
accompanied by a written explanation why the service or filing
was not done personally. A violation of this Rule may be cause to
consider the paper as not filed.
Under the above-quoted provision, service and filing of pleadings
and other papers must, whenever practicable, be done
personally. If they are made through other modes, the party Q: Now, according to you, you bought this property from the
concerned must provide a written explanation why the service or Mendozas (sic), Eduardo and Sally Mendoza on November 28,
filing was not done personally. If only to underscore the 1991, is that correct?
mandatory nature of this innovation to the set of adjective rules
requiring personal service whenever practicable, the provision A: Yes, sir.
gives the court the discretion to consider a pleading or paper as
not filed if the other modes of service or filing were resorted to xxx
and no written explanation was made as to why personal service
was not done in the first place.22 Strictest compliance is Q: Now, Mrs. Sally Salvador, what did you do after buying the
mandated, lest this provision be rendered meaningless and its property from the Mendozas (sic)?
sound purpose negated.23
A: We renovated it, we constructed a concrete fence, sir.
On the merits, respondents claim that they are entitled to the
protection accorded to purchasers in good faith is well-taken. Q: When you bought the property, is this property encumbered or
mortgaged?
It is a well-established principle that a person dealing with
registered land may safely rely on the correctness of the A: The property was mortgaged to Meralco Savings and Loan
certificate of title issued therefor and the law will in no way oblige Association, sir.
him to go behind the certificate to determine the condition of the
property.24 He is charged with notice only of such burdens and xxx
claims as are annotated on the title.25 He is considered in law as
an innocent purchaser for value or one who buys the property of Q: And what did you do before buying the property?
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 A: I verified with the City Hall if they are real owners of the
at the time of such purchase or before he has notice of the claim property.
of another person.26
xxx
That petitioners did not cause the cancellation of the certificate of
title of Mendoza and procure one in their names is not disputed. Q: When you bought the property, mortgaged to Meralco, was
Nor that they had their claims annotated on the same title. Thus, this particular property titled in the name of Eduardo Mendoza?
at the time of the sale of the property to respondents on
November 28, 1991, only the mortgages in favor of MESALA A: Yes, sir.
appeared on the annotations of encumbrances on Mendozas
title. Respondent Rosalia Salvador (Rosalia) so testified: xxx

75
Q: When you bought the property, Mrs. Sally Salvador, is this
covered by any real property tax in the name of Eduardo
Mendoza?
A: In the name of Eduardo Mendoza the one given to me, sir.
xxx
Q: Now, Mrs. Sally Salvador, when for the first time did you see
Mr. Payongayong?
A: On the third call of Honorable Judge Enriquez, sir.
xxx
Q: Is it not a fact that before you bought that property, you made
an ocular inspection of the premises, is that correct?
A: Yes, sir.
xxx
Q: And after you have inspected the premises in question, is it
not a fact that you went to the Register of Deeds, is that correct?
A: Yes, sir. Together with Sally Mendoza and the agent.
xxx
Q: So, you went to the Office of the Register of Deeds of Quezon
City, you, together with Benny Salvador and Mrs. Mendoza?
A: Yes, sir.
76
Q: What did you find out from your verification as to the
authenticity of the title?
A: That she is the real owner of the property registered in the
Register of Deeds.
Q: Who is the owner?
A: Mr. and Mrs. Eduardo Mendoza.
Q: Did you try to see if the property is free from any lien or
encumbrance?
A: Before we went to the Register of Deeds, she told us that the
property is mortgaged at (sic) Meralco, sir.
Q: Did you check it up, were you given a Xerox copy of the TCT,
Transfer Certificate of Title No. 329509, in addition to the
information given to you that the property in question is
mortgaged in favor of Meralco Employees Savings?
A: Yes, sir.
Q: And when you went to the Register of Deeds, you saw that the
mortgage in favor of the Meralco Employees Savings and Loan
Association was duly annotated on the title which is being kept
and intact in the Office of the Register of Deeds, is that correct?
A: Yes, sir.27
Where innocent third persons rely upon the correctness of a
certificate of title and acquire rights over the property, the court
cannot just disregard such rights. Otherwise, public confidence in
the certificate of title, and ultimately, the Torrens system, would
be impaired, for everyone dealing with registered property would
still have to inquire at every instance whether the title has been
regularly or irregularly issued.28
The real purpose of the Torrens system of registration is to quiet
title to land and to put a stop to any question of legality of the title
except to claims which have been recorded in the certificate of
title at the time of registration or which may arise subsequent
thereto. Every registered owner and every subsequent purchaser
for value in good faith holds the title to the property free from all
encumbrances except those noted in the certificate. Hence, a
purchaser is not required to explore further what the Torrens title
on its face indicates in quest for any hidden defect or inchoate
right that may subsequently defeat his right thereto.29
In respondents case, they did not only rely upon Mendozas title.
Rosalia personally inspected the property and verified with the
Registry of Deeds of Quezon City if Mendoza was indeed the
registered owner. Given this factual backdrop, respondents did
indeed purchase the property in good faith and accordingly
acquired valid and indefeasible title thereto.
The law is thus in respondents favor. Article 1544 of the Civil
Code so 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.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
77
absence thereof, to the person who presents the oldest title,
provided there is good faith.
There being double sale of an immovable property, as the above-
quoted provision instructs, ownership shall be transferred (1) to
the person acquiring it who in good faith first recorded it in the
Registry of Property; (2) in default thereof, to the person who in
good faith was first in possession; and (3) in default thereof, to
the person who presents the oldest title, provided there is good
faith.30
The trial and appellate courts thus correctly accorded preferential
rights to respondents who had the sale registered in their favor.
Petitioners claim, however, that the sale between Mendoza and
respondents was simulated.
Simulation occurs when an apparent contract is a declaration of
a fictitious will, deliberately made by agreement of the parties, in
order to produce, for the purpose of deception, the appearance
of a juridical act which does not exist or is different from that which
was really executed.31 Its requisites are: a) an outward
declaration of will different from the will of the parties; b) the false
appearance must have been intended by mutual agreement; and
c) the purpose is to deceive third persons.32
The basic characteristic then of a simulated contract is that it is
not really desired or intended to produce legal effects or does not
in any way alter the juridical situation of the parties.33
The cancellation of Mendozas certificate of title over the property
and the procurement of one in its stead in the name of
respondents, which acts were directed towards the fulfillment of
the purpose of the contract, unmistakably show the parties
intention to give effect to their agreement. The claim of simulation
does not thus lie.

That petitioners and respondents were forced to litigate due to

the deceitful acts of the spouses Mendoza, this Court is not
unmindful. It cannot be denied, however, that petitioners failure
to register the sale in their favor made it possible for the
Mendozas to sell the same property to respondents.

Under the circumstances, this Court cannot come to petitioners

succor at the expense of respondents-innocent purchasers in
good faith. Petitioners are not without remedy, however. They
may bring an action for damages against the spouses
Mendoza.34

WHEREFORE, the petition is DENIED.

SO ORDERED.

78
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21489 and L-21628 May 19, 1966
MIGUEL MAPALO, ET AL., petitioners,
vs.
MAXIMO MAPALO, ET AL., respondents.
Pedro P. Tuason for petitioners.
Primicias and Del Castillo for respondents.
BENGZON, J.P., J.:
The spouses Miguel Mapalo and Candida Quiba, simple illiterate
farmers, were registered owners, with Torrens title certificate
O.C.T. No. 46503, of a 1,635-square-meter residential land in
Manaoag, Pangasinan. Said spouses-owners, out of love and
affection for Maximo Mapalo a brother of Miguel who was
about to get married decided to donate the eastern half of the
land to him. O.C.T. No. 46503 was delivered. As a result,
however, they were deceived into signing, on October 15, 1936,
a deed of absolute sale over the entire land in his favor. Their
signatures thereto were procured by fraud, that is, they were
made to believe by Maximo Mapalo and by the attorney who
acted as notary public who "translated" the document, that the
same was a deed of donation in Maximo's favor covering one-
half (the eastern half) of their land. Although the document of sale
stated a consideration of Five Hundred (P500.00) Pesos, the
aforesaid spouses did not receive anything of value for the land.
The attorney's misbehaviour was the subject of an investigation
but its result does not appear on record. However we took note
79
of the fact that during the hearing of these cases said notary
public was present but did not take the witness stand to rebut the
plaintiffs' testimony supporting the allegation of fraud in the
preparation of the document.
Following the execution of the afore-stated document, the
spouses Miguel Mapalo and Candida Quiba immediately built a
fence of permanent structure in the middle of their land
segregating the eastern portion from its western portion. Said
fence still exists. The spouses have always been in continued
possession over the western half of the land up to the present.
Not known to them, meanwhile, Maximo Mapalo, on March 15,
1938, registered the deed of sale in his favor and obtained in his
name Transfer Certificate of Title No. 12829 over the entire land.
Thirteen years later on October 20, 1951, he sold for P2,500.00
said entire land in favor of Evaristo, Petronila Pacifico and Miguel
all surnamed Narciso. The sale to the Narcisos was in turn
registered on November 5, 1951 and Transfer Certificate of Title
No. 11350 was issued for the whole land in their names.
The Narcisos took possession only of the eastern portion of the
land in 1951, after the sale in their favor was made. On February
7, 1952 they filed suit in the Court of First Instance of Pangasinan
(Civil Case No. 1191) to be declared owners of the entire land,
for possession of its western portion; for damages; and for
rentals. It was brought against the Mapalo spouses as well as
against Floro Guieb and Rosalia Mapalo Guieb who had a house
on the western part of the land with the consent of the spouses
Mapalo and Quiba.
The Mapalo spouses filed their answer with a counterclaim on
March 17, 1965, seeking cancellation of the Transfer Certificate
of Title of the Narcisos as to the western half of the land, on the
grounds that their (Mapalo spouses) signatures to the deed of
sale of 1936 was procured by fraud and that the Narcisos were
buyers in bad faith. They asked for reconveyance to them of the
western portion of the land and issuance of a Transfer Certificate
of Title in their names as to said portion.
In addition, the Mapalo spouses filed on December 16, 1957 their
own complaint in the Court of First Instance of Pangasinan (Civil
Case No. U-133) against the aforestated Narcisos and Maximo
Mapalo. They asked that the deeds of sale of 1936 and of 1951
over the land in question be declared null and void as to the
western half of said land.
Judge Amado Santiago of the Court of First Instance of
Pangasinan located in the municipality of Urdaneta tried the two
cases jointly. Said court rendered judgment on January 18, 1961,
as follows:
WHEREFORE, judgment is hereby rendered as follows, to wit:
(a) dismissing the complaint in Civil Case No. 11991;
(b) declaring Exhibit A, plaintiffs in Case No. 11991 and Exhibit
1, defendants in Case No. U-133 as a donation only over the
eastern half portion of the above-described land, and as null and
void with respect to the western half portion thereof;
(c) declaring as null and void and without legal force and effect
Transfer Certificate of Title No. 12829 issued in favor of Maximo
Mapalo as regards the western half portion of the land covered
therein;
(d) declaring as null and void Transfer Certificate of Title No.
11350 in the names of the Narcisos insofar as the western half
portion of the land covered therein is concerned;
80
(e) ordering the spouses Mapalo and Quiba and the Narcisos to
have the above-described land be subdivided by a competent
land surveyor and that the expenses incident thereto be borne
out by said parties pro rata;
(f) ordering the Register of Deeds of Pangasinan to issue in lieu
of Transfer Certificate of Title No. 11350 two new titles upon
completion of the subdivision plan, one in favor of the spouses
Miguel Mapalo and Candida Quiba covering the western half
portion and another for the Narcisos covering the eastern half
portion of the said land, upon payment of the legal fees;
meanwhile the right of the spouses Mapalo and Quiba is hereby
ordered to be annotated on the back of Transfer Certificate of
Title No. 11350; and
(g) sentencing Maximo Mapalo and the Narcisos to pay the costs.
IT IS SO ORDERED.
The Narcisos appealed to the Court of Appeals. In its decision on
May 28, 1963, the Court of Appeals reversed the judgment of the
Court of First Instance, solely on the ground that the consent of
the Mapalo spouses to the deed of sale of 1936 having been
obtained by fraud, the same was voidable, not void ab initio, and,
therefore, the action to annul the same, within four years from
notice of the fraud, had long prescribed. It reckoned said notice
of the fraud from the date of registration of the sale on March 15,
1938. The Court of First Instance and the Court of Appeals are
therefore unanimous that the spouses Mapalo and Quiba were
definitely the victims of fraud. It was only on prescription that they
lost in the Court of Appeals.
From said decision of the Court of Appeals, the Mapalo spouses
appealed to this Court.
And here appellants press the contention that the document
dated October 15, 1936, purporting to sell the entire land in favor
of Maximo Mapalo, is void, not merely voidable, as to the western
portion of the land for being absolutely simulated or fictitious.
Starting with fundamentals, under the Civil Code, either the old or
the new, for a contract to exist at all, three essential requisites
must concur: (1) consent, (2) object, and (3) cause or
consideration.1 The Court of Appeals is right in that the element
of consent is present as to the deed of sale of October 15, 1936.
For consent was admittedly given, albeit obtained by fraud.
Accordingly, said consent, although defective, did exist. In such
case, the defect in the consent would provide a ground for
annulment of a voidable contract, not a reason for nullity ab initio.
The parties are agreed that the second element of object is
likewise present in the deed of October 15, 1936, namely, the
parcel of land subject matter of the same.
Not so, however, as to the third element of cause or
consideration. And on this point the decision of the Court of
Appeals is silent.
As regards the eastern portion of the land, the Mapalo spouses
are not claiming the same, it being their stand that they have
donated and freely given said half of their land to Maximo Mapalo.
And since they did not appeal from the decision of the trial court
finding that there was a valid and effective donation of the eastern
portion of their land in favor of Maximo Mapalo, the same
pronouncement has become final as to them, rendering it no
longer proper herein to examine the existence, validity efficacy of
said donation as to said eastern portion.1wph1.t
Now, as to the western portion, however, the fact not disputed
herein is that no donation by the Mapalo spouses obtained as to
81
said portion. Accordingly, we start with the fact that liberality as a
cause or consideration does not exist as regards the western
portion of the land in relation to the deed of 1936; that there was
no donation with respect to the same.
It is reduced, then, to the question whether there was an onerous
conveyance of ownership, that is, a sale, by virtue of said deed
of October 15, 1936, with respect to said western portion.
Specifically, was there a cause or consideration to support the
existence of a contrary of sale?
The rule under the Civil Code, again be it the old or the new, is
that contracts without a cause or consideration produce no effect
whatsoever.2 Nonetheless, under the Old Civil Code, the
statement of a false consideration renders the contract voidable,
unless it is proven that it is supported by another real and licit
consideration.3 And it is further provided by the Old Civil Code
that the action for annulment of a contract on the ground of falsity
of consideration shall last four years, the term to run from the date
of the consummation of the contract.4
Accordingly, since the deed of sale of 1936 is governed by the
Old Civil Code, it should be asked whether its case is one wherein
there is no consideration, or one with a statement of a false
consideration. If the former, it is void and inexistent; if the latter,
only voidable, under the Old Civil Code. As observed earlier, the
deed of sale of 1936 stated that it had for its consideration Five
Hundred (P500.00) Pesos. In fact, however, said consideration
was totally absent. The problem, therefore, is whether a deed
which states a consideration that in fact did not exist, is a contract
without consideration, and therefore void ab initio, or a contract
with a false consideration, and therefore, at least under the Old
Civil Code, voidable.
According to Manresa, what is meant by a contract that states a
false consideration is one that has in fact a real consideration but
the same is not the one stated in the document. Thus he says:
En primer lugar, nor interesa recordar la diferencia entre
simulacion y el contrato con proposito fraudulento. Este aunque
ilicito es real; mas el primero es falso en realidad, aunque se le
presente como verdadero. (Manresa, Codigo Civil, Tomo VIII,
Vol. II, p. 354.)
And citing a decision of the Supreme Court of Spain on the
matter, Manresa further clarifies the difference of false cause and
no cause, thus:
Insiste en el distingo con mas detenida descripcion la sentencia
de 25 de mayo de 1944, en la que se argumenta:
Si bien es elemento fundamental de todo negocio, la declaracion
de voluntad substracto de una voluntad efectiva, y la existencia
de una causa que leconfiera significado juridico sealando la
finalidad que con este se persigue, no ha de deducirse de esta
doctrina, fundamentalmente recogida en el articulo 1.261 y
concordantes del Codigo civil, que cualquier falta de adecuacion
entre cualquier incongruencia entre la causa expresada y la
verdadera, y, en general, entre la estructuracion y la finalidad
economica; hayan de producir la ineficacia del negocio, pues por
el contrario, puede este ser valido y producir sus efectos tanto en
el caso de la mera disonancia entre el medio juridico adoptado y
el fin practico perseguido, por utilizacion de una via oblicua o
combinacion de formas juridicas entrelazadas que permita la
obtencion de un resultado no previsto en los cuadros de la ley
negocios indirectos y negocios fiduciarlos, validos cuando no
envuelven fraude de ley, como en el caso de la verdadera
disconformidad entre la apariencia del acto y su real contenido,
preparada deliberadamente por las partes negocio simulado
82
, ya que, cuando esta divergencia implica no una ausencia
total de voluntad y de acto real, sino mera ocultacion de un
negocio verdadero bajo la falsa apariencia de un negocio fingido
"sirulacion relativa", la ineficacia de la forma externa simulada,
no es obstaculo para la posible validez del negocio disimulado
que contiene, en tanto este ultimo sea licito y reuna no solo los
requisitos generales, sino tambien los que corresponden a su
naturaleza especial, doctrina, en obligada aplicacion de los
preceptos de nuestra Ley civil, especialmente en su art. 1.276,
que, al establecer el principio de nulidad de los contratos en los
que se hace expresion de una causa falsa, deja a salvo el caso
de que esten fundados en otra verdadera y licita. (Manresa,
Codigo Civil, Tomo VIII, Vol. II pp. 357-358)
Sanchez Roman says:
Ya hemos dicho que la intervencion de causa en los contratos es
necesaria, y que sin ellos son nulos; solo se concibe que un
hombre perturbado en su razon pueda contratar sin causa. ...
Por la misma razon de la necesidad de la intervencion de causa
en el contrato, es preciso que esta sea verdadera y no supuesta,
aparente o figurada. Que la falsedad de la causa vicia el
consentimiento y anula el contrato, es, no solo doctrina indudable
de Derecho Cientifico sino tambien de antiguo Derecho de
Castilla, que en multitud de leyes asi lo declararon. (Sanchez
Roman, Derecho Civil, Tomo IV, p. 206.).
In a clearer exposition of the above distinction, Castan states:
2.. La causa ha de ser verdadera. La causa falsa puede ser
erronea o simulada. Es erronea como dice Giorgi, la causa que
tiene por base la credulidad en un hecho no existente; y simulada
la que tiene lugar cuando se hace aparecer artificiosamente una
distinta de la verdadera. La erronea produce siempre la
inexistencia del contrato; la simulada no siempre produce este
efecto, porque puede suceder que la causa oculta, pero
verdadera, baste para sostener el contrato. De acuerdo con esta
doctrina, dice el art. 1.276 de nuestro Codigo que "la expresion
de una causa falsa en los contratos dara lugar a la nulidad, si no
se probase que estaban fundados en otra verdadera y licita".
(Castan Derecho Civil Espaol, Tomo II, pp. 618-619)
From the foregoing it can be seen that where, as in this case,
there was in fact no consideration, the statement of one in the
deed will not suffice to bring it under the rule of Article 1276 of the
Old Civil Code as stating a false consideration. Returning to
Manresa:
Figurando en nuestro Derecho positivo la causa, como un
elemento esential del contrato, es consecuencia ineludible, se
reputar simulada la entrega del precio en la compraventa de
autos, el que haya que declararla nula por inexistente
haciendose aplicacion indebida de art. 1.276 por el Tribunal
sentenciador al cohonestar la falta de precio admitiendo se
pueda tratar de una donacion, ya que la recta aplicacion del
citado precepto exige que los negocios simulados, o sea con
causa falsa, se justifique la verdadera y licita en que se funda el
acto que las partes han querido ocultar y el cumplimiento de las
formalidades impuestas por la Ley y, cual dice la sentencia de 3
de marzo de 1932, esta rigurosa doctrina ha de ser
especialmente impuesta en la donaciones puras y simples; de
los que deduce que la sentencia recurrida al no decretar la
nulidad instada por falta de causa, incide en la infraccion de los
articulos 1.261, 1.274, 1.275 y 1.276 del Codigo Civil. (Sentencia
de 22 de febrero de 1940). (Manresa, Codigo Civil, Tomo VIII,
Vol. II, p. 356)
In our view, therefore, the ruling of this Court in Ocejo, Perez &
Co. vs. Flores, 40 Phil. 921, is squarely applicable herein. In that
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case we ruled that a contract of purchase and sale is null and void
and produces no effect whatsoever where the same is without
cause or consideration in that the purchase price which appears
thereon as paid has in fact never been paid by the purchaser to
the vendor.
Needless to add, the inexistence of a contract is permanent and
incurable and cannot be the subject of prescription. In the words
of Castan: "La inexistencia es perpetua e insubsanable no
pudiendo ser objecto de confirmacion ni prescripcion (Op. cit., p.
644.) In Eugenio v. Perdido, 97 Phil. 41, 42-43, involving a sale
dated 1932, this Court, speaking through Justice Cesar Bengzon,
now Chief Justice, stated:
Under the existing classification, such contract would be
"inexisting" and "the action or defense for declaration" of such
inexistence "does not prescribe". (Art. 1410, New Civil Code).
While it is true that this is a new provision of the New Civil Code,
it is nevertheless a principle recognized since Tipton vs. Velasco,
6 Phil. 67 that "mere lapse of time cannot give efficacy to
contracts that are null and void".
Anent the matter of whether the Narcisos were purchasers in
good faith, the trial court in its decision resolved this issue, thus:
With regard to the second issue, the Narcisos contend that they
are the owners of the above-described property by virtue of the
deed of sale (Exh. B, plaintiffs in 11991 and Exh. 2, defendants
in U-133) executed in their favor by Maximo Mapalo, and further
claim that they are purchasers for value and in good faith. This
court, however, cannot also give weight and credit on this theory
of the Narcisos on the following reasons: Firstly, it has been
positively shown by the undisputed testimony of Candida Quiba
that Pacifico Narciso and Evaristo Narciso stayed for some days
on the western side (the portion in question) of the above-
described land until their house was removed in 1940 by the
spouses Mapalo and Quiba; secondly, Pacifica Narciso admitted
in his testimony in chief that when they bought the property,
Miguel Mapalo was still in the premises in question (western part)
which he is occupying and his house is still standing thereon; and
thirdly, said Pacifico Narciso when presented as a rebuttal and
sub-rebuttal witness categorically declared that before buying the
land in question he went to the house of Miguel Mapalo and
Candida Quiba and asked them if they will permit their elder
brother Maximo to sell the property.
Aside from the fact that all the parties in these cases are
neighbors, except Maximo Mapalo the foregoing facts are explicit
enough and sufficiently reveal that the Narcisos were aware of
the nature and extent of the interest of Maximo Mapalo their
vendor, over the above-described land before and at the time the
deed of sale in their favor was executed.
Upon the aforestated declaration of Pacifico Narciso the following
question arises: What was the necessity, purpose and reason of
Pacifico Narciso in still going to the spouses Mapalo and asked
them to permit their brother Maximo to dispose of the above-
described land? To this question it is safe to state that this act of
Pacifico Narciso is a conclusive manifestation that they (the
Narcisos) did not only have prior knowledge of the ownership of
said spouses over the western half portion in question but that
they also have recognized said ownership. It also conclusively
shows their prior knowledge of the want of dominion on the part
of their vendor Maximo Mapalo over the whole land and also of
the flaw of his title thereto. Under this situation, the Narcisos may
be considered purchasers in value but certainly not as
purchasers in good faith. ... (pp. 97-98, Record on Appeal.)
And said finding which is one of fact is found by us not a bit
disturbed by the Court of Appeals. Said the Court of Appeals:
84
In view of the conclusion thus reached, it becomes unnecessary
to pass on the other errors assigned. Suffice it to say that, on the
merits the appealed decision could have been upheld under
Article 1332 of the new Civil Code and the following authorities:
Ayola vs. Valderrama Lumber Manufacturers Co., Inc., 49 O.G.
980, 982; Trasporte vs. Beltran, 51 O.G. 1434, 1435; Cortez vs.
Cortez, CA-G.R. No. 18451-R, August 8, 1961; Castillo vs.
Laberinto, CA-G.R. No. 18118-R, December 20, 1961; and 13
C.J. 372-373, as well as the several facts and circumstances
appreciated by the trial court as supporting appellees' case.
thereby in effect sustaining barring only its ruling on
prescription the judgment and findings of the trial court,
including that of bad faith on the part of the Narcisos in
purchasing the land in question. We therefore see no need to
further remand this case to the Court of Appeals for a ruling on
this point, as appellees request in their brief in the event we hold
the contract of 1936 to be inexistent as regards the western
portion of the land.
In view of defendants' bad faith under the circumstances we
deem it just and equitable to award, in plaintiffs' favor, attorneys'
fees on appeal, in the amount of P1,000.00 as prayed for in the
counterclaim.
Wherefore, the decision of the Court of Appeals is hereby
reversed and set aside, and another one is hereby rendered
affirming in toto the judgment of the Court of First Instance a quo,
with attorney's fees on appeal in favor of appellants in the amount
of P1,000.00, plus the costs, both against the private appellees.
So ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L.,
Barrera, Dizon, Regala, Makalintal, Zaldivar and Sanchez, JJ.,
concur.
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