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G.R. No.

156405 February 28, 2007

SPS. GIL TORRECAMPO and BRENDA TORRECAMPO, Petitioners


vs.
DENNIS ALINDOGAN, SR. and HEIDE DE GUZMAN ALINDOGAN, Respondents.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari1 assailing the Decision2 of the Court of Appeals
dated November 18, 2002 in CA-G.R. CV No. 68583.

The facts are:

On May 24, 1997, spouses Jose and Lina Belmes executed a deed of sale in favor of spouses Dennis and Heide
Alindogan, respondents, over Lot No. 5524-H and the house constructed thereon located in Rawis, Legazpi City.

On July 4, 1997, Lina Belmes wrote respondents wherein she delivered the constructive possession of the house
and lot to them. However, on July 5, 1997, before they could take actual possession of the property, spouses Gil and
Brenda Torrecampo, petitioners, and spouses Jonathan Lozares and Jocelyn Torrecampo, entered and occupied the
premises.

Despite respondents’ repeated demands, petitioners failed and refused to vacate the property. Thus, respondents
filed with the Regional Trial Court (RTC) Branch 10, Legazpi City, a Complaint for Recovery of Ownership,
Possession and Damages against petitioners, docketed as Civil Case No. 9421.1avvphi1.net

In their Answer to the complaint, petitioners claimed that on March 25, 1997, spouses Belmes received from them
₱73,000.00 as advance payment for the sale of the house and lot. On April 8, 1997, petitioners and spouses Belmes
executed a "Contract to Buy and Sell" covering the same property. The parties agreed as follows: that the total
consideration is ₱350,000.00; that upon the signing of the contract, petitioners shall pay spouses Belmes
₱220,000.00; and that the balance of ₱130,000.00 shall be paid upon the issuance of the certificate of title in the
names of petitioners. To complete the agreed partial payment of ₱220,000.00 mentioned in the contract,
petitioners paid spouses Belmes ₱130,000.00, but the latter refused to accept the amount. Thus, on July 7, 1997,
petitioners filed with the RTC, Branch 18, Tabaco, Albay, Civil Case No. T-1914, a Complaint for Specific
Performance against spouses Belmes.

On July 14, 2000, the RTC, in Civil Case No. 9421, now before us, rendered a Decision3 in favor of respondents, thus:

WHEREFORE, premises considered, judgment is hereby rendered:

a) declaring the plaintiffs as the owners and entitled to the possession of the lot in question more
particularly described in par. 2 of the complaint including the improvements thereon;

b) ordering the defendants or anyone acting for or with them to vacate the premises; and

c) directing the defendants and/or their agents to turn over the possession of the property in question to
the plaintiffs.

No pronouncement as to costs.

SO ORDERED.

The trial court held that the transaction between petitioners and spouses Belmes is a mere contract to sell. Thus,
the latter did not transfer ownership of the house and lot to petitioners.

On appeal, the Court of Appeals, in its assailed Decision,4 affirmed in toto the RTC judgment.

In affirming the trial court’s finding that the transaction between petitioners and spouses Belmes is a mere
contract to sell, the Court of Appeals held:

Thus, we shall now look into the transaction entered into by the defendants with the Belmeses, with reference to
the intention of the parties. The Contract to Buy and Sell reads:

"That whereas, the vendor agreed to sell and the vendee agreed to buy the above-described parcel of land, together
with improvements therein, for the sum of Three Hundred Fifty Thousand Pesos (P350, 000.00), Philippine
currency, under the following terms and conditions xxx"1awphi1.net

The tenor of the afore-quoted provision of the contract clearly confirms that the transaction between the
transaction between the defendants and the Belmeses was not a contract of sale, as defined by Art. 1458 of the Civil
Code. The reason for the same was clearly explained by defendants’ own witness, Lourdes Narito, during her direct
examination. She testified that herein defendants themselves refused to enter into a contract of sale and execute a
deed of sale unless and until the Belmeses will transfer the title to the property. This was the reason why a mere
contract to sell was executed. x x x (Emphasis ours)

In a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, we review
only errors of law and not errors of facts. The factual findings of the appellate court are generally binding on this
Court. This applies with greater force when both the trial court and the Court of Appeals are in complete
agreement on their factual findings, as in this case. Here, the facts relied upon by the trial and appellate courts are
sustained by the record. There is no reason to deviate from their findings.5

Nevertheless, in order to put rest all doubts on the matter, we hold that the agreement between petitioners and
spouses Belmes is not a contract of sale but only a contract to sell. The distinction between a contract of sale and a
contract to sell is well-settled:

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract
to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot
recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by
the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective. (Underscoring supplied)6

Indeed, the true agreement between petitioners and spouses Belmes is a contract to sell. Not only did the parties
denominate their contract as "Contract to Buy and Sell," but also specified therein that the balance of the purchase
price in the amount of ₱130,000.00 is to be paid by petitioners upon the issuance of a certificate of title. That
spouses Belmes have in their possession the certificate of title indicates that ownership of the subject property did
not pass to petitioners.

In Ursal v. Court of Appeals, et al.,7 we held:

Indeed, in contracts to sell the obligation of the seller to sell becomes demandable only upon the happening of the
suspensive condition, that is, the full payment of the purchase price by the buyer. It is only upon the existence of
the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer. Prior
to the existence of the contract of sale, the seller is not obligated to transfer the ownership to the buyer, even if
there is a contract to sell between them.

Petitioners further contend that when respondents bought the property on May 24, 1997 from spouses Belmes,
they knew that the same property was previously sold to them (petitioners). Therefore, since respondents are
buyers in bad faith, ownership of the property must pertain to petitioners who, in good faith, were first in
possession.

The argument is misplaced.

Petitioners invoke Article 1544 of the Civil Code which reads:

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

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

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

The above provision does not apply to the instant case considering that the transaction between petitioners and
spouses Belmes is a mere contract to sell, not a contract of sale.

WHEREFORE, we DENY the petition and AFFIRM the assailed Decision of the Court of Appeals dated November 18,
2002 in CA-G.R. CV No. 68583.

Costs against petitioners.

SO ORDERED.

G.R. No. 80058 February 13, 1989

ERNESTO R. ANG and ROSALINDA ANG, petitioners,


vs.
THE COURT OF APPEALS and LEE CHUY REALTY CORP., respondents.
Quisumbing, Torres & Evangelista for petitioners.

Victor J. Lee for respondents.

GANCAYCO, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated June 22, 1987 1 reversing the
decision of the Regional Trial Court dated June 23, 1983 which dismissed the complaint of private respondent and
awarded damages to petitioner. 2 The focus is on the issue of when a breach of contract may warrant its resolution.

The antecedents of this case are as follows:

Petitioners Ernesto Ang and Rosalinda Ang, brother and sister, are the owners of three (3) parcels of land located
at A. Bonifacio St., Balintawak, Quezon City with an aggregate area of 2,096 square meters covered by Transfer
Certificates of Title Nos. 258870, 258871 and 258872 which they acquired by purchase from the Cruz family on
July 3, 1979 at a price of P680,000.00. 3

Sometime in November 1979, negotiations were undertaken for the sale of the aforementioned properties between
the petitioners as sellers and private respondent Lee Chuy Realty Corporation, through its president Henry Lee
Chuy as buyer.

On December 4, 1979, private respondent issued in favor of petitioners Manila Banking Corporation Check No.
30022695 in the amount of P50,000.00 4 which it transmitted to petitioners together with a receipt supposedly
embodying the terms and conditions of their agreement as follows:

RECEIVED from LEE CHUY REALTY CORPORATION the sum of FIFTY THOUSAND PESOS
(P50,000.00) ONLY, Philippine Currency, per MBTC (sic) Check No. 30022695, as down payment
for the sale to it of three (3) parcels of land located at A. Bonifacio, Balintawak, Quezon City, covered
by TCT Nos. 258870, 258871, and 258872 of the Registry of Deeds for Metro Manila District II, at
the agreed total price of One Million Six Hundred Thousand Pesos (P1,600,000.00), under the
following agreement:

1. The sellers hereby undertake to remove and clear the subject property of all occupants and
obstruction within this month of December 1979 at their own expenses (sic);

2. Upon the subject property being cleared of occupants and obstruction and ready for turn over to
the buyer, the sellers shall forthwith execute and deliver a deed of absolute sale in favor of the
buyer together with a tax clearance as to payment of capital gain (sic) tax and such other papers as
are necessary for the buyer to register the sale and (the) issuance of the corresponding transfer
certificate of title in its name, free from any lien and encumbrance; and simultaneously therewith,
the buyer shall pay the sellers the additional sum of Seven Hundred Fifty Thousand Pesos
(P750,000.00) to complete payment of fifty per centum (50%) of the price in the amount of Eight
hundred Thousand Pesos (P800,000.00) shall be payable by the buyer to the sellers within a period
of forty-five (45) days thereafter;

3. The sale carries the usual seller's warranty of peaceful possession and valid title by the buyer.

4. All expenses for the execution and registration of the sale, including lawyer's fees, notarial fees,
documentary stamp tax, transfer tax, registration fees, and agent's commission are for the accounts
(sic) of the sellers. 5

The check for P50,000.00 was received and thereafter encashed by petitioners. However, the accompanying
receipt was not returned by petitioners and instead another receipt prepared and signed by petitioners was
forwarded to private respondent. This receipt thus reads:

RECEIVED from LEE CHUY REALTY CORPORATION the sum of FIFTY THOUSAND PESOS
(P50,000.00), Philippine Currency, per MBTC (Sic) Check No. 30022695 as deposit to sale of three
(3) parcels of land located at A. Bonifacio, Balintawak, Quezon City, covered by TCT Nos. 258870,
258871, and 258872 of the Registry of Deeds for Metro Manila District II, in lieu of the agreed price,
under the following agreement:

1. The sellers hereby undertake to remove and clear the subject property of all occupants and
obstruction within this month of December 1979 at their own expenses (sic);

2. Upon the subject property being cleared of occupants and obstruction and ready for turn over to
the buver, the sellers shall forthwith execute and deliver a deed of absolute sale in favor of the
buyer together with all pertinent papers necessary for the transfer of the certificate of title in its
name, free from any lien and encumbrance and simultaneously therewith, the buyer shall pay the
seller 50% of the agreed price minus the deposit of FIFTY THOUSAND PESOS (P 50,000.00) in
Philippine Currency and the balance of 50% of the agreed price shall be paid within a period of
forty five (45) days with a post dated check;

3. The sale carries the usual seller's warranty of peaceful possession and valid title by the buyer;

4. The agent's commission will be for the account of the sellers;

5. All expenses for the execution and registration of the sale, including lawyer's fees, notarial fees,
documentary stamp tax, transfer tax and registration fees will be deducted from the agent's
commission. 6

On January 12, 1980, petitioner Rosalinda R. Ang sent private respondent a letter giving the latter up to January 24,
1980 to pay the balance of the purchase price, and informing it that failure to do so will result in the cancellation of
their agreement. 7

In reply thereto, private respondent wrote petitioners on January 25, 1980 expressing surprise over the demand
for payment made by petitioners since private respondent had been ready since December 1979 to perform its
part of the agreement while petitioners had not yet complied with their undertaking to clear the subject properties
of the obstructions thereon. 8

On March 3, 1980, private respondent, through its counsel, wrote petitioners demanding the refund of the P
50,000.00 down payment made by private respondent on account of the failure of the petitioners to comply with
their undertaking and their subsequent withdrawal from the sale. 9

Upon the failure of the petitioners to return the P50,000.00 down payment, private respondent filed a complaint
for the collection of a sum of money with damages before the Court of First Instance (now Regional Trial Court) of
Rizal on May 9, 1980.

The petitioners sought the dismissal of the complaint. They also filed a counterclaim, praying for actual damages of
P20,000.00 a month counted from November 1979 to continue while their deprivation of rental income persists, as
well as moral and exemplary damages, plus attorney's fees.

After trial where the parties presented only one (1) witness each, the trial court rendered its decision dated June
23, 1983 10 in favor of petitioners and ordered private respondent to pay to petitioners the amounts of
P170,000.00 with interest of 12% per annum to commence from the date of the filing of the complaint, P 25,000.00
as exemplary damages and P 20,000.00 as attorney's fees.

Both petitioners and private respondent appealed the decision of the trial court.

The Court of Appeals held that petitioners were the ones who breached the agreement. In a decision dated June 22,
1987, 11 the appellate court reversed the decision of the trial court and ordered petitioners to pay private
respondent the amount of P50,000.00 with legal interest computed from March 3, 1980 plus P 10,000.00
attorney's fees.

The motion for reconsideration filed by petitioners was denied by the Court of Appeals in its resolution dated
September 18,1987. 12

Hence, this petition for review on certiorari wherein petitioners raise several errors which all boil down to the
issue of which party, the petitioners or the private respondent, breached the agreement.

Outside of the documentary evidence submitted by the parties, the only evidence available are the testimonies of
the two witnesses presented during the trial — Henry Lee Chuy, president of respondent corporation, for the
plaintiff (herein private respondent) and Ang Kilin alias Tan Tian, father of the petitioner, for the defense — which
testimonies are diametrically opposed to one another.

After a careful examination of the records of the case, this Court rules in favor of the private respondent.

There is no doubt that there was a perfected contract for the sale of subject properties between petitioners and
private respondent as evidenced by the down payment of P50,000.00. 13 What needs to be resolved is the agreed
price for the sale of subject properties. In the receipt prepared by private respondent which was not signed by
petitioners, the stated purchase price is P1,600,000.00. However, the receipt signed by petitioners, which
substantially reproduced the terms and conditions embodied in the original receipt, did not state the agreed price.

Henry Lee Chuy testified that the second receipt did not indicate the agreed price because petitioners wanted to
undervalue the price of P1,600,000.00 so that they will not pay a large amount of capital gains tax considering that
the prior acquisition price for the property was only P680,000.00. 14 Initially, he refused to agree but upon the
assurance of petitioners' father Ang Kilin that the clearing work in the property will be completed in a week or two,
he agreed to keep the receipt.

On the other hand, Ang Kilin testified that the real price for the sale is P2,340,000.00 and not P1,600,000.00 as
claimed by private respondent so that they (the petitioners) did not sign the receipt prepared by the latter. He
claimed that it was Mrs. Lee, the mother of Henry Lee Chuy, who did not want to state the correct price since she
wanted to undervalue the property. He adds that they have received offers for the properties in the amount of
P2,160,000.00 from Dolora Chua, 15 and Pl,300.00 per square meter from Eusebio Chang of the Ching Chua Printing
Press. 16 He also testified that inasmuch as the offer of private respondent was made earlier, petitioners were not in
a position to negotiate with the other buyers.

The respondent Court of Appeals arrived at the conclusion that the petitioner committed a breach of their contract
and acted in bad faith in dealing with private respondent.

We agree.

Petitioners did not offer any plausible explanation as to why Mrs. Lee did not want to state the correct price except
that the latter wanted to undervalue the property. The reason why Mrs. Lee wanted to undervalue the property
was not clear. On the other hand, Henry Lee Chuy categorically stated that petitioners did not want to state the
correct price for purposes of reducing their capital gains tax liability.

The Court finds that the latter explanation appears to be the more logical reason why petitioners did not state any
specified amount for the agreed price in the receipt they signed. Since petitioners acquired the property for only
P680,000.00 and the purchase price of the same was set at P1,600,000.00, they would have been liable to pay quite
a large amount of capital gains tax for the profits to be realized from the sale, and even more had the price been set
at P2,340,000.00.

Moreover, the original receipt prepared by private respondent recites in detail the manner of payment of the
balance of the purchase price, to wit: P750,000.00 to be paid after the property is cleared of occupants and
obstructions and upon delivery of the deed of absolute sale; and the balance of P800,000.00 to be paid within 45
days thereafter. On the other hand, the receipt prepared and signed by petitioners merely indicates that 50% of the
price minus the deposit shall be paid upon delivery of the deed of absolute sale and the other 50% would be paid
within 45 days thereafter without stating the price. If the price was really P2,340,000.00 as claimed by petitioners,
they could have easily written the amount in the receipt. With or without a lawyer to assist them, petitioners must
have been aware of the importance of indicating the correct amount in the receipt since they claim that they did
not sign the receipt prepared by private respondent because the price indicated thereon was wrong. Petitioners
were the ones who clearly caused the obscurity when they omitted the purchase price in the receipt they prepared
and signed. Hence, such obscurity must be construed against them. 17

The claim of the petitioners, which the trial court believed, is that they could no longer accept the offers they have
received from Dolora Chua and the Ching Hua Printing Press because of their previous commitment with private
respondent. This pretension is not supported by the evidence. The records show that petitioners had entered into
an "Agreement of Purchase or Sale" with Dolora Chua on December 3, 1979, 18 or one day before the date of the
receipt they signed for the P50,000.00 down payment made by private respondent.

Petitioners also argue that the appellate court e"ed when it considered the said document as an agreement and not
a mere offer. We have carefully examined the said document and We find no cogent basis to view the same as a
mere offer. It is clearly stated in the agreement that petitioners received P20,000.00 from Dolora Chua as down
payment for the subject properties with the balance of the purchase price of P2,160,000.00 to be paid in full at the
time the land shall have been cleared and that petitioners bind themselves to deliver to the buyer a deed of sale
and conveyance upon full payment. The terms of the agreement are so. clear as not to leave room for any other
interpretation. 19

The aforementioned agreement further bolsters the conclusion that the price agreed upon by petitioners and
private respondent was P1,600,000.00. If the true price was P2,340,000.00, it would be unusual for petitioners to
enter into such an agreement with Chua at a lesser purchase price. The only logical conclusion is that petitioners
had intentionally omitted the price of P1,600,000.00 in the receipt they signed either to compel private respondent
to agree to a price increase or to enable them to back out of their agreement notwithstanding their plan to reduce
their capital gains tax liability.

Having settled the issue as to the agreed purchase price, We are now faced with the question of who breached the
agreement and, as a corollary to this, who has the right to withdraw from the sale.

The Court of Appeals found that the petitioners breached the agreement when they failed to undertake fulfillment
of the two conditions embodied in the same; (1) that petitioners will undertake to remove and clear the subject
property of all occupants and obstructions within the month of December 1979 and (2) that when the subject
property is cleared of all occupants and obstructions, the petitioners shall deliver a deed of absolute sale in favor of
private respondent with all pertinent papers necessary for the registration and issuance of a certificate of title in
the name of private respondent.

Said conclusion of the Court of Appeals that petitioners failed to comply with their part of the agreement is
conclusive upon this Court. 20 The appellate court discussed in detail its findings on the matter. We have gone
through the records of this case and find no cogent reason to disturb such findings.

However, such breach of the agreement by petitioner does not warrant a resolution of the contract. 21 While it is
true that in reciprocal obligations, such as the contract of purchase and sale in this case, the power to rescind is
implied and any of the contracting parties may, upon non-fulfillment by the other party of his part of the obligation,
resolve the contract, 22 rescission wig not be permitted for a slight or casual breach of the contract. Rescission may
be had only for such breaches that are so substantial and fundamental as to defeat the object of the parties in
making the agreement. 23 The two aforementioned conditions that were breached by petitioners are not essential
for the fulfillment of the obligations to sen on their part but merely an incidental undertaking. The rescission of the
contract may not be allowed on this ground alone.

At any rate, private respondent at first did not seek to rescind the contract on the basis of the non-fulfillment of
these conditions. Private respondent in fact sought definite advice from petitioners as to when they can comply
with the conditions since it was ready to perform its part of the agreement since December 1979. This was after it
received the letter of petitioners demanding payment of the balance of the purchase price on or before January 24,
1980 with the threat that failure to do so will lead to the repudiation of the agreement. Of course, petitioners
cannot unilaterally repudiate the contract for the slight delay in payment incurred by private respondent which,
even if true, cannot also be a ground for rescission since the same amounts to a slight breach. 24 Indeed, it was the
failure of the petitioners to comply with the aforementioned conditions of the agreement that caused the delay in
the payment by private respondent. However, when petitioners still failed to comply with their obligation and
refused to proceed with the sale unless the purchase price is increased, that was the time private respondent
demanded the resolution of the sale by asking for the refund of the downpayment.

The Court holds that when petitioners refused to proceed with the sale unless private respondent agreed to pay
the higher price of P2,340,000.00, the petitioners thereby committed a serious breach of the agreement. There was
a perfected contract of sale between the parties and the purchase price was set at P1,600,000.00. Petitioners
cannot increase the purchase price agreed upon without the consent of private respondent. As private respondent
was willing to buy the subject property at the price of P1,600,000.00 as agreed upon and petitioners were not
willing to sell unless the price is increased to P2,340,000.00, 25 private respondent had the right to rescind the
agreement as petitioners committed a serious breach of the terms of the same.

Moreover, as the Court of Appeals correctly observed, since petitioners had already sold the subject properties to
Dolora Chua, they can no longer perform what was incumbent upon them under the terms of the agreement, that
is, to deliver the subject property to private respondent. This is another breach of their agreement. The appellate
court aptly characterized the actuations of petitioners to be "double-dealing."

As a consequence of the resolution of the contract of sale, the parties should be restored to their original
situation. 26Petitioners should, therefore, be liable to refund the P50,000.00 down payment they have received
from private respondent with legal interest computed from the date of the extrajudicial demand made on March 3,
1980. 27

WHEREFORE, the decision of the Court of Appeals dated June 22, 1987 in Case No. CA-GR CV No. 07139 is hereby
AFFIRMED. No pronouncement as to costs.

SO ORDERED.

January 18, 2017

G.R. No. 211175

ATTY. REYES G. GEROMO, FLORENCIO BUENTIPO, JR., ERNALDO YAMBOT and LYDIA
BUSTAMANTE,Petitioners,
vs.
LA PAZ HOUSING AND DEVELOPMENT CORPORATION and GOVERNMENT SERVICE INSURANCE SYSTEM,
Respondents.

DECISION

MENDOZA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the September
26, 2013 Decision 1 and the January 29, 2014 Resolution2 of the Court of Appeals (CA), in CA-G.R. SP No. 123139,
which affirmed the January 11, 2012 Decision3 of the Office of the President (OP), dismissing the action for
damages filed by the petitioners before the Housing and Land Regulatory Board (HLURB) against La Paz Housing
and Development Corporation (La Paz) and the Government Service Insurance System (GSIS), on the ground of
breach of warranty against hidden defects.

The Antecedents

Petitioners Atty. Reyes G. Geromo (Geromo), Florencio Buentipo, Jr. (Buentipo), Ernaldo Yambot (Yambot), and
Lydia Bustamante (Bustamante) acquired individual housing units of Adelina 1-A Subdivision (Adelina) in San
Pedro, Laguna from La Paz, through GSIS financing, as evidenced by their deeds of conditional sale.4 The properties
were all situated along the old Litlit Creek.
In 1987, Geromo, Bustamante and Yambot started occupying their respective residential dwellings, which were all
located along Block 2 (Pearl Street) of the said subdivision. Buentipo, on the other hand, opted to demolish the
turned-over unit and build a new structure thereon. After more than two (2) years of occupation, cracks started to
appear on the floor and walls of their houses. The petitioners, through the President of the Adelina 1-A
Homeowners Association, requested La Paz, being the owner/developer, to take remedial action. They collectively
decided to construct a riprap/retaining wall along the old creek believing that water could be seeping underneath
the soil and weakening the foundation of their houses. Although La Paz was of the view that it was not required to
build a retaining wall, it decided to give the petitioners ₱3,000.00 each for expenses incurred in the construction of
the said riprap/retaining wall. The petitioners claimed that despite the retaining wall, the condition of their
housing units worsened as the years passed. When they asked La Paz to shoulder the repairs, it denied their
request, explaining that the structural defects could have been caused by the 1990 earthquake and the
renovations/improvements introduced to the units that overloaded the foundation of the original structures.

In 1998, the petitioners decided to leave their housing units in Adelina.5

In May 2002, upon the request of the petitioners, the Municipal Engineer of San Pedro and the Mines and
Geosciences Bureau (MGB) of the Department of Environment and Natural Resources (DENR) conducted an ocular
inspection of the subject properties. They found that there was "differential settlement of the area where the
affected units were constructed. "6

On the basis thereof, Geromo filed a complaint for breach of contract with damages against La Paz and GSIS before
the HLURB. 7 On May 3, 2003, Buentipo, Yambot and Bustamante filed a similar complaint against La Paz and
GSIS. 8 They all asserted that La Paz was liable for implied warranty against hidden defects and that
it was negligent in building their houses on unstable land. Later on, the said complaints were consolidated.

La Paz, in its Answer, averred that it had secured the necessary permits and licenses for the subdivision project;
that the houses thereon were built in accordance with the plans and specifications of the National Building Code
and were properly delivered to the petitioners; that it did not violate Presidential Decree (P.D.) No. 957 as it was
issued compliance documents, such as development permits, approved alteration plan, license to sell, and
certificate of completion by HLURB; that the Philippine Institute of Volcanology and
Seismology (PHILVOLCS), based on the serial photo interpretation of its field surveyors in 1996, reported that a
portion of the topography of the subdivision developed an active fault line; and lastly, that there were
unauthorized, irregular renovation/alteration and additional construction in the said units. Hence, it argued that it
should not be held liable for any damage incurred and that the same should be for the sole account of the
petitioners.9

In its defense, GSIS moved for the dismissal of the complaint for lack of cause of action. It asserted that the deeds of
conditional sale were executed between La Paz and the petitioners only and that its only participation in the
transactions was to grant loans to the petitioners for the purchase of their respective properties. 10

The Decision of the HLURB Arbiter

In its August 9, 2004 Decision, 11 the HLURB Arbiter found La Paz liable for the structural damage on the
petitioners' housing units, explaining that the damage was caused by its failure to properly fill and compact the soil
on which the houses were built and to maintain a three (3) meter easement from the edge of the creek as required
by law. As to GSIS, the HLURB ruled that there was no cogent reason to find it liable for the structural defects as it
merely facilitated the financing of the affected units. The decretal portion of the decision of the HLURB Arbiter
reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1) Ordering respondent La Paz Housing and Dev't. Corp. to immediately undertake and cause the necessary
repairs/ construction of the subject units to make it suitable for human habitation for which it was originally
intended for;

2) In the alternative, if it is no longer possible for the said units to be repaired to make it suitable for human
habitation, respondent LPHDC is hereby ordered to give each complainant a substitute property of the same nature
and area, more or less, within the subdivision project or in any project owned and developed by LPHDC within the
vicinity of San Pedro, Laguna;

3) Ordering respondent LPHDC to pay complainants:

a. the equivalent sum of what each complainant may prove by documentary evidence such as receipts and
the like, as actual damages;

b. the sum of ₱15,000.00 each as moral damages;

c. the sum of ₱10,000.00 each as exemplary damages;

d. the sum of ₱10,000.00 as attorney's fees.;


e. cost of suit.

SO ORDERED.12

The Decision of the HLURB

Board of Commissioners

In its September 12, 2005 Decision, 13 the HLURB Board of Commissioners set aside the Arbiter's decision,
explaining that there was no concrete evidence presented to prove that the houses of the petitioners were indeed
damaged by the failure of La Paz to comply with the building standards or easement requirements.

The petitioners moved for reconsideration, but the HLURB Board of Commissioners denied their motion in its
Resolution, 14 dated January 31, 2006.

The Decision of the OP

Aggrieved, the petitioners elevated the case to the OP which initially dismissed the appeal on December 18, 2006
for late filing. 15 The petitioners questioned the dismissal before the CA and, in its Decision, 16 dated March 31,
2009, the appellate court reversed the resolution of the OP and ordered the latter to resolve the appeal on the
merits.

On January 11, 2012, the OP finally rendered a decision dismissing the appeal for lack of merit. It found that on the
culpability of La Paz, the petitioners merely relied on the report submitted by the team that conducted the "ocular
inspection" of the subject properties. It wrote that "[w]hat is visual to the eye, though, is not always reflective of
the real cause behind. xxx other than the ocular inspection, no investigation was conducted to determine the real
cause of damage on the housing units." According to the OP, the petitioners "did not even show that the plans,
specifications and designs of their houses were deficient and defective." It concluded that the petitioners failed to
show that La Paz was negligent or at fault in the construction of the houses in question or that improper filing and
compacting of the soil was the proximate cause of damage. 17

The CA Decision

Not in conformity, the petitioners appealed the OP decision, dated January 11, 2012, before the CA. On September
26, 2013, the CA affirmed the ruling of the OP and found that the petitioners had no cause of action against La Paz
for breach of warranty against hidden defects as their contracts were merely contracts to sell, the titles not having
been legally passed on to the petitioners. It likewise ruled that La Paz could not be held liable for damages as there
was not enough evidence on record to prove that it acted fraudulently and maliciously against the petitioners. 18

On January 29, 2014, the CA denied the motion for reconsideration19 filed by the petitioners.

Hence, the present petition raising the following

ISSUES

The CA gravely erred in the issuance of the assailed Decision and challenged Resolution which affirmed in toto the
Decision of the O.P. [dismissing the petition for lack of merit] despite the conclusive:

A. Findings of the MGB, DENR, Engineer's Office, San Pedro, Laguna and HLURB Director that petitioners'
housing are unfit for human habitation. Hence, they are entitled to the protective mantle of PD 957 which
was enacted to protect the subdivision lot buyers against the commission of fraud or negligence by the
developer/contractor like La Paz.

B. The contractual relationship between the parties is not governed by Articles 1477 or 1478, the New Civil
Code as the correct issue is the liability of La Paz as the contractor/developer to the petitioners' housing
units declared by government agencies unfit for human habitation. What governs are Art. 2176 in relation
to Art. 1170, 1173 and Art. 19 in relation to Art. 20 and Art. 21, the Civil Code of the Philippines.

C. La Paz is liable for warranty against hidden defects when it sold to the petitioners the housing units
declared unfit for human habitation. La Paz's defense of force majeure will not lie.

D. GSIS' privity to the Contract (Deed of Conditional Sale) executed by and between the petitioners and La
Paz for the housing loans which it financed makes it jointly and severally liable for the petitioners' defective
housing units.20

The central issue in this case is whether La Paz should be held liable for the structural defects on its implied
warranty against hidden defects.

The petitioners assert that La Paz was grossly negligent when it constructed houses over a portion of the old Litlit
Creek. They claim that La Paz merely covered the old creek with backfilled materials without properly compacting
the soil.21 They argue that they, or any buyer for that matter, could not have known that the soil beneath the
cemented flooring of their housing units were not compacted or leveled properly and that the water beneath
continuously seeped, causing the soil foundation to soften resulting in the differential settlement of the area. 22

The Court's Ruling

After a judicious review of the records of this case, the Court finds merit in the petition.

Under the Civil Code, the vendor shall be answerable for warranty against hidden defects on the thing sold under
the following circumstances:

Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have,
should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower
price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of this trade or profession, should have known them.
(Emphasis supplied)

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he
was not aware thereof.

This provision shall not apply if the contrary has been stipulated and the vendor was not aware of the hidden faults
or defects in the thing sold.

For the implied warranty against hidden defects to be applicable, the following conditions must be met:

a. Defect is Important or Serious

i. The thing sold is unfit for the use which it is intended

ii. Diminishes its fitness for such use or to such an extent that the buyer would not have acquired it had he been
aware thereof

b. Defect is Hidden

c. Defect Exists at the time of the sale

d. Buyer gives Notice of the defect to the seller within reasonable time

Here, the petitioners observed big cracks on the walls and floors of their dwellings within two years from the time
they purchased the units. The damage in their respective houses was substantial and serious. They reported the
condition of their houses to La Paz, but the latter did not present a concrete plan of action to remedy their
predicament. They also brought up the issue of water seeping through their houses during heavy rainfall, but again
La Paz failed to properly address their concerns. The structural cracks and water seepage were evident indications
that the soil underneath the said structures could be unstable. Verily, the condition of the soil would not be in the
checklist that a potential buyer would normally inquire about from the developer considering that it is the latter's
prime obligation to ensure suitability and stability of the ground.

Furthermore, on June 11, 2002, HLURB Director Belen G. Ceniza, after confirming the cracks on the walls and floors
of their houses, requested MGB-DENR and the Office of the Municipal Mayor to conduct a geological/geohazard
assessment and thorough investigation on the entire Adelina subdivision. 23 Thus, in its August 8, 2002 Letter-
Report, 24 MGB reported that there was evident ground settlement in the area of the Litlit Creek where the houses
of the petitioners were located, probably "caused by hydrocompaction of the backfill and or alluvial deposits xxx."
The Engineering Department of San Pedro Municipality, on the other hand, confirmed the settlement affecting at
least six (6) houses along Block 2, Pearl St., including that of Geromo, resulting in various structural
damage.25 Records reveal that a portion of Pearl Street itself had sunk, cracking the concrete pavement of the road.
For several years, the petitioners had to endure the conditions of their homes while La Paz remained silent on their
constant follow-ups. Eventually, they had to leave their own dwellings due to safety concerns.

Based on the said findings, the Court is of the considered view that the petitioners were justified in abandoning
their dwellings as they were living therein under unsafe conditions. With the houses uncared for, it was no surprise
that, by the time the case was filed in 2004, they were in a worse condition.

La Paz remained unconcerned even after receiving incident reports of structural issues from homeowners and
despite constant follow-ups from them for many years. In fact, the petitioners took it upon themselves to build a
riprap/retaining wall due to La Paz's indifference.

One of the purposes of P.D. No. 957, also known as The Subdivision and Condominium Buyers' Protective Decree, is
to discourage and prevent unscrupulous owners, developers, agents, and sellers from reneging on their obligations
and representations to the detriment of innocent purchasers.26
Considering the nature of the damage sustained by the structures, even without the findings of the local
governmental agency and the MGB-DENR, La Paz is still liable under the doctrine of res ipsa loquitur. In the case
of D.M Consunji, Inc. v. CA, 27 the Court expounded on this doctrine in this wise:

The concept of res ipsa loquitur has been explained in this wise:

While negligence is not ordinarily inferred or presumed, and while the mere happening of an accident or injury will
not generally give rise to an inference or presumption that it was due to negligence on defendants part, under the
doctrine of res ipsa loquitur, which means, literally, the thing or transaction speaks for itself, or in one jurisdiction,
that the thing or instrumentality speaks for itself, the facts or circumstances accompanying an injury may be such
as to raise a presumption, or at least permit an inference of negligence on the part of the defendant, or some other
person who is charged with negligence.

x x x where it is shown that the thing or instrumentality which caused the injury complained of was under the
control or management of the defendant, and that the occurrence resulting in the injury was such as in the
ordinary course of things would not happen if those who had its control or management used proper care, there is
sufficient evidence, or, as sometimes stated, reasonable evidence, in the absence of explanation by the defendant,
that the injury arose from or was caused by the defendant's want of care.

One of the theoretical bases for the doctrine is its necessity, i.e., that necessary evidence is absent or not available.

The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the instrumentality
which causes the injury either knows the cause of the accident or has the best opportunity of ascertaining it and
that the plaintiff has no such knowledge, and therefore is compelled to allege negligence in general terms and to
rely upon the proof of the happening of the accident in order to establish negligence. The inference which the
doctrine permits is grounded upon the fact that the chief evidence of the true cause, whether culpable or innocent,
is practically accessible to the defendant but inaccessible to the injured person.

It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a plaintiff, without knowledge of
the cause, reaches over to defendant who knows or should know the cause, for any explanation of care exercised
by the defendant in respect of the matter of which the plaintiff complains. The res ipsa loquitur doctrine, another
court has said, is a rule of necessity, in that it proceeds on the theory that under the peculiar circumstances in
which the doctrine is applicable, it is within the power of the defendant to show that there was no negligence on
his part, and direct proof of defendants negligence is beyond plaintiffs power. Accordingly, some courts add to the
three prerequisites for the application of the res ipsa loquitur doctrine the further requirement that for the res ipsa
loquitur doctrine to apply, it must appear that the injured party had no knowledge or means of knowledge as to the
cause of the accident, or that the party to be charged with negligence has superior knowledge or opportunity for
explanation of the accident. 28

Under the said doctrine, expert testimony may be dispensed with to sustain an allegation of negligence if the
following requisites obtain: a) the event is of a kind which does not ordinarily occur unless someone is negligent;
b) the cause of the injury was under the exclusive control of the person in charge; and c) the injury suffered must
not have been due to any voluntary action or contribution on the part of the person injured.29

In this case, the subdivision plan/layout was prepared and approved by La Paz. The actual excavation, filling and
levelling of the subdivision grounds were exclusively done under its supervision and control. There being no
contributory fault on the part of the petitioner, there can be no other conclusion except that it was the fault of La
Paz for not properly compacting the soil, which used to be an old creek.

It should have taken adequate measures to ensure the structural stability of the land before they started building
the houses thereon.1âwphi1 The uneven street pavements and visible cracks on the houses were readily apparent
yet La Paz did not undertake any corrective or rehabilitative work.

La Paz's argument that the damage could have been sustained because of the 1990 earthquake or through the
various enhancements undertaken by the petitioners on their respective structures was not substantiated. Records
undeniably show that the petitioners had raised their concerns as early as 1988 - before the earthquake occurred
in 1990.

On Damages

Due to the indifference and negligence of La Paz, it should compensate the petitioners for the damages they
sustained. On actual damages, the standing rule is that to be entitled to them, there must be pleading and proof of
actual damages suffered.

Actual damages, to be recoverable, must not only be capable of proof, but must actually be proved with a
reasonable degree of certainty. Courts cannot simply rely on speculation, conjecture or guesswork in determining
the fact and amount of damages. To justify an award of actual damages, there must be competent proof of the
actual amount of loss, credence can be given only to claims which are duly supported by receipts.30

In this regard, the petitioners failed to prove with concrete evidence the amount of the actual damages they
suffered. For this reason, the Court does not have any basis for such an award.
Nevertheless, temperate or moderate damages may be recovered when some pecuniary loss has been suffered but
its amount cannot, from the nature of the case, be proved with certainty. 31 The amount thereof is usually left to the
discretion of the courts but the same should be reasonable, bearing in mind that temperate damages should be
more than nominal but less than compensatory.32 In this case, the petitioners suffered some form of pecuniary
loss due to the impairment of the structural integrity of their dwellings. In view of the circumstances obtaining, an
award of temperate damages amounting to ₱200,000.00 is just and reasonable.

The petitioners are also entitled to moral and exemplary damages. Moral damages are not meant to be punitive but
are designed to compensate and alleviate the physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar harm unjustly caused to a person. To be
entitled to such an award, the claimant must satisfactorily prove that he indeed suffered damages and that the
injury causing the same sprung from any of the cases listed in Articles 2219 33 and 2220 34 of the Civil Code.
Moreover, the damages must be shown to be the proximate result of a wrongful act or omission. Moral damages
may be awarded when the breach of contract was attended with bad faith, 35 or is guilty of gross negligence
amounting to bad faith. 36 Obviously, the uncaring attitude of La Paz amounted to bad faith. For said reason, the
Court finds it proper to award moral damages in the amount of ₱150,000.00.

Petitioners are also entitled to exemplary damages which are awarded when a wrongful act is accompanied by bad
faith or when the guilty party acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner" 37 under
Article 2232 38 of the Civil Code. The indifference of La Paz in addressing the petitioners' concerns and its
subsequent failure to take remedial measures constituted bad faith.

Considering that the award of moral and exemplary damages is proper in this case, attorney's fees and cost of the
suit may also be recovered as provided under Article 220839 of the Civil Code.40

GSIS not liable

As to the petitioners' prayer to make GSIS jointly and severally liable with La Paz, the Court finds that there is no
legal basis to juridically bind GSIS because it was never a party in the contracts between La Paz and the petitioners.
The housing loan agreements that the petitioners entered into with GSIS were separate and distinct from the
purchase contracts they executed with La Paz. GSIS merely agreed to pay the purchase price of the housing unit
that each petitioner purchased from La Paz. It was merely the lender, not the developer.

WHEREFORE, the petition is GRANTED. The August 9, 2004 Decision of the HLURB Arbiter is
hereby REINSTATED with MODIFICATIONS to read as follows:

WHEREFORE, Judgment is hereby rendered

1) Ordering respondent La Paz Housing and Development Corporation to immediately undertake and cause the
necessary repairs/construction of the subject units to make it suitable for human habitation for which it was
originally intended;

2) In the alternative, if it would no longer possible for the said units to be repaired to make it suitable for human
habitation, ordering respondent La Paz to give each petitioner another property of the same nature and size, more
or less, within the subdivision project or in any project owned and developed by La Paz in San Pedro, Laguna, or
pay the monetary equivalent thereof; and

3) Ordering respondent La Paz to pay each of the petitioners:

a. the sum of ₱200,000.00 as temperate damages;

b. the sum of ₱150,000.00 as moral damages;

c. the sum of ₱150,000.00 as exemplary damages;

d. the sum of ₱100,000.00 as attorney's fees; and

e. cost of suit.

All awards shall earn legal interest at the rate of six percent (6%) per annum from the finality of judgment until full
payment, in line with recent jurisprudence.41

SO ORDERED.

VIRGILIO A. CADUNGOG, G.R. No. 161223


Petitioner,

Present:
PUNO, J., Chairman,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

JOCELYN O. YAP, Promulgated:


Respondent.
September 12, 2005
x--------------------------------------------------x

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 72761
which reversed and set aside the Decision of the Regional Trial Court (RTC) of Oslob, Cebu, Branch 62, in Civil Case
No. OS-96-46.

The Antecedents

Franklin Ong and his sister, Jocelyn Ong-Yap, are first cousins of Virgilio Cadungog. Cresenciano Ong Aranas, the
Municipal Mayor of Ginatilan, Cebu, from 1955 to 1978,[2] is their uncle.

On August 17, 1979, Virgilio executed a Deed of Sale with Right of Repurchase[3] in which he sold to his
cousin, Franklin Ong, the following six parcels of land located in Ginatilan, Cebu for P7,144.28:
Parcel Number Tax Dec. No. Area
1 000821 1,170 square meters
2 4978 1,444 square meters
3 29586 4,257 square meters
4 5478 1,140 square meters
5 5486 980 square meters
6 5486 1,020 square meters

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

Under the deed, Virgilio had the right to repurchase the property within 10 years from the said date.[5]

Virgilio failed to redeem the property. Nevertheless, upon the prodding of Franklin, Virgilio, who was
merely a letter-carrier, executed a Deed of Absolute Sale[6] in favor of Jocelyn in which it appears that he sold Parcel
Nos. 1, 2 and 3 for the price of P5,000.00. Virgilio declared therein that he inherited Parcel Nos. 2 and 3 from his
mother, Soledad, who inherited the same from her parents, Jose Aranas and Basilia Rocaberte, under a Deed of
Partition executed by their heirs. Franklin signed as one of the witnesses to the deed.[7]

On December 23, 1996, Cresenciano Ong executed a Deed of Absolute Sale of Parcel No. 2 in favor of the
APC Group, Inc. for P32,380.00. Cresenciano declared that he was the sole and absolute owner, in fee simple, of the
said lot.[8] On January 23, 1997, Virgilio executed a Deed of Absolute Sale of Parcel No. 1 in favor of the APC Group,
Inc. for P35,400.00, alleging therein that he was the sole and exclusive owner of the property.[9]

When Franklin learned of the said sales, he objected. Virgilio, thus, delivered to Franklin Check No.
0000997[10] dated May 24, 1997, drawn and issued by Cresenciano against his account with the Prudential Bank, in
the amount of P25,000.00. Virgilio also delivered to Franklin Check No. 0000999[11] drawn and issued by
Cresenciano against his account with the same bank in the amount of P25,000.00. On May 26, 1997, Franklin
signed Receipts dated May 25 and 26, 1997, embodied in a piece of paper. [12] In the Receipt dated May 26, 1997,
Franklin acknowledged to have received the P25,000.00 check representing full payment for the refund of the lot
sold in Ginatilan.[13]

When Jocelyn learned that Virgilio had sold Parcel No. 1 to the APC Group, Inc., she filed a criminal
complaint for estafa against him. After the requisite preliminary investigation, an Information for estafa was filed
against Virgilio with the RTC.

By way of riposte, Virgilio filed a Complaint before the RTC, on December 8, 1998, against Jocelyn for the
declaration of nullity of the September 30, 1991 Deed of Absolute Sale. He alleged therein that he had executed the
subject deed in favor of Jocelyn only because her brother, Franklin, had requested him to do so to lessen Jocelyns
tax liability in Canada. He also alleged that he agreed to execute the deed on the belief that it would not be
notarized, as no consideration was involved. He further claimed that he informed Franklins emissary (who brought
the deed for his signature) that he owned Parcel No. 1, Cresenciano owned Parcel No. 2, and he did not know who
owned Parcel No. 3. To his surprise, Jocelyn filed a criminal complaint for estafa against him before the Provincial
Prosecutors Office, and later an Information before the RTC of Oslob, Cebu. He further claimed that he and his wife
signed a one-page document; the acknowledgment page was merely added to it, as it, in fact, did not contain their
signatures.

Virgilio further stated that his uncle, Cresenciano Ong, sold Parcel No. 2, one of the lots included in the Deed
of Sale dated September 30, 1991, to the APC Group, Inc. He himself then sold Parcel No. 1, with an area of 1,770
square meters, to the same vendee for P35,400.00.

Virgilio prayed for the following reliefs:

WHEREFORE, in view of the foregoing premises, it is most respectfully prayed of this


Honorable Court that after notice and hearing judgment be rendered in favor of plaintiff and against
the defendant declaring the aforesaid Deed of Absolute Sale as null and void from the very
beginning for being without consideration and the defendant be ordered to pay the plaintiff the
following:

P200,000.00 as moral damages;


100,000.00 as exemplary damages;
20,000.00 as attorneys fee plus P1,500.00 per court
appearance;
10,000.00 as litigation expenses;

Other reliefs and remedies consistent with justice and equity are likewise prayed for.[14]

In her answer with special and affirmative defenses, Jocelyn averred that the Deed of Absolute Sale dated
September 30, 1991 was genuine, and reflected the true and correct intention of Virgilio as the vendor. She pointed
out that the document was notarized, a public document which carried evidentiary weight. She further alleged that
Virgilio had, in fact, previously sold the questioned lots through a Deed of Sale with Right of Repurchase in favor of
her brother Franklin. Her brother then told her that, since Virgilio could no longer repurchase the subject
properties, it would be better for him to execute a Deed of Absolute Sale in her favor. She denied Virgilios
allegations that the subject deed was fictitious, and averred that it was genuine in all respects and amply supported
by valuable consideration.

Jocelyn further averred that the filing of the instant case was a subterfuge or a mere afterthought on the
part of Virgilio, as a defense in the criminal case for estafa she had filed against him. Moreover, Virgilio was in
estoppel, and could not now be heard to negate the contents of the deed of absolute sale which he had previously
executed in her favor.

Alleging that the complaint was filed in evident gross bad faith and that she suffered untold mental anguish,
sleepless nights, anxiety and besmirched reputation, Jocelyn prayed that the case be dismissed, and that the
following amounts in damages be awarded to her: P500,000.00 as moral damages; P100,000.00 as exemplary
damage; P50,000.00 as attorneys fees; and P100,000.00 as actual litigation expenses.[15]

The Testimonies of the Witnesses

Cresenciano Ong Aranas testified that he was the owner of Parcel No. 2, which Virgilio had sold to Jocelyn. The said
lot was part of a bigger parcel, with an area of 1,619 square meters situated in Malatbo, Ginatilan Cebu. He sold the
said lot on December 23, 1996 to the APC Group, Inc., a mining company, for P32,380.00 as evidenced by a Deed of
Absolute Sale.[16] He admitted that he allowed Virgilio to include the said lot in the Deed of Sale with Right of
Repurchase which Virgilio executed in favor of Franklin on August 17, 1979. He, however, admitted that he did not
execute any document authorizing Virgilio to sell Parcel No. 2 since the latter was his nephew.[17]

Upon Virgilios prodding, he issued two checks: Check No. 0000997[18] for P25,000.00 on May 24, 1997, and
Check No. 0000999[19] for P25,000.00 on May 26, 1997. These checks were issued to redeem Parcel Nos. 1, 2 and 3,
the lots subject of the Deed of Sale dated September 30, 1991.[20] Franklin signed receipts for said checks.[21]
Ricardo Acojedo, caretaker of Virgilios properties and that of the Yap siblings, testified that he was in
Virgilios house when a certain Emok Dacillo brought a deed of sale to be signed by Virgilio and his wife. He saw the
couple sign the document, but did not get to read it. There was no other person who signed the document. After
Virgilio said the document should not be notarized, he immediately handed it over to Emok.[22]

Virgilio testified that he and his wife, Rebecca, were in their house on the last week of September 1991, when
Emok, an emissary of Franklin, arrived. Emok showed him the Deed of Absolute Sale dated September 30, 1991,
and told him that Franklin wanted him and Rebecca to sign the deed. He read the document and was sure that it
consisted of only one page. He told the emissary that he was the owner of Parcel No. 1; Parcel No. 2 was in the
name of his uncle, Cresenciano; while the records of Parcel No. 3 could no longer be found at the Municipal
Assessors Office. Nevertheless, he and his wife signed the deed. He also claimed that he was able to repurchase the
lots subject of the Deed of Sale with Right of Repurchase on May 26, 1997 for P50,000.00 at the house of his aunt,
Tasiana Belarmino.
Virgilio admitted, however, that at the time he made the two payments, the period to repurchase the
subject parcels of land had already expired.[23]
The defendant did not testify in her behalf. Atty. Emmanuel P. Rama testified for the defendant and
declared that he notarized the subject deed, which to his knowledge was prepared by Franklin Ong. He was then in
the office of his brother, who was the Vice-Governor of Cebu, when Franklin and Virgilio and his wife, Rebecca,
arrived to have the deed notarized.[24] However, Virgilio, his wife, and the witnesses to the deed failed to sign on
the left margin of its second page.

Franklin, a bachelor of laws graduate, testified that he was employed as an Interpreter in Branch 14 of the
Court of First Instance of Cebu;[25] he prepared the deed of sale with right of repurchase which Virgilio executed on
August 17, 1979 and the September 30, 1991 Deed of Absolute Sale which Virgilio and his wife
executed.[26] According to him, the lots subject of the complaint, together with the other lots sold under the first
deed of sale, were not repurchased by Virgilio.[27]

Franklin further narrated that sometime in 1991, Virgilio sought financial help because his house was
about to be foreclosed by the Development Bank of the Philippines. He then gave P7,000.00 to Virgilio,

and suggested that Parcel Nos. 1, 2 and 3 be sold to Jocelyn to augment his contribution. Franklin, however, agreed
to buy Parcel Nos. 5 and 6 and inquired from Jocelyn if she was interested to buy Parcel Nos. 1, 2 and 3; Jocelyn
replied that she was.[28] He then prepared a Deed of Absolute Sale over Parcel Nos. 1, 2 and 3, which Virgilio and his
wife signed on September 30, 1991 before Notary Public Emmanuel P. Rama.[29] Virgilio agreed to sell the three lots
for P5,000.00 only because the said amount was in addition to the P7,144.28 paid for the six parcels of land earlier
sold to Franklin in 1979.[30] Franklin claimed he gave the P5,000.00 purchase price of the property to Virgilio on
September 30, 1991.[31]

Franklin declared that the receipts[32] for P50,000.00 which he signed (and which Virgilio adduced in
evidence) were refunds for Parcel Nos. 5 and 6 which he bought from Virgilio and later sold by the latter to the APC
Group, Inc.; they were not payments for the repurchase of the six parcels of land subject of the first sale as Virgilio
claimed.[33] After Jocelyn purchased Parcel Nos. 1, 2 and 3, their sister Loreta and their mother took charge and
administered the property, and paid the realty taxes thereon.[34]

Taciana Aranas Belarmino, an aunt of Virgilio, Franklin and Jocelyn, testified that she and her son, Fermin
Belarmino, as well as her brother Cresenciano, witnessed Franklin sign the receipts dated May 25 and 26, 1997, for
the total amount of P50,000.00, in their house. The payment was made to redeem Parcel Nos. 5 and 6, which
Virgilio sold to the APC Group, Inc.[35] Franklin demanded P200,000.00, but Virgilio had only P50,000.00, (inclusive
of the P25,000.00 Virgilio borrowed from Cresenciano).[36]
By way of rebuttal, Virgilio presented Federico Erac, the Postmaster of Ginatilan, who testified that he
(Virgilio) was a letter-carrier and was at his place of work at the post office on September 30, 1991; hence, he could
not have signed the Deed of Absolute Sale of Parcel Nos. 1, 2 and 3 in favor of Jocelyn in the Office of the Vice-
Governor on the said date before Notary Public Emmanuel Rama.[37] He adduced in evidence his daily time record
for September 30, 1991.[38]

After the trial, the court rendered judgment in favor of Virgilio. The fallo of the decision reads:
WHEREFORE, the Deed of Absolute Sale dated September 30, 1991 allegedly executed by
plaintiff in favor of defendant is declared NULL and VOID.

SO ORDERED.[39]

The trial court held that, since Franklin failed to consolidate his title to the parcels of land following the
lapse of the 10-year period for Virgilio to redeem the same, the period for redemption was deemed extended until
the said lots were repurchased on May 25 and 26, 1997, upon payment of P50,000.00 to Franklin. The trial court
ruled that there was a need for Franklin to consolidate the title over the parcels of land by court proceedings. It
also held that the Deed of Absolute Sale dated September 30, 1991 had no consideration because the P5,000.00
stated therein, as the price of the property, was insufficient. Since the deed was not supported by any
consideration, it was null and void.

Jocelyn appealed the decision to the CA, assailing the trial courts ruling on the following grounds:

-I-
The Honorable Trial Court erred in ruling that there was no action on the part of the defendant-
appellant to consolidate the title in her name when plaintiff-appellee failed to repurchase the
properties subject matter of the deed of sale with right to repurchase executed on August 17, 1979.

-II-
The Honorable Trial Court erred in ruling that on May 25 and 26, 1997 the amount of P50,000.00
was paid to the defendant-appellant through Franklin Ong and upon acceptance of the latter the
real properties subject matter of the deed of sale with right to repurchase was deemed
repurchased.

- III -
The Honorable Trial Court erred in ruling that the amount of P5,000.00 is not sufficient
consideration for the purchase of three parcels of land.[40]
The CA reversed the ruling of the trial court. The dispositive portion reads:
WHEREFORE, the foregoing considered, the May 4, 2001 Decision of the Regional Trial
Court of Oslob, Cebu is REVERSED AND SET ASIDE. A new one is entered declaring the Deed of
Absolute Sale dated September 30, 1991 executed by Virgilio Cadungog in favor of Jocelyn Yap,
valid and binding.

SO ORDERED.[41]

The appellate court held that the period to redeem the subject properties had already elapsed as early as
1989, or 10 years after the execution of the Deed of Sale with Right of Repurchase on August 17, 1979. In view of
Virgilios failure to redeem the same, he lost ownership over the disputed lots. Jocelyn acquired ownership over the
property when she purchased the same from Virgilio on September 30, 1991 under the Deed of Absolute Sale.
Citing Cruz v. Leis,[42] the CA ruled that Jocelyn could not be faulted for not consolidating the title over the subject
lots, as the act of consolidating title is not a condition sine qua non to the transfer of ownership. The appellate court
declared that theP50,000.00 Franklin received from Virgilio on May 25 and 26, 1997 was the refund of the cost of
Parcel Nos. 5 and 6 which Virgilio sold to the APC Group, Inc., the same lots sold to Franklin in 1999.
The CA further stated that the inadequacy of the purchase price does not per se support the conclusion that
the contract was a loan, or that the property was not at all sold. Citing Abapo v. Court of Appeals[43] and Article 1355
of the Civil Code, the CA ruled that such inadequacy of price is not sufficient to set aside the sale, unless it is grossly
inadequate or purely shocking to the conscience. Moreover, except for his own self-serving testimony, Virgilio did
not submit any other testimony to refute the said sale.

Finally, the CA ruled that the subject deed of sale is a public document, having been executed and attested
through the intervention of a notary public; as such, it is evidence of the facts therein expressed. While Virgilios
officemate testified that he could not have been present for the notarization of the said document because he was
at work on the said date, such testimony could not negate the existence of the said deed.

Virgilio filed a motion for reconsideration, which the CA denied.

Virgilio, now the petitioner, assails the said ruling and ascribes to the appellate court the following errors:

GROUND I

THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN REVERSING THE
DECISION OF THE RTC BRANCH 62 OF OSLOB, CEBU, DECLARING THE DEED OF ABSOLUTE SALE
DATED SEPTEMBER 30, 1991, COVERING THREE (3) PARCELS
OF LAND VALID AND BINDING AND IN NOT TAKING INTO ACCOUNT ITS FINDINGS WHICH
CONSIDERED THAT THE DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991, COVERING
THREE (3) PARCELS OF LAND IS NOT SUPPORTED BY ANY CONSIDERATION AND DID NOT
REFLECT THE TRUE INTENTION OF THE PARTIES, A FICTITIOUS AND SIMULATED ONE, HENCE
NON-EXISTENT AND VOID AB INITIO.

GROUND II

THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ALSO ERRED IN NOT TAKING
INTO CONSIDERATION THAT THE DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991,
COVERING THREE (3) PARCELS OF LAND WAS TAINTED WITH DECEPTION AS THE CONSENT
WAS OBTAINED THROUGH DECEIT ANDDISHONEST MEANS.

GROUND III

THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN NOT TAKING INTO
CONSIDERATION THAT SINCE THE DEED OF ABSOLUTE SALE DATED SEPTEMBER 30, 1991,
COVERING THREE PARCELS OF LAND, WHICH WAS COMPOSED ORIGINALLY OF
ONLY ONE (1) PAGE, WAS NOT INTENDED TO BE ACKNOWLEDGED AND NOTARIZED BY A
NOTARY PUBLIC, WAS ALREADY COMPOSED OF TWO (2) PAGES AND ACKNOWLEDGED AND
NOTARIZED BY A NOTARY PUBLIC, THE SECOND PAGE OF WHICH DID NOT CONTAIN THE
SIGNATURES OF THE PARTIES AND THEIR INSTRUMENTAL WITNESSES. APPARENTLY, THIS
INDICATES A FRAUDULENT ACT WORTHY OF CONSIDERATION OF THE HONORABLE COURT OF
APPEALS.

GROUND IV

THE HONORABLE COURT OF APPEALS (SPECIAL FOURTH DIVISION) ERRED IN NOT TAKING INTO
ACCOUNT OVER THE FACT THAT RESPONDENT FAILED TO CONSOLIDATE HER OWNERSHIP
OVER THE DISPUTED LAND SUBJECT TO THE FICTITIOUS AND SIMULATED SALE DATED
SEPTEMBER 30, 1991, COVERING THREE (3) PARCELS OF LAND. APPARENTLY, INDICATING AN
ACT CONTRADICTORY TO WHAT A NORMAL PERSON MIGHT HAVE ACTED UNDER SIMILAR
CIRCUMSTANCE.

GROUND V

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


UPHOLD THE FACTUAL FINDINGS OF THE RTC BRANCH 62 OF OSLOB, CEBU WHICH WAS IN THE
POSITION TO EVALUATE AND APPRECIATE THE MERITS OF THE CASE AND HAD THE
OPPORTUNITY OF OBSERVING THE DEMEANOR ANDSINCERITY OF THE WITNESSES.[44]

The petitioner reiterates that the subject deed is fictitious and simulated, having been executed merely to
afford respondent Jocelyn Yap a claim for the reduction of her tax liabilities in Canada. The petitioner points out
that the true intention of the parties was never that of sale, but only for accommodation purposes.

The petitioner, likewise, points out that his cousin Franklin added a second page to the one-page agreement
and had it notarized; the second page of the deed bore the acknowledgment of the notary public, which, however,
did not contain the signatures of the supposed parties and their instrumental witnesses. According to the
petitioner, Franklin, through false pretenses, succeeded in obtaining his consent in executing a simulated deed of
sale over the subject parcel of land. Moreover, considering the clear and convincing evidence that he was at work
on the date the deed of sale was purportedly executed, the notary public could not have notarized the document in
his presence and the other parties concerned. The petitioner insists that the transaction subject of the dispute is
wantonly devoid of any consideration, did not reflect the true intention of the parties, and was obtained through
fraudulent means, fictitious and simulated; hence, void from the very beginning.

The petitioner further points out that after the supposed sale, the respondent made no move to consolidate
her ownership over the property, or other similar behavior or acts of dominion.

Finally, the petitioner contends that it is the findings of the trial court which should prevail, considering
that it was in a better position to evaluate and appreciate the merits of the case and had the opportunity to observe
the demeanor and sincerity of the witnesses presented.

The respondent, for her part, avers that the petitioner and his wife appeared before Notary Public
Emmanuel P. Rama and acknowledged the Deed of Absolute Sale dated September 30, 1991. Such notarized deed
enjoys the presumption of regularity; there must be clear and convincing evidence to contradict the same. The
respondent insists that the petitioner failed to overturn the testimony of Atty. Rama, and that his bare denial will
not suffice to overcome the positive value of the notarized document. The respondent further posits that the
appellate court correctly ruled that the consideration of the three lots was P5,000.00, and that mere inadequacy of
price is not sufficient to set aside a contract of sale.

The respondent further alleges that the petition is one under Rule 45 of the Rules of Court. Only errors of
law, not of facts, are reviewable under the said rule, and in this case, no error of law was alleged by the petitioner.
Moreover, the CA correctly held that the P50,000.00 was not a redemption price, but a refund of the costs of Parcel
Nos. 5 and 6, which the petitioner sold to APC Group, Inc.

The petition is meritorious.

We note that the issues raised by the petitioner are factual. Under Rule 45 of the Rules of Court, only
questions of law may be raised in a petition for review on certiorari. However, the Court may delve into and resolve
factual issues in exceptional cases, such as when the finding of facts and the conclusions based therein by the trial
court are frontally inconsistent with those of the appellate court, or that the factual findings of the trial court and
appellate court are not based on the evidence on record, or arbitrary or capricious.[45]

In the present case, the trial court held that the petitioner was able to repurchase the 6 parcels of land on
May 25 and 26, 1997, after the lapse of 18 years from the execution of the deed of sale with right of repurchase
(August 17, 1979) when he paid to Franklin the total amount of P50,000.00. The court held that the 10-year period
fixed in the deed for the petitioner to repurchase the property was deemed extended because Franklin failed to
consolidate his title over the property. On the other hand, the CA held that the petitioner failed to repurchase the
property, and that the respondent acquired ownership over Parcel Nos. 1, 2 and 3 when the petitioner sold the
same to her under the September 30, 1991 Deed of Absolute Sale.

We agree with the CA that the petitioner, as vendor a retro, failed to repurchase the property within the 10-
year period fixed by the parties in the Deed of Sale with Right of Repurchase. Consequently, Franklin Ong, the
vendee a retro, had acquired absolute title and ownership over the six parcels of land after August 17, 1979 when
the petitioner, as vendor a retro, failed to repurchase the same within the stipulated period.

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

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

What is so worrisome is that Franklin, a law graduate, even induced the petitioner to execute the deed of
sale in favor of his sister, the respondent herein, despite the fact that he, and not the petitioner, was the owner of
the three parcels of land. Franklin even falsely declared in the September 30, 1991 deed, which he prepared for the
petitioner, that the latter was the owner of the parcels of land, when he knew, for a fact, that he was the lawful
owner of the property. In fact, when he learned that Cresenciano Ong Aranas had sold Parcel No. 2 to the APC
Group, Inc. and that the petitioner had also sold Parcel No. 1, Franklin vehemently objected. He relented only when
the petitioner gave the P50,000.00 to him in consideration for his agreement to the said sale of Parcel Nos. 1 and 2
to the APC Group, Inc. There is no evidence on record that the P50,000.00 which the petitioner paid was a refund of
the purchase price of Parcel Nos. 5 and 6 as regards the sale to APC Group, Inc. In fact, there is no evidence on
record to show that the petitioner had sold Parcel Nos. 5 and 6 to the APC Group, Inc.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The decision of the Court of Appeals in CA-
G.R. CV No. 72761 is REVERSED and SET ASIDE. The decision of the Regional Trial Court nullifying the September
30, 1991 Deed of Absolute Sale executed by the petitioner in favor of the respondent is REINSTATED. No costs.

SO ORDERED.

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