HEIRS OF JOSE REYES, JR., namely: G.R. No.

158377
MAGDALENA C. REYES, OSCAR C.
REYES, GAMALIEL C. REYES, NENITA
R. DELA CRUZ, RODOLFO C. REYES,
and RODRIGO C. REYES, Present:
Petitioners,

CARPIO MORALES., Chairperson,

-versus - BRION,
BERSAMIN,
ABAD,* and
AMANDA S. REYES, CONSOLACION S. VILLARAMA, JR., JJ.
REYES, EUGENIA R. ELVAMBUENA,
LUCINA R. MENDOZA, PEDRITO S.
REYES, MERLINDA R. FAMODULAN,
EDUARDO S. REYES, andJUNE S.
REYES, Promulgated:
Respondents.

August 13, 2010

x-----------------------------------------------------------------------------------------x
DECISION

BERSAMIN, J.:

The petitioners[1] assail the decision dated July 31, 2002 rendered in C.A.-G.R. CV No. 53039,[2] by which the Court
of Appeals (CA) affirmed the decision dated May 21, 1996of the Regional Trial Court (RTC), Branch 9, in Malolos,
Bulacan.[3]

Antecedents

Antonio Reyes and his wife, Leoncia Mag-isa Reyes (Leoncia), were owners of a parcel of residential land
with an area of 442 square meters, more or less, located in Pulilan, Bulacan and covered by Tax Declaration No. 7590.
On that land they constructed their dwelling. The couple had four children, namely: Jose Reyes, Sr. (Jose, Sr.), Teofilo
Reyes (Teofilo), Jose Reyes, Jr. (Jose, Jr.) and Potenciana Reyes-Valenzuela (Potenciana). Antonio Reyes died
intestate, and was survived by Leoncia and their three sons, Potenciana having predeceased her father. Potenciana also
died intestate, survived by her children, namely: Gloria ReyesValenzuela, Maria Reyes Valenzuela, and Alfredo
Reyes Valenzuela. Jose, Jr., and his family resided in the house of the parents, but Teofilo constructed on the property
his own house, where he and his family resided.

On July 9, 1955, Leoncia and her three sons executed a deed denominated Kasulatan ng Biling Mabibiling
Muli,[4] whereby they sold the land and its existing improvements to the Spouses Benedicto Francia and Monica Ajoco
(Spouses Francia) for P500.00, subject to the vendors right to repurchase for the same amount sa oras na sila'y
makinabang. Potencianas heirs did not assent to that deed. Nonetheless, Teofilo and Jose, Jr. and their respective
families remained in possession of the property and paid the realty taxes thereon.

Leoncia and her children did not repay the amount of P500.00.

The Spouses Francia both died intestate (i.e., Monica Ajoco on September 16, 1963, and Benedicto Francia
on January 13, 1964).

Alejandro Reyes (Alejandro), the son of Jose, Sr., first partially paid to the Spouses Francia the amount of P265.00 for
the obligation of Leoncia, his uncles and his father. Alejandro later paid the balance of P235.00. Thus, on August 11,
1970, the heirs of Spouses Francia executed a deed entitled Pagsasa-ayos ng Pag-aari at Pagsasalin,[5]whereby they
transferred and conveyed to Alejandro all their rights and interests in the property for P500.00.

On August 21, 1970, Alejandro executed a Kasulatan ng Pagmeme-ari,[6] wherein he declared that he had
acquired all the rights and interests of the heirs of the Spouses Francia, including the ownership of the property, after
the vendors had failed to repurchase within the given period. On the basis of the Kasulatan ng Pagmeme-ari, Tax
Declaration No. 3703 covering the property[7] was canceled by Tax Declaration No. 8715,[8] effective 1971, issued to
Alejandro. From then on, he had paid the realty taxes for the property.
 Nevertheless, on October 17, 1970, Alejandro, his grandmother (Leoncia), and his father (Jose, Sr.) executed
a Magkakalakip na Salaysay,[9] by which Alejandro acknowledged the right of Leoncia, Jose, Jr., and Jose, Sr. to
repurchase the property at any time for the same amount of P500.00.

On October 22, 1970, Leoncia died intestate.[10] She was survived by Jose, Sr., Teofilo, Jose, Jr. and the heirs
of Potenciana. Even after Leonicas death, Teofilo and Jose, Jr., with their respective families, continued to reside in
the property.
Subsequently, Tax Declaration 1228,[11] under the name of Alejandro, was issued effective 1980. All of
Leoncias sons eventually died intestate, survived by their respective heirs, namely:

Name of Decedent Surviving Heirs

Teofilo Romeo Reyes, Leonardo Reyes,
and Leonora C. Reyes

Jose, Jr. Rodrigo Reyes, Nenita Reyes- dela Cruz, Rodolfo Reyes, Oscar Reyes, Gamaliel Reyes, Magdalena Reyes
(petitioners herein), Efren Reyes and Amado Reyes dela
Cruz

Jose, Sr. Alejandro Reyes (respondents

predecessor)[12]

On September 2, 1993, Alejandro also died intestate.[13] Surviving him were his wife, Amanda Reyes, and their
children, namely: Consolacion Reyes, Eugenia Reyes-Elvambuena, Luciana Reyes-Mendoza, Pedrito S. Reyes,
Merlinda Reyes-Famodulan, Eduardo Reyes and June S. Reyes (respondents herein).

In 1994, respondent Amanda Reyes asked the heirs of Teofilo and Jose, Jr., to vacate the property because she and her
children already needed it. After the petitioners refused to comply, she filed a complaint against the petitioners in
the barangay, seeking their eviction from the property. When no amicable settlement was reached, the Barangay
Lupon issued a certification to file action to the respondents on September 26, 1994.[14]

In the interim, petitioner Nenita R. de la Cruz and her brother Romeo Reyes also constructed their respective
houses on the property.[15]

RTC Proceedings and Ruling

On September 28, 1994, the respondents initiated this suit for quieting of title and reconveyance in the RTC. [16] The
complaint, docketed as Civil Case No. 817-M-94 and entitled Amanda Reyes, et al. v. Heirs of Jose Reyes, Jr., et al.,
was later amended.[17] They alleged that their predecessor Alejandro had acquired ownership of the property by virtue
of the deed Pagsasa-ayos ng Pag-aari at Pagsasalin executed on August 11, 1970 by the heirs of the Spouses Francia;
that on the basis of such deed of assignment, Alejandro had consolidated his ownership of the
property via his Kasulatan ng Pagmeme-ari; and that under the Magkasanib na Salaysay, Alejandro had granted to
Leoncia, his father Jose, Sr., and his uncles, Teofilo and Jose, Jr. the right to repurchase the property, but they had
failed to do so.

The respondents prayed for judgment in their favor, as follows:

WHEREFORE, it is respectfully prayed that judgment be rendered:

1. Quieting the title to the property by declaring the plaintiffs (respondents herein) as the
rightful and lawful owners thereof;

2. Ordering the defendants (petitioners herein) to vacate subject premises and reconvey and or
surrender possession thereof to the plaintiffs;

3. Ordering the defendants to recognize the right of the plaintiffs as the lawful owners of subject
property;

4. Ordering the defendants to pay plaintiffs the following:

a. Moral damages in the amount of P50,000.00;

b. Exemplary damages in the amount of P20,000.00;

 c. Attorney's fees of P20,000.00, acceptance fee of P10,000.00 and P500.00 per
recorded Court appearance of counsel;

d. The costs of this suit.

Plaintiffs further pray for such other relief which the Honorable Court may deem just and
equitable under the premises.[18]

In their answer,[19] the petitioners averred that the Kasulatan ng Biling Mabibiling Muli was an equitable mortgage, not
a pacto de retro sale; that the mortgagors had retained ownership of the property; that the heirs of the Spouses Francia
could not have validly sold the property to Alejandro through the Pagsasaayos ng Pag-aari at
Pagsasalin; that Alejandros right was only to seek reimbursement of the P500.00 he had paid from the co-owners,
namely: Leoncia, Teofilo, Jose, Jr. and Jose, Sr. and the heirs of Potenciana; and that Alejandro could not have also
validly consolidated ownership through the Kasulatan ng Pagmeme-ari, because a consolidation of ownership could
only be effected via a court order.

The petitioners interposed a counterclaim for the declaration of the transaction as an equitable mortgage, and of their
property as owned in common by all the heirs of Leoncia, Teofilo, Jose, Jr. and Jose, Sr.

On May 21, 1996, the RTC ruled in favor of the respondents, declaring that Alejandro had acquired ownership of the
property in 1965 by operation of law upon the failure of the petitioners predecessors to repurchase the property; that
the joint affidavit executed by Alejandro, Leoncia and Jose, Jr. and Jose, Sr., to extend the period of redemption was
inefficacious, because there was no more period to extend due to the redemption period having long lapsed by the time
of its execution; and that the action should be dismissed insofar as the heirs of Potenciana were concerned, considering
that Potenciana, who had predeceased her parents, had no successional rights in the property.
Accordingly, the RTC decreed as follows:

WHEREFORE, on the basis of the evidence adduced and the law/jurisprudence applicable
thereon, judgment is hereby rendered:

a) sustaining the validity of the Kasulatan ng Biling Mabibiling Muli (Exh. B/Exh. 1) executed
on July 9, 1955 by Leoncia Mag-isa and her sons Teofilo, Jose, Sr. and Jose, Jr., all surnamed Reyes,
in favor of Spouses Benedicto Francia and Monica Ajoco as well as the Pagsasa-ayos ng Pag-aari at
Pagsasalin (Settlement of Estate and Assignment) [Exh. C/Exh. 4] executed on August 11, 1970 by
the heirs of spouses Benedicto Francia and Monica Ajoco in favor of the spouses Alejandro Reyes
and Amanda Salonga;
b) declaring the aforementioned Kasulatan Ng Biling Mabibili Muli (Exh. B/ Exh. 1) to be a
contract of sale with right to repurchase and not an equitable mortgage;
c) confirming the consolidation of ownership, by operation of law, of spouses Alejandro M.
Reyes and Amanda Salonga over the residential lot mentioned and referred to in Exhibit B/Exhibit 1
and Exhibit C/Exhibit 4;

d) allowing the registration with the Registry of Deeds for the Province of Bulacan of
the Kasulatan ng Pagmeme-ari (Document of Ownership) [Exh. E/Exh. 5] executed by Alejandro M.
Reyes on August 21, 1970 or of any appropriate deed of consolidation of ownership over the
residential lot covered by Exhibit E/Exhibit 5 which the plaintiffs, as eventual owners by succession
of the aforementioned proeprty, may deem proper to execute;
e) ordering the defendants and all persons claiming rights under them to vacate the residential
lot subject of the above-entitled case and to restore possession thereof unto the plaintiffs;
f) directing the defendants (except the heirs of Potenciana Reyes-Valenzuela) to pay unto the
plaintiffs the amount of P20,000.00 as attorney's fees; and
g) dismissing the complaint in so far as the defendant heirs of Potenciana Reyes-Valenzuela are
concerned as well as their counterclaim for damages and attorney's fees.

No pronouncement as to costs.

SO ORDERED. [20]
Aggrieved, the petitioners appealed to the CA.

CA Ruling

In the CA, the petitioners assailed the RTCs dispositions, except the dismissal of the complaint as against Potencianas
heirs.
In its decision dated July 31, 2002, the CA ruled that the transaction covered by the Kasulatan ng Biling Mabibiling
Muli was not a pacto de retro sale but an equitable mortgage under Article 1602 of the Civil Code; that even after the
deeds execution, Leoncia, Teofilo, Jose, Jr. and their families had remained in possession of the property and
continued paying realty taxes for the property; that the purported vendees had not declared the property for taxation
purposes under their own names; and that such circumstances proved that the parties envisaged an equitable mortgage
in the Kasulatan ng Biling Mabibiling Muli.

The CA observed that the heirs of the Spouses Francia had themselves admitted in paragraph 5 of the Pagsasa-ayos ng
Pag-aari at Pagsasalin that the property had been mortgaged to their predecessors-in-interest, viz:

Na, sa oras ng kamatayan ay nakaiwan sila ng isang lagay na lupang nakasanla sa kanila na
makikilala sa kasulatang kalakip nito sa halagang LIMANG DAANG PISO (P500.00). Ngunit nuong
nabubuhay pa ang magasawang Benedicto Francia at Monica Ajoco ay nakatanggap na ng halagang
P265.00 kay Alejandro Reyes - Filipino, kasal kay Amanda Salonga, may sapat na gulang at
naninirahan sa Pulilan, Bulacan.[21]

However, the CA held that the appellants (petitioners herein) failure to file an action for the reformation of
the Kasulatan ng Biling Mabibiling Muli to reflect the true intention of the parties within ten years from the deeds
execution on July 9, 1955, pursuant to Article 1144 of the Civil Code,[22] already barred them from claiming that the
transaction executed between Leoncia and her children, on one hand, and the Spouses Francia, on the other hand, was
an equitable mortgage. The CA agreed with the RTC that the Magkakalakip na Salaysay did not effectively extend the
period for Leoncia and her children to repurchase the property, considering that the period to repurchase had long
lapsed by the time the agreement to extend it was executed on October 17, 1970.

Issues

In this appeal, therefore, the petitioners insist that:[23]

I.
The Honorable Court of Appeals erred in finding that respondents (were) already barred from
claiming that the transaction entered into by their predecessors-in-interest was an equitable mortgage
and not a pacto de retro sale;

II.
The Honorable Court of Appeals erred in affirming the findings of the court a quo that
the Magkasanib na Salaysay (Joint Affidavit), executed by Alejandro, Leoncia and Jose, Jr., wherein
Leoncia andher children were granted by Alejandro the right to repurchase the property at anytime for
the amount of P500.00, was of no legal significance.

Ruling of the Court

The petition is meritorious.

A.

The CA correctly concluded that the true agreement of the parties vis--vis the Kasulatan ng Biling Mabibiling
Muli was an equitable mortgage, not a pacto de retro sale. There was no dispute that the purported vendors had
continued in the possession of the property even after the execution of the agreement; and that the property had
remained declared for taxation purposes under Leoncias name, with the realty taxes due being paid by Leoncia,
despite the execution of the agreement. Such established circumstances are among the badges of an equitable
mortgage enumerated in Article 1602, paragraphs 2 and 5 of the Civil Code, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:
xxx
(2) When the vendor remains in possession as lessee or otherwise;
xxx
(5) When the vendor binds himself to pay the taxes on the thing sold;
xxx

The existence of any one of the conditions enumerated under Article 1602 of the Civil Code, not a concurrence of all
or of a majority thereof, suffices to give rise to the presumption that the contract is an equitable
mortgage.[24] Consequently, the contract between the vendors and vendees (Spouses Francia) was an equitable
mortgage.
B.

Are the petitioners now barred from claiming that the transaction under the Kasulatan ng Biling Mabibiling
Muli was an equitable mortgage by their failure to redeem the property for a long period of time?

The petitioners contend that prescription, if it must apply to them, should as well be applied to the respondents, who
had similarly failed to enforce their right under the equitable mortgage within ten years from its execution on July 9,
1955. Consequently, they urge the upholding of the original intention of the parties to the Kasulatan ng Biling
Mabibiling Muli, without taking prescription into account, because both parties did not enforce their respective rights
within the ten-year prescriptive period, is more in keeping with fairness and equity.
We agree with the petitioners.

Considering that sa oras na silay makinabang, the period of redemption stated in the Kasulatan ng Biling Mabibiling
Muli, signified that no definite period had been stated, the period to redeem should be ten years from the execution of
the contract, pursuant to Articles 1142 and 1144 of the Civil Code.[25] Thus, the full redemption price should have been
paid by July 9, 1955; and upon the expiration of said 10-year period, mortgagees Spouses Francia or their heirs should
have foreclosed the mortgage, but they did not do so. Instead, they accepted Alejandros payments, until the debt was
fully satisfied by August 11, 1970.

The acceptance of the payments even beyond the 10-year period of redemption estopped the mortgagees heirs
from insisting that the period to redeem the property had already expired. Their actions impliedly recognized the
continued existence of the equitable mortgage. The conduct of the original parties as well as of their successors-in-
interest manifested that the parties to the Kasulatan ng Biling Mabibiling Muli really intended their transaction to be
an equitable mortgage, not a pacto de retro sale.
In Cuyugan v. Santos,[26] the purported buyer under a so-called contract to sell with right to repurchase also accepted
partial payments from the purported seller. We held that the acceptance of partial payments was absolutely
incompatible with the idea of irrevocability of the title of ownership of the purchaser upon the expiration of the term
stipulated in the original contract for the exercise of the right of redemption. Thereby, the conduct of the parties
manifested that they had intended the contract to be a mortgage, not a pacto de retro sale.

C.
When Alejandro redeemed the property on August 11, 1970, he did not thereby become a co-owner thereof,
because his father Jose, Sr. was then still alive. Alejandro merely became the assignee of the mortgage, and
the property continued to be co-owned by Leoncia and her sons Jose, Sr., Jose Jr., and Teofilo. As an assignee of the
mortgage and the mortgage credit, Alejandro acquired only the rights of his assignors, nothing more. He himself
confirmed so in the Magkasanib na Salaysay, whereby he acknowledged the co-owners right to redeem the property
from him at any time (sa ano mang oras) for the same redemption price of P500.00.

It is worthy to note that Alejandros confirmation in the Magkasanib na Salaysay of the co-owners right to
redeem was made despite 15 years having meanwhile elapsed from the execution of the original Kasulatan ng Biling
Mabibiling Muli (July 9, 1955) until the execution of the Magkasanib na Salaysay (August 21, 1970).

D.

Neither did the petitioners failure to initiate an action for reformation within ten years from the execution of
the Kasulatan ng Biling Mabibiling Muli bar them from insisting on their rights in the property. The records show that
the parties in the Kasulatan ng Biling Mabibiling Muli had abided by their true agreement under the deed, to the extent
that they and their successors-in-interest still deemed the agreement as an equitable mortgage despite the lapse of 15
years from the execution of the purported pacto de retro sale. Hence, an action for reformation of the Kasulatan ng
Biling Mabibiling Muli was unnecessary, if not superfluous, considering that the reason underlying the requirement for
an action for reformation of instrument has been to ensure that the parties to a contract abide by their true intended
agreement.

The Kasulatan ng Pagmeme-ari executed by Alejandro on August 21, 1970 was ineffectual to predicate the exclusion
of the petitioners and their predecessors in interest from insisting on their claim to the property. Alejandros being an
assignee of the mortgage did not authorize him or his heirs to appropriate the mortgaged property for himself without
violating the prohibition against pactum commissorium contained in Article 2088 of the Civil Code, to the effect that
[t]he creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them[;] [a]ny stipulation
to the contrary is null and void. Aptly did the Court hold in Montevirgen v. Court of Appeals:[27]
 The declaration, therefore, in the decision of July 1, 1971 to the effect that absolute ownership over
the subject premises has become consolidated in the respondents upon failure of the petitioners to pay
their obligation within the specified period, is a nullity, for consolidation of ownership is an improper
and inappropriate remedy to enforce a transaction declared to be one of mortgage. It is the duty of
respondents, as mortgagees, to foreclose the mortgage if he wishes to secure a perfect title to the
mortgaged property if he buys it in the foreclosure sale.
Moreover, the respondents, as Alejandros heirs, were entirely bound by his previous acts as their
predecessors-in-interest. Thus, Alejandros acknowledgment of the effectivity of the equitable mortgage agreement
precluded the respondents from claiming that the property had been sold to him with right to repurchase. [28]

E.

What was the effect of the Magkasanib na Salaysay?

Both the trial court and the CA declared that the Magkasanib na Salaysay, which extended the redemption period of
the mortgaged property, was inefficacious, because the period to redeem could no longer be extended after the original
redemption period had already expired.

In contrast, the petitioners submit that disregarding the Magkasanib na Salaysay made no sense, considering that the
respondents predecessors-in-interest admitted therein that the petitioners had a right to redeem the property.

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

The respondents and the lower courts positions cannot be sustained.

The provisions of the Civil Code governing equitable mortgages disguised as sale contracts, like the one herein, are
primarily designed to curtail the evils brought about by contracts of sale with right to repurchase, particularly the
circumvention of the usury law and pactum commissorium.[29] Courts have taken judicial notice of the well-known fact
that contracts of sale with right to repurchase have been frequently resorted to in order to conceal the true nature of a
contract, that is, a loan secured by a mortgage. It is a reality that grave financial distress renders persons hard-pressed
to meet even their basic needs or to respond to an emergency, leaving no choice to them but to sign deeds of absolute
sale of property or deeds of sale with pacto de retro if only to obtain the much-needed loan from unscrupulous money
lenders.[30] This reality precisely explains why the pertinent provision of the Civil Code includes a peculiar rule
concerning the period of redemption, to wit:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:
xxx
(3)When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
xxx

Ostensibly, the law allows a new period of redemption to be agreed upon or granted even after the expiration of the
equitable mortgagors right to repurchase, and treats such extension as one of the indicators that the true agreement
between the parties is an equitable mortgage, not a sale with right to repurchase. It was indubitable, therefore, that
the Magkasanib na Salaysay effectively afforded to Leoncia, Teofilo, Jose, Sr. and Jose, Jr. a fresh period within
which to pay to Alejandro the redemption price of P500.00.

F.

Did Alejandro and his heirs (respondents herein) acquire the mortgaged property through prescription?
It is true that Alejandro became a co-owner of the property by right of representation upon the death of his father, Jose
Sr.[31] As a co-owner, however, his possession was like that of a trustee and was not regarded as adverse to his co-
owners but in fact beneficial to all of them.[32]

Yet, the respondents except to the general rule, asserting that Alejandro, having earlier repudiated the co-
ownership, acquired ownership of the property through prescription.
The Court cannot accept the respondents posture.

In order that a co-owners possession may be deemed adverse to that of the cestui que trust or the other co-owners, the
following elements must concur:

1. The co-owner has performed unequivocal acts of repudiation of the co-ownership amounting to
an ouster of the cestui que trust or the other co-owners;

2. Such positive acts of repudiation have been made known to the cestui que trust or the other co-
owners;

3. The evidence on the repudiation is clear and conclusive; and

4. His possession is open, continuous, exclusive, and notorious.[33]

The concurrence of the foregoing elements was not established herein. For one, Alejandro did not have adverse and
exclusive possession of the property, as, in fact, the other co-owners had continued to possess it, with Alejandro and
his heirs occupying only a portion of it. Neither did the cancellation of the previous tax declarations in the name of
Leoncia, the previous co-owner, and the issuance of a new one in Alejandros name, and Alejandros payment of the
realty taxes constitute repudiation of the co-ownership. The sole fact of a co-owner declaring the land in question in
his name for taxation purposes and paying the land taxes did not constitute an unequivocal act of repudiation
amounting to an ouster of the other co-owner and could not constitute adverse possession as basis for title by
prescription.[34] Moreover, according to Blatero v. Intermediate Appellate Court,[35] if a sale a retro is construed as an
equitable mortgage, then the execution of an affidavit of consolidation by the purported buyer to consolidate
ownership of the parcel of land is of no consequence and the constructive possession of the parcel of land will not
ripen into ownership, because only possession acquired and enjoyed in the concept of owner can serve as title for
acquiring dominion.[36]
In fine, the respondents did not present proof showing that Alejandro had effectively repudiated the co-ownership.
Their bare claim that Alejandro had made oral demands to vacate to his co-owners was self-serving and insufficient.
Alejandros execution of the affidavit of consolidation of ownership on August 21, 1970[37] and his subsequent
execution on October 17, 1970 of the joint affidavit[38] were really equivocal and ambivalent acts that did not manifest
his desire to repudiate the co-ownership.

The only unequivocal act of repudiation was done by the respondents when they filed the instant action for quieting of
title on September 28, 1994, nearly a year after Alejandros death on September 2, 1993. However, their possession
could not ripen into ownership considering that their act of repudiation was not coupled with
their exclusive possession of the property.

G.

The respondents can only demand from the petitioners the partition of the co-owned property and the reimbursement
from their co-owners of the amount advanced by Alejandro to repay the obligation. They may also seek from their co-
owners the proportional reimbursement of the realty taxes paid for the property, pursuant to Article 488 of
the CivilCode.[39] In the alternative, they may opt to foreclose the equitable mortgage, considering that the petitioners
period to redeem the mortgaged property, which was ten years from the execution on October 17, 1970 of
the Magkakasanib na Salaysay, had already long lapsed. We clarify, however, that the respondents may take these
recourses only through the appropriate actions commenced in court.

H.

The petitioners counterclaim for damages is dismissed for their failure to prove their entitlement to it.[40]

WHEREFORE, we grant the petition for review on certiorari.

The decision dated July 31, 2002 rendered by the Court of Appeals is reversed and set aside, and another
judgment is rendered:
 a) Upholding the validity of the Kasulatan ng Biling Mabibiling Muli (Deed of Sale with Right of
Repurchase) executed on July 9, 1955 by Leoncia Mag-isa Reyes and her sons Teofilo, Jose, Sr. and Jose, Jr., all
surnamed Reyes, in favor of the late Spouses Benedicto Francia and Monica Ajoco as well as the Pagsasa-ayos ng
Pag-aari at Pagsasalin (Settlement of Estate and Assignment) executed on August 11, 1970 by the heirs of the late
Spouses Benedicto Francia and Monica Ajoco in favor of the spouses Alejandro Reyes and Amanda Salonga;

b) Declaring the Kasulatan ng Biling Mabibili Muli to be an equitable mortgage, not a contract of sale with
right to repurchase;

c) Finding the Magkakalakip na Salaysay executed on October 17, 1970 by and among Leoncia Mag-isa
Reyes, Jose Reyes, Sr. and Alejandro Reyes valid and effective;

c) Nullifying the Kasulatan ng Pagmeme-ari executed by Alejandro M. Reyes on August 21, 1970; and

d) Dismissing the petitioners counterclaim.

Costs of suit to be paid by the respondents.

SO ORDERED.
 FRANCISCO MUOZ, JR., G.R. No. 156125
Petitioner,
Present:

CARPIO MORALES, J., Chairperson,

BRION,
- versus - BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

Promulgated:
ERLINDA RAMIREZ and ELISEO August 25, 2010
CARLOS,
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

BRION, J.:

We resolve the present petition for review on certiorari[1] filed by petitioner Francisco Muoz, Jr. (petitioner)
to challenge the decision[2] and the resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 57126.[4] The CA
decision set aside the decision[5] of the Regional Trial Court (RTC), Branch 166, Pasig City, in Civil Case No. 63665.
The CA resolution denied the petitioners subsequent motion for reconsideration.
FACTUAL BACKGROUND

The facts of the case, gathered from the records, are briefly summarized below.

Subject of the present case is a seventy-seven (77)-square meter residential house and lot located at 170 A.
Bonifacio Street, Mandaluyong City (subject property), covered by Transfer Certificate of Title (TCT) No. 7650 of the
Registry of Deeds of Mandaluyong City in the name of the petitioner.[6]

The residential lot in the subject property was previously covered by TCT No. 1427, in the name of Erlinda
Ramirez, married to Eliseo Carlos (respondents).[7]

On April 6, 1989, Eliseo, a Bureau of Internal Revenue employee, mortgaged TCT No. 1427, with Erlindas
consent, to the Government Service Insurance System (GSIS) to secure a P136,500.00 housing loan, payable within
twenty (20) years, through monthly salary deductions of P1,687.66.[8] The respondents then constructed a thirty-six
(36)-square meter, two-story residential house on the lot.

On July 14, 1993, the title to the subject property was transferred to the petitioner by virtue of a Deed of
Absolute Sale, dated April 30, 1992, executed by Erlinda, for herself and as attorney-in-fact of Eliseo, for a stated
consideration of P602,000.00.[9]

On September 24, 1993, the respondents filed a complaint with the RTC for the nullification of the deed of
absolute sale, claiming that there was no sale but only a mortgage transaction, and the documents transferring the title
to the petitioners name were falsified.

The respondents alleged that in April 1992, the petitioner granted them a P600,000.00 loan, to be secured by a
first mortgage on TCT No. 1427; the petitioner gave Erlinda a P200,000.00[10] advance to cancel the GSIS mortgage,
and made her sign a document purporting to be the mortgage contract; the petitioner promised to give the P402,000.00
balance when Erlinda surrenders TCT No. 1427 with the GSIS mortgage cancelled, and submits an affidavit signed by
Eliseo stating that he waives all his rights to the subject property; with the P200,000.00 advance, Erlinda paid
GSIS P176,445.27[11] to cancel the GSIS mortgage on TCT No. 1427;[12] in May 1992, Erlinda surrendered to the
petitioner the clean TCT No. 1427, but returned Eliseos affidavit, unsigned; since Eliseos affidavit was unsigned, the
petitioner refused to give the P402,000.00 balance and to cancel the mortgage, and demanded that Erlinda return
the P200,000.00 advance; since Erlinda could not return the P200,000.00 advance because it had been used to pay the
GSIS loan, the petitioner kept the title; and in 1993, they discovered that TCT No. 7650 had been issued in the
petitioners name, cancelling TCT No.1427 in their name.

The petitioner countered that there was a valid contract of sale. He alleged that the respondents sold the
subject property to him after he refused their offer to mortgage the subject property because they lacked paying
capacity and were unwilling to pay the incidental charges; the sale was with the implied promise to repurchase within
one year,[13]during which period (from May 1, 1992 to April 30, 1993), the respondents would lease the subject
property for a monthly rental of P500.00;[14] when the respondents failed to repurchase the subject property within the
one-year period despite notice, he caused the transfer of title in his name on July 14, 1993; [15] when the respondents
failed to pay the monthly rentals despite demand, he filed an ejectment case[16] against them with the Metropolitan
Trial Court (MeTC), Branch 60, Mandaluyong City, on September 8, 1993, or sixteen days before the filing of the
RTC case for annulment of the deed of absolute sale.

During the pendency of the RTC case, or on March 29, 1995, the MeTC decided the ejectment case. It ordered
Erlinda and her family to vacate the subject property, to surrender its possession to the petitioner, and to pay the
overdue rentals.[17]

In the RTC, the respondents presented the results of the scientific examination[18] conducted by the National
Bureau of Investigation of Eliseos purported signatures in the Special Power of Attorney[19] dated April 29, 1992 and
the Affidavit of waiver of rights dated April 29, 1992,[20] showing that they were forgeries.

The petitioner, on the other hand, introduced evidence on the paraphernal nature of the subject property since
it was registered in Erlindas name; the residential lot was part of a large parcel of land owned by Pedro Ramirez and
Fructuosa Urcla, Erlindas parents; it was the subject of Civil Case No. 50141, a complaint for annulment of sale,
before the RTC, Branch 158, Pasig City, filed by the surviving heirs of Pedro against another heir, Amado Ramirez,
Erlindas brother; and, as a result of a compromise agreement, Amado agreed to transfer to the other compulsory heirs
of Pedro, including Erlinda, their rightful shares of the land.[21]

THE RTC RULING

In a Decision dated January 23, 1997, the RTC dismissed the complaint. It found that the subject property was
Erlindas exclusive paraphernal property that was inherited from her father. It also upheld the sale to the petitioner,
even without Eliseos consent as the deed of absolute sale bore the genuine signatures of Erlinda and the petitioner as
vendor and vendee, respectively. It concluded that the NBI finding that Eliseos signatures in the special power of
attorney and in the affidavit were forgeries was immaterial because Eliseos consent to the sale was not necessary. [22]

The respondents elevated the case to the CA via an ordinary appeal under Rule 41 of the Revised Rules of
Court.

THE CA RULING

The CA decided the appeal on June 25, 2002. Applying the second paragraph of Article 158 [23] of the Civil
Code and Calimlim-Canullas v. Hon. Fortun,[24] the CA held that the subject property, originally Erlindas exclusive
paraphernal property, became conjugal property when it was used as collateral for a housing loan that was paid
through conjugal funds Eliseos monthly salary deductions; the subject property, therefore, cannot be validly sold or
mortgaged without Eliseos consent, pursuant to Article 124[25] of the Family Code. Thus, the CA declared void the
deed of absolute sale, and set aside the RTC decision.

When the CA denied[26] the subsequent motion for reconsideration,[27] the petitioner filed the present petition
for review on certiorari under Rule 45 of the Revised Rules of Court.
THE PETITION

The petitioner argues that the CA misapplied the second paragraph of Article 158 of the Civil Code
and Calimlim-Canullas[28] because the respondents admitted in the complaint that it was the petitioner who gave the
money used to cancel the GSIS mortgage on TCT No. 1427; Article 120 [29] of the Family Code is the applicable rule,
and since the value of the house is less than the value of the lot, then Erlinda retained ownership of the subject
property. He also argues that the contract between the parties was a sale, not a mortgage, because (a) Erlinda did not
deny her signature in the document;[30] (b) Erlinda agreed to sign a contract of lease over the subject property; [31] and,
(c) Erlinda executed a letter, dated April 30, 1992, confirming the conversion of the loan application to a deed of
sale.[32]
THE CASE FOR THE RESPONDENTS

The respondents submit that it is unnecessary to compare the respective values of the house and of the lot to
determine ownership of the subject property; it was acquired during their marriage and, therefore, considered conjugal
property. They also submit that the transaction between the parties was not a sale, but an equitable mortgage because
(a) they remained in possession of the subject property even after the execution of the deed of absolute sale, (b) they
paid the 1993 real property taxes due on the subject property, and (c) they received P200,000.00 only of the total
stated price of P602,000.00.
THE ISSUE
The issues in the present case boil down to (1) whether the subject property is paraphernal or conjugal; and,
(2) whether the contract between the parties was a sale or an equitable mortgage.

OUR RULING

We deny the present Petition but for reasons other than those advanced by the CA.

This Court is not a trier of facts. However, if the inference, drawn by the CA, from the facts is manifestly
mistaken, as in the present case, we can review the evidence to allow us to arrive at the correct factual conclusions
based on the record.[33]

First Issue:

Paraphernal or Conjugal?

As a general rule, all property acquired during the marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the contrary is
proved.[34]

In the present case, clear evidence that Erlinda inherited the residential lot from her father has sufficiently
rebutted this presumption of conjugal ownership.[35] Pursuant to Articles 92[36] and 109[37] of the Family Code,
properties acquired by gratuitous title by either spouse, during the marriage, shall be excluded from the community
property and be the exclusive property of each spouse.[38] The residential lot, therefore, is Erlindas exclusive
paraphernal property.

The CA, however, held that the residential lot became conjugal when the house was built thereon through
conjugal funds, applying the second paragraph of Article 158 of the Civil Code and Calimlim-Canullas.[39] Under the
second paragraph of Article 158 of the Civil Code, a land that originally belonged to one spouse becomes conjugal
upon the construction of improvements thereon at the expense of the partnership. We applied this provision
in Calimlim-Canullas,[40] where we held that when the conjugal house is constructed on land belonging exclusively to
the husband, the land ipso facto becomes conjugal, but the husband is entitled to reimbursement of the value of the
land at the liquidation of the conjugal partnership.

The CA misapplied Article 158 of the

Civil Code and Calimlim-Canullas

We cannot subscribe to the CAs misplaced reliance on Article 158 of the Civil Code and Calimlim-Canullas.

As the respondents were married during the effectivity of the Civil Code, its provisions on conjugal
partnership of gains (Articles 142 to 189) should have governed their property relations. However, with the enactment
of the Family Code on August 3, 1989, the Civil Code provisions on conjugal partnership of gains, including Article
158, have been superseded by those found in the Family Code (Articles 105 to 133). Article 105 of the Family Code
states:

xxxx

The provisions of this Chapter [on the Conjugal Partnership of Gains] shall also apply to
conjugal partnerships of gains already established between spouses before the effectivity of this
Code, without prejudice to vested rights already acquired in accordance with the Civil Code or other
laws, as provided in Article 256.

Thus, in determining the nature of the subject property, we refer to the provisions of the Family Code, and not the
Civil Code, except with respect to rights then already vested.

Article 120 of the Family Code, which supersedes Article 158 of the Civil Code, provides the solution in
determining the ownership of the improvements that are made on the separate property of the spouses, at the expense
of the partnership or through the acts or efforts of either or both spouses. Under this provision, when the cost of the
improvement and any resulting increase in value are more than the value of the property at the time of the
improvement, the entire property of one of the spouses shall belong to the conjugal partnership, subject to
reimbursement of the value of the property of the owner-spouse at the time of the improvement; otherwise, said
property shall be retained in ownership by the owner-spouse, likewise subject to reimbursement of the cost of the
improvement.[41]

In the present case, we find that Eliseo paid a portion only of the GSIS loan through monthly salary
deductions. From April 6, 1989[42] to April 30, 1992,[43] Eliseo paid about P60,755.76,[44] not the entire amount of the
GSIS housing loan plus interest, since the petitioner advanced the P176,445.27[45] paid by Erlinda to cancel the
mortgage in 1992. Considering the P136,500.00 amount of the GSIS housing loan, it is fairly reasonable to assume
that the value of the residential lot is considerably more than the P60,755.76 amount paid by Eliseo through monthly
salary deductions.

Thus, the subject property remained the exclusive paraphernal property of Erlinda at the time she contracted
with the petitioner; the written consent of Eliseo to the transaction was not necessary. The NBI finding that Eliseos
signatures in the special power of attorney and affidavit were forgeries was immaterial.

Nonetheless, the RTC and the CA apparently failed to consider the real nature of the contract between the
parties.

Second Issue:

Sale or Equitable Mortgage?

Jurisprudence has defined an equitable mortgage "as one which although lacking in some formality, or form
or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real
property as security for a debt, there being no impossibility nor anything contrary to law in this intent." [46]

Article 1602 of the Civil Code enumerates the instances when a contract, regardless of its nomenclature, may
be presumed to be an equitable mortgage: (a) when the price of a sale with right to repurchase is unusually inadequate;
(b) when the vendor remains in possession as lessee or otherwise; (c) when upon or after the expiration of the right
to repurchase another instrument extending the period of redemption or granting a new period is executed; (d) when
the purchaser retains for himself a part of the purchase price; (e) when the vendor binds himself to pay the
taxes on the thing sold; and, (f) in any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.
These instances apply to a contract purporting to be an absolute sale.[47]

For the presumption of an equitable mortgage to arise under Article 1602 of the Civil Code, two (2) requisites
must concur: (a) that the parties entered into a contract denominated as a contract of sale; and, (b) that their intention
was to secure an existing debt by way of a mortgage. Any of the circumstances laid out in Article 1602 of the Civil
Code, not the concurrence nor an overwhelming number of the enumerated circumstances, is sufficient to support the
conclusion that a contract of sale is in fact an equitable mortgage.[48]
Contract is an equitable mortgage

In the present case, there are four (4) telling circumstances pointing to the existence of an equitable mortgage.

First, the respondents remained in possession as lessees of the subject property; the parties, in fact, executed a
one-year contract of lease, effective May 1, 1992 to April 30, 1993.[49]

Second, the petitioner retained part of the purchase price, the petitioner gave a P200,000.00 advance to settle
the GSIS housing loan, but refused to give the P402,000.00 balance when Erlinda failed to submit Eliseos signed
affidavit of waiver of rights.

Third, respondents paid the real property taxes on July 8, 1993, despite the alleged sale on April 30,
1992;[50] payment of real property taxes is a usual burden attaching to ownership and when, as here, such payment is
coupled with continuous possession of the property, it constitutes evidence of great weight that the person under
whose name the realty taxes were declared has a valid and rightful claim over the land.[51]

Fourth, Erlinda secured the payment of the principal debt owed to the petitioner with the subject property. The
records show that the petitioner, in fact, sent Erlinda a Statement of Account showing that as of February 20, 1993,
she owed P384,660.00, and the daily interest, starting February 21, 1993, was P641.10.[52] Thus, the parties clearly
intended an equitable mortgage and not a contract of sale.

That the petitioner advanced the sum of P200,000.00 to Erlinda is undisputed. This advance, in fact, prompted
the latter to transfer the subject property to the petitioner.Thus, before the respondents can recover the subject
property, they must first return the amount of P200,000.00 to the petitioner, plus legal interest of 12% per annum,
computed from April 30, 1992.
 We cannot sustain the ballooned obligation of P384,660.00, claimed in the Statement of Account sent by the
petitioner,[53] sans any evidence of how this amount was arrived at. Additionally, a daily interest of P641.10
or P19,233.00 per month for a P200,000.00 loan is patently unconscionable. While parties are free to stipulate on the
interest to be imposed on monetary obligations, we can step in to temper the interest rates if they are
unconscionable.[54]

In Lustan v. CA,[55] where we established the reciprocal obligations of the parties under an equitable mortgage,
we ordered the reconveyance of the property to the rightful owner therein upon the payment of the loan within ninety
(90) days from the finality of the decision.[56]

WHEREFORE, in light of all the foregoing, we hereby DENY the present petition. The assailed decision and
resolution of the Court of Appeals in CA-G.R. CV No. 57126 are AFFIRMED with the
following MODIFICATIONS:

1. The Deed of Absolute Sale dated April 30, 1992 is hereby declared an equitable mortgage; and

2. The petitioner is obligated to RECONVEY to the respondents the property covered by Transfer Certificate
of Title No. 7650 of the Register of Deeds of Mandaluyong City, UPON THE PAYMENT OF P200,000.00, with 12%
legal interest from April 30, 1992, by respondents within NINETY DAYS FROM THE FINALITY OF THIS
DECISION.

Costs against the petitioner.

SO ORDERED.
SPOUSES NATALIO and G.R. No. 151333
FELICIDAD SALONGA,

Petitioners,
Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
SPOUSES MANUEL and NENITA Promulgated:
CONCEPCION and FLORENCIA
REALTY CORPORATION,
Respondents. September 20, 2005
x----------------------------------------------------x

DECISION
CALLEJO, SR., J.:
The spouses Natalio Salonga and Felicidad Salonga were the owners of eight (8) prime parcels of land located in
Dagupan City covered by Transfer Certificate of Title (TCT) Nos. 40886, 40887, 43547, 26506, 35156, 49460, 49459
and 53650.[1] They had a commercial building with four floors which stood on their property located along A.B.
Fernandez Avenue, Dagupan City and covered by TCT No. 53650. The spouses leased the building to traders and
merchants, and lived in a house along Arellano Street. The house stood on a lot which they also owned, covered by
TCT No. 26506.
To finance their business, the spouses secured a loan from the Associated Bank. To secure the payment thereof, they
executed a Real Estate Mortgage in favor of the bank over the property covered by TCT Nos. 40886, 40887, 43547,
35156 and 49459.[2] The spouses likewise secured a loan from the Philippine National Bank (PNB), and also
executed a real estate mortgage over their property covered by TCT No. 26506.[3] A real estate mortgage over their
property covered by TCT No. 53650 was also executed, including the commercial building thereon, as security for
their loan from the Development Bank of the Philippines (DBP).[4] Their loan from the Rural Bank of Malasiqui, Inc.
(Pangasinan) was secured by a real estate mortgage over their property covered by TCT No. 49460.[5]
The devastating earthquake of July 16, 1990 severely damaged the spouses commercial building, adversely affecting
their business.[6] Consequently, they defaulted in the payment of their loans. The creditor banks foreclosed or
threatened to foreclose their real estate mortgages. On September 4, 1991, their property covered by TCT No. 49460
mortgaged to the Rural Bank of Malasiqui, Inc. was sold at public auction with the said bank as the highest bidder.[7]
The DBP had the property covered by TCT No.
53650 sold at public auction on November 21, 1991.[8] The Certificate of Sale in favor of the bank as the winning
bidder was filed with the Office of the Register of Deeds on January 2, 1992.[9]

On October 1, 1992, the Associated Bank filed a petition with the Regional Trial Court (RTC) of Dagupan City for the
extrajudicial foreclosure of the Real Estate Mortgage over the property of the spouses covered by TCT Nos. 49459,
40886, 40887, 43547 and 35156, for the satisfaction of the balance of their loans and the increments thereof totaling
P571,132.70 as of August 31, 1992. The sheriff set the sale at public auction on December 10, 1992.[10]
Beleaguered, the spouses Salonga secured a loan, this time, from the spouses Manuel and Nenita Concepcion, who
were engaged in the business of lending money, to repay their loan to the PNB. The spouses Salonga borrowed
P500,000.00 from the spouses Concepcion, which the latter remitted to the PNB on November 6, 1992 in payment of
the spouses Salongas account. The latter were issued a receipt.[11] They also paid P2,756.85 to the PNB for
surcharges.[12] Thus, on November 11, 1992, the PNB executed a Deed of Release of Real Estate Mortgage[13]
which the bank delivered to Manuel Concepcion; the receipt of the said payment and
the owners duplicate of TCT No. 26506 was likewise released to Manuel Concepcion.
The spouses Concepcion also agreed to the spouses Salongas plea for another loan to enable them to settle their
obligations with the Associated Bank. Concepcion remitted the amount of P200,000.00 to the bank on December 8,
1992;[14] P200,000.00, on December 21, 1992;[15] and P186,520.50 on January 18, 1993[16] for the account of the
spouses Salonga, for which the latter were issued receipts by the bank.[17] The bank executed a Cancellation of the
Real Estate Mortgage[18] on January 20, 1993 and delivered the amount together with the owners duplicate of the
titles over the five parcels of land, and the aforesaid receipt to spouses Concepcion.
The spouses Salonga secured another loan from the spouses Concepcion in the amount of P2,042,377.19, which the
latter paid to the DBP for the account of the spouses Salonga. The bank executed a Deed of Redemption and
Cancellation of Liens[19] on January 5, 1993. The spouses Concepcion took delivery of the deed and the owners
duplicate of TCT No. 53650 and the receipt issued by the DBP for said amount in the names of the spouses Salonga.
The spouses Concepcion required the spouses Salonga to pay 3% of the loans as monthly interest, on top of a 5%
commission if the property was sold to third-parties.
The spouses Salonga failed to pay the loans, interest and commission despite the lapse of several months. In the
meantime, they continued residing in the same house. Much as they tried, the spouses Salonga failed to sell their
property to any interested buyer. Worse, the spouses Concepcion pressed them to pay their loan accounts, plus the
interests thereon. Their property covered by TCT No. 49460 was sold at public auction with the Rural Bank of
Malasiqui, Inc. as the winning bidder. The bank consolidated its title on August 20, 1993.[20] The Register of Deeds
cancelled TCT No. 49460 and issued TCT No. 60384 to the bank.[21]
On August 31, 1993, the spouses Salonga executed, in favor of the spouses Concepcion, a Deed of Absolute Sale[22]
over their property previously mortgaged to the Associated Bank covered by TCT Nos. 43547, 40886, 40887, 35156
and 49459. It appears on the said deed that the property was sold for the price of P575,000.00, and that the spouses
Salonga received the amount from the spouses Concepcion.
On September 20, 1993, the spouses Concepcion executed a Deed of Absolute Sale over the property covered by TCT
Nos. 40886, 40887, and 43547 in favor of the Florencia Realty Corporation for P600,000.00. On September 21, 1993,
the spouses Concepcion filed the said deed in the Office of the Register of Deeds. The spouses Concepcion then filed
the cancellation of real estate mortgage executed by the Associated Bank, the deed of absolute sale executed by the
spouses Salonga, and the deed of absolute sale in favor of the Florencia Realty Corporation in the Office of the
Register of Deeds, which issued TCT Nos. 60530, 60531 and 60532 in the names of the Florencia Realty Corporation,
and TCT Nos. 60533, 60534 and 60694 in the names of the spouses Concepcion on September 21, 1993.
On October 18, 1993, the Spouses Salonga exeuted a Deed of Absolute Sale[23] over their properties previously
mortgaged with the PNB and DBP, covered by TCT Nos. 53650 and 26506 including the improvements therein in
favor of the spouses Concepcion. It appears that the lots were sold for P1,500,000.00, receipt of which was
acknowledged by the spouses Salonga in the said deed. The spouses Concepcion filed the deed of absolute sale on the
same day with the Office of the Register of Deeds, which issued TCT Nos. 60694 and 60695 in the names of the
spouses Concepcion following the payment of the capital gains taxes. However, the spouses Salonga continued to
reside in the same house.

Sometime in 1994, the daughter of the spouses Salonga arrived from abroad. The spouses and their daughter offered to
redeem the property from the spouses Concepcion. However, the latter informed the spouses Salonga and their
daughter that the title to the property had already been transferred to their names, and agreed to the redemption of the
property for P8,000,000.00 and the spouses Concepcion increased it to P10,000,000.00.
On July 12, 1994, the spouses Salonga filed a complaint against the spouses Concepcion and the Florencia Realty
Corporation with the RTC of Dagupan City for annulment of the August 31, 1993 and October 18, 1993 Deeds of
Absolute Sale, as well as the reconveyance of the property subject of said deeds with damages.
The spouses Salonga alleged that the two deeds of absolute sale were simulated and did not reflect their true
agreements, that is, that their property would guarantee the payment of the total amount of remittances the defendants
had paid to the mortgagors-banks for the redemption of their property, plus 3% a month of their loans as interests, and
if the property were sold to a third-party, a 5% commission of the purchase price thereof. They also alleged that their
agreement with the spouses Concepcion that the latter would not register the said deeds in the Office of the Register of
Deeds and secure titles over the properties in their names; the defendants, in evident bad faith, registered the said
deeds and secured titles in their names; the market price of the whole property amounted to P10,000,000.00, but it
appeared that the property was sold to the spouses Concepcion for only P2,000,000.00, which was the amount the
spouses Concepcion remitted to the bank in their account; they offered to repay their loans and their offers were
rejected. The spouses Salonga prayed that judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed that after due hearing, judgment be rendered in accordance with the several
causes of action hereof;
1. Declaring the Deed[s] of Absolute Sales, (sic), (Annexes I and J) dated August 31, 1993 and October 18, 1993,
respectively as a simulated contracts and therefore VOID AB INITIO;
2. Ordering the Register of Deeds of Dagupan City to cancel TCT Nos. 60533, 60534, 60695, 60694, 60624 in the
name of the defendants and TCT Nos. 60530, 60531 and 60532 in the name of Florencia Realty Corporation, Inc., and
to restore TCT Nos. 40886, 40887, 43547, 20506, 35156, 49460, 49459 and 53650 in the name of the plaintiffs
Spouses Natalio Salonga and Felicidad Salonga;
3. Ordering defendants spouses Manuel Concepcion and Nenita Viado to pay plaintiffs the sum of P500,000.00 as
damages authorized to be awarded under Article 19 of the same code;
4. Ordering defendants Spouses Manuel Concepcion and Nenita Viado to pay plaintiffs the sum of P2,000,000.00
for moral damages; the sum of P100,000.00 for exemplary damages;
5. Ordering defendants Spouses Manuel Concepcion and Nenita Viado to pay plaintiffs the sum of P100,000.00 as
and for attorneys fees plus the sum of P1,000.00 as per Court appearance fee; the sum of P100,000.00 for litigation
expenses.
PLAINTIFFS further pray for such other reliefs just and equitable in the premises.[24]
In their answer to the complaint, the spouses Concepcion admitted that they gave loans to the spouses Salonga in the
total amount of P3,131,154.54 which they remitted to the DBP, the PNB and Associated Bank for the plaintiffs
account, with the assurance that they would sell the property within three months; from the proceeds of the sale, their
loans and the interest thereof at 3% per month and a commission of 5% of the purchase price of the property would be
paid. They further alleged that despite extensions granted to them, the plaintiffs failed to pay their loans, and offered,
instead, to sell their property for the price equivalent to the spouses Concepcions remittances to the creditors-banks,
plus an additional amount; the lots covered by TCT Nos. 53650 and 26506 were not part of the said sale; the spouses
Salonga requested for more time to sell the remaining two lots.

The spouses Concepcion further alleged that they agreed to spouses Salongas offer, and the latter executed a deed of
absolute sale on August 31, 1993 covering the lots described in TCT Nos. 43547, 40886, 40887, 35156 and 49459;
when the plaintiffs failed to sell the lots covered by TCT Nos. 53650 and 26506, they executed a deed of absolute sale
over the said lots on October 18, 1993 and received the additional purchase price of P1,500.000.00 from the
defendants; the plaintiffs promised to vacate their house in April 1994, but refused to do so; worse, the plaintiffs filed
a complaint against them.
Subsequently, the spouses Concepcion as plaintiffs filed an action for ejectment against the spouses Salonga on
August 23, 1994 with the Municipal Trial Court of Dagupan City, praying for their eviction from the subject
property.[25] The case was docketed as Civil Case No. CV-95- 00671-D.[26]
Felicidad Salonga testified that there was no period agreed upon to repay their loans from the defendants, and while
they executed the Deeds of Absolute Sale dated August 31, 1993 and October 18, 1993 in favor of the defendants,
they did not receive the amounts stated therein. The plaintiffs also adduced in evidence Olivia Arafiles valuation of the
property, pegged at P10,270,600.00.[27] Julio A. Garcia testified that he was in the house of the plaintiffs and affixed
his signature on a document signed by the defendant Manuel Concepcion, quoted, infra:

I Manuel Concepcion of legal aged (sic), married to Nenita Viado and resident of Bautista Pangasinan have agreed
(sic) to Mr. And Mrs. Natalio Salonga a resident of Dagupan city to sign a Deed of Sale and I will not registered (sic)
as long as the spouses Salonga will pay the principal cash involved plus the interest of 3% per month.[28]
Felicidad further testified that she and her husband continued residing in their house even after the spouses
Concepcion had paid their loans to the creditor banks. However, upon the latters suggestion, they had the commercial
building repainted and leased to a tenant, with the agreement that the rentals would be credited to their (spouses
Salonga's) account. The latter paid interests on their account, but the spouses Concepcion refused to issue receipts
therefor. Felicidad further declared that on March 10, 1993, Manuel Concepcion arrived in their house and suggested
that a deed of sale over the property be executed in their favor while looking for prospective buyers. The spouses
Salonga agreed, provided that said deed would not be registered in the Office of the Register of Deeds. Felicidad
wrote an undertaking on a piece of paper, in which the spouses Concepcion promised not to register the said deed of
sale in the Office of the Register of Deeds. Manuel Concepcion signed the note in the presence of Julio Garcia.[29]
Felicidad likewise testified that when she and her husband failed to sell their property and pay their account with the
spouses Concepcion, she and her husband executed on August 31, 1993 a deed of sale over five (5) parcels of land
previously mortgaged with the Associated Bank, for the latter to assume the right of the creditor banks to collect their
loan account and interests; the property will only serve as security for the payment of their account. She further
testified that she and her husband did not receive from the defendant the P575,000.00 and P1,500,000.00 stated in the
said deeds as the purchase price of the subject properties.
Felicidad further narrated that when her daughter arrived in the Philippines in 1994, they sought to redeem the
property from the spouses Concepcion, but the latter informed them that the titles to the property had already been
transferred in their names and that the property could be redeemed for P10,000,000.00. In April 1996, they were
finally evicted from the property by a sheriff and soldiers.
Manuel Concepcion testified that he and his wife agreed to grant loans to the plaintiffs to enable them to pay their loan
account with their creditor banks, with their assurance that they will be able to sell their property within 60 days and
pay their accounts plus interests and 5% commission. Despite several extensions granted to the spouses Salonga, they
failed to sell their properties. Sometime in April 1993, the spouses Salonga offered to sell their properties previously
mortgaged with the Associated Bank in payment for the P586,520.50 advanced by them to the Associated Bank, plus
P575,000.00 on top of said amount. The spouses Salonga agreed. The latters lawyers then prepared a Deed of
Absolute Sale dated August 31, 1993, which they signed following their receipt of P575,000.00. The spouses Salonga
pleaded that they be given a period of one month to execute a deed of absolute sale over the two parcels of land
previously mortgaged to the PNB and DBP and to a third-party, to which the spouses Concepcion also agreed.
However, the spouses Salonga failed to sell the properties.
On October 18, 1993, the spouses Salonga executed a Deed of Absolute Sale[30] over the parcels of land covered by
TCT Nos. 53650 and 26506 as payment of their loan account, plus P1,500,000.00. Manuel Concepcion further
narrated that they spent P1,200,000.00 for the renovation of the commercial building[31] and had it leased to tenants.
They also paid for the realty taxes due for the building.[32] He denied having known Julio Garcia and having signed
the note[33] on March 10, 1993.
In the meantime, the MTC rendered judgment ordering the spouses Salonga to vacate the property. They appealed to
the RTC of Dagupan City, docketed as Civil Case No. 94-00249-D. On December 4, 1995, the spouses Salonga filed a
motion to stay the execution of the appealed decision, which the RTC denied. The spouses Salonga were ejected by a
sheriff sometime in April 1996.

On December 10, 1996, the court a quo rendered judgment in favor of the spouses Concepcion ordering the dismissal
of the complaint. The fallo of the decision reads:
WHEREFORE, the Complaint is DISMISSED. In this connection, the plaintiffs are ordered to pay defendants the sum
of P500,000.00 as moral damages and the sum of P200,000.00 as exemplary damages.
The plaintiffs are also ordered to pay defendants the sum of P50,000.00 as and by way of attorneys fee plus
P10,000.00 as litigation expenses aside from the costs of suit.
Furnish copies of this Decision to Atty. Mariano Mel Ramos and Atty. Rodolfo Palma.
SO ORDERED.[34]
The RTC ruled that the August 31 and October 18, 1993 Deeds of Absolute Sale were valid in fact and in law.

The spouses Salonga appealed the decision to the Court of Appeals (CA) wherein they alleged that:

1. THE TRIAL COURT GRAVELY ERRED IN DISMISSING THE COMPLAINT OF PLAINTIFFS-

APPELLANTS AND IN NOT HOLDING THAT THE DEEDS OF SALE SIGNED BY PLAINTIFFS-
APPELLANTS CONVEYING THE PROPERTIES IN QUESTION TO DEFENDANTS-APPELLEES ARE
ACTUALLY EQUITABLE MORTGAGE;

2. THE TRIAL COURT GRAVELY ERRED IN HOLDING PLAINTIFFS-APPELLANTS LIABLE FOR

MORAL AND EXEMPLARY DAMAGES AS WELL AS ATTORNEYS FEES AND LITIGATION
EXPENSES.[35]
They averred that, as admitted by Manuel Concepcion, the parties had agreed that the former would return their
advance/s for their account, with

3% interest a month, and that no sale was agreed upon by the parties. They even granted extensions to the spouses
Salonga to repay their loans.
The spouses Salonga assert that their transactions with the spouses Concepcion relative to their property were in the
nature of equitable mortgages as shown, inter alia, by the fact that the prices of the property as appearing in the deeds
of absolute sale were a little more than P2,000,000.00, grossly inadequate as compared to their market value of
P10,000,000.00;[36] the parties had agreed that the deeds of sale would not be registered in the Office of the Register
of Deeds, but that the spouses Concepcion registered the said deeds in gross and evident bad faith; despite the
existence of the deeds of absolute sale, the spouses Salonga remained in possession of the property.
On December 21, 2001, the CA rendered judgment dismissing the appeal and affirming the appealed decision with
modification.[37] The CA ruled that the spouses Salonga had sold their property to the spouses Concepcion with a
right to repurchase, and that the said spouses failed to repurchase the same. The appellate court also declared that the
spouses Salonga failed to prove that the said transactions were in the nature of equitable mortgages. They took
possession of the house for a limited period of time, while the spouses Concepcion took possession of the estate of the
property after the execution of the deed of absolute sale.
The spouses Salonga, now the petitioners, filed the present petition for review on certiorari with this Court, assailing
the decision and resolution of the CA. They contend that:
THE COURT OF APPEALS ERRED IN THAT ITS CONCLUSIONS ARE CONTRARY TO LAW AND
JURISPRUDENCE, AS
I
THE DEEDS OF SALE IN FAVOR OF RESPONDENTS CONCEPCIONS ARE NULL AND VOID AS THEY
ARE ABSOLUTELY SIMULATED AND THEIR CAUSES WERE INEXISTENT AT THE TIME OF THE
TRANSACTION, AND IF UPHELD THEIR PURPOSE IS CONTRARY TO LAW AND PUBLIC POLICY, THUS
VOID.
II
THE PETITIONERS DID NOT GIVE THEIR CONSENT TO A SALE.

III
ASSUMING EX GRATIA ARGUMENTI THAT THE DEEDS WERE NOT VOID AB INITIO, THEY ARE
VOIDABLE OR AT LEAST THE PETITIONERS ARE ENTITLED TO REFORMATION OF THE DEEDS AS
THEY DID NOT EXPRESS THE TRUE INTENT OF THE PARTIES AS THEY ARE EQUITABLE MORTGAGES
AT BEST.[38]

The issues in this case are factual. Under Rule 45 of the Rules of Court, only questions of law may be raised in a
petition for review on certiorari, the reason being that the Court is not a trier of facts; hence, is not to re-examine and
re-evaluate the evidence on record. Furthermore, the conclusions of the CA on appeal are binding and conclusive on
the Court, unless there is a convincing showing that the appellate court ignored, misapplied or misconstrued cogent
facts and circumstances which, if considered, would warrant the modification or reversal of the outcome of the
case.[39

The Court is not proscribed, however, from delving into and resolving factual issues, if the findings and conclusions of
the trial court are inconsistent with those of the appellate court; or where the findings of the trial court and the CA are
contrary to the evidence on record or were arrived at arbitrarily.[40]
The petition is impressed with merit.
Article 1602 of the New Civil Code of the Philippines provides that a contract shall be presumed to be an equitable
mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.
In any of the foregoing case, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall
be considered as interest which shall be subject to the usury laws.
The provision shall apply to a contract purporting to be an absolute sale.[41] In case of doubt, a contract purporting to
be a sale with right to repurchase shall be considered as an equitable mortgage.[42] In a contract of mortgage, the
mortgagor merely subjects the property to a lien, but the ownership and possession thereof are retained by him.[43]
For the presumption in Article 1602 of the New Civil Code to arise, two requirements must concur: (a) that the parties
entered into a contract denominated as a contract of sale; and (b) that their intention was to secure
an existing debt by way of a mortgage. The existence of any of the circumstances defined in Article 1602 of the New
Civil Code, not the concurrence nor an overwhelming number of such circumstances is sufficient for a contract of sale
to be presumed an equitable mortgage.[44]
If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning
of its stipulations shall control.[45] However, if the records appear to be contrary to the evident intention of the
contracting parties, the latter shall prevail.
The nomenclature given by the parties to the contract is not conclusive of the nature and legal effects thereof.[46]
Even if a document appears on its face to be a sale, the owner of the property may prove that the contract is really a
loan with mortgage, and that the document does not express the true intent of the parties.[47]
There is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation
secured by a mortgage. The decisive factor in evaluating such deed is the intention of the parties as shown by all the
surrounding circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct, and
declarations of the parties before, during and after the execution of said deed, and generally all pertinent facts having a
tendency to determine the real nature of their design and understanding.[48] As such, documentary and parol evidence
may be adduced by the parties. When in doubt, courts are generally inclined to construe a transaction purporting to be
a sale as an equitable mortgage, which involves a lesser transmission of rights and interests over the property in
controversy.[49]

Articles 1602, 1603 and 1604 of the New Civil Code were designed to prevent the circumvention of the use of
usury[50] and the prohibition against the creditor appropriating the mortgaged properties. Besides, in times of grave
financial distress which render persons hard-pressed to answer an emergency, such persons would have no choice but
to sign a deed of absolute sale of property if only to obtain a much-needed loan from unscrupulous money lenders.[51]
The notarization of the document does not guarantee its validity because it is not the function of the notary public to
validate an instrumentthat was never intended by the parties to have any binding legal effect on him. Neither is the
notarization of a document conclusive of the nature of the transaction conferred by the said document, nor is it
conclusive of the true agreement of the parties thereto.
After a thorough examination of the records, we find and so hold that the August 31 and October 18, 1993 Deeds of
Absolute Sale are mere equitable mortgages and not bona fide absolute sale of the parcels of land therein described.

FIRST. The petitioners were hard-pressed to pay their account to the respondents in the total principal amount of
P3,198,886.47; the said amount paid by the respondents for the account of the petitioners to the PNB, the Associated
Bank and the DBP, excluding the amount of 36% interest a month or 36% interest per annum. The petitioners tried to
sell the property to third-persons, but failed. The respondents refused to give the petitioners any further extensions of
time to sell the property, unless they execute the deeds of absolute sale in favor of the respondents and insure the
payment of their account. The specter of the petitioners being evicted from their residence loomed large in the
horizon. To give themselves more time to sell their property and avert eviction from their house, the petitioners opted
to execute the deeds of absolute sale.
SECOND. It was made to appear under the August 31, 1993 Deed of Absolute Sale that the petitioners had sold their
five parcels of land to the respondents for the principal amount of P575,000.00, and that the petitioners received the
said amount from the respondents. However, at the time of the execution of said deed, the petitioners were indebted to
the respondents for the principal amount of P586,520.50, which the respondents had remitted to the Associated Bank
for the account of the petitioners. It is incredible that the petitioners would sell the said parcels of land to the
respondents, and that the latter would remit the purchase price of P575,000.00 to the petitioners, and retain the said
amount to be applied as payment to the petitioners account of P586,520.50.
It was also made to appear under the October 18, 1993 Deed of Absolute 0Sale that the petitioners sold two parcels of
land to the respondents (on which their commercial building and their house were constructed) for P1,500,000.00, and
that the petitioners received the said amount from the respondents following the execution of the deed. However, the
evidence on record shows that the petitioners had an outstanding account of P2,042,377.19 as of October 18, 1993 to
the respondents. It is incredible that, instead of applying the aforesaid amount of P1,500,000.00 in partial payment of
the petitioners outstanding account, the respondents would choose to remit the same upon the execution of the October
18, 1993 deed of absolute sale. In fine, the petitioners account to the respondents, in the total amount of
P3,198,886.47, remained outstanding despite the sale of the petitioners seven parcels of land in favor of the
respondents.

We reject the respondents contention that the petitioners sold their seven parcels of land, not only for P2,078,000.00
but also for the outstanding account of P3,198,886.47, for the total price of P5,876,886.47. The respondents were
burdened to prove that the petitioners agreed to sell their property partly in payment of the said account; the
respondents failed to do so.

A plain reading of the two (2) deeds of absolute sale shows that the seven lots were sold to the respondents for only
P2,078,000.00. There is no provision in said deeds stating that the petitioners sold their property in partial payment of
their outstanding account to the respondents (P3,198,886.47), and partly for an additional P2,078,000.00 If it is true, as
claimed by the respondents, that the petitioners sold the seven parcels of land to them not only for P2,078,000.00 as
appearing in said deeds, but also for the outstanding account of P3,198,886.47, the same should have been specifically
and positively stated in the said deeds. No such provision appears in the two deeds. There is likewise no provision in
the said deeds that, by the execution thereof, the petitioners outstanding account to the respondents in the amount of
P3,198,886.47 was extinguished and paid. The absence of any provision in the two deeds of absolute sale that the
seven parcels of land were sold by the petitioners to the respondents in partial payment of their outstanding account,
and partly for P2,078,000.00, and any declaration therein that the said outstanding account was thereby extinguished
negates the respondents contention.

THIRD. Respondent Manuel Concepcion had earlier signed on March 10, 1993 an undertaking that he would not
register the deed of
absolute sale as long as the petitioners will pay their outstanding account plus interests thereon at the rate of 3% per
month:

I Manuel Concepcion, of legal aged (sic), married to Nenita Viado and resident of Bautista, Pangasinan have agreed to
Mr. & Mrs. Natalio Salonga, a resident of Dagupan City to sign a Deed of Sale and I will not registered (sic) as long
as the spouses Salonga will pay the principal cash involved plus the interest of 3% per month.

8 Titles

Witness: Sgd. ILLEGIBLE

ILLEGIBLE MANUEL D. CONCEPCION[52]

Respondent Manuel Concepcions undertaking not to register the deed of sale with the Office of the Register of Deeds
fortifies the petitioners contention that the subject transaction under the two deeds of absolute sale was an equitable
mortgage, and not bona fide conveyances of the said lots. Indeed, the respondents did not present the August 31, 1993
Deed of Absolute Sale to the Office of the Register of Deeds; the said deeds were only presented on September 21,
1993 when the respondents sold the five (5) parcels of land to Florencia Realty Corporation.
The respondents likewise failed to adduce clear and convincing evidence that respondent Manuel Concepcions
signature on the undertaking is a forgery. The bare claim that the signature on the note purporting to be that of the
respondent is a forgery is not sufficient. It bears stressing that forgery is not presumed. Forgery must be proved with
clear and convincing evidence.[53] The fact that respondent Manuel Concepcion signed the note on

March 10, 1993, before the petitioners executed the said deeds of absolute sale in August and October 1993, does not
militate against the probative weight thereof. The petitioners had only 60 days from January 1993 within which to
repay the respondents from the proceeds of the sale; however, the petitioners failed to sell their property and repay the
respondents. When the respondents pressed the petitioners for the payment of their account, the latter agreed to
execute deeds of absolute sale by the petitioners over the property, with the agreement not to present the said deed to
the Office of the Register of Deeds for registration. However, despite their written undertaking to the contrary, the
respondents filed the August 31 and October 18, 1993 Deeds of Sale in the Office of the Register of Deeds and
registered the same.
THIRD. When the petitioners daughter arrived in the Philippines from abroad, they had offered to redeem the parcels
of land from the respondents, only to discover that the two deeds of absolute sale had already been registered in the
Office of the Register of Deeds; that the respondents had acquired titles over the said parcels of land; and that the said
lots had been sold to Florencia Realty Corporation. Worse, the respondents demanded the amount of P8,000,000.00,
later increased to P10,000,000.00, for the redemption of the property.
WITNESS:
A When my daughter arrived from abroad, were trying to pay same, there is no one year yet from that time when my
daughter is trying to redeem the property.
Q And you claim that Mr. Concepcion refuse to accept the payment?
A He wanted that it may pay in accordance with the price which he is going to peg, and my daughter said, could it be
possible that it be paid in the amount in respect to the principal and plus the interest.

Q When was that?

A 1994, Sir.
Q How much did Mr. Concepcion allegedly inform your daughter that you pay to him?
A First he said 10 million and then earlier he said 8 million.
Q Now, after your daughter went to his house Mr. Concepcion, allegedly to pay your indebtedness, and which was
refuse[d] by Mr. Concepcion, what did you do, Madam Witness?
A We went to the register of deeds, and we found out that it was already in the name of Mr. Concepcion, that (sic)
why we already sought the help of a lawyer.

Q Did you pay any interest in connection with this agreement?

A Yes, Sir.
Q Do you have any evidence to show that you really pay the interest?

A He refused to issue as (sic) receipts.

Q In other words, you dont have document or piece of paper to show that indeed you pay (sic) the interest?
A None, Sir, because actually if we are going to ask for a receipt for the payment of the interest, he will say why, are
you going to pay the entire amount of your indebtedness.

Q Despite the fact, Madam Witness, that you claimed that there was an agreement that you have to pay also the
interest of the principal and you claim, that he refused to accept payments of that agreed upon you?
ATTY. PALMA:
That is misleading, Your Honor, the testimony of this witness Mr. Concepcion refused to issue a receipt, not to refuse
to accept the payments.
ATTY. PALMA:
That is in respect to the daughter.

COURT:
Answer.
WITNESS:
He received the interest but he refused to received (sic) the payment made by my daughter.
ATTY. RAMOS:
Q You claim Madam Witness, that Mr. Concepcion already sold the 3 parcels which is adjacent to the Lyceum
University when did you learn that?
A 1994, Sir.
Q After learning that Mr. Concepcion sold that (sic) parcels of land, what did you do?
A That was the time we sought a help from a lawyer.
Q Who is now in possession of that (sic) 3 parcels of land?
A Lyceum, Sir.[54]
FOURTH. The petitioners remained in possession of the residential house even after October 18, 1993 without paying
any rentals therefor. It was only on August 23, 1994, after the petitioners filed their complaint against the respondents
in the trial court, that the respondents filed their complaint for ejectment against the petitioners.

FIFTH. The parcels of land covered by TCT Nos. 43547, 40886, 40887, 35156 and 49459 and TCT Nos. 53650 and
26506 had a total market value of P10,270,600.00.[55] However, under the two deeds of absolute sale, the seven
parcels of land, including the petitioners house, were sold to the respondents for only P2,078,000.00, an amount
grossly disproportionate to the market value of the property. The respondents failed to adduce any evidence to
controvert the petitioners evidence relative to the market value of the seven parcels of land.
On the issue of whether respondent Florencia Realty Corporation is a purchaser in good faith or not, case law has it
that he who alleges that he is a purchaser of registered land is burdened to prove such statement. Such burden is not
discharged by involving the ordinary presumption of good faith.[56] The defense of having purchased the property in
good faith may be availed of only where registered land is involved and the buyer had relied in good faith on the clean
title of the registered owner.[57] In this case, it appears that the respondent purchased the parcels of land on
September 20, 1993. At that time, the petitioners were still the registered owners of the property. The respondent did
not allege in its answer to the complaint that it was a purchaser in good faith of the property; neither did it adduce a
morsel of evidence to prove that it purchased the property in good faith.
IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The decisions of the Regional Trial Court and
the Court of Appeals are REVERSED and SET ASIDE. Judgment is hereby rendered in favor of the petitioners, as
follows:

(1) The August 31 and October 18, 1993 Deeds of Absolute Sale executed by the petitioners in favor of the
respondents are NULLIFIED. The transactions covered by said deeds are declared equitable mortgages, not bona fide
sales of the lots therein covered; and
(2) The petitioners claims for damages and attorneys fees, and the respondents counterclaims for damages and
attorneys fees are DISMISSED. No costs.
SO ORDERED.
[G.R. No. 142015. April 29, 2003]
RURAL BANK OF STA. IGNACIA, INC., petitioner, vs. PELAGIA DIMATULAC, GLORIA DIMATULAC,
NORA M. VDA. DE GRACIA AND ANTONIO NUQUI, respondents.

DECISION
Before us is a petition for review on certiorari seeking to set aside the decision[1] of the Court of Appeals, dated
November 26, 1999, in CA-GR SP No. 52157, which dismissed the petitioners petition for review to set aside the
decision[2] of the Regional Trial Court (RTC) of Tarlac City, Branch 64, in Civil Case No. 8670. The RTC affirmed
the decision[3] of the Municipal Trial Court (MTC) of Tarlac City, Branch 2, dismissing herein petitioners complaint
for unlawful detainer and damages against respondents.
Before the MTC, petitioner had filed what appeared to be a simple ejectment case, but as found out by the Court of
Appeals, the parcel of land subject of the dispute has a long and convoluted history, to wit:
Back in August 17, 1965, Prudencia Reyes purchased from the now defunct Rural Progress Administration (RPA), an
800-square meter parcel of land identified as Lot 11, Block 8 of the Subdivision Plan, Psd-24941 located in Barrio
Suizo and Barrio San Rafael, Tarlac, Tarlac. As a result of the purchase, TCT No. 65765 was issued in her favor.
However, the deed of sale in favor of Reyes was later cancelled by the Department of Agrarian Reform (DAR) by
reason of her non-occupancy of said property, and made the land available for distribution to the landless residents of
San Rafael.
In 1971, respondents took possession of the property and were allocated portions of 200 square meters each. They
paid the purchase price and awaited their Emancipation Patent titles.
Despite her knowledge that the land had reverted to the government, Reyes sold the property to the spouses Maximo
Valentin and Retina Razon in a Deed of Sale dated April 4, 1973. The spouses thereafter obtained TCT No. 106153
thereon. On finding, however, that respondents were in possession of the property, Valentin and Razon filed a
complaint for recovery and damages against respondents, docketed as Civil Case No. 6152, with the Regional Trial
Court of Tarlac, Tarlac. The Republic of the Philippines intervened in said case and along with respondents,
contending that the title of the spouses was null and void, because the sale by Reyes was in violation of the terms and
conditions of sale of the lot by the RPA to Reyes.

The trial court decided in favor of the spouses Maximo Valentin and Retina Razon. But on appeal, the appellate court
in CA-G.R. CV No. 14909, entitled Spouses Maximo E. Valentin and Retina Razon v. Sps. Ricardo Garcia and Mona
Macabili, et al., reversed the judgment, cancelled the title of the spouses, and decreed the reversion of the property to
the government for disposition to qualified beneficiaries. The decision of the Court of Appeals in CA-G.R. CV No.
14909 dated August 31, 1990, attained finality on September 22, 1990, as per entry of judgment dated February 22,
1991.
Meanwhile, on February 15, 1987, or during the pendency of CA-G.R. CV No. 14909, Razon, through her attorney-in-
fact, mortgaged the property to petitioner rural bank to secure a loan of P37,500.00. The property was subsequently
extra-judicially foreclosed when Razon failed to pay the loan and on October 20, 1987, petitioner purchased the
property. TCT No. 330969 dated May 11, 1989 was accordingly issued to herein petitioner.
On March 4, 1997, petitioner filed a complaint for unlawful detainer and damages with the MTC of Tarlac, Tarlac,
docketed as Civil Case No. 6367. Petitioner alleged that respondents were occupying the property by mere tolerance
as they had no contract of lease with it, nor right or claim annotated on its title. It also averred that it had advised
respondents of its purchase of the property and had demanded that respondents vacate the same, but its notice went
unheeded.

Respondents in their Answer claimed that they had been occupants of the land since 1971 and had been awarded as
beneficiaries by the government after the titles of Reyes and Razon were nullified. They also maintained that the lots
had been reverted to the government by virtue of the final and executory judgment in CA-G.R. CV No. 14909.[4]
On April 6, 1998, the municipal court decided Civil Case No. 6367 in this wise:
WHEREFORE, premises considered, the instant case is hereby dismissed for want of jurisdiction. The counter-claim
is likewise dismissed for lack of jurisdiction to grant. No pronouncement as to costs.
SO ORDERED.[5]
In dismissing the complaint, the MTC found that the possession of respondents was not by mere tolerance but as
lawful beneficiaries. It also declared that it had no jurisdiction over the case as it involved the issue of ownership. The
court noted that the respondents were lawful beneficiaries of a government land grant while petitioner was not a
purchaser in good faith and hence, could not avail of the protective mantle of the indefeasibility of Torrens Title. It
concluded that its competence to decide the case was limited only to addressing the question of ownership in order to
determine the issue of de facto possession.[6]
Petitioner then elevated the matter to the RTC of Tarlac City, Branch 64 in Civil Case No. 8670. The RTC ruled on
the appeal as follows:
ACCORDINGLY, above premises all considered, this Court hereby affirms the lower courts Judgment, dated April 6,
1998, dismissing the case. With costs against appellant.
SO ORDERED.[7]
In affirming the judgment of the municipal court, the RTC ruled that petitioner could not eject respondents from said
property as: (1) there was no legal relationship, e.g. such as a lease agreement or otherwise, between them that has
expired or terminated; (2) respondents possession was not through the tolerance of petitioner; (3) respondents were in
possession of the lot as lawful/rightful possessors, vis-a-vis their status as occupants-beneficiaries of the DAR,
previously RPA. Therefore, respondents had a better right to possession as against petitioner rural bank.[8]
Petitioner then moved for reconsideration, but this was likewise denied by the RTC in its Order dated March 15,
1999.[9]
Petitioner then filed a petition for review on certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 52517.
The appellate court, however, dismissed the petition and ruled that the possession of respondents was not by mere
tolerance but by lawful mandate of the law and by virtue of its final judgment in CA-G.R. CV No. 14909, thus:
WHEREFORE, the petition at bench is hereby DISMISSED. Without costs.

SO ORDERED.[10]
Hence, the instant recourse to this Court premised on the following issues:
1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT PETITIONERS
OWNERSHIP OVER THE PROPERTY IN LITIGATION WAS ACQUIRED THRU AN EXTRAJUDICIAL
FORECLOSURE SALE;

2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN APPLYING THE DECISION IN C.A.-G.R. CV
NO. 14909 IN THE CASE AT BENCH;
3. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT TREATING THE POSITION PAPER OF
THE RESPONDENTS AS A MERE SCRAP OF PAPER FOR HAVING BEEN FILED FIFTEEN (15) DAYS
LATE;
4. WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT EXHIBITS
MARKED ONLY DURING THE PRE-TRIAL SHOULD NOT BE TREATED AS EVIDENCES.[11]

Worth noting, the issues raised by petitioner involve questions on procedure premised on a very rigid and strict
application of the Rules of Court. Petitioner faults the appellate court for sustaining the liberal interpretation of the
rules by the trial court. However, this case springs from a complaint for unlawful detainer. In forcible entry and
detainer cases, which are summary in nature to minimize disturbance of social order, procedural technicalities should
be carefully avoided and should not be allowed to override substantial justice.[12] The interest of substantial justice is
best served if both parties in a case like this are heard and their respective claims considered through their respective
pleadings and position papers. A liberal interpretation of the technical rules, which does not subvert the nature of the
Rule on Summary Procedure nor defeat its objective of expediting the adjudication of suits,[13] is not disfavored by
this Court.
Coming to the issues as formulated by petitioner, we find that the only issue left for our resolution is: Did the Court of
Appeals commit a reversible error when it dismissed the petition of the bank? In our view, it did not err when it
sustained the judgment of the regional trial court which earlier also sustained that of the municipal trial court.
Petitioner contends that as the absolute and registered owner of the subject land as a mortgagee-purchaser in a
foreclosure sale it is entitled to possession of the land as an attribute of ownership. Petitioner further argues that it
cannot be faulted for relying on the validity of Valentin and Razons title as it had checked and verified the status of
said title on file with the Register of Deeds and found that it was free from any lien and encumbrance.[14] Further,
petitioner submits that the decision of the Court of Appeals in CA-G.R. No. 14909 cannot defeat its right to eject
respondents as it is not bound by the said judgment because petitioner was not impleaded as a party therein. Moreover,
according to petitioner when the decision in CA-G.R. No. 14909 nullifying Razons title became final, said title was
already cancelled and another title already issued in favor of petitioner. For this reason, petitioner insists the CA
decision could not comprehend within its ambit petitioners title to the land.
Respondents contend that petitioner could not properly raise in issue the question of ownership in an action for
unlawful detainer under the Rule on Summary Procedure. Petitioner should seek the proper remedy through an
ordinary civil proceeding. Moreover, they argue that petitioner was totally negligent in its duty to determine the
propriety of accepting the property for a mortgage by the Valentin and Razon spouses. Thus, it is estopped from
claiming good faith. Further, respondents add that since the title of Razon was declared null and void, petitioner as the
successor-in-interest acquired no rights of ownership over the land it purchased through public auction.
In ejectment cases the question is limited to which party among the litigants is entitled to the physical or material
possession of the premises, that is to say, who should have possession de facto.[15] Settled is the rule, however, that in
an ejectment case, the assertion by a defendant of ownership over the disputed property does not serve to divest an
inferior court of its jurisdiction.[16] When the defendant raises the defense of ownership and the question of
possession cannot be resolved without deciding the issue of ownership, the issue of ownership shall be resolved for the
purpose only of determining the issue of possession.[17] Said judgment shall be conclusive with respect to the
possession only, and shall in no wise bind the title of the realty, or affect the ownership thereof. It shall not bar an
action between the same parties respecting title to the real property.[18] Only with this understanding of that well-
entrenched principle can we accept the ruling of the municipal court in Civil Case No. 6367 that the case is dismissed
for want of jurisdiction.[19]
Petitioners contention that the final and executory judgment of the Court of Appeals in CA-G.R. CV No. 14909 does
not bind the bank, in our view, is devoid of merit. Rule 39, Section 47 (b)[20] of the 1997 Rules of Civil Procedure,
speaks of conclusiveness of judgment as between the parties and their successors-in-interest by title subsequent to the
commencement of the action. In the present case, petitioner herein derived its title from the Valentin and Razon
spouses, after an extrajudicial foreclosure sale. Under the law which permits a successor in interest to redeem the
property sold on execution, the term successor-in-interest includes one to whom the debtor has transferred his
statutory right of redemption; one to whom the debtor has conveyed his interest in the property for the purpose of
redemption; or one who succeeds to the interest of the debtor by operation of law.[21] Petitioner acquired its title
while CA-G.R. CV No. 14909 was pending before the Court of Appeals. To acquire title, the successor-in-interest
must do so subsequent to the commencement of the action, and not before such commencement.[22] Having derived
little from the Spouses Valentin and Razon, whose title was nullified by the final and executory decision of the Court
of Appeals in CA-G.R. CV No. 14909, the petitioner cannot escape the effect of the appellate courts judgment in said
case. The rural bank as purchaser at an auction sale does not have a better right to said property than their
predecessors-in-interest, namely the Valentin and Razon couple.
The rule that persons dealing with registered lands can rely solely on the certificate of title does not apply to
banks.[23] The degree of diligence required of banks is more than that of a good father of a family; in keeping with
their responsibility to exercise the necessary care and prudence in dealing even with a registered or titled property. The
business of a bank is affected with public interest, holding in trust the money of the depositors, which the bank should
guard against loss due to negligence or bad faith. For this reason, the bank is not allowed to rely merely on the
protective mantle of the land registration law, which is normally accorded only to purchasers or mortgagees for value
and in good faith.[24]

In the present case, while petitioner sent a representative to verify the original TCT on file with the Registrar of
Deeds, no ocular inspection of the premises took place. Judicial notice may be taken of the common practice of banks,
before approving a loan, to send a representative to the premises of the land offered as collateral and duly investigate
who are the true owners thereof. Failure to do so is negligence on the part of a bank.[25] Had petitioner taken extra
steps, time and effort in dealing with the property it purchased by conducting proper ocular inspection of the premises,
it could have discovered early the presence of settlers therein who are land reform beneficiaries.
To capitulate, we find no reversible error in the decision of the Court of Appeals sustaining those of the lower courts
that the possession of respondents is not by mere tolerance. Respondents possession springs from their right as lawful
beneficiaries of a government program, pursuant to law. Certainly, the decision of the appellate court in CA G.R. CV
No. 14909 binds not just the beneficiary but also the bank as claimant of the land. In contrast, petitioners claim to
possession of the land emanates from a nullified and non-existing title of its predecessors-in-interest, from which it
cannot rely to eject the respondents from the premises.
WHEREFORE, the petition is DENIED. The decision of Court of Appeals, dated November 26, 1999 in CA-G.R. SP
No. 52157 as well as the Resolution dated February 18, 2000, denying the Motion for Reconsideration are
AFFIRMED. Costs against petitioner.

SO ORDERED.
[G.R. No. 146651. January 17, 2002]
RONALDO P. ABILLA and GERALDA A. DIZON, petitioners, vs. CARLOS ANG GOBONSENG, JR. and
THERESITA MIMIE ONG, respondents.

DECISION
YNARES-SANTIAGO, J.
May the vendors in a sale judicially declared as a pacto de retro exercise the right of repurchase under Article 1606,
third paragraph, of the Civil Code, after they have taken the position that the same was an equitable mortgage?
This is the legal question raised in this petition for review assailing the January 14, 2001 Order[1] of the Regional
Trial Court of Dumaguete City, Branch 41, in Civil Case No. 8148, which granted herein respondent spouses the right
to repurchase the seventeen lots[2] subject of the pacto de retro sale within thirty (30) days from the finality of the
order.
The undisputed facts are as follows:
Petitioner spouses instituted against respondents an action for specific performance, recovery of sum of money and
damages, docketed as Civil Case No. 8148 of the Regional Trial Court of Dumaguete City, Branch XLII, seeking the
reimbursement of the expenses they incurred in connection with the preparation and registration of two public
instruments, namely a Deed of Sale[3] and an Option to Buy.[4] In their answer, respondents raised the defense that
the transaction covered by the Deed of Sale and Option to Buy, which appears to be a Deed of Sale with Right of
Repurchase, was in truth, in fact, in law, and in legal construction, a mortgage.[5]
On October 29, 1990, the trial court ruled in favor of petitioners and declared that the transaction between the parties
was not an equitable mortgage. Citing Villarica v. Court of Appeals,[6] it ratiocinated that neither was the said
transaction embodied in the Deed of Sale and Option to Buy a pacto de retro sale, but a sale giving respondents until
August 31, 1983 within which to buy back the seventeen lots subject of the controversy. The dispositive portion
thereof reads:
IN THE LIGHT OF THE FOREGOING, it is the considered opinion of this Court that plaintiffs have proven by
preponderance of evidence their case and judgment is therefore rendered in their favor as follows:
1. Ordering defendants to pay plaintiffs the sum of P171,483.40 representing the total expenses incurred by plaintiffs
in the preparation and registration of the Deed of Sale, amount paid to the Bank of Asia and America (IBAA) and
capital gains tax with legal rate of interest from the time the same was incurred by plaintiffs up to the time payment is
made by defendants; P10,000.00 as attorneys fees; P15,000.00 moral damages; P10,000.00 expenses of litigation and
to pay cost.

2. The Philippine National Bank, Dumaguete City Branch is directed to release in favor of plaintiffs, the spouses
Ronaldo P. Abilla and Gerald A. Dizon all the money deposited with the said bank, representing the rentals of a
residential house erected inside in one of the lots in question;
3. For insufficiency of evidence, defendants counterclaim is ordered dismissed.
SO ORDERED.

On appeal by respondents, the Court of Appeals ruled that the transaction between the parties was a pacto de retro
sale, and not an equitable mortgage.[8] The decretal portion thereof states:
WHEREFORE, the decision appealed from is MODIFIED by deleting the award of attorneys fees. In other respects
the decision of the lower court is AFFIRMED. Costs against defendant-appellants.
SO ORDERED.[9]

On November 10, 1997, the Court of Appeals denied the motion for reconsideration of the foregoing decision.
Respondents filed a petition for review with this Court which was docketed as G.R. No. 131358; however, the same
was dismissed on February 11, 1998, for having been filed out of time.[10] The motion for reconsideration thereof
was denied with finality on June 17, 1998.[11]
Undaunted, respondents filed a second motion for reconsideration, claiming that since the transaction subject of the
controversy was declared a pacto de retro sale by the Court of Appeals, they can therefore repurchase the property
pursuant to the third paragraph of Article 1606 of the Civil Code. The issue of the applicability of Article 1606 of the
Civil Code was raised by the respondents only in their motion for clarification with the Court of Appeals, and not
before the trial court and on appeal to the Court of Appeals. Thus, respondents second motion for reconsideration was
denied.[12] The denial became final and executory on February 8, 1999.[13]

On February 23, 1999, respondents filed with the trial court in Civil Case No. 8148 an urgent motion to repurchase the
lots in question with tender of payment. The motion was, however, denied on November 10, 1999[14] by Judge Ibarra
B. Jaculbe, Jr., who subsequently inhibited himself from the case.

On January 14, 2001, Branch 41 of the Regional Trial Court of Dumaguete City, to which the case was reraffled, set
aside the November 10, 1999 order and granted respondents motion to repurchase.

Hence, the instant recourse.

At the outset, it must be stressed that it has been respondents consistent claim that the transaction subject hereof was
an equitable mortgage and not a pacto de retro sale or a sale with option to buy. Even after the Court of Appeals
declared the transaction to be a pacto de retro sale, respondents maintained their view that the transaction was an
equitable mortgage. Seeing the chance to turn the decision in their favor, however, respondents abandoned their theory
that the transaction was an equitable mortgage and adopted the finding of the Court of Appeals that it was in fact a
pacto de retro sale. Respondents now insist that they are entitled to exercise the right to repurchase pursuant to the
third paragraph of Article 1606 of the Civil Code, which reads:
However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was
rendered in a civil action on the basis that the contract was a true sale with right to repurchase.
The question now is, can respondents avail of the aforecited provision? Following the theory of the respondents which
was sustained by the trial court, the scenario would be that although respondents failed in their effort to prove that the
contract was an equitable mortgage, they could nonetheless still repurchase the property within 30 days from the
finality of the judgment declaring the contract to be truly a pacto de retro sale. However, under the undisputed facts of
the case at bar, this cannot be allowed.
In the parallel case of Vda. de Macoy v. Court of Appeals,[15] the petitioners therein raised the defense that the
contract was not a sale with right to repurchase but an equitable mortgage. They further argued as an alternative
defense that even assuming the transaction to be a pacto de retro sale, they can nevertheless repurchase the property by
virtue of Article 1606, third paragraph of the Civil Code. It was held that the said provision was inapplicable, thus:
The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must
appear that there was a belief on his part, founded on facts attendant upon the execution of the sale with pacto de retro,
honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to
the property ostensibly sold, but merely to give it as security for a loan or other obligation. In that event, if the matter
of the real nature of the contract is submitted for judicial resolution, the application of the rule is meet and proper; that
the vendor a retro be allowed to repurchase the property sold within 30 days from rendition of final judgment
declaring the contract to be a true sale with right to repurchase. Conversely, if it should appear that the parties
agreement was really one of sale transferring ownership to the vendee, but accompanied by a reservation to the vendor
of the right to repurchase the property and there are no circumstances that may reasonably be accepted as generating
some honest doubt as to the parties' intention, the proviso is inapplicable. The reason is quite obvious. If the rule were
otherwise, it would be within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an
expired right of repurchase, by simply instituting an action to reform the contract known to him to be in truth a sale
with pacto de retro into an equitable mortgage. As postulated by the petitioner, to allow herein private respondents to
repurchase the property by applying said paragraph x x x to the case at bar despite the fact that the stipulated
redemption period had already long expired when they instituted the present action, would in effect alter or modify the
stipulation in the contract as to the definite and specific limitation of the period for repurchase (2 years from date of
sale or only until June 25, 1958) thereby not simply increasing but in reality resuscitating the expired right to
repurchase x x x and likewise the already terminated and extinguished obligation to resell by herein petitioner. The
rule would thus be made a tool to spawn, protect and even reward fraud and bad faith, a situation surely never
contemplated or intended by the law.
This Court has already had occasion to rule on the proper interpretation of the provision in question. In Adorable v.
Inacala, where the proofs established that there could be no honest doubt as to the parties intention, that the transaction
was clearly and definitely a sale with pacto de retro, the Court adjudged the vendor a retro not to be entitled to the
benefit of the third paragraph of Article 1606.[16]
In the case at bar, both the trial court and the Court of Appeals were of the view that the subject transaction was truly a
pacto de retro sale; and that none of the circumstances under Article 1602 of the Civil Code exists to warrant a
conclusion that the transaction subject of the Deed of Sale and Option to Buy was an equitable mortgage. The Court of
Appeals correctly noted that if respondents really believed that the transaction was indeed an equitable mortgage, as a
sign of good faith, they should have, at the very least, consigned with the trial court the amount of P896,000.00,
representing their alleged loan, on or before the expiration of the right to repurchase on August 21, 1983.
Clearly, therefore, the declaration of the transaction as a pacto de retro sale will not, under the circumstances, entitle
respondents to the right of repurchase set forth under the third paragraph of Article 1606 of the Civil Code.
WHEREFORE, in view of all the foregoing, the instant petition is GRANTED and the January 14, 2001 Order of the
Regional Trial Court of Dumaguete City, Branch 41, in Civil Case No. 8148, is REVERSED and SET ASIDE.
SO ORDERED.
[G.R. No. 159571. July 15, 2005]
DELFINA Vda. de RIGONAN and Spouses VALERIO LAUDE and VISMINDA LAUDE, petitioners, vs.
ZOROASTER DERECHO Representing the Heirs of RUBEN DERECHO, ABEL DERECHO, HILARION
DERECHO, NUNELA D. PASAOL, EFRAIM DERECHO, NOEL DERECHO, CORAZON D. OCARIZA
Representing the Heirs of Marcial Derecho, LANDILINO D. PRIETO Representing the Heirs of Pilar D. Prieto,
JUSTA D. BUENO, ADA D. MAPA, EMMANUEL DERECHO, POMPOSO DERECHO Representing the Heirs of
Apolinar Derecho, VICENTE D. RIGONAN, RUFA D. JAYME Representing the Heirs of Gerardo Derecho,
MARDONIO D. HERMOSILLA Representing the Heirs of Oliva D. Hermosilla, respondents.
DECISION
PANGANIBAN, J.:
Owners who, for a long period of time, fail to assert their rights to unregistered real property may be deprived of it
through prescription. Although the present respondents initially owned part of the subject property by virtue of
succession, their inaction for several decades bars them from recovering it from petitioners who have possessed it as
owners since 1928. The purpose of prescription is to protect the diligent and vigilant, not those who sleep on their
rights.

The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the July 28, 2003 Decision[2]
of the Court of Appeals (CA) in CA-GR CV No. 62535. The assailed Decision disposed as follows:
WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. The assailed decision
of the court a quo dated October 26, 1998 is AFFIRMED WITH THE MODIFICATION that its declaration of the
[petitioners] as lawful heirs of Dolores Derecho-Rigonan, and indicating their lawful share equivalent to the share of
one child of the deceased Hilarion Derecho is DELETED.

Costs against the [petitioners].[3]

The trial courts Decision, modified by the CA, had disposed as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], declaring the Affidavit of
Adjudication executed by Leandro Rigonan on April 24, 1980 and the Deed of Sale executed by Teodoro Rigonan in
favor of Valerio Laude null and void; ordering the cancellation of Tax Dec. No. 00667 in the name of Valerio Laude;
ordering the [petitioners] to pay [respondents], jointly and severally, moral damages in the sum of P10,000.00 and
litigation expenses in the sum of P5,000.00.
[Petitioners] are hereby ordered to give-up and deliver the possession and ownership of the parcel of land in question
to [respondents]. [Petitioners] being the heirs of the late Dolores Derecho are entitled to the rightful share equivalent
to the share of one child of deceased Hilarion Derecho.[4]
The Facts
The instant controversy revolves around a parcel of land located at Tuburan Sur, Danao City, originally owned by
Hilarion Derecho. When Hilarion died long before World War II, his eight children -- Leonardo, Apolinar, Andres,
Honorata, Dolores, Gerardo, Agaton, and Oliva -- became pro indiviso co-owners of the subject property by intestate
succession. Subsequently, Tax Declaration No. 00267[5] was issued under the name Heirs of Hilarion.

On July 16, 1921, five of the co-owners -- Leonardo, Apolinar, Andres, Honorata, and Dolores -- sold the inherited
property to Francisco Lacambra, subject to a five-year redemption clause.[6] Notably, the three other Derecho heirs --
Gerardo, Agaton, and Oliva -- were not parties to the pacto de retro sale.
Sometime in 1928, two years after the period for redemption expired, Dolores -- together with her husband, Leandro
Rigonan -- purchased[7] the land from Lacambra and immediately occupied it.[8]
More than five decades passed without any controversy. On April 24, 1980, Leandro Rigonan executed the assailed
Affidavit of Adjudication in favor of his son, Teodoro Rigonan (the deceased husband of Petitioner Delfina vda. de
Rigonan).[9] Under this instrument, Leandro declared himself to be the sole heir of Hilarion,[10] while Teodoro
obtained the cancellation of Tax Declaration No. 00267,[11] and acquired Tax Declaration No. 00667 in his own
name.[12]

During the same year, Teodoro mortgaged the subject property to the Rural Bank of Compostela of Cebu. Dreading
foreclosure, he settled his obligations with the bank[13] by securing the aid of Spouses Valerio and Visminda Laude.
On April 5, 1984, Teodoro executed the assailed Deed of Absolute Sale of Unregistered Land in favor of Valerio
Laude,[14] who then obtained Tax Declaration No. 00726 under the latters name on May 10, 1984.[15]
On November 10, 1993, respondents -- as the alleged heirs of Hilarion and pro indiviso owners of the subject realty --
brought an action before the Regional Trial Court (RTC) of Danao City (Branch 25), first, to recover the property;
and, second, to annul the Deed of Sale in favor of Laude[16] and the Affidavit of Adjudication, whose validity and
authenticity they assailed on the ground of fraud. They likewise maintained that the subject property had not been
partitioned among the heirs; thus, it was still co-owned at the time it was conveyed to Petitioner Laude.[17]
Petitioners did not deny the imputed fraud in the execution of the Affidavit of Adjudication. They, however, averred
that the document had no bearing on their claim of ownership, which had long pertained to the Rigonan spouses
following the 1928 conveyance from the absolute owner, Lacambra.[18] They theorized that the co-ownership over
the property ended when the period for redemption lapsed without any action on the part of the co-owners.[19]
Therefore, the Rigonan spouses bought the property as legitimate vendees for value and in good faith, not in the
capacity of redeeming co-owners.[20]
Petitioners likewise argued that they and their predecessors-in-interest had continuously owned and possessed the
subject property for 72 years. Accordingly, acquisitive prescription had allegedly set in, in their favor, when the case
was filed in 1993.[21]
Lastly, petitioners maintained that they were entitled to the equitable defense of laches. Respondents and their
forebears were rebuked for not asserting their rights over the property for the past 72 years. They supposedly did so
only after finding that the land had been developed, and that it had appreciated in value.[22]
Ruling of the Court of Appeals
On appeal, the CA held that the Affidavit of Adjudication and the Deed of Absolute Sale were both void. The
Affidavit was deemed fraudulent because of the undisputed factual finding that some of the heirs of Hilarion were still
alive at the time of its execution; hence, the statement that Leandro was the sole heir was indubitably false.[23] The
Deed of Sale in favor of Laude was held void because the vendor, Teodoro, had no legal right to dispose of the entire
co-owned property. Moreover, the appellate court found that the evident purpose of the Contract was to deprive the
other lawful heirs of their claims over the realty. Under Article 1409 (pars. 1 & 2), of the Civil Code, the Contract was
considered void ab initio.[24]
As the Contracts were void, the defense of prescription was inapplicable. Article 1410 of the Civil Code states that
actions for the declaration of the inexistence of a contract do not prescribe.[25]
As for the defense that the co-ownership ended when the period to redeem expired, the CA ruled that the redemption
or repurchase by the Rigonan spouses did not end the state of co-ownership. At most, the repurchase gave rise to an
implied trust in favor of the other co-owners.[26]
The CA added that prescription was inapplicable, because it did not run in favor of a co-owner as long as the latter
recognized the co-ownership. In the present case, petitioners failed to show that the co-heirs, except Dolores, had
repudiated their rights over the inherited property.[27]
The appellate court further ruled that Valerio Laude was not a buyer in good faith for two reasons; one, he had been
forewarned by Respondent Ruben Derecho that the property was still co-owned; and, two, Valerio had admitted
seeing the cancelled Tax Declaration under the name of the heirs of Hilarion. These matters should have alerted
Valerio, who should have then exercised prudence as a buyer.[28]

Finally, the appellate court held that the action for recovery prescribed within ten years from the issuance of the
Certificate of Title, which operated as a constructive notice. Considering, however, that the subject property was
unregistered, the CA ruled that the prescriptive period should be reckoned from the issuance of the Tax Declaration on
May 10, 1984. It concluded that the action was filed well within the period allowed by law for its recovery.[29]
Hence, this Petition.[30]
Issues

Petitioners raise the following issues for our consideration:

1. Respondent Court of Appeals erred in holding that the land subject matter hereof is property held in common by the
Heirs of Hilarion Derecho and an [i]mplied [t]rust was created by the act of repurchase.
2. Respondent Court of Appeals erred in holding that the action for the recovery of possession and ownership is not
time-barred by prescription and/or laches.
3. Respondent Court of Appeals erred in holding that respondents action for annulment of the Deed of Sale and
Affidavit of Adjudication is not time-barred by prescription and/or laches.
4. Respondent Court of Appeals erred in holding that Petitioner Valerio Laude is not a buyer in good faith and cannot
be considered as legitimate and lawful owner of the subject property.
5. Respondent Court of Appeals erred in resolving the case with an award of litigation expenses and attorneys fees.
6. Respondent Court of Appeals acted with grave abuse of discretion when it ruled on the issue of [h]eirship.[31]
Simply stated, the issues are as follows:
1. Whether at the time of the purchase in 1928, co-ownership still subsisted among the heirs of Hilarion Derecho
2. Whether an implied trust was created
3. Whether the action in the RTC was barred by prescription and laches
The Courts Ruling
The Petition has merit.
First Issue:
Co-Ownership
Petitioners argue that the co-ownership ended when the heirs entered into a sale with the right to repurchase and
subsequently failed to redeem the property within the stipulated period. Consequently, when the Rigonan spouses
bought the subject land from Lacambra, it was a conveyance to the spouses in their personal capacities, not as co-
owners.[32]
On the other hand, respondents merely adopted[33] the CAs disquisitions discussed earlier.

Since the Spanish Civil Code was still in effect when Hilarion died long before the outbreak of the Second World
War[34] and when the sale was executed on July 16, 1921, it is evident that the said law governed both the co-
ownership and the pacto de retro sale.
Pacto de Retro and Failure to Redeem
Under a pacto de retro sale, title to and ownership of property are immediately vested in the vendee a retro, subject
only to the resolutory condition that the vendor repurchases it within the stipulated period. Pending the redemption,
the vendor loses all ownership rights over the property, save for the right to repurchase it upon compliance with the
requirements provided in Article 1518 of the Spanish Civil Code.[35]

In a number of cases, this Court has held that once the vendor fails to redeem the property within the stipulated period,
irrevocable title shall be vested in the vendee by operation of law.[36]
In the instant case, the parties to the contract stipulated a five-year redemption period, which expired on July 16, 1926.
The failure of the sellers to redeem the property within the stipulated period indubitably vested absolute title and
ownership in the vendee, Lacambra. Consequently, barring any irregularities in the sale, the vendors definitively lost
all title, rights and claims over the thing sold. To all intents and purposes, therefore, the vendors a retro ceased to be
co-owners on July 16, 1926.
Clearly then, the parties to the sale -- Leonardo, Apolinar, Andres, and Honorata (but not Dolores, as will be explained
later), as well as all their successors-in-interest -- no longer had any legal interest in the disputed property, none that
they could have asserted in this action.

Purchase beyond the Redemption Period

As for Dolores, she reacquired legal interest in the property by virtue of the purchase in 1928, two years after the
period to redeem had already expired.[37]
This purchase cannot be considered as redemption in the concept of a pacto de retro sale, which would imply that the
period to redeem was extended long after it had already expired. Such automatic extension is not possible because, as
succinctly stated by Manresa, if the extension is made after the expiration of the period, then it is void and of no effect
because there is nothing to extend.[38]
Adiarte v. Tumaneng[39] illustrates the legal effect of the expiration of the stipulated period for redemption. In that
case, Amanda Madamba sold two parcels of land to Spouses Cirilo Agudong and Emiliana Tumaneng. However, she
reserved for herself the right to repurchase the lots within ten years. Five years after the period expired, Agudong
executed a Contract promising to resell the land to Madamba. When the former died without fulfilling his promise, the
latter filed a suit to compel the widow to execute a deed of sale in the plaintiffs favor. The widow argued that
Madamba could no longer redeem the property, because the period for redemption had already expired.
In debunking the widows defense, this Court ruled that the Contract did not constitute a promise to resell, because the
right to repurchase had been lost after the expiration of the stipulated period. The original Contract of Sale with a right
of repurchase no longer existed at the time Agudong made the promise to sell. Therefore, the parties entered into an
entirely new and independent agreement to sell, which was binding on the widow.
In Umale v. Fernandez,[40] the Court ruled that the vendors were entitled to redeem the property despite the lapse of
the period for redemption, inasmuch as the vendees had renounced their right. On April 13, 1905, a parcel of land was
sold a retro by Emigdio Umale and his wife to Spouses Fernandez, without fixing any period for redemption. On June
12, 1909, Fernandez executed a Contract allowing the Umale spouses to redeem the land despite the lapse of the four-
year period of redemption. This period was mandated by Article 1508[41] of the Spanish Civil Code for cases in
which no period had been stipulated. In 1911, Emigdio Umale redeemed the land and took possession of it.
He then sued to compel the Fernandez couple to execute the instrument of redemption. The defendants countered that
the land belonged to them, because the vendors had failed to redeem it within the term allowed by law. The Court
ruled:
In the absence of an express stipulation with regard to the period of redemption, the purchaser, in the exercise of the
freedom to make contracts that is possessed by all, has the power to extend the period allowed by law, provided that
the new period stipulated does not exceed the ten years fixed by article 1508 of the code. For nothing in this article
prohibits an extension, by agreement, of the four years, which is the period prescribed by law in cases where, in sales
with right of repurchase, no period for redemption has been fixed by the parties.[42] [Emphasis supplied]

In his Concurring Opinion,[43] Justice Torres arrived at the same conclusion, but on a different ground. He explained
that the contracting parties had no right to extend the legal period for redemption after it had already lapsed; and that,
when the vendees alienated and returned the property afterwards, they did so by virtue of a new Contract of Sale,
independent of and distinct from the previous one already terminated.
It is clear from Adiarte and Umale that after the expiration of the period for redemption, the parties could either (1)
enter into an entirely new contract involving the same property; or (2) if they did not expressly stipulate the period,
extend the time for redemption, provided the extension did not exceed the maximum period of ten years allowed by
Article 1508.[44]
In the present case, Lacambra and the heirs stipulated a five-year redemption period. When it lapsed, the vendee
acquired absolute title, while the five co-owners-sellers were stripped of their co-ownership of the property.

Therefore, when Dolores repurchased the property in 1928, she did so in her personal capacity, no longer as a co-
owner-seller. Following the ruling in Adiarte, she is deemed to have entered into an entirely new contract, independent
of the 1921 pacto de retro sale.
Second Issue:
Implied Trust

Petitioners contend that the appellate court erred in holding that an implied trust had arisen from the 1928 repurchase
by the Rigonan spouses. They argue that the sale was a conveyance of the absolute ownership of Lacambra over the
land, which he had acquired by virtue of a failure to redeem. Therefore, when he sold it, the spouses likewise acquired
absolute ownership.[45]
We clarify.
Satisfy Demands of

Justice and Equity

An implied trust arises, not from any presumed intention of the parties, but by operation of law in order to satisfy the
demands of justice and equity and to protect against unfair dealing or downright fraud.[46] Under Article 1456 of the
new Civil Code, if property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes. Although this
provision is not retroactive in character, and thus inapplicable to the 1928 purchase, it merely expresses a rule already
recognized by our courts prior to the effectivity of the Code.[47]
In the present case, the implied trust arose in 1921, when five of the eight co-owners assumed ownership of the whole
inherited property and sold it in its entirety to Lacambra. The sale clearly defrauded the three other co-heirs who were
not parties to the transaction -- Gerardo, Agaton, and Oliva -- and unlawfully deprived them of their undivided shares
in the inheritance. Thus, to the extent of their participation, the property is deemed to have been acquired through
fraud; and the person who acquired it, a trustee for the benefit of the person from whom it was acquired.[48]
In the present case, Lacambra was the trustee who held the property partly for the benefit of the three mentioned heirs
(cestuis que trustent).
The CA, however, erred in finding that the implied trust had arisen in 1928, when the Rigonan spouses repurchased
the property from Lacambra.[49] By then, Petitioners Rigonan were merely stepping into the shoes of Lacambra as
trustee.
Third Issue:
Prescription or Laches
Petitioners argue that even if an implied trust existed, acquisitive prescription is still applicable. They rely on the
pronouncement in Medina v. Court of Appeals[50] that acquisitive prescription applies to implied trusts, provided
there is continuous adverse possession of property in the concept of owner.[51]
Petitioners maintain that they obtained absolute ownership of the subject land through acquisitive prescription. They
point out that the heirs did not impugn the validity of the documents of sale until after seventy-two years, in 1993
when the case was filed before the trial court.[52]

Petitioners are correct.

It is settled in this jurisdiction that prescription,[53] as well as laches,[54] supervenes in the enforcement of implied
trusts.
Prescription of Action

Possession of the property by petitioners commenced way back in 1928,[55] when the prescriptive periods applicable
were those provided in Act 190 (Code of Civil Procedure). Their argument finds basis in Article 1116 of the new Civil
Code, which states that prescription already running before the effectivity of this Code shall be governed by laws
previously in force x x x.
Under Section 40 of the Code of Civil Procedure, an action for recovery of real property, or of an interest therein, can
be brought only within ten years after the cause of action accrues.[56]
The cause of action of respondents accrued in 1928, when they lost possession of the property to the forebears of
petitioners. These predecessors-in-interest took possession from 1928[57] until 1980 when Laude, their successor-in-
interest, continued possession up to the present. During this entire time, respondents inexcusably failed to take action
to recover the property. In 1993, they finally rose from their seeming slumber when they filed the present suit.
Unfortunately, 65 years had already lapsed and, by that time, their right of action had clearly been barred by extinctive
prescription.

Acquisitive Prescription
Moreover, petitioners acquired title to the subject property by prescription. Section 41 of Act 190 (Code of Civil
Procedure) provides:
Title to land by prescription. -- Ten years actual adverse possession by any person claiming to be the owner for that
time of any land or interest in land, uninterruptedly continued for ten years by occupancy, descent, grants, or
otherwise, in whatever way such occupancy may have commenced or continued, shall vest in every actual occupant or
possessor of such land a full and complete title, saving to the person under disabilities the rights secured by the next
section. In order to constitute such title by prescription or adverse possession, the possession by the claimant or by the
person under or through whom he claims must be actual, open, public, continuous, under a claim of title exclusive of
any other right and adverse to all claimants x x x.

This provision, as authoritatively and consistently interpreted by this Court, allows adverse possession in any character
to ripen into ownership after the lapse of ten years.[58] Prescription lies under the said section even in the absence of
good faith and just title.[59]
In the instant case, the Rigonan spouses possessed the property in the concept of owners after their purchase in 1928.
They peacefully occupied it, were never ousted from it, and never prevented from enjoying its fruits.
Furthermore, possession by the Rigonan spouses was adverse to the other heirs, as shown by the following: one, the
former obtained the cancellation of the Tax Declaration in the latters name; two, the spouses executed the Affidavit of
Adjudication, claiming that Leandro Rigonan was the sole heir; three, petitioners did not share with respondents the
enjoyment of the property for a half-century; and four, Teodoro sold the property to Laude. Respondents were aware
of these facts and of their rightful share in the land. Therefore, they knew that petitioners were holding the property
adverse to their interests.
As petitioners have been in continuous possession and enjoyment of the disputed land since 1928, a length of time that
has never been questioned, there can be no doubt that they obtained title to it by acquisitive prescription.
To stress the folly of respondents protracted inaction, may we add that the present action would still be barred, even if
the Court were to apply the thirty-year period fixed by the present Civil Code for the acquisition of ownership by
extraordinary prescription[60] or for the extinction of the right of action over immovables.[61]
Action to Annul Contracts

Imprescriptible, but Recovery

of Realty Barred by Acquisitive
Prescription
The CA dismissed petitioners defense of prescription on the ground that the action for annulment of contracts was
imprescriptible, as mandated by Article 1410 of the Civil Code.[62]
There is no question that the said action does not prescribe, but the principal question in this case is the recovery of the
subject property, which is the ultimate goal of respondents. They seek the nullification of the Contracts, merely as a
means or prelude to the recovery of the property. Unfortunately for them, acquisitive prescription has already set in to
bar the recovery.
As stated in Bargayo v. Camumot,[63] the prescription of an action and the acquisitive prescription of ownership
cannot and should not be confounded. They are two different and distinct things, although equally transcendent, being
of identical result and effect.
In that case, the Complaint filed by the heirs was one for partition, which did not prescribe, while the defendant raised
the defense of acquisitive prescription. This Court took a moment to explain that the law spoke only of the
imprescriptibility of the action, not of ownership. It explained thus: x x x [I]t is evident that to deny the prescription of
the ownership of an inheritance, because Article 1965 of the Civil Code declares the action for its partition
imprescriptible, is to confound the prescription of ownership and that of an action x x x.[64] But the Court overruled
the defense, because the defendant had failed to prove adverse possession, an essential element of acquisitive
prescription.
Similarly, the imprescriptibility of an action to annul a contract does not mean that the present respondents are
perpetually allowed to recover the property, the subject of the void contract. They may file the action to annul, but
their right to recover based on ownership is contingent on the premise that they still own the property. Ownership may
have been lost in the interval during which they remained inactive. For this reason, the Court constantly reminds
parties to remain vigilant over their rights.
This matter is likewise illuminated by Heirs of Maningding v. CA.[65] In that case, Ramon owned two parcels of land
in Pangasinan. When he died intestate, his four children -- Roque, Segunda, Juan, and Maria -- inherited the contested
properties. While Juan and Maria renounced their rights to the inheritance, Roque claimed the land as his own by
virtue of a donation propter nuptias, previously executed in his favor by their father. Having been excluded from the
enjoyment of the property, the heirs of Segunda filed an action for partition against Roque, as well as for the
annulment of the conveyance documents.

The Court ruled that the parcels of land had devolved to the children of Ramon by right of succession. Roque did not
acquire exclusive ownership of those properties by virtue of the Deed of Donation, which was null and void.
Nevertheless, the Court held that his thirty-six years of exclusive possession and enjoyment of the property sufficed to
confer ownership through acquisitive prescription. The heirs of Segunda were thus barred from recovering their shares
in the inheritance.
It will be noted that Maningding sustained the defense of acquisitive prescription despite the imprescriptibility of the
actions for annulment of contracts and partition. Simply put, the imprescriptibility of an action is distinct from the
prescription of ownership and rights.
In the present case, we hold that respondents can no longer recover the property despite the nullity of the assailed
contracts, because they have lost their ownership by reason of prescription.
Laches
Assuming arguendo that the action does not prescribe, laches would still bar respondents from belatedly asserting their
claim. The defense of laches, which is a question of inequity in permitting a claim to be enforced, applies
independently of prescription, which is a question of time.[66] Prescription is statutory; laches is equitable.[67]
In Miguel v. Catalino,[68] Bacaquio sold a parcel of land to Catalino in 1928. The latter possessed it and enjoyed its
fruits from then until 1962, when the heirs of Bacaquio filed a complaint for recovery of possession of the property.
The heirs asserted that the sale was void for lacking the requisite executive approval. The Court held that, despite the
nullity of the sale and the fact that no prescription had run against the title of the heirs, the action was already barred
by laches due to their passivity and inaction for more than thirty-four years.

Again in Mejia de Lucas v. Gamponia,[69] the Court held that while the legal defense of prescription did not lie, the
equitable defense of laches did.
In that case, Domingo sold a parcel of registered land to Zacarias, who immediately took possession of it and enjoyed
its fruits. When the heirs of Domingo filed an action for the annulment of the sale, Gamponia -- Zacarias successor-in-
interest -- proffered the defense of prescription. The lower court overruled the defense on the ground that registered
lands could not be acquired by prescription.
The lower court was reversed by this Court. Although Gamponia could not be deemed to have acquired title by virtue
of the fact that he and his predecessors had long and continued possession of the property for thirty-seven years, the
owners right to recover it as well as the title to it was held to have been converted into a stale demand by their inaction
and negligence.

Laches is defined as the failure to assert a right for an unreasonable and unexplained length of time, warranting a
presumption that the party entitled to assert it has either abandoned or declined to assert it. This equitable defense is
based upon grounds of public policy, which requires the discouragement of stale claims for the peace of society. [70]
As previously mentioned, an action to enforce an implied trust may be circumscribed by laches. Under this
circumstance, repudiation is not even required,[71] unless the facts that give rise to the trust are concealed. This
principle holds because of the nature of an implied trust, which involves a certain antagonism between the cestui que
trust and the trustee.[72] There is neither promise nor fiduciary relation; the trustee does not recognize any trust and
has no intention of holding the property for the beneficiary; therefore, the latter is not justified in delaying action to
recover the property. Having incurred unreasonable delay, the beneficiary is estopped by laches.[73]
Coming to the present case, the record does not reveal, and respondents do not even assert, that there was a
concealment of the 1921 sale of the property to Lacambra. Although three of the co-heirs were not parties to that
transaction, there is no showing whatsoever that they interjected any objection to the conveyance. There is no
allegation, either, that respondents were unaware of the sale in favor of Dolores or of her familys possession of the
property since 1928. On the contrary, Respondent Ruben Derecho warned Laude not to buy the land because it had not
been partitioned.[74] This fact shows that respondents were aware that Teodoro intended to sell the land, a move that
was clearly an act of dominion over the entire property. Their cognizance of these facts eliminates the need for a
repudiation on the part of petitioners.

It was held in Go Chi Gun v. Co Cho[75] that four elements had to be shown in order to use laches as a defense: (1)
conduct on the part of the defendant, or of one under whom a claim is made, giving rise to a situation for which a
complaint is filed and a remedy sought; (2) delay in asserting the rights of the complainant, who has knowledge or
notice of the defendants conduct and has been afforded an opportunity to institute a suit; (3) lack of knowledge or
notice on the part of the defendant that the complainant will assert the right on which the latter has based the suit; and
(4) injury or prejudice to the defendant in the event that the complainant is granted a relief or the suit is not deemed
barred.
The four requisites are present in the instant case. First, the five co-owners act of selling the entire property deprived
respondents predecessors of the enjoyment of their rightful shares in the inheritance. This deprivation was the basis of
the Complaint filed by respondents.
Second, respondents waited more than six decades to file a suit without offering any excuse for the long delay in the
assertion of their rights. They do not at all claim that they were unaware of their co-heirs actions. They could have
instituted an action to annul in 1921 or to recover the property in 1928, since they were legally presumed to know of
the invalidity of the sale as to their shares; they did not have to wait for sixty-five years to institute this suit.
Third, after being allowed more than six decades of peaceful possession of the property, petitioners were certainly not
expecting respondents to reclaim it. Although Ruben Derecho warned Laude not to buy the land because it was still
co-owned, the former still took no immediate action to prevent Teodoro from selling the entire property or to recover
it. Respondents even allowed nine more years to pass before rising from their stupor to institute the Complaint.
Fourth, there is no doubt that petitioners will suffer if respondents are allowed to recover the property. The former
have already developed, invested in, and religiously paid the taxes for it for at least a half-century. On the other hand,
respondents nonchalantly allowed petitioners to continue with their possession and enjoyment of the property, and
then pounced upon them when the latter least expected it.
Although we condemn the fraudulent acts of Leandro and the five co-owners in their scheme to deprive their relatives
of the latters rightful shares in the inheritance, the fact remains that respondents and their forebears wasted their
opportunity through a lifetime of indifference and apathy. They cannot now be permitted to recover property that
others have possessed, developed, and invested in for sixty-five years. It would be sheer injustice to allow the latter to
reap benefits after generations of predecessors passively slept on their rights. The Court aptly stated in Miguel v.
Catalino:
x x x. Courts cannot look with favor at parties who, by their silence, delay, and inaction, knowingly induce another to
spend time, effort, and expense in cultivating the land, paying taxes and making improvements thereon x x x only to
spring from ambush and claim title when the possessors efforts and the rise of land values offer an opportunity to
make easy profit at his expense.[76]
To grant respondents relief when they have not even offered any justifiable excuse for their inaction would be unjust.
It is certainly beyond our comprehension how they could have remained silent for more than 50 years. They have only
themselves to blame if the Court at this late hour can no longer afford them relief against the inequities they allegedly
suffered.
Considering the undisputed facts, not only had laches set in when respondents instituted their action for reconveyance
in 1993, but their right to enforce the constructive trust had already prescribed as well.
WHEREFORE, the Petition is GRANTED. The assailed July 28, 2003 Decision of the Court of Appeals is hereby
REVERSED and SET ASIDE. The Complaint before the Regional Trial Court of Danao City is hereby DISMISSED.
No costs.
SO ORDERED.
[G.R. No. 155018. December 11, 2003]
PHILADELPHIA AGAN, petitioner, vs. HEIRS OF SPS. ANDRES NUEVA and DIOSDADO NUEVA, represented
by LOU NUEVA and AL NUEVA, respondents.

R E S O L U T IO N
TINGA, J.:
Mistake, to constitute a ground for petition for relief, refers to a mistake of fact, not of law. The Court finds occasion
to reiterate this basic principle in this case.
The narration of facts by the Court of Appeals is not disputed:
On April 13, 1988, Diosdada Nueva, with marital consent, sold under a pacto de retro, a parcel of land with an area of
2,033 square meters situated in Kauswagan, Cagayan de Oro City, to Philadelphia Agan for P21,000.00. The property
is covered by Transfer Certificate of Title (TCT) No. 25370 and registered in the name of Spouses Andres and
Diosdada Nueva.
The agreement is evidenced by a public instrument entitled Deed of Sale under a Pacto de Retro executed and duly
signed by the late Diosdada Nueva with the marital consent of her husband, Andres Nueva, and Philadelphia Agan.
The parties agreed that the Nuevas are granted the right to repurchase the property sold, within six (6) months from
and after the date of the document for the same consideration of P21,000.00.
Petitioners failed to repurchase the property within the stipulated six-month period.
On July 5, 1991, upon the death of Diosdada Nueva, the property was extrajudicially partitioned where Andres sold
his interest in the land in question to his daughter Ann and son Lou. Since the title to the property was allegedly lost
during the fire that razed the property on March 19, 1990 where Diosdada died, title was reconstituted and
subsequently transferred and registered in the name of Ann and Lou Nueva under TCT No. 63403.
On June 19, 1992, Philadelphia Agan filed a petition for consolidation of ownership against Spouses Andres and
Diosdada Nueva with the Regional Trial Court (RTC), Branch 19, of Cagayan de Oro City. . . . In their answer filed
on October 28, 1998, the Nuevas alleged that the pacto de retro sale was actually an equitable mortgage, the
consideration for the sale being only P21,000.00 as against its Fair Market Value of P81,320.00 pursuant to Tax
Declaration No. 34661.
Trial proceeded. On May 10, 2000, the RTC admitted Agans exhibits and submitted the case for decision in view of
the absence despite due notice of the Nuevas and their counsel on record. A motion for reconsideration filed by the
Nuevas couple was denied. On August 3, 2000, the judgment consolidating ownership over the disputed property in
favor of the vendee, Philadelphia Agan, was rendered by the trial court. However, the second paragraph of the
dispositive portion gave the vendors a period of thirty [days] from receipt of the decision within which to redeem the
property. The dispositive portion of the decision reads:
WHEREFORE, based on the evidence presented, the ownership in the vendee is hereby consolidated by virtue of the
failure of the vendors to redeem the property described in the Deed of Sale under Pacto de Retro dated April 13, 1988
covered by the TCT No. T-25370 over Lot 1355-E of the Subdivision Psd 182568, being a portion of Lot 1355,
Cagayan Cadastre; situated in the Barrio of Kauswagan, Cagayan de Oro City, consisting of an area of 2,033 square
meters, more or less.
[]However, the vendors can still exercise the right to repurchase said property within thirty (30) days from receipt of
this decision pursuant to Article 1606 and 1607 of the New Civil Code.

[]SO ORDERED.
Because of the refusal of Agan to accept the amount of P52,080.00 as redemption price, the Nuevas were constrained
to consign the amount with the court.
On September 12, 2000, Philadelphia Agan filed a petition for relief from the August 3, 2000 decision. She argued
that she did not find it necessary to file an appeal from the said decision considering that the grant of the third-day
period to redeem the property is a mere surplusage and hence, unenforceable and illegal in view of the courts order
consolidating ownership of the property in her favor. Respondent Agan prayed for the court to delete the said portion
of the decision.

On October 9, 2000, the trial court rendered its questioned Order, thus:
WHEREFORE, the decision of August 4, 2000 is hereby amended by deleting the second paragraph of the disposition
thereof.
[]SO ORDERED.

On October 31, 2000, a motion for reconsideration of the above-quoted resolution was filed by the Nuevas, but the
court denied the same in its resolution dated November 17, 2000.[1]
Respondent heirs filed a petition for certiorari before the Court of Appeals, contending that the RTC gravely abused its
discretion in granting the petition for relief. In its Decision dated August 21, 2002, the Court of Appeals reversed the
Order of the RTC and rendered judgment in favor of respondent heirs. It held that:
The remedy of a petition for relief from judgment under Rule 38 of the Rules of Civil Procedure is a remedy provided
by law to any person against whom a decision or order is entered into through fraud, accident, mistake or excusable
negligence. Relief is not however available when a party had another adequate remedy available to him which was
either a motion for new trial or appeal from the adverse decision and he was not prevented by fraud, accident, mistake
or excusable negligence from filing such motion or taking an appeal (Ibabao v. Intermediate Appellate Court, 150
SCRA 76).

The ground relied upon by the private respondent in her petition for relief below the court a quo is her honest belief
that the pertinent portion of the decision granting the seller a retro thirty (30) days to redeem the property is a
surplusage and hence unenforceable and illegal. She relied on the assumption that since the grant of the period of
redemption is an erroneous application by the lower court of Articles 1606 and 1607 of the Civil Code, the same
cannot be enforced. As the trial court upheld the validity of the sale under a pacto de retro and granted her petition for
consolidation of ownership over the disputed property, she did not find it necessary to appeal the second paragraph of
the dispositive portion.
We do not find the circumstances of this case a proper subject of a petition for relief from the judgment of the court a
quo.
The erroneous opinion of a party concerning the incorrectness of the judicial decision of the court cannot constitute a
ground for a petition for relief. This, while it constitutes a mistake of the party, is not such a mistake as confers the
right to the relief. This is so because in no wise has the private respondent been prevented from interposing an appeal.
If a party complains of a decision as being void, then the proper remedy is to appeal said judgment (Air Services
Cooperative v. Court of Appeals, 293 SCRA 101).
The relief provided for under Rule 38 of the Rules is of equitable character, allowed only in exceptional cases as when
there is no other available or adequate remedy. The rule is that relief will not be granted to a party who seeks to be
relieved from the effects of the judgment when the loss of the remedy of law was due to his own negligence, or a
mistaken mode of procedure; otherwise, the petition for relief will be tantamount to reviving the right of appeal which
has already been lost either because of inexcusable negligence or due to a mistake in the mode of procedure by
counsel (Ibabao v. Intermediate Appellate Court, 150 SCRA 76).
The failure of the private respondent to avail of the remedy of appeal within the reglementary period notwithstanding
receipt of the lower court decision rendered the decision final and executory. She cannot make a complete turn around
and assail the decision in a petition for relief where she had all the opportunity to correct on appeal what [she]
believed to be an erroneous decision. If a litigant loses a right by sleeping on it, then with good reason may it be said
that he should not be given equitable relief under [the] rules of procedure which he disdains or which he fails to take
advantage of by gross negligence (Republic v. Sandiganbayan, 234 SCRA 529). The law helps the vigilant but not
those who sleep on their rights, for time is a means of destroying obligations and actions, because time runs against
the slothful and contemners of their own rights (Salandanan v. Court of Appeals, 290 SCRA 671).
Further, We do not agree with the contention of the private respondent that Article 1606 of the Civil Code does not
apply in the instant case. In their answer to the petition for consolidation filed on October 22, 1998, petitioners raised
the defense that the transaction between the parties was actually an equitable mortgage, considering that they remained
in possession of the subject property and continued to pay the real taxes thereon. The lower court, in its August 3,
2000 decision, ruled that the transaction is one of sale under a pacto de retro, hence it acted within its authority under
Article 1606 of the Civil Code in giving the petitioners thirty days as redemption period.[2]

Petitioner reiterates her argument that a mistake prevented her from filing an appeal. She believes that an appeal was
unnecessary because the inclusion of the second paragraph in the RTC Order of October 9, 2000 was mere surplusage.
Petitioner further submits that the Court of Appeals erred in ruling that respondents had thirty (30) days within which
to redeem the property under the third paragraph of Article 1606 of the Civil Code, which states:
the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a
civil action on the basis that the contract was a true sale with right to repurchase.
The Court, however, finds no reversible error in the foregoing discussion of the Court of Appeals.
Relief from judgment or order is premised on equity. It is granted only in exceptional cases. It is an act of grace. It is
not regarded with favor.[3] For relief to be granted, the petitioner must show that the judgment or final order was
entered, or the proceeding thereafter against him was taken, through fraud, accident, mistake, or excusable
negligence.[4]
The mistake contemplated by Rule 38 of the Rules of Court, as the Court of Appeals correctly held, pertains generally
to one of fact, not of law. In Guevara v. Tuason & Co.,[5] the Court held that the word mistake, according to its
signification in the act referred to, does not apply, and never was intended to apply, to a judicial error which the court
in question might have committed in the trial referred to. Such errors may be corrected by means of an appeal. The act
in question can not in any way be employed as a substitute for the said remedy. The Court in Guevara elaborated:
. . . the erroneous opinion of one of the parties concerning the incorrectness of the judicial decision of the court can not
constitute grounds for the said relief. For example, the court renders judgment in a matter against the defendant. The
said defendant believes at the time that said judgment is correct and understands that an appeal would be useless and
therefore he does not interpose the same. Later he believes firmly that the said judgment was incorrect, as indeed it
was, and that he committed a mistake when he believed that it was correct. This, although it constitutes a mistake of
the party, is not such a mistake as confers the right to the relief. This is so because in no wise has he been prevented
from interposing his appeal. The most that may be said is that by reason of an erroneous interpretation of the law he
believed that all recourse of appeal would be useless.
The above illustration applies equally in this case where petitioner believed that an appeal from the Decision of the
RTC would be unnecessary.
Moreover, the Court is not convinced that petitioner sincerely believed in her theory that the second paragraph of the
dispositive portion of the RTC decision was surplusage. Had it been so, she would have moved to rectify the alleged
error immediately, not after respondents had offered to repurchase the property in question. Her failure to file a motion
for reconsideration or to appeal before the lapse of the reglementary period constitutes an acceptance of the trial courts
judgment, and her rationalization now appears to have been made only on hindsight.

Petitioner submits that the RTC had no jurisdiction to allow the respondents to repurchase the property, such judgment
purportedly being contrary to prevailing jurisprudence. This contention has no merit. If there were any error at all in
the Decision of the RTC, the same would be a mere error in judgment, not one of jurisdiction.

Petitioner likewise invokes the case of Ilacad v. Court of Appeals,[6] holding that:

. . . a judgment, even after it had become final, where there is an ambiguity caused by an omission or mistake in the
dispositive portion, the court may clarify such ambiguity, mistake or omission by an amendment and in so doing it
may resort to the pleadings filed by the parties, the courts findings of facts and conclusions of law as expressed in the
body of the decision.[7]

There is no ambiguity at all in the decision that would warrant clarification. If at all, the ambiguity is merely
ostensible. At first blush, the dispositive portion of the RTC Decision declaring the consolidation of ownership of the
property in petitioner, on one hand, and granting respondents thirty (30) days to repurchase the property, on the other,
appears inconsistent. The dispositive portion, however, also makes reference to the third paragraph of Article 1606 of
the New Civil Code. Taken together, it becomes obvious that the consolidation of the property in petitioner is subject
to the suspensive condition of respondents failure to repurchase within the thirty-day period.

At any rate, the grant of the right to repurchase to respondents is in accordance with the third paragraph of Article
1606, a provision not found in the old Civil Code. The legislative intent behind this Article, along with Articles 1602-
1605 and 1607 of the same Code, is to accord the vendor a retro the maximum safeguards for the protection of his
legal rights under the true agreement of the parties. Experience has demonstrated too often that many sales with right
to repurchase have been devised only to circumvent or ignore our usury laws and for this reason, the law looks upon
then with disfavor.[8]
Article 1606 is intended to cover suits where the seller claims that the real intention was a loan with equitable
mortgage but decides otherwise.[9] The seller, however, must entertain a good faith belief that the contract is an
equitable mortgage. In Felicen, Sr., et al v. Orias, et al.,[10] cited by petitioner, the Court explained:
The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor a retro. It must
appear that there was a belief on his part, founded on facts attendant upon the execution of the sale with pacto de retro,
honestly and sincerely entertained, that the agreement was in reality a mortgage, one not intended to affect the title to
the property ostensibly sold, but merely to give it as security for a loan or obligation. In that event, if the matter of the
real nature of the contract is submitted for judicial resolution, the application of the rule is meet and proper: that the
vendor a retro be allowed to repurchase the property sold within 30 days from rendition of final judgment declaring
the contract to be a true sale with right to repurchase. Conversely, if it should appear that the parties agreement was
really one of sale transferring ownership to the vendee, but accompanied by a reservation to the vendor of the right to
repurchase the property and there are no circumstances that may reasonably be accepted as generating some honest
doubt as to the parties intention, the proviso is inapplicable. The reason is quite obvious. If the rule were otherwise, it
would be within the power of every vendor a retro to set at naught a pacto de retro, or resurrect an expired right of
repurchase, by simply instituting an action to reform the contract known to him to be in truth a sale with pacto de retro
into an equitable mortgage. As postulated by the petitioner, to allow herein private respondent to repurchase the
property by applying said paragraph x x x to the case at bar despite the fact that the stipulated redemption period had
already long expired when they instituted the present action, would in effect alter or modify the stipulation in the
contract as to the definite and specific limitation of the period for repurchase (2 years from the date of sale or only
until June 25, 1958) thereby not simply increasing but in reality resuscitating the expired right to repurchase x x and
likewise the already terminated and extinguished obligation to resell by herein petitioner. The rule would thus be a
made a tool to spawn, protect and even reward fraud and bad faith, a situation surely never contemplated or intended
by the law.
This court has already had occasion to rule on the proper interpretation of the provision in question. In Adorable v.
Inacala, where the proofs established that there could be no honest doubt as to the parties intention, that the transaction
was clearly and definitely a sale with pacto de retro, the Court adjudged the vendor a retro not to be entitled to the
benefit of the third paragraph of Article 1606.[11]
The RTC in this case made no finding in its Decision that respondents defense that the pacto de retro sale was an
equitable mortgage was not made in good faith. Indeed, it does not appear that petitioner even attempted to prove bad
faith on the part of respondents during the trial, which accounts for the RTC Decisions utter silence on the matter.
Moreover, respondents alleged in their answer that the consideration for the alleged sale, which was P21,000.00 was
inadequate, considering that the fair market value of the property was P81,320.00.[12] Respondents also averred that
they remained in possession of the subject property and paid the real taxes thereon, and that their predecessor
continued to pay the loan under which the mortgage was constituted.[13] Respondents even reconstituted their title
over the property, and partitioned the property with the other heirs, after which respondents purchased the latters share
and caused the issuance of a Transfer Certificate of Title in their name.[14] Such title, however, was subsequently
annulled.

The law presumes good faith and, in the absence of a contrary finding by the RTC in its Decision, respondents are
entitled to the right to redeem the property pursuant to the third paragraph of Article 1606 of the New Civil Code.
The Court also notes that the RTC erred in allowing petitioners the right to repurchase said property within thirty (30)
days from receipt of the RTC Decision. By express provision, Article 1606 grants the vendor a retro thirty (30) days
from the time final judgment was rendered, not from the defendants receipt of the judgment. The Court has construed
final judgment to mean one that has become final and executory.[15]
This observation, of course, is moot, as it is not disputed that respondents offered to pay petitioner the redemption
price within the period fixed by the trial court and, subsequently, consigned the amount in court. The Court makes the
observation only for the enlightenment of the RTC.

ACCORDINGLY, the Court Resolves to DENY the petition for lack of merit.
SO ORDERED.
ISAAC VILLEGAS,
G.R. No. 153839

Petitioner,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus -

AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.
VICTOR LINGAN and
ATTY. ERNESTO CARREON
Promulgated:

Respondents.
June 29, 2007
x----------------------------------------x

DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision[1]
dated November 28, 2001 promulgated by the Court of Appeals (CA) in CA-G.R. CV No. 55837, which affirmed in
toto the Decision dated December 19, 1996 of the Regional Trial Court (RTC), Branch 4, Tuguegarao, Cagayan in
Civil Case No. 5036; and the CA Resolution[2] dated June 10, 2002, denying the Motion for Reconsideration filed by
Isaac Villegas (petitioner).

This case originated from a Complaint for Annulment of Title and Instrument with Damages filed by the petitioner
against Victor Lingan (respondent) and Atty. Ernesto Carreon as the Register of Deeds of Cagayan. The respondent
filed his Answer and pre-trial ensued. The RTC issued a Pre-Trial Order wherein it declared that no factual issue
exists and that the sole legal issue to be resolved is:
Whether or not the power of attorney is a general power of attorney or a special power of attorney. Corrolarily,
whether upon the terms thereof, the attorney-in-fact Gloria Roa Catral, had authority, or none at all, to execute the
deed of sale in favor of [respondent] Victor Lingan.[3]
On the basis of the pre-trial order and upon motion of counsel for petitioner, without any objections from respondent,
the case was submitted for summary judgment.

As found by the RTC and confirmed by the CA, the undisputed facts are as follows:
[Petitioner] Isaac Villegas was the registered owner of a parcel of land in Tuguegarao, Cagayan, known as Lot 2637-C
of the Subdivision plan Psd.2-01-019664, being a portion of Lot 2637, Cad. 151, containing an area of 1,267 square
meters, more or less, situated at Bgy. Pengue, Tuguegarao, Cagayan, covered by Transfer Certificate of Title No. T-
63809 of the Register of Deeds of Cagayan. In order to secure the payment of a loan from the Development Bank of
the Philippines (DBP) the [petitioner] constituted a real estate mortgage over the said parcel of land in favor of DBP.
The said loan and mortgage was subsequently transferred by the DBP to the Home Mutual Development Fund
(HMDF). When the [petitioner] failed to settle his loan, the real estate mortgage he constituted over the property was
foreclosed, the property was sold at public auction and, as the HMDF was itself the highest bidder at such public
auction, a certificate of sheriffs sale was issued and, thereafter, registered with the Register of Deeds on March 8,
1996. By virtue of a power of attorney executed by [petitioners] wife, Marilou C. Villegas in favor of Gloria Roa
Catral, the latter redeemed the property from the HMDF. x x x
On May 17, 1996, Gloria R. Catral (Catral), by virtue of the same power of attorney, executed a Deed of Sale in favor
of respondent.[5]
Petitioner claims that the power of attorney executed in favor of Catral, petitioners mother-in-law, created a principal-
agent relationship only between his wife, Marilou Catral-Villegas (Marilou) as principal, and Catral, as agent, and
then only for the latter to administer the properties of the former; that he never authorized Catral to administer his
properties, particularly, herein subject property; and that Catral had no authority to execute the Deed of Absolute Sale
in favor of the respondent, since from the very wordings of the power of attorney, she had no special authority to sell
or convey any specific real property.[6]
On December 19, 1996, the RTC dismissed the Complaint, ruling that the tenor of the power of attorney in question is
broad enough to include the authority to sell any property of the principal, who, in this case, is the petitioner; that the
act of the agent, Catral, in executing the Deed of Absolute Sale in favor of respondent was within her power or
authority; that the power to enter into any and all contracts and agreements qualified the said power of attorney as a
special power of attorney; that the Deed of Absolute Sale is valid and binds the principal, herein petitioner; that the
authority to sell came from both the petitioner and his wife, Marilou, since the petitioner himself signed the power of
attorney affirming the authority of the agent, Catral; and that even if Catral in fact exceeded her authority, the act is
deemed to have been performed within the scope of the agents authority if such is within the terms of the power of
attorney as written.
Dissatisfied, the petitioner appealed the adverse judgment to the CA claiming that the trial court erred in finding that
there was a principal-agent relationship between petitioner and Catral; and that the trial court erred in concluding that
the power of attorney is a special power of attorney with an authority to sell.[7]

On November 28, 2001, the CA rendered the herein assailed Decision, affirming in toto the RTC Judgment and
dismissing the appeal for lack of merit.[8]
The CA held that when the redemption of the property had been made by Catral by virtue of a General Power of
Attorney executed in her favor by Marilou, it follows that the petitioner is no longer the owner of the subject property
but his wife, Marilou; that the issue as to whether the power of attorney was a special or general one is of no moment,
because the petitioner was no longer the owner of the property when it was sold; in other words, any disposition of the
property needs no power of attorney from the petitioner himself; that the petitioner signed the General Power of
Attorney above the word conforme, connoting an implied admission that he was not anymore the owner of the said
property; and, finally, that the Deed of Sale between Marilou (through Catral) and respondent is valid.
Hence, herein Petition, on the following grounds:
I.
IT IS SUBMITTED THAT THE COURT OF APPEALS DISREGARDED THE LAW AND APPLICABLE
DECISIONS OF THE HONORABLE COURT WHEN IT DISMISSED THE COMPLAINT ON THE GROUND
THAT PETITIONER WAS NO LONGER THE OWNER OF THE PROPERTY SUBJECT OF THE CASE. AS A
CONSEQUENCE, IT DID NOT MATTER WHETHER OR NOT THE GENERAL POWER OF ATTORNEY OR A
SPECIAL POWER OF ATTORNEY WAS ISSUED IN THIS INSTANT CASE.
II.

IT IS FURTHER SUBMITTED THAT THE COURT OF APPEALS DISREGARDED THE LAW AND THE
APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT UPHELD THE VALIDITY OF THE
DEED OF ABSOLUTE SALE EXECUTED IN FAVOR OF VICTOR LINGAN.[9]
In his Memorandum, petitioner argues that the general power of attorney of Catral did not clothe her with authority to
sell the property of petitioner; and that the Deed of Absolute Sale executed between the respondent and Catral was not
valid.[10]
On the other hand, respondent, in his Memoranda, contends that the petitioner has no cause of action against him. He
maintains that petitioner lost his ownership of the property after it was extra-judicially foreclosed and sold to HMDF;
that what was left for petitioner was only the right of redemption, a right he shared with his wife; that if there was
really a legal defect in the sale, the person who has the legal standing and the right to question the validity of the sale
in his name is Marilou, the person who exercised the right of redemption and the person in whom the right to dispose
legally resides; and that Marilou has all this time remained passive.[11]

The petition must fail.

There are two principal issues raised by the pleadings in the present petition that must be resolved: First, whether
Marilou, the wife of the petitioner, as successor-in-interest, may validly redeem the property in question; and second,
whether the petitioner has a cause of action against the respondent.
Was there a valid redemption effected by Marilou?
The answer is in the affirmative.
Section 6 of Act No. 3135 provides:
Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor,
his successors-in-interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on
the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any
time within the term of one year from and after the date of sale; and such redemption shall be governed by the
provisions of section four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with the provisions of this Act. (emphasis supplied)
Section 27, Rule 39 of the 1997 Rules of Civil Procedure, provides:
SEC. 27. Who may redeem real property so sold. Real property sold as provided in the last preceding section, or any
part thereof sold separately, may be redeemed in the manner hereinafter provided, by the following persons:
(a) The judgment obligor, or his successor-in-interest in the whole or any part of the property;
xxxx
The successor-in-interest of the judgment debtor referred to in the above provision includes a person who succeeds to
his property by operation of law, or a person with a joint interest in the property, or his spouse or heirs.[12]
Section 33, Rule 39, Rules of Court, states:

SEC. 33. Deed and possession to be given at expiration of redemption period; by whom executed or given. If no
redemption be made within one (1) year from the date of the registration of the certificate of sale, the purchaser is
entitled to a conveyance and possession of the property; or, if so redeemed whenever sixty (60) days have elapsed and
no other redemption has been made, and notice thereof given, and the time for redemption has expired, the last
redemptioner is entitled to the conveyance and possession; but in all cases the judgment obligor shall have the entire
period of one (1) year from the date of the registration of the sale to redeem the property. The deed shall be executed
by the officer making the sale or by his successor in office, and in the latter case shall have the same validity as though
the officer making the sale had continued in office and executed it.
Upon the expiration of the right of redemption, the purchaser or redemptioner shall be substituted to and acquire all
the rights, title, interest and claim of the judgment obligor to the property at the time of the levy. The possession of the
property shall be given to the purchaser or last redemptioner by the same officer unless a third party is actually
holding the property adversely to the judgment obligor. (emphasis supplied)
Under the above provision, petitioner could have redeemed the property from Marilou after she had redeemed it. The
pleadings filed and the records of this case do not show that petitioner exercised said right. Consequently, as correctly
held by the CA, Marilou acquired ownership of the subject property. All rights and title of the judgment obligor are
transferred upon the expiration of the right of redemption.[13]

And where the redemption is made under a property regime governed by the conjugal partnership of gains, Article 109
of the Family Code provides that property acquired by right of redemption is the exclusive property of the spouses
redeeming the property.
Clearly, therefore, Marilou, as owner, had the right to sell the property to another.
This brings us to the resolution of the second issue -- whether petitioner has a cause of action against respondent -- and
the answer is in the negative.

A cause of action is an act or omission of the defendant in violation of the legal right of the plaintiff. A complaint
states a cause of action when it contains three essential elements: (1) a right in favor of the plaintiff by whatever
means and under whatever law it arises; (2) an obligation of the defendant to respect such right; and (3) the act or
omission of the defendant violates the right of the plaintiff.[14]
In the present case, there is no property right that exists in favor of the petitioner, and, with more reason, no such
obligation arises in behalf of the defendant, herein respondent, to respect such right. There was no violation of a legal
right of the petitioner.
It must be stressed that there is no allegation or proof that Marilou redeemed the property in behalf of the
petitionerMarilou did not act as agent of the petitioner. Rather, she exercised the right of redemption in her own right
as successor-in-interest of the petitioner. Under the circumstances, should there be any right violated, the aggrieved
party is Marilou, petitioners wife. The property in question was the exclusive property of Marilou by virtue of her
redemption. Thus, petitioner has no valid cause of action against the respondent.
Consequently, the question whether Catral had validly sold the subject property to respondent by virtue of the General
Power of Attorney executed by Marilou, is not within the realm of the Courts jurisdiction to resolve in this case as said
issue is not properly raised by the right person, Marilou.
Divested of all interest over the property, the petitioner has ceased to be the proper party who may challenge the
validity of the sale. Moreover, since, as a rule, the agency, as a contract, is binding only between the contracting
parties,[15] then only the parties, as well as the third person who transacts with the parties themselves, may question
the validity of the agency or the violation of the terms and conditions found therein. This rule is a corollary of the
foregoing doctrine on the rights of real parties in interest.
The Court cannot grant the relief prayed for in petitioners Complaint as to damages, considering that the issue on
damages was deemed waived when the parties limited themselves to the legal issue arrived at during the pre-trial in
the RTC.[16]
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals are AFFIRMED.
Costs against the petitioner.
SO ORDERED.