1
G.R. No. 144169 March 28, 200
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN
KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and
PHILAM INSURANCE CO., INC., respondents.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to
set aside the decision of the Court of Appeals dated April 10, 2000 and its
resolution dated July 11, 2000 denying the motion for reconsideration of the
aforesaid decision. The original complaint that is the subject matter of this case is
an accion pauliana -- an action filed by Philam Insurance Company, Inc.
(respondent Philam) to rescind or annul the donations made by petitioner Khe
Hong Cheng allegedly in fraud of creditors. The main issue for resolution is
whether or not the action to rescind the donations has already prescribed. While
the first paragraph of Article 1389 of the Civil Code states: "The action to claim
rescission must be commenced within four years..." the question is, from which
point or event does this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping
Lines. It appears that on or about October 4, 1985, the Philippine Agricultural
Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned by
petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, Masbate, for
delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra was
covered by a marine insurance policy issued by American Home Insurance
Company (respondent Philam's assured). M/V PRINCE ERlC, however, sank
somewhere between Negros Island and Northeastern Mindanao, resulting in the
total loss of the shipment. Because of the loss, the insurer, American Home, paid
the amount of P354,000.00 (the value of the copra) to the consignee.1âwphi1.nêt
Having been subrogated into the rights of the consignee, American Home
instituted Civil Case No. 13357 in the Regional Trial Court (RTC) of Makati ,
Branch 147 to recover the money paid to the consignee, based on breach of
contract of carriage. While the case was still pending, or on December 20, 1989,
petitioner Khe Hong Cheng executed deeds of donations of parcels of land in
favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel
of land with an area of 1,000 square meters covered by Transfer Certificate of
Title (TCT) No. T-3816 was donated to Ray Steven. Petitioner Khe Hong Cheng
likewise donated in favor of Sandra Joy two (2) parcels of land located in Butuan
City, covered by TCT No. RT-12838. On the basis of said deeds, TCT No. T-3816
was cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of Ray
Steven and TCT No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-
21054 was issued in the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in Civil
Case No.13357 on December 29, 1993, four years after the donations were made
and the TCTs were registered in the donees' names. The decretal portion of the
aforesaid decision reads:
"Wherefore, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against the defendant, ordering
the latter to pay the former:
1) the sum of P354,000.00 representing the amount paid by the plaintiff
to the Philippine Agricultural Trading Corporation with legal interest at
12% from the time of the filing of the complaint in this case;
2) the sum of P50,000.00 as attorney's fees;
3) the costs.1
After the said decision became final and executory, a writ of execution was
forthwith' issued on September 14, 1995. Said writ of execution however, was not
served. An alias writ of execution was, thereafter, applied for and granted in
October 1996. Despite earnest efforts, the sheriff found no property under the
name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or
garnish for the satisfaction of the trial court's decision. When the sheriff,
accompanied by counsel of respondent Philam, went to Butuan City on January
17, 1997, to enforce the alias writ of execution, they discovered that petitioner
Khe Hong Cheng no longer had any property and that he had conveyed the
subject properties to his children.
On February 25, 1997, respondent Philam filed a complaint with the Regional Trial
Court of Makati City, Branch 147, for the rescission of the deeds of donation
executed by petitioner Khe Hong Cheng in favor of his children and for the
nullification of their titles (Civil Case No.97-415). Respondent Philam
alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds
in fraud of his creditors, including respondent Philam.2
Petitioners subsequently filed their answer to the complaint a quo. They moved
for its dismissal on the ground that the action had already prescribed. They
posited that the registration of the deeds of donation on December 27, 1989
constituted constructive notice and since the complaint a quo was filed only on
February 25, 1997, or more than four (4) years after said registration, the action
was already barred by prescription.3
Acting thereon, the trial court denied the motion to dismiss. It held that respondent
Philam's complaint had not yet prescribed. According to the trial court, the
prescriptive period began to run only from December 29, 1993, the date of the
decision of the trial court in Civil Case No. 13357.4
On appeal by petitioners, the CA affirmed the trial court's decision in favor of
respondent Philam. The CA declared that the action to rescind the donations had
not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA
basically ruled that the four year period to institute the action for rescission began
to run only in January 1997, and not when the decision in the civil case became
final and executory on December 29, 1993. The CA reckoned the accrual of
respondent Philam's cause of action on January 1997, the time when it first
learned that the judgment award could not be satisfied because the judgment
creditor, petitioner Khe Hong Cheng, had no more properties in his name. Prior
thereto, respondent Philam had not yet exhausted all legal means for the
satisfaction of the decision in its favor, as prescribed under Article 1383 of the
Civil Code.5
The Court of Appeals thus denied the petition for certiorari filed before it, and held
that the trial court did not commit any error in denying petitioners' motion to
dismiss. Their motion for reconsideration was likewise dismissed in the appellate
court's resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA alleging
that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE
ABUSE OF DISCRETION WHEN IT DENIED THE PETITION TO
DISMISS THE CASE BASED ON THE GROUND OF
PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
HOLDING THAT PRESCRIPTION BEGINS TO RUN WHEN IN
JANUARY 1997 THE SHERIFF WENT TO BUTUAN CITY IN
SEARCH OF PROPERTIES OF PETITIONER FELIX KHE CHENG
TO SATISFY THE JUDGMENT IN CIVIL CASE NO.13357 AND
FOUND OUT THAT AS EARLY AS DEC. 20, 1989, PETITIONERS
KHE CHENG EXECUTED THE DEEDS OF DONATIONS IN FAVOR
OF HIS CO-PETITIONERS THAT THE ACTION FOR RESCISSION
ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN
THESE DONATIONS WERE REGISTERED WITH THE REGISTER
OF DEEDS IN DECEMBER 1989, AND WHEN THE COMPLAINT
WAS FILED ONLY IN FEBRUARY 1997, MORE THAN FOUR YEARS
HAVE ALREADY LAPSED AND THEREFORE, IT HAS ALREADY
PRESCRIBED.6
Essentially, the issue for resolution posed by petitioners is this: When did the
four (4) year prescriptive period as provided for in Article 1389 of the Civil Code
for respondent Philam to file its action for rescission of the subject deeds of
donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, "The action to claim rescission
must be commenced within four years." Since this provision of law is silent as to
when the prescriptive period would commence, the general rule, i.e., from the
moment the cause of action accrues, therefore, applies. Article 1150 of the Civil
Code is particularly instructive:

Art. 1150. The time for prescription for all kinds of actions, when there
is no special provision which ordains otherwise, shall be counted from
the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing
the action which determines the starting point for the computation of the
prescriptive period for the action.7 Article 1383 of the Civil Code provides as
follows:
Art. 1383. An action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to
obtain reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana must be of last
resort, availed of only after all other legal remedies have been exhausted and
have been proven futile. For an accion pauliana to accrue, the following requisites
must concur:
1) That the plaintiff asking for rescission has a credit prior to, the
alienation, although demandable later; 2) That the debtor has made a
subsequent contract conveying a patrimonial benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his claim, but
would benefit by rescission of the conveyance to the third person; 4)
That the act being impugned is fraudulent; 5) That the third person who
received the property conveyed, if by onerous title, has been an
accomplice in the fraud.8 (Emphasis ours)
We quote with approval the following disquisition of the CA on the matter:
An accion pauliana accrues only when the creditor discovers that he
has no other legal remedy for the satisfaction of his claim against the
debtor other than an accion pauliana. The accion pauliana is an action
of a last resort. For as long as the creditor still has a remedy at law for
the enforcement of his claim against the debtor, the creditor will not
have any cause of action against the creditor for rescission of the
contracts entered into by and between the debtor and another person
or persons. Indeed, an accion pauliana presupposes a judgment and
the issuance by the trial court of a writ of execution for the satisfaction
of the judgment and the failure of the Sheriff to enforce and satisfy the
judgment of the court. It presupposes that the creditor has exhausted
the property of the debtor. The date of the decision of the trial court
against the debtor is immaterial. What is important is that the credit of
the plaintiff antedates that of the fraudulent alienation by the debtor of
his property. After all, the decision of the trial court against the debtor
will retroact to the time when the debtor became indebted to the
creditor.9
Petitioners, however, maintain that the cause of action of respondent Philam
against them for the rescission of the deeds of donation accrued as early as
December 27, 1989, when petitioner Khe Hong Cheng registered the subject
conveyances with the Register of Deeds. Respondent Philam allegedly had
constructive knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:
Section 52. Constructive knowledge upon registration. - Every
conveyance, mortgage, lease, lien, attachment, order, judgment,
instrument or entry affecting registered land shall, if registered, filed or
entered in the Office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all
persons from the time of such registering, filing, or entering.
Petitioners argument that the Civil Code must yield to the Mortgage and
Registration Laws is misplaced, for in no way does this imply that the specific
provisions of the former may be all together ignored. To count the four year
prescriptive period to rescind an allegedly fraudulent contract from the date of
registration of the conveyance with the Register of Deeds, as alleged by the
petitioners, would run counter to Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to file an action for
rescission of an allegedly fraudulent conveyance of property, i.e., the creditor has
no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the
issuance by the trial court of a writ of execution for the satisfaction of the judgment,
and 3) the failure of the sheriff to enforce and satisfy the judgment of the court. It
requires that the creditor has exhausted the property of the debtor: The date of
the decision of the trial court is immaterial. What is important is that the credit of
the plaintiff antedates that of the fraudulent alienation by the debtor of his
property. After all, the decision of the trial court against the debtor will retroact to
the time when the debtor became indebted to the creditor.
2
Tolentino, a noted civilist, explained:
"xxx[T]herefore, credits with suspensive term or condition are
excluded, because the accion pauliana presupposes a judgment and
unsatisfied execution, which cannot exist when the debt is not yet
demandable at the time the rescissory action is brought. Rescission is
a subsidiary action, which presupposes that the creditor has exhausted
the property of the debtor which is impossible in credits which cannot
be enforced because of a suspensive term or condition.
While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory with retroactive
effect to the date when the credit was constituted."10
These principles were reiterated by the Court when it explained the requisites of
an accion pauliana in greater detail, to wit:
"The following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly fraudulent
sale: (1) exhaust the properties of the debtor through levying by
attachment and execution upon all the property of the debtor, except
such as are exempt from execution; (2) exercise all the rights and
actions of the debtor, save those personal to him (accion
subrogatoria); and (3) seek rescission of the contracts executed by the
debtor in fraud of their rights (accion pauliana). Without availing of the
first and second remedies, i.e.. exhausting the properties of the debtor
or subrogating themselves in Francisco Bareg's transmissible rights
and actions. petitioners simply: undertook the third measure and filed
an action for annulment of sale. This cannot be done."11 (Emphasis
ours)
In the same case, the Court also quoted the rationale of the CA when it upheld
the dismissal of the accion pauliana on the basis of lack of cause of action:
"In this case, plaintiffs appellants had not even commenced an action
against defendants-appellees Bareng for the collection of the alleged
indebtedness, Plaintiffs-appellants had not even tried to exhaust the
property of defendants-appellees Bareng, Plaintiffs-appellants, in
seeking the rescission of the contracts of sale entered into between
defendants-appellees, failed to show and prove that defendants-
appellees Bareng had no other property, either at the time of the sale
or at the time this action was filed, out of which they could have
collected this (sic) debts." (Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989, that petitioner
Khe Hong Cheng had executed the deeds of donation in favor of his children, the
complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was
still pending before the trial court. Respondent Philam had no inkling, at the time,
that the trial court’s judgment would be in its favor and further, that such judgment
would not be satisfied due to the deeds of donation executed by petitioner Khe
Hong Cheng during the pendency of the case. Had respondent Philam filed his
complaint on December 27, 1989, such complaint would have been dismissed for
being premature. Not only were all other legal remedies for the enforcement of
respondent Philam's claims not yet exhausted at the time the needs of donation
were executed and registered. Respondent Philam would also not have been able
to prove then that petitioner Khe Hong Cheng had no more property other than
those covered by the subject deeds to satisfy a favorable judgment by the trial
court.
It bears stressing that petitioner Khe Hong Cheng even expressly declared and
represented that he had reserved to himself property sufficient to answer for his
debts contracted prior to this date:
"That the DONOR further states, for the same purpose as expressed
in the next preceding paragraph, that this donation is not made with
the object of defrauding his creditors having reserved to himself
property sufficient to answer his debts contracted prior to this date".12
As mentioned earlier, respondent Philam only learned about the unlawful
conveyances made by petitioner Khe Hong Cheng in January 1997 when its
counsel accompanied the sheriff to Butuan City to attach the properties of
petitioner Khe Hong Cheng. There they found that he no longer had any
properties in his name. It was only then that respondent Philam's action for
rescission of the deeds of donation accrued because then it could be said that
respondent Philam had exhausted all legal means to satisfy the trial court's
judgment in its favor. Since respondent Philam filed its complaint for accion
pauliana against petitioners on February 25, 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other property to satisfy the
 3

judgment award against him, its action for rescission of the subject deeds clearly
had not yet prescribed.1âwphi1.nêt

A final point. Petitioners now belatedly raise on appeal the defense of improper
venue claiming that respondent Philam's complaint is a real action and should
have been filed with the RTC of Butuan City since the property subject matter or
the donations are located therein. Suffice it to say that petitioners are already
deemed to have waived their right to question the venue of the instant case.
Improper venue should be objected to as follows 1) in a motion to dismiss filed
within the time but before the filing of the answer;13 or 2) in the answer as an
affirmative defense over which, in the discretion of the court, a preliminary hearing
may be held as if a motion to dismiss had been filed. 14 Having failed to either file
a motion to dismiss on the ground of improper of venue or include the same as
an affirmative defense in their answer, petitioners are deemed to have their right
to object to improper venue.

WHEREFORE, premises considered, the petition is hereby DENIED for lack of

merit.

SO ORDERED.

G.R. No. 152347 June 21, 2006
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.
SPS. ALFREDO ONG AND SUSANA ONG and JACKSON LEE, Respondents.
DECISION
GARCIA, J.:
By this petition for review under Rule 45 of the Rules of Court, petitioner Union
Bank of the Philippines (Union Bank) seeks to set aside the decision1 dated
December 5, 2001 of the Court of Appeals (CA) in CA-G.R. No. 66030 reversing
an earlier decision of the Regional Trial Court (RTC) of Pasig City in Civil Case
No. 61601, a suit thereat commenced by the petitioner against the herein
respondents for annulment or rescission of sale in fraud of creditors.
The facts:
Herein respondents, the spouses Alfredo Ong and Susana Ong, own the majority
capital stock of Baliwag Mahogany Corporation (BMC). On October 10, 1990, the
spouses executed a Continuing Surety Agreement in favor of Union Bank to
secure a P40,000,000.00-credit line facility made available to BMC. The
agreement expressly stipulated a solidary liability undertaking.
On October 22, 1991, or about a year after the execution of the surety agreement,
the spouses Ong, for P12,500,000.00, sold their 974-square meter lot located in
Greenhills, San Juan, Metro Manila, together with the house and other
improvements standing thereon, to their co-respondent, Jackson Lee (Lee, for
short). The following day, Lee registered the sale and was then issued Transfer
Certificate of Title (TCT) No. 4746-R. At about this time, BMC had already availed
itself of the credit facilities, and had in fact executed a total of twenty-two (22)
promissory notes in favor of Union Bank.
On November 22, 1991, BMC filed a Petition for Rehabilitation and for Declaration
of Suspension of Payments with the Securities and Exchange Commission
(SEC). To protect its interest, Union Bank lost no time in filing with the RTC of
Pasig City an action for rescission of the sale between the spouses Ong and
Jackson Lee for purportedly being in fraud of creditors.
In its complaint, docketed as Civil Case No. 61601 and eventually raffled to
Branch 157 of the court, Union Bank assailed the validity of the sale, alleging that
the spouses Ong and Lee entered into the transaction in question for the lone
purpose of fraudulently removing the property from the reach of Union Bank and
other creditors. The fraudulent design, according to Union Bank, is evidenced by
the following circumstances: (1) insufficiency of consideration, the purchase price
of P12,500,000.00 being below the fair market value of the subject property at
that time; (2) lack of financial capacity on the part of Lee to buy the property at
that time since his gross income for the year 1990, per the credit investigation
conducted by the bank, amounted to only P346,571.73; and (3) Lee did not assert
absolute ownership over the property as he allowed the spouses Ong to retain
possession thereof under a purported Contract of Lease dated October 29, 1991.
Answering, herein respondents, as defendants a quo, maintained, in the main,
that both contracts of sale and lease over the Greenhills property were founded
on good and valid consideration and executed in good faith. They also scored
Union Bank for forum shopping, alleging that the latter is one of the participating
creditors in BMC’s petition for rehabilitation.
Issues having been joined, trial followed. On September 27, 1999, the trial court,
applying Article 1381 of the Civil Code and noting that the evidence on record
"present[s] a holistic combination of circumstances distinctly characterized by
badges of fraud," rendered judgment for Union Bank, the Deed of Sale executed
on October 22, 1991 by the spouses Ong in favor of Lee being declared null and
void.
Foremost of the circumstances adverted to relates to the execution of the sale
against the backdrop of the spouses Ong, as owners of 70% of BMC's stocks,
knowing of the company’s insolvency. This knowledge was the reason why,
according to the court, the spouses Ong disposed of the subject property leaving
the bank without recourse to recover BMC's indebtedness. The trial court also
made reference to the circumstances which Union Bank mentioned in its
complaint as indicia of conveyance in fraud of creditors.
Therefrom, herein respondents interposed an appeal to the CA which docketed
their recourse as CA-G.R. No. 66030.
4
In its Decision dated December 5, 2001, the CA reversed and set aside the trial
court's ruling, observing that the contract of sale executed by the spouses Ong
and Lee, being complete and regular on its face, is clothed with the prima facie
presumption of regularity and legality. Plodding on, the appellate court said:
In order that rescission of a contract made in fraud of creditors may be decreed,
it is necessary that the complaining creditors must prove that they cannot recover
in any other manner what is due them. xxx.
There is no gainsaying that the basis of liability of the appellant spouses in their
personal capacity to Union Bank is the Continuing Surety Agreement they have
signed … on October 10, 1990. However, the real debtor of Union Bank is BMC,
which has a separate juridical personality from appellants Ong. Granting that BMC
was already insolvent at the time of the sale, still, there was no showing that at
the time BMC filed a petition for suspension of payment that appellants Ong were
themselves bankrupt. In the case at bench, no attempt was made by Union Bank,
not even a feeble or half-hearted one, to establish that appellants spouses have
no other property from which Union Bank, as creditor of BMC, could obtain
payment. While appellants Ong may be independently liable directly to Union
Bank under the Continuing Surety Agreement, all that Union Bank tried to prove
was that BMC was insolvent at the time of the questioned sale. No competent
evidence was adduced showing that appellants Ong had no leviable assets other
than the subject property that would justify challenge to the transaction.2
Petitioner moved for a reconsideration of the above decision but its motion was
denied by the appellate court in its resolution of February 21, 2002.3
Hence, petitioner’s present recourse on its submission that the appellate court
erred:
I. xxx WHEN IT CONSIDERED THAT THE SALE TRANSACTION BETWEEN [
RESPONDENTS SPOUSES ONG AND LEE] ENJOYS THE PRESUMPTION OF
REGULARITY AND LEGALITY AS THERE EXISTS ALSO A PRESUMPTION
THAT THE SAID SALE WAS ENTERED IN FRAUD OF CREDITORS.
PETITIONER THEREFORE NEED NOT PROVE THAT RESPONDENTS
SPOUSES ONG DID NOT LEAVE SUFFICIENT ASSETS TO PAY THEIR
CREDITORS. BUT EVEN THEN, PETITIONER HAS PROVEN THAT THE
SPOUSES HAVE NO OTHER ASSETS.
II. IN CONCLUDING, ASSUMING EX-GRATIA ARGUMENTI THAT THE SALE
BETWEEN DEFENDANT-APPELLANTS ENJOY THE PRESUMPTION OF
REGULARITY AND LEGALITY, THAT THE EVIDENCE ADDUCED BY THE
PETITIONER … WAS NOT SUFFICIENT TO OVERCOME THE
PRESUMPTION.
III. xxx IN FINDING THAT IT WAS [RESPONDENT] LEE WHO HAS
SUFFICIENTLY PROVEN THAT THERE WAS A VALID AND SUFFICIENT
CONSIDERATION FOR THE SALE.
IV. xxx IN NOT FINDING THAT JACKSON LEE WAS IN BAD FAITH WHEN HE
PURCHASED THE PROPERTY.4
Petitioner maintains, citing China Banking Corporation vs. Court of Appeals,5 that
the sale in question, having been entered in fraud of creditor, is rescissible. In the
same breath, however, petitioner would fault the CA for failing to consider that the
sale between the Ongs and Lee is presumed fraudulent under Section 70 of Act
No. 1956, as amended, or the Insolvency Law. Elaborating on this point, petitioner
states that the subject sale occurred thirty (30) days prior to the filing by BMC of
a petition for suspension of payment before the SEC, thus rendering the sale not
merely rescissible but absolutely void.
We resolve to deny the petition.
In effect, the determinative issue tendered in this case resolves itself into the
question of whether or not the Ong-Lee contract of sale partakes of a conveyance
to defraud Union Bank. Obviously, this necessitates an inquiry into the facts and
this Court eschews factual examination in a petition for review under Rule 45 of
the Rules of Court, save when, as in the instant case, a clash between the factual
findings of the trial court and that of the appellate court exists, 6 among other
exceptions.
As between the contrasting positions of the trial court and the CA, that of the latter
commends itself for adoption, being more in accord with the evidence on hand
and the laws applicable thereto.
Essentially, petitioner anchors its case on Article 1381 of the Civil Code which
lists as among the rescissible contracts "[T]hose undertaken in fraud of creditors
when the latter cannot in any other manner collect the claim due them."

Contracts in fraud of creditors are those executed with the intention to prejudice
the rights of creditors. They should not be confused with those entered into
without such mal-intent, even if, as a direct consequence thereof, the creditor may
suffer some damage. In determining whether or not a certain conveying contract
is fraudulent, what comes to mind first is the question of whether the conveyance
was a bona fide transaction or a trick and contrivance to defeat creditors.7 To
creditors seeking contract rescission on the ground of fraudulent conveyance rest
the onus of proving by competent evidence the existence of such fraudulent intent
on the part of the debtor, albeit they may fall back on the disputable presumptions,
if proper, established under Article 1387 of the Code.8
In the present case, respondent spouses Ong, as the CA had determined, had
sufficiently established the validity and legitimacy of the sale in question. The
conveying deed, a duly notarized document, carries with it the presumption of
validity and regularity. Too, the sale was duly recorded and annotated on the title
of the property owners, the spouses Ong. As the transferee of said property,
respondent Lee caused the transfer of title to his name.
There can be no quibbling about the transaction being supported by a valid and
sufficient consideration. Respondent Lee’s account, while on the witness box,
about this angle of the sale was categorical and straightforward. An excerpt of his
testimony:
Atty. De Jesus :
Before you prepared the consideration of this formal offer, as standard operating
procedure of buy and sell, what documents were prepared?
xxx xxx xxx
Jackson Lee:
A. There is a downpayment.
Q. And how much was the downpayment?
A. P2,500,000.00.
Q. Was that downpayment covered by a receipt signed by the seller?
A. Yes, Sir, P500,000.00 and P2,000,000.00
xxx xxx xxx
Q. Are you referring to the receipt dated October 19, 1991, how about the other
receipt dated October 21, 1991?
A. Yes, Sir, this is the same receipt.
xxx xxx xxx
Q. Considering that the consideration of this document is for P12,000,000.00 and
you made mention only of P2,500,000.00, covered by the receipts, do you have
evidence to show that, finally, Susana Ong received the balance
of P10,000,000.00?
A. Yes, Sir.
Q. Showing to you a receipt denominated as Acknowledgement Receipt, dated
October 25, 1991, are you referring to this receipt to cover the balance
of P10,000,000.00?
A. Yes, sir.9
The foregoing testimony readily proves that money indeed changed hands in
connection with the sale of the subject property. Respondent Lee, as purchaser,
paid the stipulated contract price to the spouses Ong, as vendors. Receipts
presented in evidence covered and proved such payment. Accordingly, any
suggestion negating payment and receipt of valuable consideration for the subject
conveyance, or worse, that the sale was fictitious must simply be rejected.
In a bid to attach a badge of fraud on the transaction, petitioner raises the issue
of inadequate consideration, alleging in this regard that only P12,500,000.00 was
5
paid for property having, during the period material, a fair market value
of P14,500,000.00.
We do not agree.
The existence of fraud or the intent to defraud creditors cannot plausibly be
presumed from the fact that the price paid for a piece of real estate is perceived
to be slightly lower, if that really be the case, than its market value. To be sure, it
is logical, even expected, for contracting minds, each having an interest to protect,
to negotiate on the price and other conditions before closing a sale of a valuable
piece of land. The negotiating areas could cover various items. The purchase
price, while undeniably an important consideration, is doubtless only one of them.
Thus, a scenario where the price actually stipulated may, as a matter of fact, be
lower than the original asking price of the vendor or the fair market value of the
property, as what perhaps happened in the instant case, is not out of the ordinary,
let alone indicative of fraudulent intention. That the spouses Ong acquiesced to
the price of P12,500,000.00, which may be lower than the market value of the
house and lot at the time of alienation, is certainly not an unusual business
phenomenon.
Lest it be overlooked, the disparity between the price appearing in the conveying
deed and what the petitioner regarded as the real value of the property is not as
gross to support a conclusion of fraud. What is more, one Oliver Morales, a
licensed real estate appraiser and broker, virtually made short shrift of petitioner’s
claim of gross inadequacy of the purchase price. Mr. Morales declared that there
exists no gross disparity between the market value of the subject property and
the price mentioned in the deed as consideration. He explained why:
ATTY. EUFEMIO:
Q. I am showing to you the said two (2) exhibits Mr. Morales and I would like you
to go over the terms and conditions stated therein and as an expert in real estate
appraiser (sic) and also as a real estate broker, can you give this Honorable Court
your considered opinion whether the consideration stated therein P12,500,000.00
in the light of all terms and conditions of the said Deed of Absolute Sale and Offer
to Purchase could be deemed fair and reasonable?
xxx xxx xxx
MR. MORALES:
A. My opinion generally a Deed of Absolute Sale indicated prescribed not only the
amount of the consideration. There are also other expenses involved in the sales.
I do not see here other payment of who takes care of capital gains stocks (sic) in
this Deed of Sale neither who shouldered the documentary stamps or even
transfer tax. That is my comment regarding this.
Q. Precisely Mr. Witness we have also shown to you the Offer to Purchase which
has been marked as Exhibit "9" as to the terms which we are asking?
xxx xxx xxx
A. Well, it says here in item C of the conditions the Capital Gains Stocks (sic),
documentary stamps, transfer tax registration and broker’s fee for the buyer’s
account. I do not know how much is this worth. If at all in condition (sic) to the
12.5 million which is the selling price, may I, therefore aside (sic) how much is the
total cost pertaining to this. The capital gains tax on (sic), documentary stamps,
transfer tax are all computed on the basis of the consideration which is P12.5 M,
the capital gain stocks (sic) is 5%, 5% of 12.5 M.
xxx xxx xxx
Yes sir if the 5% capital gains tax and documentary stamps respectively shall be
added to the 12.5 Million before the inclusion of the transfer tax, the amount will
be already in the vicinity of P13,250.000.
Q. With such consideration Mr. Witness and in the light of the terms and
conditions in the said Offer to Purchase and Deed of Absolute Sale could you give
your opinion as to whether the consideration is fair and reasonable.
xxx xxx xxx
A. With our proposal of P14.5 M as compared now to P13,250,000.00 may I give
my opinion that generally there will be two appraisers. In fairness to the situation,
they should not vary by as much as 7% down so we are playing at a variance
actually of about 15%. In my experience in this profession for the last 27 years as

I have said in fairness if there is another appraisal done by another person, that
kind of difference is very marginal should at least indicate the fairness of the
property and so therefore the only way to find out is to determine the difference
between the P14.5 M and the P13,250,000.00. My computation indicates that it
is close to 10% something like that difference. What is the question again?
Q. Whether it is fair and reasonable under the circumstances.
A. I have answered already the question and I said maximum of 15%.
Q. So based on your computation this is about 10% which is fair and reasonable.
A That is right sir.10
Withal, the consideration of the sale is fair and reasonable as would justify the
conclusion that the sale is undoubtedly a true and genuine conveyance to which
the parties thereto are irrevocably and undeniably bound.
It may be stressed that, when the validity of sales contract is in issue, two veritable
presumptions are relevant: first, that there was sufficient consideration of the
contract11 ; and, second, that it was the result of a fair and regular private
transaction.12 If shown to hold, these presumptions infer prima facie the
transaction's validity, except that it must yield to the evidence adduced13 which
the party disputing such presumptive validity has the burden of overcoming.
Unfortunately for the petitioner, it failed to discharge this burden. Its bare
allegation respecting the sale having been executed in fraud of creditors and
without adequate consideration cannot, without more, prevail over the
respondents' evidence which more than sufficiently supports a conclusion as to
the legitimacy of the transaction and the bona fides of the parties.
Parenthetically, the rescissory action to set aside contracts in fraud of creditors
is accion pauliana, essentially a subsidiary remedy accorded under Article 1383
of the Civil Code which the party suffering damage can avail of only when he has
no other legal means to obtain reparation for the same.14 In net effect, the
provision applies only when the creditor cannot recover in any other manner what
is due him.
It is true that respondent spouses, as surety for BMC, bound themselves to
answer for the latter’s debt. Nonetheless, for purposes of recovering what the
eventually insolvent BMC owed the bank, it behooved the petitioner to show that
it had exhausted all the properties of the spouses Ong. It does not appear in this
case that the petitioner sought other properties of the spouses other than the
subject Greenhills property. The CA categorically said so. Absent proof, therefore,
that the spouses Ong had no other property except their Greenhills home, the
sale thereof to respondent Lee cannot simplistically be considered as one in fraud
of creditors.
Neither was evidence adduced to show that the sale in question peremptorily
deprived the petitioner of means to collect its claim against the Ongs. Where a
creditor fails to show that he has no other legal recourse to obtain satisfaction for
his claim, then he is not entitled to the rescission asked.15
For a contract to be rescinded for being in fraud of creditors, both contracting
parties must be shown to have acted maliciously so as to prejudice the creditors
who were prevented from collecting their claims.16 Again, in this case, there is no
evidence tending to prove that the spouses Ong and Lee were conniving cheats.
In fact, the petitioner did not even attempt to prove the existence of personal
closeness or business and professional interdependence between the spouses
Ong and Lee as to cast doubt on their true intent in executing the contract of sale.
With the view we take of the evidence on record, their relationship vis-à-vis the
subject Greenhills property was no more than one between vendor and vendee
dealing with each other for the first time. Any insinuation that the two colluded to
gyp petitioner bank is to read in a relationship something which, from all
indications, appears to be purely business.
It cannot be overemphasized that rescission is generally unavailing should a third
person, acting in good faith, is in lawful possession of the property,17 that is to
say, he is protected by law against a suit for rescission by the registration of the
transfer to him in the registry.
As recited earlier, Lee was - and may still be - in lawful possession of the subject
property as the transfer to him was by virtue of a presumptively valid onerous
contract of sale. His possession is evidenced by no less than a certificate of title
issued him by the Registry of Deeds of San Juan, Metro Manila, after the usual
registration of the corresponding conveying deed of sale. On the other hand, the
bona fides of his acquisition can be deduced from his conduct and outward acts
previous to the sale. As testified to by him and duly noted by the CA, respondent
Lee undertook what amounts to due diligence on the possible defects in the title
6
of the Ongs before proceeding with the sale. As it were, Lee decided to buy the
property only after being satisfied of the absence of such defects.18
Time and again, the Court has held that one dealing with a registered parcel of
land need not go beyond the certificate of title as he is charged with notice only
of burdens which are noted on the face of the register or on the certificate of
title.19 The Continuing Surety Agreement, it ought to be particularly pointed out,
was never recorded nor annotated on the title of spouses Ong. There is no
evidence extant in the records to show that Lee had knowledge, prior to the
subject sale, of the surety agreement adverted to. In fine, there is nothing to
remotely suggest that the purchase of the subject property was characterized by
anything other than good faith.
Petitioner has made much of respondent Lee not taking immediate possession of
the property after the sale, stating that such failure is an indication of his
participation in the fraudulent scheme to prejudice petitioner bank.
We are not persuaded.
Lee, it is true, allowed the respondent spouses to continue occupying the
premises even after the sale. This development, however, is not without basis or
practical reason. The spouses' continuous possession of the property was by
virtue of a one-year lease20 they executed with respondent Lee six days after the
sale. As explained by the respondent spouses, they insisted on the lease
arrangement as a condition for the sale in question. And pursuant to the lease
contract aforementioned, the respondent Ongs paid and Lee collected rentals at
the rate of P25,000.00 a month. Contrary thus to the petitioner’s asseveration,
respondent Lee, after the sale, exercised acts of dominion over the said property
and asserted his rights as the new owner. So, when the respondent spouses
continued to occupy the property after its sale, they did so as mere tenants. While
the failure of the vendee to take exclusive possession of the property is generally
recognized as a badge of fraud, the same cannot be said here in the light of the
existence of what appears to be a genuine lessor-lessee relationship between the
spouses Ong and Lee. To borrow from Reyes vs. Court of Appeals,21 possession
may be exercised in one’s own name or in the name of another; an owner of a
piece of land has possession, either when he himself physically occupies the
same or when another person who recognizes his right as owner is in such
occupancy.
Petitioner’s assertion regarding respondent Lee’s lack of financial capacity to
acquire the property in question since his income in 1990 was only P346,571.73
is clearly untenable. Assuming for argument that petitioner got its figure right, it is
clearly incorrect to measure one’s purchasing capacity with one’s income at a
given period. But the more important consideration in this regard is the
uncontroverted fact that respondent Lee paid the purchase price of said property.
Where he sourced the needed cash is, for the nonce, really of no moment.
The cited case of China Banking22 cannot plausibly provide petitioner with a
winning card. In that case, the Court, applying Article 1381 (3) of the Civil Code,
rescinded an Assignment of Rights to Redeem owing to the failure of the assignee
to overthrow the presumption that the said conveyance/assignment is fraudulent.
In turn, the presumption was culled from Article 1387, par. 2, of the Code
pertinently providing that "[A]lienation by onerous title are also presumed
fraudulent when made by persons against whom some judgment has been
rendered in any instance or some writ of attachment has been issued."
Indeed, when the deed of assignment was executed in China Banking, the
assignor therein already faced at that time an adverse judgment. In the same
case, moreover, the Court took stock of other signs of fraud which tainted the
transaction therein and which are, significantly, not obtaining in the instant case.
We refer, firstly, to the element of kinship, the assignor, Alfonso Roxas Chua,
being the father of the assignee, Paulino. Secondly, Paulino admitted knowing his
father to be insolvent. Hence, the Court, rationalizing the rescission of the
assignment of rights, made the following remarks:
The mere fact that the conveyance was founded on valuable consideration does
not necessarily negate the presumption of fraud under Article 1387 of the Civil
Code. There has to be valuable consideration and the transaction must have been
made bona fide.23
There lies the glaring difference with the instant case.
Here, the existence of fraud cannot be presumed, or, at the very least, what were
perceived to be badges of fraud have been proven to be otherwise. And, unlike
Alfonso Roxas Chua in China Banking, a judgment has not been rendered against
respondent spouses Ong or that a writ of attachment has been issued against
them at the time of the disputed sale.

In a last-ditch attempt to resuscitate a feeble cause, petitioner cites Section 70 of
the Insolvency Law which, unlike the invoked Article 1381 of the Civil Code that
deals with a valid but rescissible contract, treats of a contractual infirmity resulting
in nullity no less of the transaction in question. Insofar as pertinent, Section 70 of
the Insolvency Law provides:
Sec. 70. If any debtor, being insolvent, or in contemplation of insolvency, within
thirty days before the filing of a petition by or against him, with a view to giving a
preference to any creditor or person having a claim against him xxx makes any
xxx sale or conveyance of any part of his property, xxx such xxx sale, assignment
or conveyance is void, and the assignee, or the receiver, may recover the property
or the value thereof, as assets of such insolvent debtor. xxx. Any payment,
pledge, mortgage, conveyance, sale, assignment, or transfer of property of
whatever character made by the insolvent within one (1) month before the filing
of a petition in insolvency by or against him, except for a valuable pecuniary
consideration made in good faith shall be void. xxx. (Emphasis added)
Petitioner avers that the Ong-Lee sales contract partakes of a fraudulent transfer
and is null and void in contemplation of the aforequoted provision, the sale having
occurred on October 22, 1991 or within thirty (30) days before BMC filed a petition
for suspension of payments on November 22, 1991.
Petitioner's reliance on the afore-quoted provision is misplaced for the following
reasons:
First, Section 70, supra, of the Insolvency Law specifically makes
reference to conveyance of properties made by a "debtor" or by an
"insolvent" who filed a petition, or against whom a petition for
insolvency has been filed. Respondent spouses Ong have doubtlessly
not filed a petition for a declaration of their own insolvency. Neither has
one been filed against them. And as the CA aptly observed, it was
never proven that respondent spouses are likewise insolvent,
petitioner having failed to show that they were down to their Greenhills
property as their only asset.
It may be that BMC had filed a petition for rehabilitation and suspension
of payments with the SEC. The nagging fact, however is that BMC is
a different juridical person from the respondent spouses. Their seventy
percent (70%) ownership of BMC’s capital stock does not change the
legal situation. Accordingly, the alleged insolvency of BMC cannot, as
petitioner postulates, extend to the respondent spouses such that
transaction of the latter comes within the purview of Section 70 of the
Insolvency Law.
Second, the real debtor of petitioner bank in this case is BMC. The fact
that the respondent spouses bound themselves to answer for BMC’s
indebtedness under the surety agreement referred to at the outset is
not reason enough to conclude that the spouses are themselves
debtors of petitioner bank. We have already passed upon the simple
reason for this proposition. We refer to the basic precept in this
jurisdiction that a corporation, upon coming into existence, is invested
by law with a personality separate and distinct from those of the
persons composing it.24 Mere ownership by a single or small group of
stockholders of nearly all of the capital stock of the corporation is not,
without more, sufficient to disregard the fiction of separate corporate
personality.25
Third, Section 70 of the Insolvency Law considers transfers made
within a month after the date of cleavage void, except those made in
good faith and for valuable pecuniary consideration. The twin elements
of good faith and valuable and sufficient consideration have been duly
established. Given the validity and the basic legitimacy of the sale in
question, there is simply no occasion to apply Section 70 of the
Insolvency Law to nullify the transaction subject of the instant case.
All told, we are far from convinced by petitioner’s argumentation that the
circumstances surrounding the sale of the subject property may be considered
badges of fraud. Consequently, its failure to show actual fraudulent intent on the
part of the spouses Ong defeats its own cause.
WHEREFORE, the instant petition is DENIED and the assailed decision of the
Court of Appeals is AFFIRMED.
G.R. No. 191178 March 13, 2013
ANCHOR SAVINGS BANK (FORMERLY ANCHOR FINANCE AND
INVESTMENT CORPORATION), Petitioner,
vs.
7
HENRY H. FURIGAY, GELINDA C. FURIGAY, HERRIETTE C. FURIGAY and
HEGEM C. FURIGAY, Respondents.
DECISION
MENDOZA, J.:
This concerns a petition for review_ on certiorari filed by petitioner Anchor Savings
Bank (ASB) under Rule 45 of the 1997 Rules of Civil Procedure, assailing the May
28, 2009 Decision1 and the January 22, 2010 Resolution2 of the Court of Appeals
(CA), in CA-G.R. CV No. 90123, dismissing the appeal.3
The assailed resolution denied the separate motions for reconsideration of both
parties.
The Facts
On April 21, 1999, ASB filed a verified complaint for sum of money and damages
with application for replevin against Ciudad Transport Services, Inc. (CTS), its
president, respondent Henry H. Furigay; his wife, respondent Gelinda C. Furigay;
and a "John Doe." The case was docketed as Civil Case No. 99-865 and raffled
to Branch 143 of the Regional Trial Court of Makati City (RTC).4
On November 7, 2003, the RTC rendered its Decision5 in favor of ASB, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Anchor Savings
Bank ordering defendants Ciudad Transport Services, Inc., Henry H. Furigay and
Genilda C. Furigay to pay the following:
1) The amount of Eight Million Six Hundred Ninety Five Thousand Two
Hundred Two pesos and Fifty Nine centavos (Php8,695,202.59) as
PRINCIPAL OBLIGATION as of 12 April 1999;
2) An INTEREST of Twelve per cent (12%) per annum until fully paid;
3) PENALTY CHARGE of Twelve per cent (12%) per annum until fully
paid;
4) LIQUIDATED DAMAGES of Ten (10%) per cent of the total amount
due;
5) One Hundred Thousand pesos as reasonable ATTORNEY’S FEES;
6) Costs of suit.
SO ORDERED.6
While Civil Case No. 99-865 was pending, respondent spouses donated their
registered properties in Alaminos, Pangasinan, to their minor children,
respondents Hegem G. Furigay and Herriette C. Furigay. As a result, Transfer
Certificate of Title (TCT) Nos. 21743,7 21742,8 21741,9 and 2174010 were issued
in the names of Hegem and Herriette Furigay.
Claiming that the donation of these properties was made in fraud of creditors,
ASB filed a Complaint for Rescission of Deed of Donation, Title and
Damages11 against the respondent spouses and their children. The case was
docketed as Civil Case No. A-3040 and raffled to Branch 55 of the RTC of
Alaminos, Pangasinan. In its Complaint, ASB made the following allegations:
xxxx
4. That Ciudad Transport Services, Inc., Henry H. Furigay and Gelinda C. Furigay
obtained a loan from Anchor Savings Bank and subsequently the former defaulted
from their loan obligation which prompted Anchor Savings Bank to file the case
entitled "Anchor Savings Bank vs. Ciudad Transport Services, Inc., Henry H.
Furigay and Gelinda C. Furigay" lodged before Makati City Regional Trial Court
Branch 143 and docketed as Civil Case No. 99-865. On 7 November 2003 the
Honorable Court in the aforesaid case issued a Decision the dispositive portion
of which reads as follows:
xxxx

5. That defendants Sps. Henry H. Furigay and Gelinda C. Furigay are the
registered owners of various real properties located at the Province of Pangasinan
covered by Transfer Certificate of Title Nos. 19721, 21678, 21679, and 21682. x
xx
6. That on 8 March 2001 defendants Sps. Henry H. Furigay and Gelinda C.
Furigay executed a Deed of Donation in favor of their children herein defendants
Hegem C. Furigay and Herriette C. Furigay donating to them all of the above-
mentioned properties. Hence, the following titles were issued under their names
to wit: Transfer Certificate of Title Nos. 21743, 21742, 21741, and 21740. x x x
7. That the donation made by defendants Sps. Henry H. Furigay and Gelinda C.
Furigay were done with the intention to defraud its creditors particularly Anchor
Savings Bank. Said transfer or conveyance is the one contemplated by Article
1387 of the New Civil Code, which reads:
xxxx
8. x x x In the instant case, Sps. Furigay donated the properties at the time there
was a pending case against them. x x x. In the instant case, the Sps. Furigay
donated the properties to their son and daughter. Moreover, the transfer or
donation was executed in 2001 when both donees Hegem C. Furigay and
Herriette C. Furigay are minors.
9. Clearly, the Donation made by defendants Sps. Furigay was intended to
deprive plaintiff Anchor Savings Bank from going after the subject properties to
answer for their due and demandable obligation with the Bank. The donation
being undertaken in fraud of creditors then the same may be rescinded pursuant
to Article 1381 of the New Civil Code. The said provision provides that: x x x x
Consequently, Transfer Certificate of Title Nos. 21743, 21742, 21741, and 21740
issued under the names of defendants Herriette C. Furigay and Hegem C. Furigay
should likewise be cancelled and reverted to the names of co-defendants Henry
and Gelinda Furigay.
10. That because of the fraud perpetrated by defendants, plaintiff suffered the
following damages.
11. Plaintiff suffered actual and compensatory damages as a result of the filing of
the case the bank has spent a lot of man-hours of its employees and officers re-
evaluating the account of defendant Sps. Furigay. Such man-hour when
converted into monetary consideration represents the salaries and per diems of
its employees particularly the CI/Appraiser, Head Office Lawyer and Bank
Auditor;
12. Said claim likewise represents administrative expenses such as transportation
expenses, reproduction of documents, and courier expenses among others;
13. Defendants should be made to pay plaintiff Anchor Savings Bank the amount
of PESOS: ONE MILLION (₱1,000,000.00) as moral damages for the damage it
caused to the latter’s business goodwill and reputation;
14. By way of example for the public and to deter others from the malicious filing
of baseless (sic) suit, defendants should be ordered to pay [plaintiff] the amount
of PESOS: TWO HUNDRED THOUSAND (₱200,000.00) as exemplary damages.
15. Attorneys fees equivalent to twenty-five percent (25%) of the total amount that
can be collected from defendant;
16. Defendants should also be held liable to pay for the cost of suit.12
Instead of filing an answer, respondents sought the dismissal of the complaint,
principally arguing that the RTC failed to acquire jurisdiction over their persons as
well as over the subject matter in view of the failure of the ASB to serve the
summons properly and to pay the necessary legal fees.
RTC Resolutions
On September 29, 2006, the RTC issued an Order13 denying the motion to
dismiss. Respondents sought reconsideration of the Order adding that the ASB’s
action for rescission had already prescribed.
Upon filing of ASB’s opposition to the motion for reconsideration, on February 27,
2007, the RTC reconsidered its earlier pronouncement and dismissed the
complaint for failure of ASB to pay the correct docket fees and for prescription.14
8
RTC explained that the service of summons by publication made by ASB was
valid because respondents’ whereabouts could not have been ascertained with
exactitude and because Section 14, Rule 14 of the Rules of Court did not
distinguish what kind of action it would apply.
On the issue of lack of jurisdiction over the subject matter of the case, the RTC
ruled that the complaint was actually a real action as it affected title to or
possession of real property. Accordingly, the basis for determining the correct
docket fees was the fair market value of the real property under litigation as stated
in its current tax declaration or its current zonal valuation, whichever was higher.
Considering that ASB did not state the current tax declaration or current zonal
valuation of the real properties involved, as well as the amount of actual damages
and attorney’s fees it prayed for, the trial court was of the view that ASB purposely
evaded the payment of the correct filing fees.
On the issue of prescription, the RTC ruled that the action for rescission had
already prescribed. It stated that an action for rescission grounded on fraud
should be filed within four (4) years from the discovery of fraud. ASB filed the
action for rescission only on October 14, 2005 or after four (4) years from the time
the Deed of Donation was registered in the Register of Deeds of Alaminos,
Pangasinan, on April 4, 2001. The four-year prescriptive period should be
reckoned from the date of registration of the deed of donation and not from the
date of the actual discovery of the registration of the deeds of donation because
registration is considered notice to the whole world. Thus, the RTC disposed:
WHEREFORE, premises considered, the Order dated September 29, 2006 is
hereby reconsidered and set aside, in lieu thereof, the instant complaint is hereby
ordered dismissed on the account of lack of jurisdiction over the subject matter of
the case for failure of the plaintiff to pay the correct docket fees upon its institution
attended by bad faith and on the ground of prescription.
SO ORDERED.15
ASB sought reconsideration, but to no avail.16
Ruling of the CA
On appeal, the CA agreed with ASB that its complaint should not have been
dismissed on the ground that it failed to pay the correct docket fees. It stated that
the lack of specific amount of actual damages and attorney’s fees in ASB’s
complaint did not, by itself, amount to evident bad faith. The CA noted that ASB
had previously manifested before the trial court that it was willing to pay additional
docket fees should the same be found insufficient.
On the issue of prescription, however, the CA saw things differently. Considering
the subsidiary nature of an action for rescission, the CA found that the action of
ASB had not yet prescribed, but was premature. The CA noted that ASB failed to
allege in its complaint that it had resorted to all legal remedies to obtain
satisfaction of its claim. The CA wrote:
After a thorough examination of the foregoing precepts and the facts engirding
this case, this court opines that plaintiff-appellant’s action for rescission has not
yet prescribed for it must be emphasized that it has not even accrued in the first
place. To stress, an action for rescission or accion pauliana accrues only if all five
requisites are present, to wit:
1) That the plaintiff asking for rescission, has a credit prior to the
alienation, although demandable later;
2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his claim, but
would benefit by rescission of the conveyance to the third person;
4) That the act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud.
In the instant case, the plaintiff-appellant failed to satisfy the third requirement
considering that it did not allege in its complaint that it has resorted to all legal
remedies to obtain satisfaction of his claim. It did not even point out in its complaint
if the decision in Civil Case No. 99-865 has already become final and executory
and whether the execution thereof yielded negative result in satisfying its claims.
Even the skip tracing allegedly done by the plaintiff-appellant to locate the
properties of the defendant-appellees was not mentioned. And although the skip

tracing reports were subsequently presented by the plaintiff-appellant, such
reports are not sufficient to satisfy the third requirement. First, they are not
prepared and executed by the sheriff, and second, they do not demonstrate that
the sheriff failed to enforce and satisfy the judgment of the court and that the
plaintiff-appellant has exhausted the property of the defendant-appellees.
Perforce, the action for rescission filed by the plaintiff-appellant is dismissible.17
As stated at the outset, both parties sought reconsideration but were rebuffed.
Issue
Hence, this recourse of ASB to the Court, presenting the lone issue of:
WHETHER OR NOT THE COURT OF APPEALS, IN CA G.R. CV NO 90123,
HAS DECIDED A QUESTION OF SUBSTANCE, NOT HERETOFORE
DETERMINED BY THE SUPREME COURT, OR HAS DECIDED IT IN A WAY
PROBABLY NOT IN ACCORDANCE WITH LAW OR THE APPLICABLE
DECISIONS OF THE SUPREME COURT, WHEN IT RENDERED THE
DECISION DATED 28 MAY 2009, AND RESOLUTION DATED 22 JANUARY
2010, IN FINDING THAT PETITIONER FAILED TO PROVE THAT IT HAS
RESORTED TO ALL LEGAL REMEDIES TO OBTAIN SATISFACTION OF ITS
CLAIM, WITHOUT GIVING PETITIONER THE OPPORTUNITY TO BE HEARD
OR THE CHANCE TO PRESENT EVIDENCE TO SUPPORT ITS ACTION,
THEREBY DEPRIVING THE LATTER OF THE RIGHT TO DUE PROCESS.18
ASB argues that, considering that its action was still in its preliminary stages, the
CA erred in dismissing its action on the ground that it failed to allege in its
complaint the fact that it had resorted to all other legal remedies to satisfy its claim,
because it is a matter that need not be alleged in its complaint, but, rather, to be
proved during trial. It asserts that its action is not yet barred by prescription,
insisting that the reckoning point of the four
(4)-year prescriptive period should be counted from September 2005, when it
discovered the fraudulent donation made by respondent spouses.
The basic issue in this case is whether the CA was correct in dismissing ASB’s
complaint on the ground that the action against respondents was premature.
Ruling of the Court
The Court finds the petition bereft of merit.
Section 1 of Rule 2 of the Revised Rules of Court requires that every ordinary civil
action must be based on a cause of action. Section 2 of the same rule defines a
cause of action as an act or omission by which a party violates the right of another.
In order that one may claim to have a cause of action, the following elements must
concur: (1) a right in favor of the plaintiff by whatever means and under whatever
law it arises or is created; (2) an obligation on the part of the named defendant to
respect or not to violate such right; and (3) an act or omission on the part of such
defendant in violation of the right of the plaintiff or constituting a breach of the
obligation of the defendant to the plaintiff for which the latter may maintain an
action for recovery of damages or other appropriate relief.19 In other words, "a
cause of action arises when that should have been done is not done, or that which
should not have been done is done."20
In Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,21 it was
held that "before an action can properly be commenced, all the essential elements
of the cause of action must be in existence, that is, the cause of action must be
complete. All valid conditions precedent to the institution of the particular action,
whether prescribed by statute, fixed by agreement of the parties or implied by law
must be performed or complied with before commencing the action, unless the
conduct of the adverse party has been such as to prevent or waive performance
or excuse non-performance of the condition."
Moreover, it is not enough that a party has, in effect, a cause of action.
The rules of procedure require that the complaint must contain a concise
statement of the ultimate or essential facts constituting the plaintiff's cause of
action. "The test of the sufficiency of the facts alleged in the complaint is whether
or not, admitting the facts alleged, the court can render a valid judgment upon the
same in accordance with the prayer of plaintiff."22 The focus is on the sufficiency,
not the veracity, of the material allegations. Failure to make a sufficient allegation
of a cause of action in the complaint warrants its dismissal. 23
In relation to an action for rescission, it should be noted that the remedy of
rescission is subsidiary in nature; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the
same.24 Article 1177 of the New Civil Code provides:
9
The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter
for the same purpose, save those which are inherent in his person; they may also
impugn the actions which the debtor may have done to defraud them. (Emphasis
added)
Consequently, following the subsidiary nature of the remedy of rescission, a
creditor would have a cause of action to bring an action for rescission, if it is
alleged that the following successive measures have already been taken: (1)
exhaust the properties of the debtor through levying by attachment and execution
upon all the property of the debtor, except such as are exempt by law from
execution; (2) exercise all the rights and actions of the debtor, save those
personal to him (accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana).25
With respect to an accion pauliana, it is required that the ultimate facts constituting
the following requisites must all be alleged in the complaint, viz.:
1) That the plaintiff asking for rescission, has credit prior to the
alienation, although demandable later;
2) That the debtor has made a subsequent contract conveying a
patrimonial benefit to a third person;
3) That the creditor has no other legal remedy to satisfy his claim, but
would benefit by rescission of the conveyance to the third person;
4) That act being impugned is fraudulent; and
5) That the third person who received the property conveyed, if by
onerous title, has been an accomplice in the fraud.26
A cursory reading of the allegations of ASB’s complaint would show that it failed
to allege the ultimate facts constituting its cause of action and the prerequisites
that must be complied before the same may be instituted. ASB, without availing
of the first and second remedies, that is, exhausting the properties of CTS, Henry
H. Furigay and Genilda C. Furigay or their transmissible rights and actions, simply
undertook the third measure and filed an action for annulment of the donation.
This cannot be done. The Court hereby quotes with approval the thorough
discourse of the CA on this score:27
To answer the issue of prescription, the case of Khe Hong Cheng vs. Court of
Appeals (G.R. No. 144169, March 28, 2001) is pertinent. In said case, Philam
filed an action for collection against Khe Hong Cheng. While the case was still
pending, or on December 20, 1989, Khe Hong Cheng, executed deeds of
donations over parcels of land in favor of his children, and on December 27, 1989,
said deeds were registered. Thereafter, new titles were issued in the names of
Khe Hong Cheng’s children. Then, the decision became final and executory. But
upon enforcement of writ of execution, Philam found out that Khe Hong Cheng no
longer had any property in his name. Thus, on February 25, 1997, Philam filed an
action for rescission of the deeds of donation against Khe Hong Cheng alleging
that such was made in fraud of creditors. However, Khe Hong Cheng moved for
the dismissal of the action averring that it has already prescribed since the four-
year prescriptive period for filing an action for rescission pursuant to Article 1389
of the Civil Code commenced to run from the time the deeds of donation were
registered on December 27, 1989. Khe Hong Cheng averred that registration
amounts to constructive notice and since the complaint was filed only on February
25, 1997, or more than four (4) years after said registration, the action was already
barred by prescription. The trial court ruled that the complaint had not yet
prescribed since the prescriptive period began to run only from December 29,
1993, the date of the decision of the trial court. Such decision was affirmed by this
court but reckoned the accrual of Philam's cause of action in January 1997, the
time when it first learned that the judgment award could not be satisfied because
the judgment creditor, Khe Hong Cheng, had no more properties in his name.
Hence, the case reached the Supreme Court which ruled that the action for
rescission has not yet prescribed, ratiocinating as follows:
"Essentially, the issue for resolution posed by petitioners is this: When did the four
(4) year prescriptive period as provided for in Article 1389 of the Civil Code for
respondent Philam to file its action for rescission of the subject deeds of donation
commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, ‘The action to claim rescission
must be commenced within four years.’ Since this provision of law is silent as to
when the prescriptive period would commence, the general rule, i.e, from the
moment the cause of action accrues, therefore, applies. Article 1150 of the Civil
Code is particularly instructive:

ARTICLE 1150. The time for prescription for all kinds of actions, when there is no
special provision which ordains otherwise, shall be counted from the day they may
be brought.
Indeed, this Court enunciated the principle that it is the legal possibility of bringing
the action which determines the starting point for the computation of the
prescriptive period for the action. Article 1383 of the Civil Code provides as
follows:
ARTICLE 1383. An action for rescission is subsidiary; it cannot be instituted
except when the party suffering damage has no other legal means to obtain
reparation for the same.
It is thus apparent that an action to rescind or an accion pauliana must be of last
resort, availed of only after all other legal remedies have been exhausted and
have been proven futile.1âwphi1 For an accion pauliana to accrue, the following
requisites must concur:
1) That the plaintiff asking for rescission, has a credit prior to the alienation,
although demandable later; 2) That the debtor has made a subsequent contract
conveying a patrimonial benefit to a third person; 3) That the creditor has no other
legal remedy to satisfy his claim, but would benefit by rescission of the
conveyance to the third person; 4) That the act being impugned is fraudulent; 5)
That the third person who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.
We quote with approval the following disquisition of the CA on the matter:
An accion pauliana accrues only when the creditor discovers that he has no other
legal remedy for the satisfaction of his claim against the debtor other than an
accion pauliana. The accion pauliana is an action of a last resort. For as long as
the creditor still has a remedy at law for the enforcement of his claim against the
debtor, the creditor will not have any cause of action against the creditor for
rescission of the contracts entered into by and between the debtor and another
person or persons. Indeed, an accion pauliana presupposes a judgment and the
issuance by the trial court of a writ of execution for the satisfaction of the judgment
and the failure of the Sheriff to enforce and satisfy the judgment of the court. It
presupposes that the creditor has exhausted the property of the debtor. The date
of the decision of the trial court against the debtor is immaterial. What is important
is that the credit of the plaintiff antedates that of the fraudulent alienation by the
debtor of his property. After all, the decision of the trial court against the debtor
will retroact to the time when the debtor became indebted to the creditor.
Petitioners, however, maintain that the cause of action of respondent Philam
against them for the rescission of the deeds of donation accrued as early as
December 27, 1989, when petitioner Khe Hong Cheng registered the subject
conveyances with the Register of Deeds. Respondent Philam allegedly had
constructive knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:
SECTION 52. Constructive knowledge upon registration. — Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting
registered land shall, if registered, filed or entered in the Office of the Register of
Deeds for the province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering, filing, or
entering.
Petitioners argument that the Civil Code must yield to the Mortgage and
Registration Laws is misplaced, for in no way does this imply that the specific
provisions of the former may be all together ignored. To count the four year
prescriptive period to rescind an allegedly fraudulent contract from the date of
registration of the conveyance with the Register of Deeds, as alleged by the
petitioners, would run counter to Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to file an action for
rescission of an allegedly fraudulent conveyance of property, i.e., the creditor has
no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the
issuance by the trial court of a writ of execution for the satisfaction of the judgment,
and 3) the failure of the sheriff to enforce and satisfy the judgment of the court. It
requires that the creditor has exhausted the property of the debtor. The date of
the decision of the trial court is immaterial. What is important is that the credit of
the plaintiff antedates that of the fraudulent alienation by the debtor of his
property. After all, the decision of the trial court against the debtor will retroact to
the time when the debtor became indebted to the creditor.
xxxx
10
Even if respondent Philam was aware, as of December 27, 1989, that petitioner
Khe Hong Cheng had executed the deeds of donation in favor of his children, the
complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng was
still pending before the trial court. Respondent Philam had no inkling, at the time,
that the trial court's judgment would be in its favor and further, that such judgment
would not be satisfied due to the deeds of donation executed by petitioner Khe
Hong Cheng during the pendency of the case. Had respondent Philam filed his
complaint on December 27, 1989, such complaint would have been dismissed for
being premature. Not only were all other legal remedies for the enforcement of
respondent Philam's claims not yet exhausted at the time the deeds of donation
were executed and registered. Respondent Philam would also not have been able
to prove then that petitioner Khe Hong Cheng had no more property other than
those covered by the subject deeds to satisfy a favorable judgment by the trial
court.
xxxx
As mentioned earlier, respondent Philam only learned about the unlawful
conveyances made by petitioner Khe Hong Cheng in January 1997 when its
counsel accompanied the sheriff to Butuan City to attach the properties of
petitioner Khe Hong Cheng. There they found that he no longer had any
properties in his name. It was only then that respondent
Philam's action for rescission of the deeds of donation accrued because then it
could be said that respondent Philam had exhausted all legal means to satisfy the
trial court's judgment in its favor. Since respondent Philam filed its complaint for
accion pauliana against petitioners on February 25, 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other property to satisfy the
judgment award against him, its action for rescission of the subject deeds clearly
had not yet prescribed."
From the foregoing, it is clear that the four-year prescriptive period commences
to run neither from the date of the registration of the deed sought to be rescinded
nor from the date the trial court rendered its decision but from the day it has
become clear that there are no other legal remedies by which the creditor can
satisfy his claims. [Emphases in the original]
In all, it is incorrect for ASB to argue that a complaint need not allege all the
elements constituting its cause of action since it would simply adduce proof of the
same during trial. "Nothing is more settled than the rule that in a motion to dismiss
for failure to state a cause of action, the inquiry is "into the sufficiency, not the
veracity, of the material allegations."28 The inquiry is confined to the four comers
of the complaint, and no other.29 Unfortunately for ASB, the Court finds the
allegations of its complaint insufficient in establishing its cause of action and in
apprising the respondents of the same so that they could defend themselves
intelligently and effectively pursuant to their right to due process. It is a rule of
universal application that courts of justice are constituted to adjudicate
substantive rights. While courts should consider public policy and necessity in
putting an end to litigations speedily they must nevertheless harmonize such
necessity with the fundamental right of litigants to due process.
WHEREFORE, the petition is DENIED.
SO ORDERED.
G.R. No. 182435 August 13, 2012
LILIA B. ADA, LUZ B. ADANZA, FLORA C. BA YLON, REMO BA YLON, JOSE
BA YLON, ERIC BA YLON, FLORENTINO BA YLON, and MA. RUBY BA
YLON, Petitioners,
vs.
FLORANTE BA YLON, Respondent.
VILLARAMA, JR.,*
DECISION
REYES, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules
of Court seeking to annul and set aside the Decision1 dated October 26, 2007
rendered by the Court of Appeals (CA) in CA-G.R. CV No. 01746. The assailed
decision partially reversed and set aside the Decision2 dated October 20, 2005
issued ~y the Regional Trial Court (RTC), Tan jay City, Negros Oriental, Branch
43 in Civil Case No. 11657.
The Antecedent Facts

This case involves the estate of spouses Florentino Baylon and Maximina Elnas
Baylon (Spouses Baylon) who died on November 7, 1961 and May 5, 1974,
respectively.3 At the time of their death, Spouses Baylon were survived by their
legitimate children, namely, Rita Baylon (Rita), Victoria Baylon (Victoria), Dolores
Baylon (Dolores), Panfila Gomez (Panfila), Ramon Baylon (Ramon) and herein
petitioner Lilia B. Ada (Lilia).
Dolores died intestate and without issue on August 4, 1976. Victoria died on
November 11, 1981 and was survived by her daughter, herein petitioner Luz B.
Adanza. Ramon died intestate on July 8, 1989 and was survived by herein
respondent Florante Baylon (Florante), his child from his first marriage, as well as
by petitioner Flora Baylon, his second wife, and their legitimate children, namely,
Ramon, Jr. and herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby, all
surnamed Baylon.
On July 3, 1996, the petitioners filed with the RTC a Complaint 4 for partition,
accounting and damages against Florante, Rita and Panfila. They alleged therein
that Spouses Baylon, during their lifetime, owned 43 parcels of land5all situated
in Negros Oriental. After the death of Spouses Baylon, they claimed that Rita took
possession of the said parcels of land and appropriated for herself the income
from the same. Using the income produced by the said parcels of land, Rita
allegedly purchased two parcels of land, Lot No. 47096 and half of Lot No.
4706,7 situated in Canda-uay, Dumaguete City. The petitioners averred that Rita
refused to effect a partition of the said parcels of land.
In their Answer,8 Florante, Rita and Panfila asserted that they and the petitioners
co-owned 229 out of the 43 parcels of land mentioned in the latter’s complaint,
whereas Rita actually owned 10 parcels of land10 out of the 43 parcels which the
petitioners sought to partition, while the remaining 11 parcels of land are
separately owned by Petra Cafino Adanza,11 Florante,12 Meliton
Adalia,13 Consorcia Adanza,14 Lilia15 and Santiago Mendez.16 Further, they
claimed that Lot No. 4709 and half of Lot No. 4706 were acquired by Rita using
her own money. They denied that Rita appropriated solely for herself the income
of the estate of Spouses Baylon, and expressed no objection to the partition of
the estate of Spouses Baylon, but only with respect to the co-owned parcels of
land.
During the pendency of the case, Rita, through a Deed of Donation dated July 6,
1997, conveyed Lot No. 4709 and half of Lot No. 4706 to Florante. On July 16,
2000, Rita died intestate and without any issue. Thereafter, learning of the said
donation inter vivos in favor of Florante, the petitioners filed a Supplemental
Pleading17 dated February 6, 2002, praying that the said donation in favor of the
respondent be rescinded in accordance with Article 1381(4) of the Civil Code.
They further alleged that Rita was already sick and very weak when the said Deed
of Donation was supposedly executed and, thus, could not have validly given her
consent thereto.
Florante and Panfila opposed the rescission of the said donation, asserting that
Article 1381(4) of the Civil Code applies only when there is already a prior judicial
decree on who between the contending parties actually owned the properties
under litigation.18
The RTC Decision
On October 20, 2005, the RTC rendered a Decision,19 the decretal portion of
which reads:
Wherefore judgment is hereby rendered:
(1) declaring the existence of co-ownership over parcels nos. 1, 2, 3,
5, 7, 10, 13, 14, 16, 17, 18, 26, 29, 30, 33, 34, 35, 36, 40 and 41
described in the complaint;
(2) directing that the above mentioned parcels of land be partitioned
among the heirs of Florentino Baylon and Maximina Baylon;
(3) declaring a co-ownership on the properties of Rita Baylon namely
parcels no[s]. 6, 11, 12, 20, 24, 27, 31, 32, 39 and 42 and directing that
it shall be partitioned among her heirs who are the plaintiffs and
defendant in this case;
(4) declaring the donation inter vivos rescinded without prejudice to the
share of Florante Baylon to the estate of Rita Baylon and directing that
parcels nos. 1 and 2 paragraph V of the complaint be included in the
division of the property as of Rita Baylon among her heirs, the parties
in this case;
11
(5) excluding from the co-ownership parcels nos. 20, 21, 22, 9, 43, 4,
8, 19 and 37.
Considering that the parties failed to settle this case amicably and could not agree
on the partition, the parties are directed to nominate a representative to act as
commissioner to make the partition. He shall immediately take [his] oath of office
upon [his] appointment. The commissioner shall make a report of all the
proceedings as to the partition within fifteen (15) days from the completion of this
partition. The parties are given ten (10) days within which to object to the report
after which the Court shall act on the commissioner report.
SO ORDERED.20 (Emphasis ours)
The RTC held that the death of Rita during the pendency of the case, having died
intestate and without any issue, had rendered the issue of ownership insofar as
parcels of land which she claims as her own moot since the parties below are the
heirs to her estate. Thus, the RTC regarded Rita as the owner of the said 10
parcels of land and, accordingly, directed that the same be partitioned among her
heirs. Nevertheless, the RTC rescinded the donation inter vivos of Lot No. 4709
and half of Lot No. 4706 in favor of Florante. In rescinding the said donation inter
vivos, the RTC explained that:
However, with respect to lot nos. 4709 and 4706 which [Rita] had conveyed to
Florante Baylon by way of donation inter vivos, the plaintiffs in their supplemental
pleadings (sic) assailed the same to be rescissible on the ground that it was
entered into by the defendant Rita Baylon without the knowledge and approval of
the litigants [or] of competent judicial authority. The subject parcels of lands are
involved in the case for which plaintiffs have asked the Court to partition the same
among the heirs of Florentino Baylon and Maximina Elnas.
Clearly, the donation inter vivos in favor of Florante Baylon was executed to
prejudice the plaintiffs’ right to succeed to the estate of Rita Baylon in case of
death considering that as testified by Florante Baylon, Rita Baylon was very weak
and he tried to give her vitamins x x x. The donation inter vivos executed by Rita
Baylon in favor of Florante Baylon is rescissible for the reason that it refers to the
parcels of land in litigation x x x without the knowledge and approval of the
plaintiffs or of this Court. However, the rescission shall not affect the share of
Florante Baylon to the estate of Rita Baylon.21
Florante sought reconsideration of the Decision dated October 20, 2005 of the
RTC insofar as it rescinded the donation of Lot No. 4709 and half of Lot No. 4706
in his favor.22 He asserted that, at the time of Rita’s death on July 16, 2000, Lot
No. 4709 and half of Lot No. 4706 were no longer part of her estate as the same
had already been conveyed to him through a donation inter vivos three years
earlier. Thus, Florante maintained that Lot No. 4709 and half of Lot No. 4706
should not be included in the properties that should be partitioned among the heirs
of Rita.
On July 28, 2006, the RTC issued an Order23 which denied the motion for
reconsideration filed by Florante.
The CA Decision
On appeal, the CA rendered a Decision24 dated October 26, 2007, the dispositive
portion of which reads:
WHEREFORE, the Decision dated October 20, 2005 and Order dated July 28,
2006 are REVERSEDand SET ASIDE insofar as they decreed the rescission of
the Deed of Donation dated July 6, 1997 and the inclusion of lot no. 4709 and half
of lot no. 4706 in the estate of Rita Baylon. The case is REMANDED to the trial
court for the determination of ownership of lot no. 4709 and half of lot no. 4706.
SO ORDERED.25
The CA held that before the petitioners may file an action for rescission, they must
first obtain a favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706
actually belonged to the estate of Spouses Baylon and not to Rita. Until then, the
CA asserted, an action for rescission is premature. Further, the CA ruled that the
petitioners’ action for rescission cannot be joined with their action for partition,
accounting and damages through a mere supplemental pleading. Thus:
If Lot No. 4709 and half of Lot No. 4706 belonged to the Spouses’ estate, then
Rita Baylon’s donation thereof in favor of Florante Baylon, in excess of her
undivided share therein as co-heir, is void. Surely, she could not have validly
disposed of something she did not own. In such a case, an action for rescission
of the donation may, therefore, prosper.
 12

If the lots, however, are found to have belonged exclusively to Rita Baylon, during donation inter vivos in favor of Florante. Lest it be overlooked, an action for
her lifetime, her donation thereof in favor of Florante Baylon is valid. For then, she partition is a special civil action governed by Rule 69 of the Rules of Court while
merely exercised her ownership right to dispose of what legally belonged to her. an action for rescission is an ordinary civil action governed by the ordinary rules
Upon her death, the lots no longer form part of her estate as their ownership now of civil procedure. The variance in the procedure in the special civil action of
pertains to Florante Baylon. On this score, an action for rescission against such partition and in the ordinary civil action of rescission precludes their joinder in one
donation will not prosper. x x x. complaint or their being tried in a single proceeding to avoid confusion in
determining what rules shall govern the conduct of the proceedings as well as in
the determination of the presence of requisite elements of each particular cause
Verily, before plaintiffs-appellees may file an action for rescission, they must first of action.32
obtain a favorable judicial ruling that lot no. 4709 and half of lot no. 4706 actually
belonged to the estate of Spouses Florentino and Maximina Baylon, and not to
Rita Baylon during her lifetime. Until then, an action for rescission is premature. A misjoined cause of action, if not
For this matter, the applicability of Article 1381, paragraph 4, of the New Civil severed upon motion of a party or
Code must likewise await the trial court’s resolution of the issue of ownership. by the court sua sponte, may be
adjudicated by the court together
with the other causes of action.
Be that as it may, an action for rescission should be filed by the parties concerned
independent of the proceedings below. The first cannot simply be lumped up with
the second through a mere supplemental pleading.26 (Citation omitted) Nevertheless, misjoinder of causes of action is not a ground for dismissal. Indeed,
the courts have the power, acting upon the motion of a party to the case or sua
sponte, to order the severance of the misjoined cause of action to be proceeded
The petitioners sought reconsideration27 of the Decision dated October 26, 2007 with separately.33 However, if there is no objection to the improper joinder or the
but it was denied by the CA in its Resolution28 dated March 6, 2008. court did not motu proprio direct a severance, then there exists no bar in the
simultaneous adjudication of all the erroneously joined causes of action. On this
Hence, this petition. score, our disquisition in Republic of the Philippines v. Herbieto34 is instructive,
viz:

Issue
The lone issue to be resolved by this Court is whether the CA erred in ruling that
the donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of
Florante may only be rescinded if there is already a judicial determination that the
same actually belonged to the estate of Spouses Baylon.
This Court, however, disagrees with petitioner Republic in this regard. This
procedural lapse committed by the respondents should not affect the jurisdiction
of the MTC to proceed with and hear their application for registration of the
Subject Lots.
xxxx

The Court’s Ruling

The petition is partly meritorious.
Procedural Matters
Before resolving the lone substantive issue in the instant case, this Court deems
it proper to address certain procedural matters that need to be threshed out which,
by laxity or otherwise, were not raised by the parties herein.
Misjoinder of Causes of Action
The complaint filed by the petitioners with the RTC involves two separate, distinct
and independent actions – partition and rescission. First, the petitioners raised
the refusal of their co-heirs, Florante, Rita and Panfila, to partition the properties
which they inherited from Spouses Baylon. Second, in their supplemental
pleading, the petitioners assailed the donation inter vivos of Lot No. 4709 and half
of Lot No. 4706 made by Rita in favor of Florante pendente lite.
The actions of partition and
rescission cannot be joined in a misjoined cause of action, then such misjoined cause of action has to be severed
single action.
By a joinder of actions, or more properly, a joinder of causes of action is meant
the uniting of two or more demands or rights of action in one action, the statement
of more than one cause of action in a declaration. It is the union of two or more
civil causes of action, each of which could be made the basis of a separate suit,
in the same complaint, declaration or petition. A plaintiff may under certain
circumstances join several distinct demands, controversies or rights of action in
one declaration, complaint or petition.29
Considering every application for land registration filed in strict accordance with
the Property Registration Decree as a single cause of action, then the defect in
the joint application for registration filed by the respondents with the MTC
constitutes a misjoinder of causes of action and parties. Instead of a single or joint
application for registration, respondents Jeremias and David, more appropriately,
should have filed separate applications for registration of Lots No. 8422 and 8423,
respectively.
Misjoinder of causes of action and parties do not involve a question of jurisdiction
of the court to hear and proceed with the case. They are not even accepted
grounds for dismissal thereof. Instead, under the Rules of Court, the misjoinder
of causes of action and parties involve an implied admission of the court’s
jurisdiction. It acknowledges the power of the court, acting upon the motion of a
party to the case or on its own initiative, to order the severance of the misjoined
cause of action, to be proceeded with separately (in case of misjoinder of causes
of action); and/or the dropping of a party and the severance of any claim against
said misjoined party, also to be proceeded with separately (in case of misjoinder
of parties).35 (Citations omitted)
It should be emphasized that the foregoing rule only applies if the court trying the
case has jurisdiction over all of the causes of action therein notwithstanding the
misjoinder of the same. If the court trying the case has no jurisdiction over a
from the other causes of action, and if not so severed, any adjudication rendered
by the court with respect to the same would be a nullity.
Here, Florante posed no objection, and neither did the RTC direct the severance
of the petitioners’ action for rescission from their action for partition. While this
may be a patent omission on the part of the RTC, this does not constitute a ground
to assail the validity and correctness of its decision. The RTC validly adjudicated
the issues raised in the actions for partition and rescission filed by the petitioners.

Asserting a New Cause of Action in a Supplemental Pleading

The objectives of the rule or provision are to avoid a multiplicity of suits where the
same parties and subject matter are to be dealt with by effecting in one action a
complete determination of all matters in controversy and litigation between the In its Decision dated October 26, 2007, the CA pointed out that the said action for
parties involving one subject matter, and to expedite the disposition of litigation at rescission should have been filed by the petitioners independently of the
minimum cost. The provision should be construed so as to avoid such multiplicity, proceedings in the action for partition. It opined that the action for rescission could
where possible, without prejudice to the rights of the litigants.30 not be lumped up with the action for partition through a mere supplemental
pleading.
Nevertheless, while parties to an action may assert in one pleading, in the
alternative or otherwise, as many causes of action as they may have against an We do not agree.
opposing party, such joinder of causes of action is subject to the condition, inter
alia, that the joinder shall not include special civil actions governed by special
A supplemental pleading may raise
rules.31
a new cause of action as long as it
has some relation to the original
Here, there was a misjoinder of causes of action. The action for partition filed by cause of action set forth in the
the petitioners could not be joined with the action for the rescission of the said original complaint.

Section 6, Rule 10 of the Rules of Court reads:
Sec. 6. Supplemental Pleadings. – Upon motion of a party the court may, upon
reasonable notice and upon such terms as are just, permit him to serve a
supplemental pleading setting forth transactions, occurrences or events which
have happened since the date of the pleading sought to be supplemented. The
adverse party may plead thereto within ten (10) days from notice of the order
admitting the supplemental pleading.
In Young v. Spouses Sy,36 this Court had the opportunity to elucidate on the
purpose of a supplemental pleading. Thus:
As its very name denotes, a supplemental pleading only serves to bolster or add
something to the primary pleading. A supplement exists side by side with the
original. It does not replace that which it supplements. Moreover, a supplemental
pleading assumes that the original pleading is to stand and that the issues joined
with the original pleading remained an issue to be tried in the action. It is but a
continuation of the complaint. Its usual office is to set up new facts which justify,
enlarge or change the kind of relief with respect to the same subject matter as the
controversy referred to in the original complaint.
The purpose of the supplemental pleading is to bring into the records new facts
which will enlarge or change the kind of relief to which the plaintiff is entitled;
hence, any supplemental facts which further develop the original right of action,
or extend to vary the relief, are available by way of supplemental complaint even
though they themselves constitute a right of action.37 (Citations omitted and
emphasis ours)
Thus, a supplemental pleading may properly allege transactions, occurrences or
events which had transpired after the filing of the pleading sought to be
supplemented, even if the said supplemental facts constitute another cause of
action.
Admittedly, in Leobrera v. Court of Appeals,38 we held that a supplemental
pleading must be based on matters arising subsequent to the original pleading
related to the claim or defense presented therein, and founded on the same cause
of action. We further stressed therein that a supplemental pleading may not be
used to try a new cause of action.
However, in Planters Development Bank v. LZK Holdings and Development
Corp.,39 we clarified that, while a matter stated in a supplemental complaint should
have some relation to the cause of action set forth in the original pleading, the fact
that the supplemental pleading technically states a new cause of action should
not be a bar to its allowance but only a matter that may be considered by the court
in the exercise of its discretion. In such cases, we stressed that a broad definition
of "cause of action" should be applied.
Here, the issue as to the validity of the donation inter vivos of Lot No. 4709 and
half of Lot No. 4706 made by Rita in favor of Florante is a new cause of action
that occurred after the filing of the original complaint. However, the petitioners’
prayer for the rescission of the said donation inter vivos in their supplemental
pleading is germane to, and is in fact, intertwined with the cause of action in the
partition case. Lot No. 4709 and half of Lot No. 4706 are included among the
properties that were sought to be partitioned.
The petitioners’ supplemental pleading merely amplified the original cause of
action, on account of the gratuitous conveyance of Lot No. 4709 and half of Lot
No. 4706 after the filing of the original complaint and prayed for additional reliefs,
i.e., rescission. Indeed, the petitioners claim that the said lots form part of the
estate of Spouses Baylon, but cannot be partitioned unless the gratuitous
conveyance of the same is rescinded. Thus, the principal issue raised by the
petitioners in their original complaint remained the same.
Main Issue: Propriety of Rescission
After having threshed out the procedural matters, we now proceed to adjudicate
the substantial issue presented by the instant petition.
The petitioners assert that the CA erred in remanding the case to the RTC for the
determination of ownership of Lot No. 4709 and half of Lot No. 4706. They
maintain that the RTC aptly rescinded the said donation inter vivos of Lot No.
4709 and half of Lot No. 4706 pursuant to Article 1381(4) of the Civil Code.
In his Comment,40 Florante asserts that before the petitioners may file an action
for rescission, they must first obtain a favorable judicial ruling that Lot No. 4709
and half of Lot No. 4706 actually belonged to the estate of Spouses Baylon. Until
then, Florante avers that an action for rescission would be premature.
13
The petitioners’ contentions are well-taken.
The resolution of the instant dispute is fundamentally contingent upon a
determination of whether the donation inter vivos of Lot No. 4709 and half of Lot
No. 4706 in favor of Florante may be rescinded pursuant to Article 1381(4) of the
Civil Code on the ground that the same was made during the pendency of the
action for partition with the RTC.
Rescission is a remedy to address
the damage or injury caused to the
contracting parties or third
persons.
Rescission is a remedy granted by law to the contracting parties and even to third
persons, to secure the reparation of damages caused to them by a contract, even
if it should be valid, by means of the restoration of things to their condition at the
moment prior to the celebration of said contract. 41 It is a remedy to make
ineffective a contract, validly entered into and therefore obligatory under normal
conditions, by reason of external causes resulting in a pecuniary prejudice to one
of the contracting parties or their creditors.42
Contracts which are rescissible are valid contracts having all the essential
requisites of a contract, but by reason of injury or damage caused to either of the
parties therein or to third persons are considered defective and, thus, may be
rescinded.
The kinds of rescissible contracts, according to the reason for their susceptibility
to rescission, are the following: first, those which are rescissible because of lesion
or prejudice;43 second, those which are rescissible on account of fraud or bad
faith;44 and third, those which, by special provisions of law,45 are susceptible to
rescission.46
Contracts which refer to things
subject of litigation is rescissible
pursuant to Article 1381(4) of the
Civil Code.
Contracts which are rescissible due to fraud or bad faith include those which
involve things under litigation, if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial
authority. Thus, Article 1381(4) of the Civil Code provides:
Art. 1381. The following contracts are rescissible:
xxxx
(4) Those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of competent
judicial authority.
The rescission of a contract under Article 1381(4) of the Civil Code only requires
the concurrence of the following: first, the defendant, during the pendency of the
case, enters into a contract which refers to the thing subject of litigation; and
second, the said contract was entered into without the knowledge and approval
of the litigants or of a competent judicial authority. As long as the foregoing
requisites concur, it becomes the duty of the court to order the rescission of the
said contract.
The reason for this is simple. Article 1381(4) seeks to remedy the presence of
bad faith among the parties to a case and/or any fraudulent act which they may
commit with respect to the thing subject of litigation.
When a thing is the subject of a judicial controversy, it should ultimately be bound
by whatever disposition the court shall render. The parties to the case are
therefore expected, in deference to the court’s exercise of jurisdiction over the
case, to refrain from doing acts which would dissipate or debase the thing subject
of the litigation or otherwise render the impending decision therein ineffectual.
There is, then, a restriction on the disposition by the parties of the thing that is the
subject of the litigation. Article 1381(4) of the Civil Code requires that any contract
entered into by a defendant in a case which refers to things under litigation should
be with the knowledge and approval of the litigants or of a competent judicial
authority.
Further, any disposition of the thing subject of litigation or any act which tends to
render inutile the court’s impending disposition in such case, sans the knowledge
and approval of the litigants or of the court, is unmistakably and irrefutably
 14

indicative of bad faith. Such acts undermine the authority of the court to lay down
the respective rights of the parties in a case relative to the thing subject of litigation
and bind them to such determination.
It should be stressed, though, that the defendant in such a case is not absolutely
proscribed from entering into a contract which refer to things under litigation. If,
for instance, a defendant enters into a contract which conveys the thing under
litigation during the pendency of the case, the conveyance would be valid, there
being no definite disposition yet coming from the court with respect to the thing
subject of litigation. After all, notwithstanding that the subject thereof is a thing
under litigation, such conveyance is but merely an exercise of ownership.
In opting not to make a determination as to the ownership of Lot No. 4709 and
half of Lot No. 4706, the RTC reasoned that the parties in the proceedings before
it constitute not only the surviving heirs of Spouses Baylon but the surviving heirs
of Rita as well. As intimated earlier, Rita died intestate during the pendency of the
proceedings with the RTC without any issue, leaving the parties in the
proceedings before the RTC as her surviving heirs. Thus, the RTC insinuated, a
definitive determination as to the ownership of the said parcels of land is
unnecessary since, in any case, the said parcels of land would ultimately be
adjudicated to the parties in the proceedings before it.
We do not agree.

This is true even if the defendant effected the conveyance without the knowledge Admittedly, whoever may be adjudicated as the owner of Lot No. 4709 and half
and approval of the litigants or of a competent judicial authority. The absence of of Lot No. 4706, be it Rita or Spouses Baylon, the same would ultimately be
such knowledge or approval would not precipitate the invalidity of an otherwise transmitted to the parties in the proceedings before the RTC as they are the only
valid contract. Nevertheless, such contract, though considered valid, may be surviving heirs of both Spouses Baylon and Rita. However, the RTC failed to
rescinded at the instance of the other litigants pursuant to Article 1381(4) of the realize that a definitive adjudication as to the ownership of Lot No. 4709 and half
Civil Code. of Lot No. 4706 is essential in this case as it affects the authority of the RTC to
direct the partition of the said parcels of land. Simply put, the RTC cannot properly
direct the partition of Lot No. 4709 and half of Lot No. 4706 until and unless it
Here, contrary to the CA’s disposition, the RTC aptly ordered the rescission of the determines that the said parcels of land indeed form part of the estate of Spouses
donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. Baylon.
The petitioners had sufficiently established the presence of the requisites for the
rescission of a contract pursuant to Article 1381(4) of the Civil Code. It is
undisputed that, at the time they were gratuitously conveyed by Rita, Lot No. 4709 It should be stressed that the partition proceedings before the RTC only covers
and half of Lot No. 4706 are among the properties that were the subject of the the properties co-owned by the parties therein in their respective capacity as the
partition case then pending with the RTC. It is also undisputed that Rita, then one surviving heirs of Spouses Baylon. Hence, the authority of the RTC to issue an
of the defendants in the partition case with the RTC, did not inform nor sought the order of partition in the proceedings before it only affects those properties which
approval from the petitioners or of the RTC with regard to the donation inter vivos actually belonged to the estate of Spouses Baylon.
of the said parcels of land to Florante.
In this regard, if Lot No. 4709 and half of Lot No. 4706, as unwaveringly claimed
Although the gratuitous conveyance of the said parcels of land in favor of Florante by Florante, are indeed exclusively owned by Rita, then the said parcels of land
was valid, the donation inter vivos of the same being merely an exercise of may not be partitioned simultaneously with the other properties subject of the
ownership, Rita’s failure to inform and seek the approval of the petitioners or the partition case before the RTC. In such case, although the parties in the case
RTC regarding the conveyance gave the petitioners the right to have the said before the RTC are still co-owners of the said parcels of land, the RTC would not
donation rescinded pursuant to Article 1381(4) of the Civil Code. have the authority to direct the partition of the said parcels of land as the
proceedings before it is only concerned with the estate of Spouses Baylon.
Rescission under Article 1381(4) of
the Civil Code is not preconditioned WHEREFORE, in consideration of the foregoing disquisitions, the petition
upon the judicial determination as is PARTIALLY GRANTED. The Decision dated October 26, 2007 issued by the
to the ownership of the thing Court of Appeals in CA-G.R. CV No. 01746 is MODIFIED in that the Decision
subject of litigation. dated October 20, 2005 issued by the Regional Trial Court, Tanjay City, Negros
Oriental, Branch 43 in Civil Case No. 11657, insofar as it decreed the rescission
of the Deed of Donation dated July 6, 1997 is hereby REINSTATED. The case
In this regard, we also find the assertion that rescission may only be had after the is REMANDED to the trial court for the determination of the ownership of Lot No.
RTC had finally determined that the parcels of land belonged to the estate of 4709 and half of Lot No. 4706 in accordance with this Decision.
Spouses Baylon intrinsically amiss. The petitioners’ right to institute the action for
rescission pursuant to Article 1381(4) of the Civil Code is not preconditioned upon
the RTC’s determination as to the ownership of the said parcels of land. SO ORDERED.

It bears stressing that the right to ask for the rescission of a contract under Article
1381(4) of the Civil Code is not contingent upon the final determination of the
ownership of the thing subject of litigation. The primordial purpose of Article
1381(4) of the Civil Code is to secure the possible effectivity of the impending
judgment by a court with respect to the thing subject of litigation. It seeks to protect
the binding effect of a court’s impending adjudication vis-à-vis the thing subject of
litigation regardless of which among the contending claims therein would
subsequently be upheld. Accordingly, a definitive judicial determination with
respect to the thing subject of litigation is not a condition sine qua non before the
rescissory action contemplated under Article 1381(4) of the Civil Code may be
instituted.

Moreover, conceding that the right to bring the rescissory action pursuant to
Article 1381(4) of the Civil Code is preconditioned upon a judicial determination
with regard to the thing subject litigation, this would only bring about the very
predicament that the said provision of law seeks to obviate. Assuming arguendo
that a rescissory action under Article 1381(4) of the Civil Code could only be
instituted after the dispute with respect to the thing subject of litigation is judicially
determined, there is the possibility that the same may had already been conveyed
to third persons acting in good faith, rendering any judicial determination with
regard to the thing subject of litigation illusory. Surely, this paradoxical eventuality
is not what the law had envisioned.

Even if the donation inter vivos is

validly rescinded, a determination
as to the ownership of the subject
parcels of land is still necessary.

Having established that the RTC had aptly ordered the rescission of the said
donation inter vivos in favor of Florante, the issue that has to be resolved by this
Court is whether there is still a need to determine the ownership of Lot No. 4709
and half of Lot No. 4706.

G.R. No. 106063 November 21, 1996
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN,
INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.
HERMOSISIMA, JR., J.:
Before us is a petition for review of the decision1 of the Court of
Appeals2 involving questions in the resolution of which the respondent
appellate court analyzed and interpreted particular provisions of our
laws on contracts and sales. In its assailed decision, the respondent
court reversed the trial court3 which, in dismissing the complaint for
specific performance with damages and annulment of contract,4 found
the option clause in the lease contracts entered into by private
respondent Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner
Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be impossible of
performance and unsupported by a consideration and the subsequent
sale of the subject property to petitioner Equatorial Realty
Development, Inc. (hereafter, Equatorial) to have been made without
any breach of or prejudice to, the said lease contracts.5
We reproduce below the facts as narrated by the respondent court,
which narration, we note, is almost verbatim the basis of the statement
of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey
buildings constructed thereon located at Claro M Recto
Avenue, Manila, and covered by TCT No. 18529 issued in
its name by the Register of Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease
with Mayfair for the latter's lease of a portion of Carmelo's
property particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 1,610 square
meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building,
situated at C.M. Recto Avenue, Manila, with a floor area of 150 square
meters.
for use by Mayfair as a motion picture theater and for a term
of twenty (20) years. Mayfair thereafter constructed on the
leased property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a
second contract of lease with Carmelo for the lease of
another portion of Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building, situated at
C.M. Recto Avenue, Manila, with a floor area of 1,064 square meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and MEZZANINE of
the two-storey building situated at C.M. Recto Avenue, Manila, with a floor area
of 300 square meters and bearing street numbers 1871 and 1875,
for similar use as a movie theater and for a similar term of
twenty (20) years. Mayfair put up another movie house
known as "Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded
paragraph 8, which reads:
That if the LESSOR should desire to
sell the leased premises, the
LESSEE shall be given 30-days
exclusive option to purchase the
same.
In the event, however, that the leased
premises is sold to someone other
15
than the LESSEE, the LESSOR is
bound and obligated, as it hereby
binds and obligates itself, to stipulate
in the Deed of Sale hereof that the
purchaser shall recognize this lease
and be bound by all the terms and
conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo
informed Mr. Henry Yang, President of Mayfair, through a
telephone conversation that Carmelo was desirous of
selling the entire Claro M. Recto property. Mr. Pascal told
Mr. Yang that a certain Jose Araneta was offering to buy
the whole property for US Dollars 1,200,000, and Mr.
Pascal asked Mr. Yang if the latter was willing to buy the
property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his
decision. On August 23, 1974, Mayfair replied through a
letter stating as follows:
It appears that on August 19, 1974 your Mr. Henry
Pascal informed our client's Mr. Henry Yang
through the telephone that your company desires
to sell your above-mentioned C.M. Recto Avenue
property.
Under your company's two lease contracts with our
client, it is uniformly provided:
8. That if the LESSOR should desire to sell the
leased premises the LESSEE shall be given 30-
days exclusive option to purchase the same. In the
event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is
bound and obligated, as it is (sic) herebinds (sic)
and obligates itself, to stipulate in the Deed of Sale
thereof that the purchaser shall recognize this
lease and be bound by all the terms and conditions
hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to
Carmelo purporting to express interest in acquiring not only
the leased premises but "the entire building and other
improvements if the price is reasonable. However, both
Carmelo and Equatorial questioned the authenticity of the
second letter.
Four years later, on July 30, 1978, Carmelo sold its entire
C.M. Recto Avenue land and building, which included the
leased premises housing the "Maxim" and "Miramar"
theatres, to Equatorial by virtue of a Deed of Absolute Sale,
for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for
specific performance and annulment of the sale of the
leased premises to Equatorial. In its Answer, Carmelo
alleged as special and affirmative defense (a) that it had
informed Mayfair of its desire to sell the entire C.M. Recto
Avenue property and offered the same to Mayfair, but the
latter answered that it was interested only in buying the
areas under lease, which was impossible since the property
was not a condominium; and (b) that the option to purchase
invoked by Mayfair is null and void for lack of consideration.
Equatorial, in its Answer, pleaded as special and affirmative
defense that the option is void for lack of consideration (sic)
and is unenforceable by reason of its impossibility of
performance because the leased premises could not be
sold separately from the other portions of the land and
building. It counterclaimed for cancellation of the contracts
of lease, and for increase of rentals in view of alleged
supervening extraordinary devaluation of the currency.
Equatorial likewise cross-claimed against co-defendant
Carmelo for indemnification in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979,
the parties stipulated on the following:

1. That there was a deed of sale of the contested premises
by the defendant Carmelo . . . in favor of defendant Equatorial
. . .;
2. That in both contracts of lease there appear (sic) the
stipulation granting the plaintiff exclusive option to purchase
the leased premises should the lessor desire to sell the same
(admitted subject to the contention that the stipulation is null
and void);
3. That the two buildings erected on this land are not of the
condominium plan;
4. That the amounts stipulated and mentioned in paragraphs
3 (a) and (b) of the contracts of lease constitute the
consideration for the plaintiff's occupancy of the leased
premises, subject of the same contracts of lease, Exhibits A
and B;
xxx xxx xxx
6. That there was no consideration specified in the option to
buy embodied in the contract;
7. That Carmelo & Bauermann owned the land and the two
buildings erected thereon;
8. That the leased premises constitute only the portions
actually occupied by the theaters; and
9. That what was sold by Carmelo & Bauermann to defendant
Equatorial Realty is the land and the two buildings erected
thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the
appealed decision, the decretal portion of which reads as
follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo & Bauermann
P40,000.00 by way of attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00
per month as reasonable compensation for the use of areas not
covered by the contract (sic) of lease from July 31, 1979 until plaintiff
vacates said area (sic) plus legal interest from July 31, 1978;
P70,000 00 per month as reasonable compensation for the use of
the premises covered by the contracts (sic) of lease dated (June 1,
1967 from June 1, 1987 until plaintiff vacates the premises plus legal
interest from June 1, 1987; P55,000.00 per month as reasonable
compensation for the use of the premises covered by the contract
of lease dated March 31, 1969 from March 30, 1989 until plaintiff
vacates the premises plus legal interest from March 30, 1989; and
P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim against defendant
Carmelo & Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are
declared expired and all persons claiming rights under these
contracts are directed to vacate the premises.6
The trial court adjudged the identically worded paragraph 8 found in
both aforecited lease contracts to be an option clause which however
cannot be deemed to be binding on Carmelo because of lack of distinct
consideration therefor.
The court a quo ratiocinated:
16
Significantly, during the pre-trial, it was admitted by the
parties that the option in the contract of lease is not
supported by a separate consideration. Without a
consideration, the option is therefore not binding on
defendant Carmelo & Bauermann to sell the C.M. Recto
property to the former. The option invoked by the plaintiff
appears in the contracts of lease . . . in effect there is no
option, on the ground that there is no consideration. Article
1352 of the Civil Code, provides:
Contracts without cause or with
unlawful cause, produce no effect
whatever. The cause is unlawful if it
is contrary to law, morals, good
custom, public order or public policy.
Contracts therefore without consideration produce no effect
whatsoever. Article 1324 provides:
When the offeror has allowed the
offeree a certain period to accept, the
offer may be withdrawn at any time
before acceptance by communicating
such withdrawal, except when the
option is founded upon consideration,
as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine
thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy
or to sell a determine thing for a price
certain is binding upon the promissor
if the promise is supported by a
consideration distinct from the price.
The plaintiff cannot compel defendant Carmelo to comply
with the promise unless the former establishes the
existence of a distinct consideration. In other words, the
promisee has the burden of proving the consideration. The
consideration cannot be presumed as in Article 1354:
Although the cause is not stated in
the contract, it is presumed that it
exists and is lawful unless the debtor
proves the contrary.
where consideration is legally presumed to exists. Article
1354 applies to contracts in general, whereas when it
comes to an option it is governed particularly and more
specifically by Article 1479 whereby the promisee has the
burden of proving the existence of consideration distinct
from the price. Thus, in the case of Sanchez vs. Rigor, 45
SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in
general, whereas the second
paragraph of Article 1479 refers to
sales in particular, and, more
specifically, to an accepted unilateral
promise to buy or to sell. In other
words, Article 1479 is controlling in
the case at bar.
(2) In order that said unilateral
promise may be binding upon the
promissor, Article 1479 requires the
concurrence of a condition, namely,
that the promise be supported by a
consideration distinct from the price.
Accordingly, the promisee cannot
compel the promissor to comply with
the promise, unless the former
establishes the existence of said
distinct consideration. In other words,

the promisee has the burden of
proving such consideration. Plaintiff
herein has not even alleged the
existence thereof in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo &
Bauermann to sell the C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial court, the
battleground shifted to the respondent Court of Appeals. Respondent
appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to
pay and return to Equatorial the amount of P11,300,000.00
within fifteen (15) days from notice of this Decision, and
ordering Equatorial Realty Development, Inc. to accept
such payment;
3. Upon payment of the sum of P11,300,000, directing
Equatorial Realty Development, Inc. to execute the deeds
and documents necessary for the issuance and transfer of
ownership to Mayfair of the lot registered under TCT Nos.
17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable
to pay the amount as adjudged, declaring the Deed of
Absolute Sale between the defendants-appellants Carmelo
& Bauermann, Inc. and Equatorial Realty Development, Inc.
as valid and binding upon all the parties.8
Rereading the law on the matter of sales and option contracts,
respondent Court of Appeals differentiated between Article 1324 and
Article 1479 of the Civil Code, analyzed their application to the facts of
this case, and concluded that since paragraph 8 of the two lease
contracts does not state a fixed price for the purchase of the leased
premises, which is an essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of first refusal and not
an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles
1324 and 1479, second paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an offeror which
the offeree may or may not accept within a certain period.
Under this article, the offer may be withdrawn by the offeror
before the expiration of the period and while the offeree has
not yet accepted the offer. However, the offer cannot be
withdrawn by the offeror within the period if a consideration
has been promised or given by the offeree in exchange for
the privilege of being given that period within which to
accept the offer. The consideration is distinct from the price
which is part of the offer. The contract that arises is known
as option. In the case of Beaumont vs. Prieto, 41 Phil. 670,
the Supreme court, citing Bouvier, defined an option as
follows: "A contract by virtue of which A, in consideration of
the payment of a certain sum to B, acquires the privilege of
buying from or selling to B, certain securities or properties
within a limited time at a specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand,
contemplates of an "accepted unilateral promise to buy or
to sell a determinate thing for a price within (which) is
binding upon the promisee if the promise is supported by a
consideration distinct from the price." That "unilateral
promise to buy or to sell a determinate thing for a price
certain" is called an offer. An "offer", in laws, is a proposal
to enter into a contract (Rosenstock vs. Burke, 46 Phil. 217).
To constitute a legal offer, the proposal must be certain as
to the object, the price and other essential terms of the
contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the
provision granting Mayfair "30-days exclusive option to
purchase" the leased premises is NOT AN OPTION in the
context of Arts. 1324 and 1479, second paragraph, of the
Civil Code. Although the provision is certain as to the object
(the sale of the leased premises) the price for which the
17
object is to be sold is not stated in the provision Otherwise
stated, the questioned stipulation is not by itself, an "option"
or the "offer to sell" because the clause does not specify the
price for the subject property.
Although the provision giving Mayfair "30-days exclusive
option to purchase" cannot be legally categorized as an
option, it is, nevertheless, a valid and binding stipulation.
What the trial court failed to appreciate was the intention of
the parties behind the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type
customarily found in a contract of lease. Even appellees
have recognized that the stipulation was incorporated in the
two Contracts of Lease at the initiative and behest of
Mayfair. Evidently, the stipulation was intended to benefit
and protect Mayfair in its rights as lessee in case Carmelo
should decide, during the term of the lease, to sell the
leased property. This intention of the parties is achieved in
two ways in accordance with the stipulation. The first is by
giving Mayfair "30-days exclusive option to purchase" the
leased property. The second is, in case Mayfair would opt
not to purchase the leased property, "that the purchaser
(the new owner of the leased property) shall recognize the
lease and be bound by all the terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease,
particularly the stipulation giving Mayfair "30-days exclusive
option to purchase the (leased premises)," was meant to
provide Mayfair the opportunity to purchase and acquire the
leased property in the event that Carmelo should decide to
dispose of the property. In order to realize this intention, the
implicit obligation of Carmelo once it had decided to sell the
leased property, was not only to notify Mayfair of such
decision to sell the property, but, more importantly, to make
an offer to sell the leased premises to Mayfair, giving the
latter a fair and reasonable opportunity to accept or reject
the offer, before offering to sell or selling the leased property
to third parties. The right vested in Mayfair is analogous to
the right of first refusal, which means that Carmelo should
have offered the sale of the leased premises to Mayfair
before offering it to other parties, or, if Carmelo should
receive any offer from third parties to purchase the leased
premises, then Carmelo must first give Mayfair the
opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving
Mayfair a right of first refusal when he made the telephone
call to Mr. Yang in 1974. Mr. Pascal thus testified:
Q Can you tell this Honorable Court how you made the offer to
Mr. Henry Yang by telephone?
A I have an offer from another party to buy the property and
having the offer we decided to make an offer to Henry Yang on
a first-refusal basis. (TSN November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you remember
exactly what you have told him in connection with that matter,
Mr. Pascal?
A More or less, I told him that I received an offer from another party
to buy the property and I was offering him first choice of the enter
property. (TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best
renders effectual the intention of the parties.9
Besides the ruling that paragraph 8 vests in Mayfair the right of first
refusal as to which the requirement of distinct consideration
indispensable in an option contract, has no application, respondent
appellate court also addressed the claim of Carmelo and Equatorial
that assuming arguendo that the option is valid and effective, it is
impossible of performance because it covered only the leased
premises and not the entire Claro M. Recto property, while Carmelo's

offer to sell pertained to the entire property in question. The Court of
Appeals ruled as to this issue in this wise:
We are not persuaded by the contentions of the
defendants-appellees. It is to be noted that the Deed of
Absolute Sale between Carmelo and Equatorial covering
the whole Claro M. Recto property, made reference to four
titles: TCT Nos. 17350, 118612, 60936 and 52571. Based
on the information submitted by Mayfair in its appellant's
Brief (pp. 5 and 46) which has not been controverted by the
appellees, and which We, therefore, take judicial notice of
the two theaters stand on the parcels of land covered by
TCT No. 17350 with an area of 622.10 sq. m and TCT No.
118612 with an area of 2,100.10 sq. m. The existence of
four separate parcels of land covering the whole Recto
property demonstrates the legal and physical possibility that
each parcel of land, together with the buildings and
improvements thereof, could have been sold independently
of the other parcels.
At the time both parties executed the contracts, they were
aware of the physical and structural conditions of the
buildings on which the theaters were to be constructed in
relation to the remainder of the whole Recto property. The
peculiar language of the stipulation would tend to limit
Mayfair's right under paragraph 8 of the Contract of Lease
to the acquisition of the leased areas only. Indeed, what is
being contemplated by the questioned stipulation is a
departure from the customary situation wherein the
buildings and improvements are included in and form part
of the sale of the subjacent land. Although this situation is
not common, especially considering the non-condominium
nature of the buildings, the sale would be valid and capable
of being performed. A sale limited to the leased premises
only, if hypothetically assumed, would have brought into
operation the provisions of co-ownership under which
Mayfair would have become the exclusive owner of the
leased premises and at the same time a co-owner with
Carmelo of the subjacent land in proportion to Mayfair's
interest over the premises sold to it.10
Carmelo and Equatorial now comes before us questioning the
correctness and legal basis for the decision of respondent Court of
Appeals on the basis of the following assigned errors:
I and efficacy of paragraph 8 stipulated in the two contracts of lease
THE COURT OF APPEALS GRAVELY ERRED IN
CONCLUDING THAT THE OPTION CLAUSE IN THE
CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF
FIRST REFUSAL PROVISO. IN DOING SO THE COURT
OF APPEALS DISREGARDED THE CONTRACTS OF
LEASE WHICH CLEARLY AND UNEQUIVOCALLY
PROVIDE FOR AN OPTION, AND THE ADMISSION OF
THE PARTIES OF SUCH OPTION IN THEIR
STIPULATION OF FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL,
THE COURT OF APPEALS ERRED IN DIRECTING
EQUATORIAL TO EXECUTE A DEED OF SALE
EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO
EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST
REFUSAL ASSUMING IT WAS ONE) WHEN THE
CONTRACTS LIMITED THE EXERCISE OF SUCH
OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN
IT DIRECTED IMPLEMENTATION OF ITS DECISION
EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED
MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED
FOR IN THE COMPLAINT.
IV
18
THE COURT OF APPEALS VIOLATED ITS OWN
INTERNAL RULES IN THE ASSIGNMENT OF APPEALED
CASES WHEN IT ALLOWED THE SAME DIVISION XII,
PARTICULARLY JUSTICE MANUEL HERRERA, TO
RESOLVE ALL THE MOTIONS IN THE "COMPLETION
PROCESS" AND TO STILL RESOLVE THE MERITS OF
THE CASE IN THE "DECISION STAGE".11
We shall first dispose of the fourth assigned error respecting alleged
irregularities in the raffle of this case in the Court of Appeals. Suffice it
to say that in our Resolution,12 dated December 9, 1992, we already
took note of this matter and set out the proper applicable procedure to
be the following:
On September 20, 1992, counsel for petitioner Equatorial
Realty Development, Inc. wrote a letter-complaint to this
Court alleging certain irregularities and infractions
committed by certain lawyers, and Justices of the Court of
Appeals and of this Court in connection with case CA-G.R.
CV No. 32918 (now G.R. No. 106063). This partakes of the
nature of an administrative complaint for misconduct
against members of the judiciary. While the letter-complaint
arose as an incident in case CA-G.R. CV No. 32918 (now
G.R. No. 106063), the disposition thereof should be
separate and independent from Case G.R. No. 106063.
However, for purposes of receiving the requisite pleadings
necessary in disposing of the administrative complaint, this
Division shall continue to have control of the case. Upon
completion thereof, the same shall be referred to the
Court En Banc for proper disposition.13
This court having ruled the procedural irregularities raised in the fourth
assigned error of Carmelo and Equatorial, to be an independent and
separate subject for an administrative complaint based on misconduct
by the lawyers and justices implicated therein, it is the correct, prudent
and consistent course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said irregularities.
Certainly, a discussion thereupon by us in this case would entail a
finding on the merits as to the real nature of the questioned procedures
and the true intentions and motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature, scope
between Carmelo and Mayfair in the face of conflicting findings by the
trial court and the Court of Appeals; and (2) to determine the rights and
obligations of Carmelo and Mayfair, as well as Equatorial, in the
aftermath of the sale by Carmelo of the entire Claro M. Recto property
to Equatorial.
Both contracts of lease in question provide the identically worded
paragraph 8, which reads:
That if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30-days exclusive
option to purchase the same.
In the event, however, that the leased premises is sold to
someone other than the LESSEE, the LESSOR is bound
and obligated, as it hereby binds and obligates itself, to
stipulate in the Deed of Sale thereof that the purchaser shall
recognize this lease and be bound by all the terms and
conditions thereof.14
We agree with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of
Mayfair. It is not an option clause or an option contract. It is a contract
of a right of first refusal.
As early as 1916, in the case of Beaumont vs. Prieto,15 unequivocal
was our characterization of an option contract as one necessarily
involving the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing at
a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit
E, to wit, the letter of December 4, 1911, quoted at the
beginning of this decision, the defendant Valdes granted to

the plaintiff Borck the right to purchase the Nagtajan
Hacienda belonging to Benito Legarda, during the period of
three months and for its assessed valuation, a grant which
necessarily implied the offer or obligation on the part of the
defendant Valdes to sell to Borck the said hacienda during
the period and for the price mentioned . . . There was,
therefore, a meeting of minds on the part of the one and the
other, with regard to the stipulations made in the said
document. But it is not shown that there was any cause or
consideration for that agreement, and this omission is a bar
which precludes our holding that the stipulations contained
in Exhibit E is a contract of option, for, . . . there can be no
contract without the requisite, among others, of the cause
for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an
option as a contract, in the following language:
A contract by virtue of which A, in consideration of the payment of a
certain sum to B, acquires the privilege of buying from, or selling to
B, certain securities or properties within a limited time at a specified
price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases,"
citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5;
24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to
purchase lands within a given time at a named price is
neither a sale nor an agreement to sell. It is simply a contract
by which the owner of property agrees with another person
that he shall have the right to buy his property at a fixed
price within a certain time. He does not sell his land; he does
not then agree to sell it; but he does sell something; that is,
the right or privilege to buy at the election or option of the
other party. The second party gets in praesenti, not lands, nor
an agreement that he shall have lands, but he does get
something of value; that is, the right to call for and receive
lands if he elects. The owner parts with his right to sell his
lands, except to the second party, for a limited period. The
second party receives this right, or, rather, from his point of
view, he receives the right to elect to buy.
But the two definitions above cited refer to the contract of
option, or, what amounts to the same thing, to the case
where there was cause or consideration for the obligation,
the subject of the agreement made by the parties; while in
the case at bar there was no such cause or
consideration. 16 (Emphasis ours.)
The rule so early established in this jurisdiction is that the deed of
option or the option clause in a contract, in order to be valid and
enforceable, must, among other things, indicate the definite price at
which the person granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased
property for a named price per square meter upon failure to make the purchase
within the time specified;17 in one other case we freed the landowner from her
promise to sell her land if the prospective buyer could raise P4,500.00 in three
weeks because such option was not supported by a distinct consideration;18 in
the same vein in yet one other case, we also invalidated an instrument entitled,
"Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of
consideration;19 and as an exception to the doctrine enumerated in the two
preceding cases, in another case, we ruled that the option to buy the leased
premises for P12,000.00 as stipulated in the lease contract, is not without
consideration for in reciprocal contracts, like lease, the obligation or promise of
each party is the consideration for that of the other. 20 In all these cases, the
selling price of the object thereof is always predetermined and specified in the
option clause in the contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court of Appeals21 that:
. . . In sales, particularly, to which the topic for discussion
about the case at bench belongs, the contract is perfected
when a person, called the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing
or right to another, called the buyer, over which the latter
agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one
of the contracting parties obligates
himself to transfer the ownership of
19
and to deliver a determinate thing,
and the other to pay therefor a price
certain in money or its equivalent.
A contract of sale may be absolute or
conditional.
When the sale is not absolute but conditional, such as in a
"Contract to Sell" where invariably the ownership of the
thing sold in retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the
purchase price), the breach of the condition will prevent the
obligation to convey title from acquiring an obligatory force.
...
An unconditional mutual promise to buy and sell, as long as
the object is made determinate and the price is fixed, can
be obligatory on the parties, and compliance therewith may
accordingly be exacted.
An accepted unilateral promise which specifies the thing to
be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price,
is what may properly be termed a perfected contract of
option. This contract is legally binding, and in sales, it
conforms with the second paragraph of Article 1479 of the
Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy
or to sell a determinate thing for a
price certain is binding upon the
promisor if the promise is supported
by a consideration distinct from the
price. (1451a).
Observe, however, that the option is not the contract of sale
itself. The optionee has the right, but not the obligation, to
buy. Once the option is exercised timely, i.e., the offer is
accepted before a breach of the option, a bilateral promise
to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective
undertakings.
Let us elucidate a little. A negotiation is formally initiated by
an offer. An imperfect promise (policitacion) is merely an
offer. Public advertisements or solicitations and the like are
ordinarily construed as mere invitations to make offers or
only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus,
at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing
and not necessarily when the offeree learns of the
withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period
is given to the offeree within which to accept the offer, the
following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or if an
acceptance has been made, before the offeror's coming to
know of such fact, by communicating that withdrawal to the
offeree (see Art. 1324, Civil Code; see also Atkins, Kroll &
Co. vs. Cua, 102 Phil. 948, holding that this rule is
applicable to a unilateral promise to sell under Art. 1479,
modifying the previous decision in South Western Sugar vs.
Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code;
Rural Bank of Parañaque, Inc. vs. Remolado, 135 SCRA
409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or
arbitrarily; otherwise, it could give rise to a damage claim
under Article 19 of the Civil Code which ordains that "every
person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith."

(2) If the period has a separate consideration, a contract of
"option" deemed perfected, and it would be a breach of that
contract to withdraw the offer during the agreed period. The
option, however, is an independent contract by itself; and it
is to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be
concluded. If, in fact, the optioner-offeror withdraws the
offer before its acceptance (exercise of the option) by the
optionee-offeree, the latter may not sue for specific
performance on the proposed contract ("object" of the
option) since it has failed to reach its own stage of
perfection. The optioner-offeror, however, renders himself
liable for damages for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording of
the questioned provision in the two lease contracts involved in the
instant case, we so hold that no option to purchase in contemplation of
the second paragraph of Article 1479 of the Civil Code, has been
granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8
grants the right of first refusal to Mayfair and is not an option contract.
It also correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967
and March 31, 1969 contracts which would bring them into the ambit
of the usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by
consideration.22 In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into the
reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8
of the contracts is governed by Article 1324 on withdrawal of the offer
or Article 1479 on promise to buy and sell would render in effectual or
"inutile" the provisions on right of first refusal so commonly inserted in
leases of real estate nowadays. The Court of Appeals is correct in
stating that Paragraph 8 was incorporated into the contracts of lease
for the benefit of Mayfair which wanted to be assured that it shall be
given the first crack or the first option to buy the property at the price
which Carmelo is willing to accept. It is not also correct to say that there
is no consideration in an agreement of right of first refusal. The
stipulation is part and parcel of the entire contract of lease. The
consideration for the lease includes the consideration for the right of
first refusal. Thus, Mayfair is in effect stating that it consents to lease
the premises and to pay the price agreed upon provided the lessor also
consents that, should it sell the leased property, then, Mayfair shall be
given the right to match the offered purchase price and to buy the
property at that price. As stated in Vda. De Quirino vs. Palarca,23 in
reciprocal contract, the obligation or promise of each party is the
consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true
nature of the aforecited paragraph 8 to be that of a contractual grant of
the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and
liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an
amplification of the precedent in Ang Yu Asuncion vs. Court of
Appeals.24
First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the event
Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention
to sell the said property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties. Carmelo,
however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair's right of first refusal, Carmelo violated such right
when without affording its negotiations with Mayfair the full process to
20
ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive option" time
granted Mayfair, Carmelo abandoned negotiations, kept a low profile
for some time, and then sold, without prior notice to Mayfair, the entire
Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to
it of the property in question rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale,
studied the said contracts. As such, Equatorial cannot tenably claim to
be a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under
Article 1380 to 1381(3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons, like creditors.
The status of creditors could be validly accorded the
Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the
petitioner without recognizing their right of first priority under
the Contract of Lease.
According to Tolentino, rescission is a remedy granted by
law to the contracting parties and even to third persons, to
secure reparation for damages caused to them by a
contract, even if this should be valid, by means of the
restoration of things to their condition at the moment prior
to the celebration of said contract. It is a relief allowed for
the protection of one of the contracting parties and even
third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent right
created by the contract. Rescission implies a contract
which, even if initially valid, produces a lesion or pecuniary
damage to someone that justifies its invalidation for reasons
of equity.
It is true that the acquisition by a third person of the property
subject of the contract is an obstacle to the action for its
rescission where it is shown that such third person is in
lawful possession of the subject of the contract and that he
did not act in bad faith. However, this rule is not applicable
in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale
nor may its possession of the subject property be regarded
as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the
Contract of Sale. Moreover, the petitioner cannot be
deemed a purchaser in good faith for the record shows that
it categorically admitted it was aware of the lease in favor
of the Bonnevies, who were actually occupying the subject
property at the time it was sold to it. Although the Contract
of Lease was not annotated on the transfer certificate of title
in the name of the late Jose Reynoso and Africa Reynoso,
the petitioner cannot deny actual knowledge of such lease
which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the
property of another without notice that some other person
has a right to or interest in such property and pays a full and
fair price for the same at the time of such purchase or before
he has notice of the claim or interest of some other person
in the property. Good faith connotes an honest intention to
abstain from taking unconscientious advantage of another.
Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease
of the property by the Bonnevies and such knowledge
should have cautioned it to look deeper into the agreement
to determine if it involved stipulations that would prejudice
its own interests.
The petitioner insists that it was not aware of the right of first
priority granted by the Contract of Lease. Assuming this to
be true, we nevertheless agree with the observation of the
respondent court that:
If Guzman-Bocaling failed to inquire
about the terms of the Lease
Contract, which includes Par. 20 on

priority right given to the Bonnevies, it
had only itself to blame. Having
known that the property it was buying
was under lease, it behooved it as a
prudent person to have required
Reynoso or the broker to show to it
the Contract of Lease in which Par.
20 is contained.25
Petitioners assert the alleged impossibility of performance because the
entire property is indivisible property. It was petitioner Carmelo which
fixed the limits of the property it was leasing out. Common sense and
fairness dictate that instead of nullifying the agreement on that basis,
the stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of
first refusal. A valid and legal contract where the ascendant or the more
important of the two parties is the landowner should be given effect, if
possible, instead of being nullified on a selfish pretext posited by the
owner. Following the arguments of petitioners and the participation of
the owner in the attempt to strip Mayfair of its rights, the right of first
refusal should include not only the property specified in the contracts
of lease but also the appurtenant portions sold to Equatorial which are
claimed by petitioners to be indivisible. Carmelo acted in bad faith
when it sold the entire property to Equatorial without informing Mayfair,
a clear violation of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and counter-offers between
the parties, Carmelo abandoned the negotiations without giving
Mayfair full opportunity to negotiate within the 30-day period.
Accordingly, even as it recognizes the right of first refusal, this Court
should also order that Mayfair be authorized to exercise its right of first
refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the
boundaries of the offer under the right of first refusal. As to the remedy
to enforce Mayfair's right, the Court disagrees to a certain extent with
the concluding part of the dissenting opinion of Justice Vitug. The
doctrine enunciated in Ang Yu Asuncion vs.Court of Appeals should
be modified, if not amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of Mayfair.
In fact, as correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract of lease prior to the
sale. Equatorial's knowledge of the stipulations therein should have
cautioned it to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if
the fraudulent sale is first set aside or rescinded. All of these matters
are now before us and so there should be no piecemeal determination
of this case and leave festering sores to deteriorate into endless
litigation. The facts of the case and considerations of justice and equity
require that we order rescission here and now. Rescission is a relief
allowed for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may cause or to
protect some incompatible and preferred right by the contract.26 The
sale of the subject real property by Carmelo to Equatorial should now
be rescinded considering that Mayfair, which had substantial interest
over the subject property, was prejudiced by the sale of the subject
property to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period.27
This Court has always been against multiplicity of suits where all
remedies according to the facts and the law can be included. Since
Carmelo sold the property for P11,300,000.00 to Equatorial, the price
at which Mayfair could have purchased the property is, therefore, fixed.
It can neither be more nor less. There is no dispute over it. The
damages which Mayfair suffered are in terms of actual injury and lost
opportunities. The fairest solution would be to allow Mayfair to exercise
its right of first refusal at the price which it was entitled to accept or
reject which is P11,300,000.00. This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair may resume
negotiations for the sale to the latter of the disputed property would be
unjust and unkind to Mayfair because it is once more compelled to
litigate to enforce its right. It is not proper to give it an empty or vacuous
victory in this case. From the viewpoint of Carmelo, it is like asking a
fish if it would accept the choice of being thrown back into the river.
Why should Carmelo be rewarded for and allowed to profit from, its
wrongdoing? Prices of real estate have skyrocketed. After having sold
21
the property for P11,300,000.00, why should it be given another
chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court
stated that there was nothing to execute because a contract over the
right of first refusal belongs to a class of preparatory juridical relations
governed not by the law on contracts but by the codal provisions
on human relations. This may apply here if the contract is limited to the
buying and selling of the real property. However, the obligation of
Carmelo to first offer the property to Mayfair is embodied in a contract.
It is Paragraph 8 on the right of first refusal which created the
obligation. It should be enforced according to the law on contracts
instead of the panoramic and indefinite rule on human relations. The
latter remedy encourages multiplicity of suits. There is something to
execute and that is for Carmelo to comply with its obligation to the
property under the right of the first refusal according to the terms at
which they should have been offered then to Mayfair, at the price when
that offer should have been made. Also, Mayfair has to accept the
offer. This juridical relation is not amorphous nor is it merely
preparatory. Paragraphs 8 of the two leases can be executed
according to their terms.
On the question of interest payments on the principal amount of
P11,300,000.00, it must be borne in mind that both Carmelo and
Equatorial acted in bad faith. Carmelo knowingly and deliberately
broke a contract entered into with Mayfair. It sold the property to
Equatorial with purpose and intend to withhold any notice or
knowledge of the sale coming to the attention of Mayfair. All the
circumstances point to a calculated and contrived plan of non-
compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it
bought the property with notice and full knowledge that Mayfair had a
right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on
equity which might warrant the grant of interests. The vendor received
as payment from the vendee what, at the time, was a full and fair price
for the property. It has used the P11,300,000.00 all these years
earning income or interest from the amount. Equatorial, on the other
hand, has received rents and otherwise profited from the use of the
property turned over to it by Carmelo. In fact, during all the years that
this controversy was being litigated, Mayfair paid rentals regularly to
the buyer who had an inferior right to purchase the property. Mayfair is
under no obligation to pay any interests arising from this judgment to
either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial
Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby
deemed rescinded; petitioner Carmelo & Bauermann is ordered to
return to petitioner Equatorial Realty Development the purchase price.
The latter is directed to execute the deeds and documents necessary
to return ownership to Carmelo and Bauermann of the disputed lots.
Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy
the aforesaid lots for P11,300,000.00.
SO ORDERED.

G.R. No. 140479 March 8, 2001
ROSENCOR DEVELOPMENT CORPORATION and RENE
JOAQUIN, petitioners,
vs.
PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN,
FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking reversal of the Decision1 of the Court of Appeals dated June 25, 1999 in
CA-G.R. CV No. 53963. The Court of Appeals decision reversed and set aside
the Decision2 dated May 13, 1996 of Branch 217 of the Regional Trial Court of
Quezon City in Civil Case No. Q-93-18582.1âwphi1.nêt
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene
Guillermo and Federico Bantugan, herein respondents, against Rosencor
Development Corporation (hereinafter "Rosencor"), Rene Joaquin, and Eufrocina
de Leon. Originally, the complaint was one for annulment of absolute deed of sale
but was later amended to one for rescission of absolute deed of sale. A complaint-
for intervention was thereafter filed by respondents Fernando Magbanua and
Danna Lizza Tiangco. The complaint-in-intervention was admitted by the trial
court in an Order dated May 4, 1994.3
The facts of the case, as stated by the trial court and adopted by the appellate
court, are as follows:
"This action was originally for the annulment of the Deed of Absolute
Sale dated September 4, 1990 between defendants Rosencor and
Eufrocina de Leon but later amended (sic) praying for the rescission of
the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees
since 1971 of a two-story residential apartment located at No. 150
Tomas Morato Ave., Quezon City covered by TCT No. 96161 and
owned by spouses Faustino and Cresencia Tiangco. The lease was
not covered by any contract. The lessees were renting the premises
then for P150.00 a month and were allegedly verbally granted by the
lessors the pre-emptive right to purchase the property if ever they
decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of
the property was adjudicated to their heirs who were represented by
Eufrocina de Leon. The lessees were allegedly promised the same
pre-emptive right by the heirs of Tiangcos since the latter had
knowledge that this right was extended to the former by the late
spouses Tiangcos. The lessees continued to stay in the premises and
allegedly spent their own money amounting from P50,000.00 to
P100,000.00 for its upkeep. These expenses were never deducted
from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila
demanding that they vacate the premises so that the demolition of the
building be undertaken. They refused to leave the premises. In that
same month, de Leon refused to accept the lessees’ rental payment
claiming that they have run out of receipts and that a new collector has
been assigned to receive the payments. Thereafter, they received a
letter from Eufrocina de Leon offering to sell to them the property they
were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount
of P1,000,000.00. De Leon told them that she will be submitting the
offer to the other heirs. Since then, no answer was given by de Leon
as to their offer to buy the property. However, in November 1990, Rene
Joaquin came to the leased premises introducing himself as its new
owner.
In January 1991, the lessees again received another letter from Atty.
Aguila demanding that they vacate the premises. A month thereafter,
the lessees received a letter from de Leon advising them that the heirs
of the late spouses Tiangcos have already sold the property to
Rosencor. The following month Atty. Aguila wrote them another letter
demanding the rental payment and introducing herself as counsel for
Rosencor/Rene Joaquin, the new owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-
emptive right she and the late Tiangcos have promised them. They
also asked for a copy of the deed of sale between her and the new
22
owners thereof but she refused to heed their request. In the same
manner, when they asked Rene Joaquin a copy of the deed of sale,
the latter turned down their request and instead Atty. Aguila wrote them
several letters demanding that they vacate the premises. The lessees
offered to tender their rental payment to de Leon but she refused to
accept the same.
In April 1992 before the demolition can be undertaken by the Building
Official, the barangay interceded between the parties herein after
which Rosencor raised the issue as to the rental payment of the
premises. It was also at this instance that the lessees were furnished
with a copy of the Deed of Sale and discovered that they were
deceived by de Leon since the sale between her and Rene
Joaquin/Rosencor took place in September 4, 1990 while de Leon
made the offer to them only in October 1990 or after the sale with
Rosencor had been consummated. The lessees also noted that the
property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of
P726,000.00 plus an additional P274,000.00 to complete their
P1,000.000.00 earlier offer. When their offer was refused, they filed
the present action praying for the following: a) rescission of the Deed
of Absolute Sale between de Leon and Rosencor dated September 4,
1990; b) the defendants Rosencor/Rene Joaquin be ordered to
reconvey the property to de Leon; and c) de Leon be ordered to
reimburse the plaintiffs for the repairs of the property, or apply the said
amount as part of the price for the purchase of the property in the sum
of P100,000.00."4
After trial on the merits, the Regional Trial Court rendered a Decision5 dated May
13, 1996 dismissing the complaint. The trial court held that the right of redemption
on which the complaint. The trial court held that the right of redemption on which
the complaint was based was merely an oral one and as such, is unenforceable
under the law. The dispositive portion of the May 13, 1996 Decision is as follows:
"WHEREFORE, in view of the foregoing, the Court DISMISSES the
instant action. Plaintiffs and plaintiffs-intervenors are hereby ordered
to pay their respective monthly rental of P1,000.00 per month reckoned
from May 1990 up to the time they leave the premises. No costs.
SO ORDERED."6
Not satisfied with the decision of the trial court, respondents herein filed a Notice
of Appeal dated June 3, 1996. On the same date, the trial court issued an Order
for the elevation of the records of the case to the Court of Appeals. On August 8,
1997, respondents filed their appellate brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision7 reversing the
decision of the trial court. The dispositive portion of the June 25, 1999 decision is
as follows:
"WHEREFORE, premises considered, the appealed decision (dated
May 13, 1996) of the Regional Trial Court (Branch 217) in Quezon City
in Case No. Q-93-18582 is hereby REVERSED and SET ASIDE. In its
stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed
between the appellees on September 4, 1990;
(2) The reconveyance of the subject premises to appellee
Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru
appellee Eufrocina de Leon, to afford the appellants thirty
days within which to exercise their right of first refusal by
paying the amount of ONE MILLION PESOS
(P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back rentals
from May 1990 up to the time this decision is promulgated.
No pronouncement as to costs.
SO ORDERED".8
Petitioners herein filed a Motion for Reconsideration of the decision of the Court
of Appeals but the same was denied in a Resolution dated October 15, 1999.9

Hence, this petition for review on certiorari where petitioners Rosencor
Development Corporation and Rene Joaquin raise the following assignment of
errors10:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED
THE RESCISSION OF THE ABSOLUTE DEED OF SALE BETWEEN
EUFROCINA DE LEON AND PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMTITED MANIFEST ERROR IN
MANDATING THAT EUFROCINA DE LEON AFFORD
RESPONDENTS THE OPPORTUNITY TO EXERCISE THEIR RIGHT
OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING
THAT RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF
FIRST REFUSAL DESPITE PETITIONERS’ RELIANCE ON THEIR
DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and
Crescencia Tiangco, did not appeal the decision of the Court of Appeals.
At the onset, we not that both the Court of Appeals and the Regional Trial Court
relied on Article 1403 of the New Civil Code, more specifically the provisions on
the statute of frauds, in coming out with their respective decisions. The trial court,
in denying the petition for reconveyance, held that right of first refusal relied upon
by petitioners was not reduced to writing and as such, is unenforceable by virtue
of the said article. The Court of Appeals, on the other hand, also held that the
statute of frauds governs the "right of first refusal" claimed by respondents.
However, the appellate court ruled that respondents had duly proven the same
by reason of petitioners’ waiver of the protection of the statute by reason of their
failure to object to the presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to discuss, however, the
threshold issue of whether or not a right of first refusal is indeed covered by the
provisions of the New Civil Code on the statute of frauds. The resolution of the
issue on the applicability of the statute of frauds is important as it will determine
the type of evidence which may be considered by the trial court as proof of the
alleged right of first refusal.
The term "statute of frauds" is descriptive of statutes which require certain classes
of contracts to be in writing. This statute does not deprive the parties of the right
to contract with respect to the matters therein involved, but merely regulates the
formalities of the contract necessary to render it enforceable. Thus, they are
included in the provisions of the New Civil Code regarding unenforceable
contracts, more particularly Art. 1403, paragraph 2. Said article provides, as
follows:
"Art. 1403. The following contracts are unenforceable, unless they are
ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made shall
be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its
contents:
a) An agreement that by its terms is not to be performed
within a year from the making thereof;
b) A special promise to answer for the debt, default, or
miscarriage of another;
c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
23
d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless
the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things
in action, or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale,
price, names of purchasers and person on whose account
the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one
year, or for the sale of real property or of an interest therein;
f) A representation to the credit of a third person."
The purpose of the statute is to prevent fraud and perjury in the enforcement of
obligations depending for their evidence on the unassisted memory of witnesses
by requiring certain enumerated contracts and transactions to be evidenced by a
writing signed by the party to be charged.11 Moreover, the statute of frauds refers
to specific kinds of transactions and cannot apply to any other transaction that is
not enumerated therein.12 The application of such statute presupposes the
existence of a perfected contract.13
The question now is whether a "right of first refusal" is among those enumerated
in the list of contracts covered by the Statute of Frauds. More specifically, is a
right of first refusal akin to "an agreement for the leasing of a longer period than
one year, or for the sale of real property or of an interest therein" as contemplated
by Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements "affecting land" must be put into
writing to attain enforceability.14Thus, we have held that the setting up of
boundaries,15 the oral partition of real property16, and an agreement creating a
right of way17 are not covered by the provisions of the statute of frauds. The
reason simply is that these agreements are not among those enumerated in
Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the statute
of frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil
Code presupposes the existence of a perfected, albeit unwritten, contract of
sale.18 A right of first refusal, such as the one involved in the instant case, is not
by any means a perfected contract of sale of real property. At best, it is a
contractual grant, not of the sale of the real property involved, but of the right of
first refusal over the property sought to be sold19.
It is thus evident that the statute of frauds does not contemplate cases involving
a right of first refusal. As such, a right of first refusal need not be written to be
enforceable and may be proven by oral evidence.
The next question to be ascertained is whether or not respondents have
satisfactorily proven their right of first refusal over the property subject of the Deed
of Absolute Sale dated September 4, 1990 between petitioner Rosencor and
Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals that
respondents have adequately proven the existence of their right of first refusal.
Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that
they were promised by the late spouses Faustino and Crescencia Tiangco and,
later on, by their heirs a right of first refusal over the property they were currently
leasing should they decide to sell the same. Moreover, respondents presented a
letter20 dated October 9, 1990 where Eufrocina de Leon, the representative of
the heirs of the spouses Tiangco, informed them that they had received an offer
to buy the disputed property for P2,000,000.00 and offered to sell the same to the
respondents at the same price if they were interested. Verily, if Eufrocina de Leon
did not recognize respondents’ right of first refusal over the property they were
leasing, then she would not have bothered to offer the property for sale to the
respondents.
It must be noted that petitioners did not present evidence before the trial court
contradicting the existence of the right of first refusal of respondents over the
disputed property. They only presented petitioner Rene Joaquin, the vice-
president of petitioner Rosencor, who admitted having no personal knowledge of
the details of the sales transaction between Rosencor and the heirs of the
spouses Tiangco21. They also dispensed with the testimony of Eufrocina de
Leon22 who could have denied the existence or knowledge of the right of first
refusal. As such, there being no evidence to the contrary, the right of first refusal
claimed by respondents was substantially proven by respondents before the
lower court.

Having ruled upon the question as to the existence of respondents’ right of first
refusal, the next issue to be answered is whether or not the Court of Appeals
erred in ordering the rescission of the Deed of Absolute Sale dated September 4,
1990 between Rosencor and Eufrocina de Leon and in decreeing that the heirs
of the spouses Tiangco should afford respondents the exercise of their right of
first refusal. In other words, may a contract of sale entered into in violation of a
third party’s right of first refusal be rescinded in order that such third party can
exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie23, the Court upheld the decision
of a lower court ordering the rescission of a deed of sale which violated a right of
first refusal granted to one of the parties therein. The Court held:
"xxx Contract of Sale was not voidable but rescissible. Under Article
1380 to 1381 (3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly
accorded the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the petitioner without
recognizing their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparations for
damages caused to them by a contract, even if this should be valid, by
means of the restoration of things to their condition at the moment prior
to the celebration of said contract. It is a relief allowed for the protection
of one of the contracting parties and even third persons from all injury
and damage the contract may cause, or to protect some incompatible
and preferent right created by the contract. Rescission implies a
contract which, even if initially valid, produces a lesion or pecuniary
damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of
the contract is an obstacle to the action for its rescission where it is
shown that such third person is in lawful possession of the subject of
the contract and that he did not act in bad faith. However, this rule is
not applicable in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale nor may its
possession of the subject property be regarded as acquired lawfully
and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of
Sale. Moreover, the petitioner cannot be deemed a purchaser in good
faith for the record shows that it categorically admitted that it was
aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it. Although
the occupying the subject property at the time it was sold to it. Although
the Contract of Lease was not annotated on the transfer certificate of
title in the name of the late Jose Reynoso and Africa Reynoso, the
petitioner cannot deny actual knowledge of such lease which was
equivalent to and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who buys the property
of another without notice that some other person has a right to or
interest in such property without and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim
or interest of some other person in the property. Good faith connotes
an honest intention to abstain from taking unconscientious advantage
of another. Tested by these principles, the petitioner cannot tenably
claim to be a buyer in good faith as it had notice of the lease of the
property by the Bonnevies and such knowledge should have cautioned
it to look deeper into the agreement to determine if it involved
stipulations that would prejudice its own interests."
Subsequently24 in Equatorial Realty and Development, Inc. vs. Mayfair Theater,
Inc.25, the Court, en banc, with three justices dissenting,26 ordered the rescission
of a contract entered into in violation of a right of first refusal. Using the ruling
in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that
since respondent therein had a right of first refusal over the said property, it could
only exercise the said right if the fraudulent sale is first set aside or rescinded.
Thus:
"What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the event
Carmelo sells the leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the latter of its intention
to sell the said property in 1974. There was an exchange of letters
evidencing the offer and counter-offers made by both parties. Carmelo,
24
however, did not pursue the exercise to its logical end. While it initially
recognized Mayfair’s right of first refusal, Carmelo violated such right
when without affording its negotiations with Mayfair the full process to
ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the "30-day exclusive option" time
granted Mayfair, Carmelo abandoned negotiations, kept a low profile
for some time, and then sold, without prior notice to Mayfair, the entire
Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to
it of the property in question, rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale,
studied the said contracts. As such, Equatorial cannot tenably claim
that to be a purchaser in good faith, and, therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of Mayfair.
In fact, as correctly observed by the Court of Appeals, Equatorial
admitted that its lawyers had studied the contract or lease prior to the
sale. Equatorial’s knowledge of the stipulations therein should have
cautioned it to look further into the agreement to determine if it involved
stipulations that would prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise the right only if
the fraudulent sale is first set aside or rescinded. All of these matters
are now before us and so there should be no piecemeal determination
of this case and leave festering sores to deteriorate into endless
litigation. The facts of the case and considerations of justice and equity
require that we order rescission here and now. Rescission is a relief
allowed for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may cause or to
protect some incompatible and preferred right by the contract. The sale
of the subject real property should now be rescinded considering that
Mayfair, which had substantial interest over the subject property, was
prejudiced by the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the
30-day stipulate periond.27
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,28 the Court held that
the allegations in a complaint showing violation of a contractual right of "first option
or priority to buy the properties subject of the lease" constitute a valid cause of
action enforceable by an action for specific performance. Summarizing the rulings
in the two previously cited cases, the Court affirmed the nature of and concomitant
rights and obligations of parties under a right of first refusal. Thus:
"We hold however, that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the
sale of the properties for the amount of P9,000,000.00, the price for
which they were finally sold to respondent Raymundo, should have
likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the
concept of, and obligations under, a right of first refusal in the case
of Guzman, Bocaling & Co. vs. Bonnevie. In that case, under a
contract of lease, the lessees (Raul and Christopher Bonnevie) were
given a "right of first priority" to purchase the leased property in case
the lessor (Reynoso) decided to sell. The selling price quoted to the
Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage
lien of P100,000.00. On the other hand, the selling price offered by
Reynoso to and accepted by Guzman was only P400,000.00 of which
P137,500.00 was to be paid in cash while the balance was to be paid
only when the property was cleared of occupants. We held that even if
the Bonnevies could not buy it at the price quoted (P600,000.00),
nonetheless, Reynoso could not sell it to another for a lower price and
under more favorable terms and conditions without first offering said
favorable terms and price to the Bonnevies as well. Only if the
Bonnevies failed to exercise their right of first priority could Reynoso
thereafter lawfully sell the subject property to others, and only under
the same terms and conditions previously offered to the Bonnevies.
XXX
This principle was reiterated in the very recent case of Equatorial
Realty vs. Mayfair Theater, Inc. which was decided en banc. This
Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to Equatorial
Realty "considering that Mayfair, which had substantial interest over

the subject property, was prejudiced by its sale to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the
30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair
provided "that if the LESSOR should desire to sell the leased premises,
the LESSEE shall be given 30 days exclusive option to purchase the
same." Carmelo initially offered to sell the leased property to Mayfair
for six to seven million pesos. Mayfair indicated interest in purchasing
the property though it invoked the 30-day period. Nothing was heard
thereafter from Carmelo. Four years later, the latter sold its entire
Recto Avenue property, including the leased premises, to Equatorial
for P11,300,000.00 without priorly informing Mayfair. The Court held
that both Carmelo and Equatorial acted in bad faith: Carmelo or
knowingly violating the right of first option of Mayfair, and Equatorial
for purchasing the property despite being aware of the contract
stipulation. In addition to rescission of the contract of sale, the Court
ordered Carmelo to allow Mayfair to buy the subject property at the
same price of P11,300,000.00.
In the recent case of Litonjua vs L&R Corporation,29 the Court, also citing the case
of Guzman, Bocaling & Co. vs. Bonnevie, held that the sale made therein in
violation of a right of first refusal embodied in a mortgage contract, was
rescissible. Thus:
"While petitioners question the validity of paragraph 8 of their mortgage
contract, they appear to be silent insofar as paragraph 9 thereof is
concerned. Said paragraph 9 grants upon L&R Corporation the right of
first refusal over the mortgaged property in the event the mortgagor
decides to sell the same. We see nothing wrong in this provision. The
right of first refusal has long been recognized as valid in our
jurisdiction. The consideration for the loan mortgage includes the
consideration for the right of first refusal. L&R Corporation is in effect
stating that it consents to lend out money to the spouses Litonjua
provided that in case they decide to sell the property mortgaged to it,
then L&R Corporation shall be given the right to match the offered
purchase price and to buy the property at that price. Thus, while the
spouses Litonjua had every right to sell their mortgaged property to
PWHAS without securing the prior written consent of L&R Corporation,
they had the obligation under paragraph 9, which is a perfectly valid
provision, to notify the latter of their intention to sell the property and
give it priority over other buyers. It is only upon the failure of L&R
Corporation to exercise its right of first refusal could the spouses
Litonjua validly sell the subject properties to the others, under the same
terms and conditions offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of L &
R Corporation’s contractual right of first refusal? On this score, we
agree with the Amended Decision of the Court of Appeals that the sale
made to PWHAS is rescissible. The case of Guzman, Bocaling & Co.
v. Bonnevie is instructive on this point.
XXX
It was then held that the Contract of Sale there, which violated the right
of first refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first
refusal granted to L & R Corporation over the subject properties since
the Deed of Real Estate Mortgage containing such a provision was
duly registered with the Register of Deeds. As such, PWHAS is
presumed to have been notified thereof by registration, which equates
to notice to the whole world.
XXX
All things considered, what then are the relative rights and obligations
of the parties? To recapitulate: the sale between the spouses Litonjua
and PWHAS is valid, notwithstanding the absence of L & R
Corporation’s prior written consent thereto. Inasmuch as the sale to
PWHAS was valid, its offer to redeem and its tender of the redemption
price, as successor-in-interest of the spouses Litonjua, within the one-
year period should have been accepted as valid by the L & R
Corporation. However, while the sale is, indeed, valid, the same is
rescissible because it ignored L & R Corporation’s right of first refusal."
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract
of sale entered into in violation of a right of first refusal of another person, while
valid, is rescissible.
25
There is, however, a circumstance which prevents the application of this doctrine
in the case at bench. In the cases cited above, the Court ordered the rescission
of sales made in violation of a right of first refusal precisely because the vendees
therein could not have acted in good faith as they were aware or should have
been aware of the right of first refusal granted to another person by the vendors
therein. The rationale for this is found in the provisions of the New Civil Code on
rescissible contracts. Under Article 1381 of the New Civil Code, paragraph 3, a
contract validly agreed upon may be rescinded if it is "undertaken in fraud of
creditors when the latter cannot in any manner collect the claim due them."
Moreover, under Article 1385, rescission shall not take place "when the things
which are the object of the contract are legally in the possession of third persons
who did not act in bad faith."30
It must be borne in mind that, unlike the cases cited above, the right of first refusal
involved in the instant case was an oral one given to respondents by the deceased
spouses Tiangco and subsequently recognized by their heirs. As such, in order
to hold that petitioners were in bad faith, there must be clear and convincing proof
that petitioners were made aware of the said right of first refusal either by the
respondents or by the heirs of the spouses Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence is
adduced.31 A purchaser in good faith is one who buys the property of another
without notice that some other person has a right or interest in such a property
and pays a full and fair price at the time of the purchase or before he has notice
of the claim or interest of some other person in the property.32 In this regard, the
rule on constructive notice would be inapplicable as it is undisputed that the right
of first refusal was an oral one and that the same was never reduced to writing,
much less registered with the Registry of Deeds. In fact, even the lease contract
by which respondents derive their right to possess the property involved was an
oral one.
On this point, we hold that the evidence on record fails to show that petitioners
acted in bad faith in entering into the deed of sale over the disputed property with
the heirs of the spouses Tiangco. Respondents failed to present any evidence
that prior to the sale of the property on September 4, 1990, petitioners were aware
or had notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 199033 as indicative of petitioners’
knowledge of the said right. In this letter, a certain Atty. Erlinda Aguila demanded
that respondent Irene Guillermo vacate the structure they were occupying to make
way for its demolition.
We fail to see how the letter could give rise to bad faith on the part of the petitioner.
No mention is made of the right of first refusal granted to respondents. The name
of petitioner Rosencor or any of it officers did not appear on the letter and the
letter did not state that Atty. Aguila was writing in behalf of petitioner. In fact, Atty.
Aguila stated during trial that she wrote the letter in behalf of the heirs of the
spouses Tiangco. Moreover, even assuming that Atty. Aguila was indeed writing
in behalf of petitioner Rosencor, there is no showing that Rosencor was aware at
that time that such a right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990 letter,
respondents notified Rosencor or Atty. Aguila of their right of first refusal over the
property. Respondents did not try to communicate with Atty. Aguila and inform
her about their preferential right over the disputed property. There is even no
showing that they contacted the heirs of the spouses Tiangco after they received
this letter to remind them of their right over the property.
Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de
Leon, where she recognized the right of first refusal of respondents, as indicative
of the bad faith of petitioners. We do not agree. Eufrocina de Leon wrote the letter
on her own behalf and not on behalf of petitioners and, as such, it only shows that
Eufrocina de Leon was aware of the existence of the oral right of first refusal. It
does not show that petitioners were likewise aware of the existence of the said
right. Moreover, the letter was made a month after the execution of the Deed of
Absolute Sale on September 4, 1990 between petitioner Rosencor and the heirs
of the spouses Tiangco. There is no showing that prior to the date of the execution
of the said Deed, petitioners were put on notice of the existence of the right of first
refusal.
Clearly, if there was any indication of bad faith based on respondents’ evidence,
it would only be on the part of Eufrocina de Leon as she was aware of the right of
first refusal of respondents yet she still sold the disputed property to Rosencor.
However, bad faith on the part of Eufrocina de Leon does not mean that petitioner
Rosencor likewise acted in bad faith. There is no showing that prior to the
execution of the Deed of Absolute Sale, petitioners were made aware or put on
notice of the existence of the oral right of first refusal. Thus, absent clear and
convincing evidence to the contrary, petitioner Rosencor will be presumed to have
acted in good faith in entering into the Deed of Absolute Sale over the disputed
property.
 26

Considering that there is no showing of bad faith on the part of the petitioners, the
Court of Appeals thus erred in ordering the rescission of the Deed of Absolute
Sale dated September 4, 1990 between petitioner Rosencor and the heirs of the
spouses Tiangco. The acquisition by Rosencor of the property subject of the right
of first refusal is an obstacle to the action for its rescission where, as in this case,
it was shown that Rosencor is in lawful possession of the subject of the contract
and that it did not act in bad faith.34

This does not mean however that respondents are left without any remedy for the
unjustified violation of their right of first refusal. Their remedy however is not an
action for the rescission of the Deed of Absolute Sale but an action for damages
against the heirs of the spouses Tiangco for the unjustified disregard of their right
of first refusal35.

WHEREFORE, premises considered, the decision of the Court of Appeals dated

June 25, 1999 is REVERSED and SET ASIDE. The Decision dated May 13, 1996
of the Quezon City Regional Trial Court, Branch 217 is hereby REINSTATED
insofar as it dismisses the action for rescission of the Deed of Absolute Sale dated
September 4, 1990 and orders the payment of monthly rentals of P1,000.00 per
month reckoned from May 1990 up to the time respondents leave the premises.

SO ORDERED.

G.R. No. 173441 December 3, 2009
HEIRS OF SOFIA QUIRONG, Represented by ROMEO P.
QUIRONG, Petitioners,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
DECISION
ABAD, J.:
This case is about the prescriptive period of an action for rescission of a contract
of sale where the buyer is evicted from the thing sold by a subsequent judicial
order in favor of a third party.
The Facts and the Case
The facts are not disputed. When the late Emilio Dalope died, he left a 589-square
meter untitled lot1 in Sta. Barbara, Pangasinan, to his wife, Felisa Dalope (Felisa)
and their nine children, one of whom was Rosa Dalope-Funcion.2 To enable Rosa
and her husband Antonio Funcion (the Funcions) get a loan from respondent
Development Bank of the Philippines (DBP), Felisa sold the whole lot to the
Funcions. With the deed of sale in their favor and the tax declaration transferred
in their names, the Funcions mortgaged the lot with the DBP.
On February 12, 1979, after the Funcions failed to pay their loan, the DBP
foreclosed the mortgage on the lot and consolidated ownership in its name on
June 17, 1981.3
Four years later or on September 20, 1983 the DBP conditionally sold the lot to
Sofia Quirong4 for the price of P78,000.00. In their contract of sale, Sofia Quirong
waived any warranty against eviction. The contract provided that the DBP did not
guarantee possession of the property and that it would not be liable for any lien
or encumbrance on the same. Quirong gave a down payment of P14,000.00.
Two months after that sale or on November 28, 1983 Felisa and her eight children
(collectively, the Dalopes)5 filed an action for partition and declaration of nullity of
documents with damages against the DBP and the Funcions before the Regional
Trial Court (RTC) of Dagupan City, Branch 42, in Civil Case D-7159.
On December 27, 1984, notwithstanding the suit, the DBP executed a deed of
absolute sale of the subject lot in Sofia Quirong’s favor. The deed of sale carried
substantially the same waiver of warranty against eviction and of any adverse lien
or encumbrance.
On May 11, 1985, Sofia Quirong having since died, her heirs (petitioner Quirong
heirs) filed an answer in intervention6 in Civil Case D-7159 in which they asked
the RTC to award the lot to them and, should it instead be given to the Dalopes,
to allow the Quirong heirs to recover the lot’s value from the DBP. But, because
the heirs failed to file a formal offer of evidence, the trial court did not rule on the
merits of their claim to the lot and, alternatively, to relief from the DBP.7
On December 16, 1992 the RTC rendered a decision, declaring the DBP’s sale
to Sofia Quirong valid only with respect to the shares of Felisa and Rosa Funcion
in the property. It declared Felisa’s sale to the Funcions, the latter’s mortgage to
the DBP, and the latter’s sale to Sofia Quirong void insofar as they prejudiced the
shares of the eight other children of Emilio and Felisa who were each entitled to
a tenth share in the subject lot.
The DBP received a copy of the decision on January 13, 1993 and, therefore, it
had until January 28, 1993 within which to file a motion for its reconsideration or
a notice of appeal from it. But the DBP failed to appeal supposedly because of
excusable negligence and the withdrawal of its previous counsel of record.8
When the RTC judgment became final and the court issued a writ of execution,
the DBP resisted the writ by motion to quash, claiming that the decision could not
be enforced because it failed to state by metes and bounds the particular portions
of the lot that would be assigned to the different parties in the case. The RTC
denied the DBP’s motion, prompting the latter to seek recourse by special civil
action of certiorari directly with this Court in G.R. 116575, Development Bank of
the Philippines v. Fontanilla. On September 7, 1994 the Court issued a resolution,
denying the petition for failure of the DBP to pay the prescribed fees. This
resolution became final and executory on January 17, 1995.9
On June 10, 1998 the Quirong heirs filed the present action10 against the DBP
before the RTC of Dagupan City, Branch 44, in Civil Case CV-98-02399-D for
rescission of the contract of sale between Sofia Quirong, their predecessor, and
27
the DBP and praying for the reimbursement of the price of P78,000.00 that she
paid the bank plus damages. The heirs alleged that they were entitled to the
rescission of the sale because the decision in Civil Case D-7159 stripped them of
nearly the whole of the lot that Sofia Quirong, their predecessor, bought from the
DBP. The DBP filed a motion to dismiss the action on ground of prescription and
res judicata but the RTC denied their motion.
On June 14, 2004, after hearing the case, the RTC rendered a
decision,11 rescinding the sale between Sofia Quirong and the DBP and ordering
the latter to return to the Quirong heirs the P78,000.00 Sofia Quirong paid the
bank.12 On appeal by the DBP, the Court of Appeals (CA) reversed the RTC
decision and dismissed the heirs’ action on the ground of prescription. The CA
concluded that, reckoned from the finality of the December 16, 1992 decision in
Civil Case D-7159, the complaint filed on June 10, 1998 was already barred by
the four-year prescriptive period under Article 1389 of the Civil Code.13 The
Quirong heirs filed a motion for reconsideration of the decision but the appellate
court denied it,14 thus, this petition.
The Issues Presented
The issues presented in this case are:
1. Whether or not the Quirong heirs’ action for rescission of respondent DBP’s
sale of the subject property to Sofia Quirong was already barred by prescription;
and
2. In the negative, whether or not the heirs of Quirong were entitled to the
rescission of the DBP’s sale of the subject lot to the late Sofia Quirong as a
consequence of her heirs having been evicted from it.
The Court’s Rulings
The CA held that the Quirong heirs’ action for rescission of the sale between DBP
and their predecessor, Sofia Quirong, is barred by prescription reckoned from the
date of finality of the December 16, 1992 RTC decision in Civil Case D-7159 and
applying the prescriptive period of four years set by Article 1389 of the Civil Code.
Unfortunately, the CA did not state in its decision the date when the RTC decision
in Civil Case D-7159 became final and executory, which decision resulted in the
Quirong heirs’ loss of 80% of the lot that the DBP sold to Sofia Quirong. Petitioner
heirs claim that the prescriptive period should be reckoned from January 17, 1995,
the date this Court’s resolution in G.R. 116575 became final and executory.15
But the incident before this Court in G.R. 116575 did not deal with the merit of the
RTC decision in Civil Case D-7159. That decision became final and executory on
January 28, 1993 when the DBP failed to appeal from it within the time set for
such appeal. The incident before this Court in G.R. 116575 involved the issuance
of the writ of execution in that case. The DBP contested such issuance
supposedly because the dispositive portion of the decision failed to specify details
that were needed for its implementation. Since this incident did not affect the
finality of the decision in Civil Case D-7159, the prescriptive period remained to
be reckoned from January 28, 1993, the date of such finality.
The next question that needs to be resolved is the applicable period of
prescription. The DBP claims that it should be four years as provided under Article
1389 of the Civil Code.16 Article 1389 provides that "the action to claim rescission
must be commenced within four years." The Quirong heirs, on the other hand,
claim that it should be 10 years as provided under Article 1144 which states that
actions "upon a written contract" must be brought "within 10 years from the date
the right of action accrues."
Now, was the action of the Quirong heirs "for rescission" or "upon a written
contract"? There is no question that their action was for rescission, since their
complaint in Civil Case CV-98-02399-D asked for the rescission of the contract of
sale between Sofia Quirong, their predecessor, and the DBP and the
reimbursement of the price of P78,000.00 that Sofia Quirong paid the bank plus
damages. The prescriptive period for rescission is four years.
But it is not that simple. The remedy of "rescission" is not confined to the
rescissible contracts enumerated under Article 1381.17 Article 1191 of the Civil
Code gives the injured party in reciprocal obligations, such as what contracts are
about, the option to choose between fulfillment and "rescission." Arturo M.
Tolentino, a well-known authority in civil law, is quick to note, however, that the
equivalent of Article 1191 in the old code actually uses the term "resolution" rather
than the present "rescission."18 The calibrated meanings of these terms are
distinct.

"Rescission" is a subsidiary action based on injury to the plaintiff’s economic
interests as described in Articles 1380 and 1381. "Resolution," the action referred
to in Article 1191, on the other hand, is based on the defendant’s breach of faith,
a violation of the reciprocity between the parties. As an action based on the
binding force of a written contract, therefore, rescission (resolution) under Article
1191 prescribes in 10 years. Ten years is the period of prescription of actions
based on a written contract under Article 1144.
The distinction makes sense. Article 1191 gives the injured party an option to
choose between, first, fulfillment of the contract and, second, its rescission. An
action to enforce a written contract (fulfillment) is definitely an "action upon a
written contract," which prescribes in 10 years (Article 1144). It will not be logical
to make the remedy of fulfillment prescribe in 10 years while the alternative
remedy of rescission (or resolution) is made to prescribe after only four years as
provided in Article 1389 when the injury from which the two kinds of actions derive
is the same.
Here, the Quirong heirs alleged in their complaint that they were entitled to the
rescission of the contract of sale of the lot between the DBP and Sofia Quirong
because the decision in Civil Case D-7159 deprived her heirs of nearly the whole
of that lot. But what was the status of that contract at the time of the filing of the
action for rescission? Apparently, that contract of sale had already been fully
performed when Sofia Quirong paid the full price for the lot and when, in
exchange, the DBP executed the deed of absolute sale in her favor. There was a
turnover of control of the property from DBP to Sofia Quirong since she assumed
under their contract, "the ejectment of squatters and/or occupants" on the lot, at
her own expense.19
Actually, the cause of action of the Quirong heirs stems from their having been
ousted by final judgment from the ownership of the lot that the DBP sold to Sofia
Quirong, their predecessor, in violation of the warranty against eviction that comes
with every sale of property or thing. Article 1548 of the Civil Code provides:
Article 1548. Eviction shall take place whenever by a final judgment based on a
right prior to the sale or an act imputable to the vendor, the vendee is deprived of
the whole or of a part of thing purchased.
xxxx
With the loss of 80% of the subject lot to the Dalopes by reason of the judgment
of the RTC in Civil Case D-7159, the Quirong heirs had the right to file an action
for rescission against the DBP pursuant to the provision of Article 1556 of the Civil
Code which provides:
Article 1556. Should the vendee lose, by reason of the eviction, a part of the thing
sold of such importance, in relation to the whole, that he would not have bought it
without said part, he may demand the rescission of the contract; but with the
obligation to return the thing without other encumbrances than those which it had
when he acquired it. x x x
And that action for rescission, which is based on a subsequent economic loss
suffered by the buyer, was precisely the action that the Quirong heirs took against
the DBP. Consequently, it prescribed as Article 1389 provides in four years from
the time the action accrued. Since it accrued on January 28, 1993 when the
decision in Civil Case D-7159 became final and executory and ousted the heirs
from a substantial portion of the lot, the latter had only until January 28, 1997
within which to file their action for rescission. Given that they filed their action on
June 10, 1998, they did so beyond the four-year period.
With the conclusion that the Court has reached respecting the first issue
presented in this case, it would serve no useful purpose for it to further consider
the issue of whether or not the heirs of Quirong would have been entitled to the
rescission of the DBP’s sale of the subject lot to Sofia Quirong as a consequence
of her heirs having been evicted from it. As the Court has ruled above, their action
was barred by prescription. The CA acted correctly in reversing the RTC decision
and dismissing their action.
Parenthetically, the Quirong heirs were allowed by the RTC to intervene in the
original action for annulment of sale in Civil Case D-7159 that the Dalopes filed
against the DBP and the Funcions. Not only did the heirs intervene in defense of
the sale, they likewise filed a cross claim against the DBP. And they were
apparently heard on their defense and cross claim but the RTC did not adjudicate
their claim for the reason that they failed to make a formal offer of their
documentary exhibits. Yet, they did not appeal from this omission or from the
judgment of the RTC, annulling the DBP’s sale of the subject lot to Sofia Quirong.
This point is of course entirely academic but it shows that the Quirong heirs have
themselves to blame for the loss of whatever right they may have in the case.
28
WHEREFORE, the Court DENIES the petition and AFFIRMS the November 30,
2005 decision of the Court of Appeals in CA-G.R. CV 83897.
SO ORDERED.
G.R. No. 104223 July 12, 2001
TIBURCIO SAMONTE, petitioner,
vs.
COURT OF APPEALS, EUGENIA DANGO GADIANO, TEOFILO GADIANO,
PETRONILO DANGO FELICIANA DANGO, NONILO MARAVE and
GERONIMO DANGO, respondents.
KAPUNAN, J.:
Tiburcio Samonte (petitioner) filed this petition for review on certiorari seeking to
reverse and set aside the Decision, dated November 29, 1991, of the Court of
Appeals (CA) in CA-G.R CV No. 16645. He likewise seeks the reversal of CA
Resolution, dated February 21, 1992, which denied his motion for
reconsideration.
The parcel of land (Lot No.216) subject of this dispute is situated in Nasipit,
Agusan del Norte, and originally covered by Original Certificate of Title No. RO-
238(555) issue in the names Apolonia Abao and her daughter Irenea Tolero, pro
indiviso. It contained an area of 12,753 square meters. Two cases were
separately filed in the Regional Trial Court, Branch II of Nasipit, Agusan del Norte
involving the entire lot. Both cases were filed by the surviving heirs of Apolonia
Abao and Irenea Tolero.1 These heirs, children of Irenea Tolero and grand
children of Apolonia Abao, are the respondents in this case.1âwphi1.nêt
The first case, Civil Case No.1672, was an action for quieting of title and recovery
of possession of a parcel of land which originally formed part of the entire
property. Said parcel of land was denominated as Lot 216-B-2-G and covered by
Transfer Certificate of Title (TCT) No. RT-899 in the name of Irenea Tolero. The
defendants named therein were spouses Andres and Amanda Lacho.
The second case, Civil Case No.1816, is similarly an action for quieting of title
and recovery of possession. Unlike the first case, however, Civil Case No.1816
involve the entire Lot 216. The complaint therein sought the annulment of several
certificates of title covering portions of Lot 216 and the reinstatement of OCT No.
RO-238 (555). The defendants in the second wase were Nicolas Jadol, Beatriz
Jadol, Jacobo Tagorda, Henry Jadol, Aurelio Rotor and herein petitioner.
The present case stems only from the latter case (Civil Case No. 1816) and, as
culled from the CA decision, the facts relevant herein are as follows:
Civil Case No.1816
(CA-G.R CV No. 16645)
From the pleadings and the evidence adduced by the parties the
following are not disputed or deemed admitted: that Lot 216 of the
Cadastral survey of Nasipit, containing an area of 12,753 square
meters, more or less, situated at Anislagan, Nasipit, Agusan (now del
Norte) is covered by Original Certificate of Title (OCT) No. R0-238
issue in 1927 in the name of Apolonia Abao and Irenea Tolero in equal
undivided shares (Exhibit E); that OCT No. RO-238 was
administratively reconstituted on August 8, 1957 and the assigned
number of the reconstituted title is OCT No. RO-238 (555) (Exhibit D
identical to Exhibit-Samonte); that on August 8, 1957, based on an
affidavit of Extra-judicial Settlement and Confirmation of Sale (Exhibit
D-1), OCT No. RO-238 (555) was cancelled and lieu thereof Transfer
Certificate of Title (TCT) No. RT-476 was issued in the name of Irenea
Tolero, 1/2 share and Nicolas Jadol, 1/2 share (Exhibit C identical to
Exhibit 3-Samonte); that on February 13, 1959, based on subdivision
plan, subdividing Lot 216 into Lot 216-A and Lot 216-B, the Register of
Deeds of Agusan (now del Norte) cancelled TCT No. RT-476 and
issued in its place TCT No. RT-553 in the name of Tiburcio Samonte
for Lot 216-A (Exhibit 2-Samonte) and TCT No. RT-554, Irenea Tolero
and Nicolas Jadol for Lot 216-B (Exhibit B); that on February 13, 1959
based on a subdivision plan subdividing Lot 216-B to 216-B-1 and 216-
B-2, TCT No. RT-554 was cancelled and in its place TCT No. RT-555
was issued in the name of Jacob B. Tagorda for Lot 216-B-1 and TCT
No. 556 in the name of Irenea Tolero and Nicolas Jadol for Lot 216- B-
2.
Plaintiffs in their evidence claim ownership over the entire lot, Lot 216,
as one-half(1/2) of the area of 12, 753 square meters was registered

in the name of their mother Irenea Tolero (Exhibit E) the other half was
registered in the name of their and grandmother, Apolonia Abao. After
Apolonia Abao died during the Japanese occupation and Irenea Tolero
died in 1945, they inherited and became owners of Lot 216. Plaintiffs
questioned the series of cancellation of the certificate of title starting
from OCT No. RO-238 (555) and the Deed of Extrajudicial Settlement
and Confirmation of Sale executed by Ignacio Atupan on August 7,
1957 (Exhibit D-1) adjudicating one-half(1/2) of the area of Lot 216.
Plaintiffs maintain that Ignacio Atupan is not a son of Apolonia Abao
but he only grew up while living with Apolonia Abao. That when Lot
216 was subdivided into two (2) lots, Lot 216-A and Lot 216-A (sic)
which was made as one of the basis in the cancellation of TCT No. 476
and issuance of TCT No. 553 and TCT No. 554 on February 13, 1959,
the plaintiffs or their predecessors-in-interest have not signed any
document agreeing as to the manner how Lot 216 was to be divided,
nor have they consented to the partition of the same.
Defendant Samonte in his evidence claim that he bought portions of
the Lot 216 in good faith as he was made to believe that all the papers
in possession of his vendors were all in order. One of the documents
presented by him is a Deed of Absolute Sale executed in 1939 (Exhibit
8-Samonte ). He has been in open, continuous, adverse and exclusive
possession of the portions of Lot 216 he bought for more than 20 years
and have declared the land for taxation purposes (Exhibits 5 and 7-
Samonte) and have paid the real estate taxes thereon (Exhibit 6 to 6-
K, inclusive Samonte). The portions he bought is now covered by TCT
No. RT-553 (Exhibit 2-Samonte) and TCT No. RT-1658 (Exhibit 4-
Samonte).
Defendant Jadols claim that they became owners of one-
half(1/2) portion of Lot 216 by purchase from Ignacio Atupan and
Apolonia Abao on September 15, 1939 as shown by a document
notarized by Jacobo Bello (Exhibit 1-Jadol) and signed by lrenea
Tolero (Exhibit 1-D Jadol) as a witness. They were in possession since
they bought the land. The land is covered by Tax Declaration No. 1630
(Exhibit 2-Jadol) and Tax Declaration No. 1676 (Exhibit 3-Jadol) in
their name (Decision, pp. 36-39).2
Initially, the two cases were heard independently of each other. It was discovered,
however, that they were intimately related. Accordingly, the court a quo jointly
tried the two cases. After due trial, the trial court rendered separate decisions,
both in favor of the plaintiffs therein. The dispositive portion particularly of the
decision in Civil Case No. 1816 reads:
Civil Case No. 1816
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor
of the plaintiffs and against the defendants:
a) declaring plaintiffs co-owners of the entire of (sic ) Lot 216 being the
surviving heirs of Apolonia Abao and Irenea Tolero;
b) directing the reinstatement of Original Certificate of Title No. RO-
238(555);
c) directing the cancellation of Transfer Certificate of Title No. RT - 476
and all subsequent certificates of title derived therefrom which are all
declared null and void;
d) declaring the subdivision survey of Lot 216 null and void and
ineffectual;
e) directing the defendants to vacate the premises of Lot 216 and to
remove all their improvements therefrom as they are builders in bad
faith;
f) directing defendants Jadol and Samonte to pay jointly and severally
the plaintiffs the sum of P20,000.00 for the use and occupation of the
land;
g) directing defendants Jadol and Samonte to pay P5,000.00 as
attorney's fees;
h) ordering the dismissal of the counterclaims of defendants; and
i) directing the defendants Jadol and Samonte to pay the costs.
29
SO ORDERED.3
Plaintiffs were likewise declared the lawful owners of Lot 216-B-2-G in Civil Case
No. 1672. Defendants therein were ordered to, among others, vacate the
premises and remove the improvements made thereon.4
The defendants in the two cases respectively appealed the aforesaid decisions to
the CA. The CA ordered the consolidation of the two appeals. Thereafter, the CA
rendered the decision of November 29, 1991 affirming the decisions of the trial
court and dismissing the appeals. Petitioner then filed the instant petition assailing
particularly the decision in CA-G.R. CV No. 16645. He alleges that:
I
THE HONORABLE COURT OF APPEALS ERRED AS A MATTER OF
LAW IN DEPARTING FROM THE PREVAILING DOCTRINE
SUPPORTED BY THE WEIGHT OF AUTHORITIES THAT "THE
DISCOVERY OF THE FRAUD IS DEEMED TO HAVE TAKEN PLACE
AT THE TIME OF THE REGISTRATION" (CARANTES VS. COURT
OF APPEALS, 76 SCRA 514);5
II
THE COURT OF APPEALS ERRED AS A MATTER OF LAW AND
JURISPRUDENCE IN NOT HOLDING THAT HEREIN PETITIONER
WAS A BUYER IN GOOD FAITH FOR VALUE, HENCE HE IS
PROTECTED BY LAW.6
The petition is bereft of merit.
It is not disputed that Ignacio Atupan caused the fraudulent cancellation of OCT
No. RO-238 (555). The trial court found that Atupan, on the basis of his Affidavit
of Extrajudicial Settlement and Confirmation Sale," adjudicated unto himself one-
half of Lot 216 by misrepresenting himself as the sole, heir of Apolonia Abao.
Atupan, in said affidavit, likewise confirmed the two deeds of sale allegedly
executed by him and Abao on September 15 and 16, 1939, covering the latter's
one-half lot in favor of Nicolas Jadol. The trial court found Atupan's affidavit, dated
August 7, 1957, to be tainted with fraud because he falsely claimed therein that
he was the sole heir of Abao when in fact, he merely lived and grew up with her.
Jadol and his wife, Beatriz, knew about this fact. Despite this knowledge,
however, the Jadol spouses still presented the affidavit of Atupan before the
Register of Deeds of the Province of Agusan when they caused the cancellation
of OCT No. RO-238 (555) and issuance of TCT No. RT-476 in their names
covering that portion owned by Abao.
The trial court concluded that the incorporation of the statement in Atupan's
affidavit confirming the alleged execution of the aforesaid deeds of sale was
intended solely to facilitate the issuance of the certificate of title in favor of the
Jadol spouses. It was noted that the documents evidencing the alleged
transactions were not presented in the Register of Deeds. It was further pointed
out that the Jadol spouses only sought the registration of these transactions in
1957, eighteen (18) years supposedly took place or twelve (12) years after Abao
died.
Based on the foregoing facts, the CA, on appeal, ruled that the cancellation of
OCT No. RO-238(555) and the consequent issuance of TCT No. RT-476 in its
place in the name of the Jadol spouses were effected through fraudulent means
and that they (spouses Jadol) not only had actual knowledge of the fraud but were
also guilty of bad faith.7
Nonetheless, petitioner contends that respondent's action in the court a quo had
already prescribed. Generally, an action for reconveyance of real property based
on the fraud may be barred by the statute of limitations which require that the
action must be commenced within four (4) years from the discovery of fraud, and
in case of registered land, such discovery is deemed to have taken place from the
date of the registration of title.8
Article 1456 of the Civil Code, however, provides:
Art. 1456. 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.
As it had been indubitably established that fraud attended the registration of a
portion of the subject property, it can be said that the Jadol spouses were trustees
thereof on behalf of the surviving heirs of Abao. An action based on implied or
constructive trust prescribes in ten (10) years from the time of its creation or upon
the alleged fraudulent registration of the property.9
 30

Petitioner, as successor-in-interest of the Jadol Spouses, now argues that the
respondents' action for reconveyance, filed only in 1975, had long prescribed
considering that the Jadol spouses caused the registration of a portion of the
subject lot in their names way back in August 8, 1957. It is petitioner's contention
that since eighteen years had already lapsed from the issuance of TCT No. RT-
476 until the time when respondents filed the action in the court a quo in 1975,
the same was time-barred.
Petitioner's defense of prescription is untenable. The general rule that the
discovery of fraud is deemed to have taken place upon the registration of real
property because it is considered a constructive notice to all persons"10does not
apply in this case. Instead, the CA correctly applied the ruling in Adille vs. Court
of Appeals11 which is substantially on all fours with the present case.
In Adille, petitioner therein executed a deed of extrajudicial partition
misrepresenting himself to be the sole heir of his mother when in fact she had
other children. As a consequence, petitioner therein was able to secure title to the
land in his name alone. His siblings then filed a case for partition on the ground
that said petitioner was only a trustee on an implied trust of the property. Among
the issues resolved by the Court in that case was prescription. Said petitioner
registered the property in 1955 and the claim of private respondents therein was
presented in 1974.
The CA established that petitioner is not a purchaser in good faith with respect to
this portion of the subject property, thus:
xxx While it may be true that the second portion was purchased by
Samonte from Tagorda in whose name the same was then registered
under TCT No. RT -555, Samonte was previously charged with the fact
that Jadol lacked the capacity to transmit title over any part of the
subject property including that portion which the latter sold to Tagorda.
Thus, Samonte was clearly in bad faith when he sought the registration
of the deed of sale of July 10, 1972 which effected the cancellation of
TCT No. RT-555 and the issuance of TCT No. 1658 in his favor. xxx 18
Petitioner cannot now claim that he already acquired valid title to the property.
The inscription in the registry, to be effective, must be made in good faith. The
defense of indefeasibility of a Torrens Title does not extend to a transferee who
takes the certificate of title with notice of a flaw. A holder in bad faith of a certificate
of title is not entitled to the protection of the law, for the law cannot be used as a
shield for, frauds. 19
In fine, there is no compelling reason to deviate from the salutary rule that findings
and conclusions of the trial court, especially if affirmed by the appellate court, are
accorded utmost respect by this Court.1âwphi1.nêt

The Court's resolution of whether prescription had set in therein is

quite apropos to the instant case: WHEREFORE, the instant petition is DENIED for lack of merit. The Decision,
dated November 29, 1991 of the Court of Appeals and its Resolution, dated
February 21, 1992, in CA-G.R. CV No. 16645 are AFFIRMED in toto.
It is true that registration under the Torrens system is constructive
notice of title, but it has likewise been our holding that the Torrens title
does not furnish a shield for fraud. It is therefore no argument to say SO ORDERED.
that the act of registration is equivalent to notice of repudiation,
assuming there was one, notwithstanding the long-standing rule that
registration operates as a universal notice of title.

For the same reason, we cannot dismiss private respondents' claims

commenced in 1974 over the estate registered in 1955. While actions
to enforce a constructive trust prescribes in ten years, reckoned from
the date of the registration of the property, we, as we said, are not
prepared to count the period from such a date in this case. We note
the petitioner's sub rosa efforts to get hold of the property exclusively
for himself beginning with his fraudulent misrepresentation in his
unilateral affidavit of extrajudicial settlement that he is "the only heir
and child of his mother Feliza with the consequence that he was able
to secure title in his name [alone]." Accordingly, we hold that the right
of the private respondents commenced from the time they actually
discovered the petitioner's act of defraudation. According to the
respondent Court of Appeals, they "came to know [of it] apparently only
during the progress of the litigation." Hence, prescription is not a bar. 12

In this case, the CA reckoned the prescriptive period from the time respondents
had actually discovered the fraudulent act of Atupan which was, as borne out by
the records, only during the trial of Civil Case No. 1672.13Citing Adille, the CA
rightfully ruled that respondents' action for reconveyance had not yet prescribed.

On the issue of whether petitioner is a buyer in bad faith as he claims, the Court
likewise holds in the negative: It was established during the trial by the court a
quo that he knew that respondents were the only surviving heirs of Irenea Tolero.
Despite this knowledge, petitioner still bought a portion of the subject lot from the
Jadol spouses on July 20, 1957, when the same was still registered under OCT
No. RO-238(555) in the name of Abao and Tolero.

With respect to this particular lot therefore, petitioner cannot pretend to be a

purchaser in good faith. It is axiomatic that one who buys from a person who is
not a registered owner is not a purchaser in good faith. 14

Moreover, With respect to the other portion which petitioner bought from Jacobo
Tagorda, the trial court held that he was, as in the first case, a buyer in bad faith.
The general rule is that a person dealing with registered land has a right to rely
on the Torrens certificate of title and to dispense with the need of making further
inquiries.15

This rule, however, admits of exceptions; when the party has actual knowledge of
facts and circumstances that would impel a reasonably cautious man to make
such inquiry or when the purchaser has knowledge of a defect or the lack of title
in his vendor or of sufficient facts to induce a reasonably prudent man to inquire
into the status of the title of the property in litigation. 16 One who falls within the
exception can neither be denominated an innocent purchaser for value nor a
purchaser in good faith; and hence does not merit the protection of the law. 17

G.R. No. 146730 July 4, 2008
AMADO Z. AYSON, JR., petitioner,
vs.
SPOUSES FELIX and MAXIMA PARAGAS, respondents.
DECISION
NACHURA, J.:
For review on certiorari under Rule 45 of the Rules of Court are the
Decision1 dated May 31, 2000 and the Resolution2 dated December 12, 2000 of
the Court of Appeals in CA-G.R. CV No. 59645.
The subject of this controversy is the one-fourth (1/4) portion of, corresponding to
the share of respondent Maxima Paragas in, the real property located at
Caranglaan District, Dagupan City, originally covered by Transfer Certificate of
Title No. 7316 of the Register of Deeds of Dagupan City.
The controversy commenced with the filing of an ejectment complaint 3 on April
12, 1993 before Branch 1 of the Municipal Trial Court in Cities (MTCC) of
Dagupan City by herein petitioner Amado Z. Ayson, as represented by his natural
father Zosimo S. Zareno4 (Zareno), against respondent-spouses Felix and
Maxima Paragas. The complaint, docketed as Civil Case No. 9161, alleged,
among others, that: (1) petitioner is the registered owner of the property being
occupied by the respondent-spouses as shown by Transfer Certificate of Title No.
59036 of the Registry of Deeds of Dagupan City in his name; (2) respondent-
spouses are occupying the said land through his tolerance without rent; (3) on
April 8, 1992, respondent-spouses executed an Affidavit5 which declared:
1. That we are occupants of a parcel of land (Lot 6595-A-2) covered
by Transfer Certificate of Title No. 57684 located at Caranglaan
District, Dagupan City owned by Amado Ll. Ayson;
2. That we occupy the said land by tolerance without paying any rental
whatsoever;
3. That we further agree to vacate the aforesaid land within three (3)
months from the date hereof and to remove and transfer our house
therefrom to another place;
4. That in consideration of vacating the said parcel of land the amount
of Twenty Thousand Pesos (P20,000.00) shall be paid to us; and, that
the amount of Ten Thousand Pesos (P10,000.00) shall be paid upon
signing of this affidavit and the balance of Ten Thousand Pesos
(P10,000.00) shall be paid upon removal of our house on the third
month from date hereof.
(4) despite the receipt of the P10,000.00 upon the execution of the Affidavit,
respondent-spouses refused to vacate the land as agreed upon; and (5) despite
demands, respondent-spouses still refused to vacate, thus constraining him to file
the complaint. Aside from respondents’ vacating the land, petitioner prayed for
the return of the P10,000.00 he paid them; and the payment of P10,000.00 actual
damages, P10,000.00 exemplary damages, P20,000.00 attorney’s fees, and the
costs.
In their Answer,6 respondent-spouses alleged that Zareno had no personality and
authority to file the case and the filing of the complaint was made in bad faith.
During the preliminary conference, the following admissions were made –
By petitioner:
(1) That the defendants (respondent spouses) had been in
possession of the land in question since 1930; and
(2) That the semi-concrete house of the defendants
(respondent spouses) stands on the land in question.
By respondent spouses:
(1) That the defendant (respondent) Felix Paragas had
executed an affidavit on April 8, 1992 wherein he admitted
that he is occupying the land by tolerance of the plaintiff
(petitioner) without paying any rental whatsoever and had
31
agreed to vacate the premises within three (3) months but
refused to vacate later;
(2) That the plaintiff (petitioner) is the registered owner of
the land in question;
(3) That there was a demand to vacate the premises; and
(4) That there is a Certification to File Action in Court.7
On August 31, 1993, the MTCC, Branch 1, Dagupan City decided in favor of
petitioner, based mainly on the above admissions, rendering judgment as follows:
WHEREFORE, the preponderance of evidence being in favor of the
plaintiff (petitioner), judgment is hereby rendered:
1) Ordering the defendants (respondent spouses) to vacate the land in
question located at Caranglaan District, Dagupan City and covered by
Transfer Certificate of Title No. 59036 of the Registry of Deeds for the
City of Dagupan, and to deliver the physical and peaceful possession
to the plaintiff (petitioner);
2) Ordering the defendants (respondent spouses) jointly and severally
to pay the plaintiff (petitioner) the sum of P300.00 as monthly rental of
the land from the date of the filing of the complaint until the defendants
(respondent spouses) vacate the premises;
3) Ordering defendant (respondent) Felix Paragas to return or
indemnify the plaintiff (petitioner) the amount of P10,000.00
representing the sum received by him from the plaintiff (petitioner) on
April 8, 1992;
4) Other claims are denied for lack of merit.
With costs against the defendants.
SO ORDERED.8
Respondent-spouses appealed the said Decision to the Regional Trial Court
(RTC) of Dagupan City. In the Decision9 dated August 16, 1996, the RTC affirmed
the MTCC Decision, the dispositive portion of which reads –
WHEREFORE, the appeal interposed by the appellants is hereby
DISMISSED. Judgment is rendered in favor of the plaintiff (petitioner)
and against the defendants (respondent spouses), to wit:
1. ORDERING defendants (respondent spouses), their agents,
representatives and assigns to vacate the land subject matter of this
case;
2. ORDERING defendants (respondent spouses) to return to the
plaintiff (petitioner) the amount of P10,000.00 received by them in
consideration of their promise to vacate the land subject matter of this
case;
3. ORDERING defendants (respondent spouses) to pay to the plaintiff
(petitioner) P10,000.00 in actual damages; P10,000.00 in exemplary
damages; and P20,000.00 in attorney’s fees; and
4. ORDERING defendants to pay the costs.
SO ORDERED.10
Respondent-spouses went to the Court of Appeals via a petition for review. In its
Decision11 dated October 13, 1997, the appellate court dismissed the petition.
The Decision was appealed to this Court. We denied the appeal in a Resolution
dated December 3, 1997, on the basis of the failure of respondent-spouses to
show any reversible error in the decisions of the three courts below. Our
Resolution became final and executory on January 29, 1998 and was entered in
the Book of Entries of Judgments.12
Meanwhile, on October 11, 1993, during the pendency of the appeal with the RTC,
respondent-spouses filed against petitioner, as represented by his attorney-in-fact
Zosimo S. Zareno, the heirs of Blas F. Rayos, the spouses Delfin and Gloria Alog,

and Hon. Judge George M. Mejia, as Presiding Judge of the Metropolitan Trial
Court, Branch 1 of Dagupan City, also before the RTC of Dagupan City, a
complaint13 for declaration of nullity of deed of sale, transactions, documents and
titles with a prayer for preliminary injunction and damages. The complaint was
docketed as Civil Case No. D-10772 and was raffled to Branch 42.
The complaint alleged, inter alia, that respondent Maxima is a co-owner of a
parcel of land originally covered by TCT No. 7316 of the Registry of Deeds of
Dagupan City, her ¼ share having an area of 435.75 square meters. Sometime
prior to April 13, 1955, respondent Felix, then an employee of the defunct
Dagupan Colleges (now University of Pangasinan) failed to account for the
amount of P3,000.00. It was agreed that respondent Felix would pay the said
amount by installment to the Dagupan Colleges. Pursuant to that agreement, Blas
F. Rayos and Amado Ll. Ayson, then both occupying high positions in the said
institution, required respondent-spouses to sign, without explaining to them, a
Deed of Absolute Sale on April 13, 1955 over respondent Maxima’s real property
under threat that respondent Felix would be incarcerated for misappropriation if
they refused to do so.
The complaint further alleged that later, respondent-spouses, true to their promise
to reimburse the defalcated amount, took pains to pay their obligation in
installments regularly deducted from the salaries received by respondent Felix
from Dagupan Colleges; that the payments totaled P5,791.69; that
notwithstanding the full payment of the obligation, Amado Ll. Ayson and Blas F.
Rayos did nothing to cancel the purported Deed of Absolute Sale; and that they
were shocked when they received a copy of the complaint for ejectment filed by
petitioner.
During the pre-trial, the following was established –
[T] he land in question was a portion of a larger lot covered by TCT No.
41021 with an area of 1,743 square meters in the name of
Buenaventura Mariñas, father of the plaintiff (respondent) Maxima
Mariñas-Paragas. Transfer Certificate of Title No. 41021 was later on
cancelled and replaced by TCT No. 7316 in the names of Maxima
Mariñas, Rufino Mariñas, Rizalina Mariñas and Buenaventura
Mariñas, specifying that each would receive one-fourth (1/4) thereof.
The portion pertaining to Maxima Mariñas-Paragas was later on
allegedly conveyed to Blas F. Rayos and Amado Ll. Ayson by virtue of
a Deed of Sale allegedly executed on April 13, 1955 by Maxima
Mariñas-Paragas with the conformity of her husband Felix Paragas,
after which TCT 7354 was issued canceling TCT No. 7316. Under TCT
No. 7354, the new owners were Blas F. Rayos and Amado Ll. Ayson,
Rufino Mariñas, Rizalina Mariñas and Angela Mariñas. The land was
subdivided later on into four (4) lots, distributed as follows: Lot A went
to Blas F. Rayos and Amado Ll. Ayson, Lot B to Rufino Mariñas, Lot C
to Rizalina Mariñas, and Lot D to Angela Mariñas. Each lot has an area
of 435.75 square meters. For Lot A, TCT No. 22697 was issued in the
name of both Blas F. Rayos and Amado Ll. Ayson.
On November 15, 1991, Lot A was the subject of a subdivision
between Amado Ll. Ayson and Blas F. Rayos. Said subdivision was
approved on December 10, 1991, dividing the property into equal
halves, each half with an area of 217.88 square meters. Thereafter,
the one-half (1/2) pertaining to Blas F. Rayos was sold by his
successors-in-interest to spouses Delfin and Gloria Alog by virtue of
an Extra-Judicial Settlement With Sale dated January 10, 1992, to
which the said spouses were issued TCT 57683 on January 14, 1992.
On the same day, Amado Ll. Ayson for his portion of the property was
also issued TCT 57684. Amado Ll. Ayson later passed on ownership
of his share to Amado Z. Ayson and issued to the latter was TCT 59036
after the latter executed an Affidavit of Self Adjudication dated August
3, 1992 upon the death of Amado Ll. Ayson.14
After trial on the merits, the RTC, Branch 42, Dagupan City rendered its
Decision15 dated March 6, 1998 in favor of respondent-spouses declaring the
Deed of Absolute Sale as an equitable mortgage, the decretal portion of which
reads –
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and against the defendants, except the spouses Delfin and Gloria
Alog:
1. Annulling the Deed of Sale executed by Felix Paragas and Maxima
Paragas on April 13, 1955 (Exh. 3) in favor of defendants Blas F.
Rayos and Amado Ll. Ayson except as it affects the interest of
Spouses Delfin and Gloria Alog over the property in question;
2. Annulling likewise TCT No. 57684 issued to Amado Ll. Ayson and
TCT No. 59036 issued to Amado Z. Ayson, including the respective
tax declarations thereof;
32
3. Ordering Amado Z. Ayson to reconvey ownership of the property
covered by TCT No. 59036 to the herein plaintiffs, the true owners
thereof;
4. Ordering defendant Amado Z. Ayson and the estate of Blas F. Rayos
to pay jointly and severally to the herein plaintiffs the amount paid by
Spouses Delfin and Gloria Alog to the late Blas F. Rayos, there being
no proof adduced by the plaintiffs as to the actual current market value
of the said property;
5. Ordering the said defendants Amado Z. Ayson and the estate of
Blas F. Rayos to pay jointly and severally to the plaintiffs other amounts
of P50,000.00 as moral damages and P10,000.00 as attorney’s fees,
including appearance fee;
6. Further ordering the aforementioned defendants, except defendant-
spouses Delfin and Gloria Alog, to pay costs.
SO ORDERED.16
Petitioner appealed the said Decision to the Court of Appeals, which affirmed the
same in its Decision dated May 31, 2000. The motion for reconsideration filed by
petitioner was likewise denied by the Court of Appeals in its Resolution dated
December 12, 2000. Hence, this petition raising the sole issue that –
The Honorable Court of Appeals has acted in excess of or with grave
abuse of discretion amounting to lack of jurisdiction in dismissing the
appeal of the herein petitioner Amado Z. Ayson, Jr. and in affirming the
decision of the Regional Trial Court, Branch 42, Dagupan City in Civil
Case No. D-10772, in violation of the laws on sale, equitable mortgage,
prescription, laches and estoppel as well as the laws on property
registration.17
Petitioner contends that respondent-spouses are bound by the judicial
admissions they made both in the ejectment case and in the case for declaration
of nullity of the Deed of Absolute Sale.
With respect to the ejectment case, he posits that respondent-spouses cannot
renege on the effects of their admissions that petitioner is the registered owner of
the disputed property; that they were occupying the same by mere tolerance of
the latter without rent; and that they undertook to vacate the premises in
accordance with the Affidavit dated April 8, 1992, especially when the findings of
the MTCC had already become final upon the Entry of Judgment of our Resolution
affirming the MTCC, the RTC, and the Court of Appeals.
As regards the action for declaration of nullity of the deed of absolute sale,
petitioner claims that respondent-spouses are likewise bound by their admission
during the pre-trial that the series of certificates of title from the time the Deed of
Absolute Sale was registered with the Register of Deeds of Dagupan City
eventually led to the issuance of TCT No. 59036 in his name.
Petitioner further argues that the action instituted before the RTC, Branch 42,
Dagupan City has already prescribed. According to him, the complaint alleged
that the Deed of Absolute Sale was executed through fraud, making the said
contract merely voidable, and the action to annul voidable contracts based on
fraud prescribed in four (4) years from the discovery of fraud. He insists that the
registration of the Deed of Absolute Sale occurred on May 4, 1955, which
operated as constructive notice of the fraud to the whole world, including
respondent-spouses. Thus, petitioner concludes that the action had long
prescribed when they filed the same on October 11, 1993, since its cause had
accrued 38 years ago.
Petitioner adds that respondent-spouses are bound by estoppel and guilty of
laches in light of the judicial admissions they have already made and the
unreasonable length of time that had lapsed before they questioned the validity
of the Deed of Absolute Sale and the Affidavit they executed on April 8, 1992.
He also asseverates that the Deed of Absolute Sale is a true sale and not an
equitable mortgage, arguing that the alleged payments made by respondent Felix
were made from December 29, 1965 to December 17, 1980, long after the
execution of the contract on April 13, 1955; that respondent-spouses only paid
realty taxes over their house and not on the disputed land; that their possession
of the property was by his mere tolerance; that there was no evidence proffered
that the amount of P3,000.00 as consideration for the sale was unusually
inadequate in 1955; and that the other co-owners of the land did not question or
protest the subdivision thereof leading to the issuance of TCT No. 59036 in his
name.

Lastly, petitioner claims that he is a transferee in good faith, having had no notice
of the infirmity affecting the title of his predecessor Amado Ll. Ayson over the
property. He says that he was only exercising his right as an heir when he
adjudicated unto himself the parcel of land pertaining to his adoptive
father,18 resulting in the issuance of TCT No. 59036 in his name, and, thus, should
not be penalized for his exercise of a legal right.
The arguments do not persuade.
First. With respect to the admissions made by respondent-spouses, through their
counsel during the preliminary conference of the ejectment case, it is worthy to
note that, as early as the submission of position papers before the MTCC, they
already questioned the sale of the subject property to Amado Ll. Ayson and Blas
F. Rayos for being fictitious and asserted their ownership over the land, pointing
to the fact that respondent Maxima had been living on the land since her birth in
1913 and that they had been in continuous possession thereof since her marriage
to respondent Felix in 1944. However, unfortunately for them, the MTCC held
them bound by the admissions made by their counsel and decided that petitioner
had a better right to possess the property.
Nevertheless, it must be remembered that in ejectment suits the issue to be
resolved is merely the physical possession over the property, i.e., possession de
facto and not possession de jure, independent of any claim of ownership set forth
by the party-litigants.19 Should the defendant in an ejectment case raise the
defense of ownership in his pleadings and the question of possession cannot be
resolved without deciding the issue of ownership, the issue of ownership shall be
resolved only to determine the issue of possession. 20 The judgment rendered in
such an action shall be conclusive only with respect to physical possession and
shall in no wise bind the title to the realty or constitute a binding and conclusive
adjudication of the merits on the issue of ownership. Therefore, such judgment
shall not bar an action between the same parties respecting the title or ownership
over the property,21 which action was precisely resorted to by respondent-
spouses in this case.
Anent the claim that respondent-spouses admitted the series of TCTs issued by
reason of the registration of the questioned Deed of Absolute Sale, suffice it to
state that records show that they admitted only the existence thereof, not
necessarily the validity of their issuance.
Second. The Deed of Absolute Sale is, in reality, an equitable mortgage or a
contract of loan secured by a mortgage. The Civil Code enumerates the cases in
which a contract, purporting to be a sale, is considered only as a contract of loan
secured by a mortgage, viz.:
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
(1) When the price of the sale with right to
repurchase is unusually inadequate;
(2) When the vendor remains in possession
as lessee or otherwise;
(3) When upon or after the expiration of the right
to repurchase another instrument extending the
period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part
of the purchase price;
(5) When the vendor binds himself to pay the
taxes on the thing sold;
(6) In any other case where it may be fairly
inferred that the real intention of the parties is
that the transaction shall secure the payment of
a debt or the performance of any other
obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as
interest which shall be subject to the usury laws.22
Art. 1604. The provisions of article 1602 shall also apply to a contract
purporting to be an absolute sale.
33
In such cases, parol evidence then becomes competent and admissible to prove
that the instrument was in truth and in fact given merely as a security for the
repayment of a loan; and upon adequate proof of the truth of such allegations, the
courts will enforce the agreement or understanding in this regard, in accord with
the true intent of the parties at the time the contract was executed, even if the
conveyance was accompanied by registration in the name of the transferee and
the issuance of a new certificate of title in his name. 23
In this case, the evidence before the RTC, Branch 42, Dagupan City had
established that the possession of the subject property remained with respondent-
spouses despite the execution of the Deed of Absolute Sale on April 13, 1955. In
fact, testimonies during the trial showed that petitioner and his predecessors
never disturbed the possession of respondent-spouses until the filing of the
ejectment case on April 12, 1992.24
Moreover, the evidence presented by respondent-spouses indubitably reveals
that they signed the contract under threat of prosecution, with the view to secure
the payment of the P3,000.00 defalcated by respondent Felix. Amado Ll. Ayson
and Blas F. Rayos obviously exerted undue influence on Felix taking advantage
of the latter’s lack of education and understanding of the legal effects of his
signing the deed.
Respondent-spouses have clearly proven that they have already paid the
aforesaid amount. That the obligation was paid in installments through salary
deduction over a period of 10 years from the signing of the Deed of Absolute Sale
is of no moment. It is safe to assume that this repayment scheme was in the
nature of an easy payment plan based on the respondent-spouses’ capacity to
pay. Also noteworthy is that the deductions from respondent Felix’s salary
amounted to a total of P5,791.69,25 or almost double the obligation of P3,000.00.
Furthermore, it cannot be denied that petitioner failed to adduce countervailing
proof that the payments, as evidenced by the volume of receipts, were for some
other obligation.1avvphi1
That the realty taxes paid by respondent-spouses was only for their house can be
explained by the fact that, until the filing of the ejectment case, respondent
Maxima was not aware that the land she co-owned was already partitioned, such
that the payments of real estate taxes in her name were limited to the
improvement on the land.
An equitable mortgage is a voidable contract. As such, it may be annulled within
four (4) years from the time the cause of action accrues. This case, however, not
only involves a contract resulting from fraud, but covers a transaction ridden with
threat, intimidation, and continuing undue influence which started when
petitioner’s adoptive father Amado Ll. Ayson and Blas F. Rayos, Felix’s superiors
at Dagupan Colleges, practically bullied respondent-spouses into signing the
Deed of Absolute Sale under threat of incarceration. Thus, the four-year period
should start from the time the defect in the consent ceases.26 While at first glance,
it would seem that the defect in the consent of respondent-spouses ceased either
from the payment of the obligation through salary deduction or from the death of
Amado Ll. Ayson and Blas F. Rayos, it is apparent that such defect of consent
never ceased up to the time of the signing of the Affidavit on April 8, 1992 when
Zareno, acting on behalf of petitioner, caused respondent Felix to be brought to
him, and taking advantage of the latter being unlettered, unduly influenced Felix
into executing the said Affidavit for a fee of P10,000.00.27 The complaint praying
for the nullity of the Deed of Absolute Sale was filed on October 11, 1993, well
within the four-year prescriptive period.
Regarding the finality of the adjudication of physical possession in favor of
petitioner, it may be reiterated that the right of possession is a necessary incident
of ownership. This adjudication of ownership of the property to respondent-
spouses must include the delivery of possession to them since petitioner has not
shown a superior right to retain possession of the land independently of his claim
of ownership which is herein rejected. Verily, to grant execution of the judgment
in the ejectment case would work an injustice on respondent-spouses who had
been conclusively declared the owners and thus, rightful possessors of the
disputed land.28
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals
in CA-G.R. CV No. 59645 dated May 31, 2000 is AFFIRMED.
SO ORDERED.

G.R. No. 143370 February 6, 2002
MARIO J. MENDEZONA and TERESITA M. MENDEZONA, LUIS J.
MENDEZONA and MARICAR L. MENDEZONA and TERESITA ADAD VDA. DE
MENDEZONA, petitioners,
vs.
JULIO H. OZAMIZ, ROBERTO J. MONTALVAN, JOSE MA. OZAMIZ, CARMEN
H. OZAMIZ, PAZ O. MONTALVAN, MA. TERESA O.F. ZARRAGA, CARLOS O.
FORTICH, JOSE LUIS O. ROS, PAULITA O. RODRIGUEZ, and LOURDES O.
LON, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 and the
Resolution2 of the Court of Appeals dated July 27, 1998 and May 19, 2000,
respectively, in CA-G.R. CV No. 39752 which reversed and set aside the
Decision3dated September 23, 1992 rendered in favor of the petitioners by the
Regional Trial Court (RTC) of Cebu City, Branch 6 in Civil Case No. CEB-10766.
Civil Case No. CEB-10766 is a suit for quieting of title. It was instituted on
September 25, 1991 by petitioner spouses Mario J. Mendezona and Teresita M.
Mendezona as initial plaintiffs,4 and in the amended complaint filed on October 7,
1991, herein co-petitioner spouses Luis J. Mendezona and Maricar L. Mendezona
and Teresita Adad Vda. de Mendezona joined as co-plaintiffs.5
In their complaint, the petitioners, as plaintiffs therein, alleged that petitioner
spouses Mario J. Mendezona and Teresita M. Mendezona, petitioner spouses
Luis J. Mendezona and Maricar L. Mendezona, and petitioner Teresita Adad Vda.
de Mendezona own a parcel of land each in the Banilad Estate, Lahug, Cebu City
with almost similar areas of 3,462 square meters, 3,466 square meters and 3,468
square meters, covered and described in Transfer Certificate of Title (TCT) Nos.
116834, 116835, and 116836 respectively, of the Registry of Deeds of Cebu City.6
The petitioners ultimately traced their titles of ownership over their respective
properties from a notarized Deed of Absolute Sale7 dated April 28, 1989 executed
in their favor by Carmen Ozamiz for and in consideration of the sum of One Million
Forty Thousand Pesos (₱1,040,000.00).
The petitioners initiated the suit to remove a cloud on their said respective titles
caused by the inscription thereon of a notice of lis pendens, which came about as
a result of an incident in Special Proceeding No. 1250 of the RTC of Oroquieta
City. Special Proceeding No. 1250 is a proceeding for guardianship over the
person and properties of Carmen Ozamiz initiated by the respondents Julio H.
Ozamiz, Jose Ma. Ozamiz, Carmen H. Ozamiz,8 Paz O. Montalvan, Ma. Teresa
O.F. Zarraga, Carlos O. Fortich, Jose Luis O. Ros, Paulita O. Rodriguez and
Lourdes O. Lon.9
It appears that on January 15, 1991, the respondents instituted the petition for
guardianship with the Regional Trial Court of Oroquieta City, alleging therein that
Carmen Ozamiz, then 86 years old, after an illness in July 1987, had become
disoriented and could not recognize most of her friends; that she could no longer
take care of herself nor manage her properties by reason of her failing health,
weak mind and absent-mindedness. Mario Mendezona and Luis Mendezona,
herein petitioners who are nephews of Carmen Ozamiz, and Pilar Mendezona, a
sister of Carmen Ozamiz, filed an opposition to the guardianship petition.
In the course of the guardianship proceeding, the petitioners and the oppositors
thereto agreed that Carmen Ozamiz needed a guardian over her person and her
properties, and thus respondent Paz O. Montalvan was designated as guardian
over the person of Carmen Ozamiz while petitioner Mario J. Mendezona,
respondents Roberto J. Montalvan and Julio H. Ozamiz were designated as joint
guardians over the properties of the said ward.
As guardians, respondents Roberto J. Montalvan and Julio H. Ozamiz filed on
August 6, 1991 with the guardianship court their "inventories and
Accounts",10 listing therein Carmen Ozamiz’s properties, cash, shares of stock,
vehicles and fixed assets, including a 10,396 square meter property known as the
Lahug property. Said Lahug property is the same property covered by the Deed
of Absolute Sale dated April 28, 1989 executed by Carmen Ozamiz in favor of the
petitioners. Respondents Roberto J. Montalvan and Julio H. Ozamiz caused the
inscription on the titles of petitioners a notice of lis pendens,11 regarding Special
Proceeding No. 1250, thus giving rise to the suit for quieting of title, Civil Case
No. CEB-10766, filed by herein petitioners.
In their Answer12 in Civil Case No. CEB-10766 the respondents opposed the
petitioners’ claim of ownership of the Lahug property and alleged that the titles
issued in the petitioners names are defective and illegal, and the ownership of the
34
said property was acquired in bad faith and without value inasmuch as the
consideration for the sale is grossly inadequate and unconscionable.
Respondents further alleged that at the time of the sale on April 28, 1989 Carmen
Ozamiz was already ailing and not in full possession of her mental faculties; and
that her properties having been placed in administration, she was in effect
incapacitated to contract with petitioners.
The issues for resolution were delimited in the pre-trial to: (a) the propriety of
recourse to quieting of title; (b) the validity or nullity of the Deed of Absolute Sale
dated April 28, 1989 executed by Carmen Ozamiz in favor of herein petitioners;
(c) whether the titles over the subject parcel of land in plaintiffs’ names be
maintained or should they be cancelled and the subject parcels of land
reconveyed; and (d) damages and attorney’s fees.13
Trial on the merits ensued with the parties presenting evidence to prove their
respective allegations. Petitioners Mario Mendezona, Teresita Adad Vda. de
Mendezona and Luis Mendezona, as plaintiffs therein, testified on the
circumstances surrounding the sale. Carmencita Cedeno and Martin Yungco,
instrumental witnesses to the Deed of Absolute Sale dated April 28, 1989, and,
Atty. Asuncion Bernades, the notary public who notarized the said document,
testified that on the day of execution of the said contract that Carmen Ozamiz was
of sound mind and that she voluntarily and knowingly executed the said deed of
sale.
For the defendants, the testimonies of respondent Paz O. Montalvan, a sister of
Carmen Ozamiz; Concepcion Agac-ac, an assistant of Carmen Ozamiz;
respondent Julio Ozamiz; Carolina Lagura, a househelper of Carmen Ozamiz;
Joselito Gunio, an appraiser of land; Nelfa Perdido, a part-time bookkeeper of
Carmen Ozamiz, and the deposition of Dr. Faith Go, physician of Carmen Ozamiz,
were offered in evidence.
The petitioners presented as rebuttal witnesses petitioners Mario Mendezona and
Luis Mendezona, to rebut the testimony of respondent Julio H. Ozamiz; and, Dr.
William Buot, a doctor of neurology to rebut aspects of the deposition of Dr. Faith
Go on the mental capacity of Carmen Ozamiz at the time of the sale.
During the trial, the trial court found that the following facts have been duly
established:14
(1) On April 28, 1989, Carmen Ozamiz sold to her nephews, Mario,
Antonio and Luis, all surnamed Mendezona, three (3) parcels of
residential land in Cebu City, per a Deed of Absolute Sale (Exh. D) for
a consideration of P1,040,000.00, in which deed the usufructuary
rights were reserved during her lifetime.
(2) The three parcels of land were subsequently transferred to the
names of the three vendees per TCTs Nos. 108729, 108730 and
108731 (Exhs. J, K & L, respectively). A partition agreement was
entered into by the three vendees (Exh. 3) and the parcels of land are
now titled in the names of the plaintiffs.
Mario Mendezona — TCT No. 116834 (Exh. A);
Luis Mendezona — TCT No. 116835 (Exh. B);
Antonio Mendezona — TCT No. 116836 (Exh. C);
(3) The reservation of the usufructuary rights to the vendor Carmen
Ozamiz during her lifetime was confirmed by the plaintiffs-spouses
Mario Mendezona and Teresita Moraza and plaintiffs spouses Luis
Mendezona and Maricar Longa in a sworn statement (Exh. I) executed
on October 15, 1990, which was duly annotated on the titles of the
property;
(4) The capital gains tax was paid (Exh. H) on May 5, 1989 and a
certificate (Exh. H-1) was issued by the Bureau of Internal Revenue
authorizing the Register of Deeds to transfer the property to the
vendees;
(5) A petition for guardianship over the person and properties of
Carmen Ozamiz (Exh. E) was filed by all the defendants, (except the
defendant Roberto Montalvan) on January 15, 1991 with the Regional
Trial Court of Oroquieta City, denominated as Spec. Proc. No. 1250
and subsequently, an "Inventories and Accounts" (Exh. F) was filed by
court-appointed guardians Roberto Montalvan and Julio Ozamiz, in
which the property was listed (Exh. F-1) and a Notice of Lis Pendens
was filed with the Register of Deeds of Cebu City on August 13, 1991
by said joint guardians. Plaintiff Mario Mendezona, as another joint

guardian over Carmen Ozamiz, filed his opposition (Exh. R) to the
"Inventories and Accounts", with the Oroquieta Court as to the
inclusion of the property (Exh.R-1).
(6) Prior to his death, the deceased husband of plaintiff Teresita Adad
Mendezona was granted a General Power of Attorney (Exh. 1) by
Carmen Ozamiz on March 23, 1988 and after his demise, Carmen
Ozamiz granted Mario Mendezona a General Power of Attorney (Exh.
2.) on August 11, 1990. Both powers of attorney relate to the
administration of the property, subject of this action, in Cebu City.
On September 23, 1992 the trial court rendered its decision in favor of the
petitioners, the dispositive portion of which reads, to wit:
Wherefore, premises considered, the Court is of the opinion and so declares that:
1. The property described in the complaint was sold, with reservation
of usufructuary rights by Carmen Ozamiz to the plaintiffs under a valid
contract, voluntarily and deliberately entered into while she was of
sound mind, for sufficient and good consideration, and without fraud,
force, undue influence or intimidation having been exercised upon her,
and consequently, the Court orders the defendants herein to
acknowledge and recognize the plaintiffs’ title to the aforecited
property and to refrain from further clouding the same;
2. That the one-third (1/3) share erroneously titled to Antonio
Mendezona should be titled in the name of Teresita Adad vda. de
Mendezona as her paraphernal property and the Register of Deeds of
Cebu City is hereby ordered to do so;
3. The Notice of Lis Pendens affecting the property should be
eliminated from the record and the Register of Deeds of Cebu City is
ordered to expunge the same.
No pronouncement as to costs.
SO ORDERED.
On appeal to the Court of Appeals, the appellate court reversed the factual
findings of the trial court and ruled that the Deed of Absolute Sale dated April 28,
1989 was a simulated contract since the petitioners failed to prove that the
consideration was actually paid, and, furthermore, that at the time of the execution
of the contract the mental faculties of Carmen Ozamiz were already seriously
impaired. Thus, the appellate court declared that the Deed of Absolute Sale of
April 28, 1989 is null and void. It ordered the cancellation of the certificates of title
issued in the petitioners’ names and directed the issuance of new certificates of
title in favor of Carmen Ozamiz or her estate.
Petitioners filed a motion for reconsideration of the decision of the appellate court.
Subsequent thereto, the petitioners filed a motion for a new trial and/or for
reception of evidence. They contended, among other things, that the appellate
court totally ignored the testimony of Judge Teodorico Durias regarding the
mental condition of Carmen Ozamiz a month before the execution of the Deed of
Absolute Sale in question. The said testimony was taken in the Special
Proceeding No. 1250 in the Regional Trial Court of Oroquieta City. However,
Judge Durias was not presented as a witness in Civil Case No. CEB-10766 in the
Regional Trial Court of Cebu City. Petitioners alleged that Judge Durias’s
testimony is a newly-discovered evidence which could not have been discovered
prior to the trial in the court below by the exercise of due diligence.
The appellate court denied both motions in its Resolution dated May 19, 2000.
Hence, the instant petition anchored on the following grounds:15
I.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE APRIL
28, 1989 DEED OF ABSOLUTE SALE WAS A SIMULATED CONTRACT.
A.
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE
STATUTORY PRESUMPTIONS OF ACTUAL AND SUFFICIENT
CONSIDERATION FOR, AND OF THE REGULARITY AND
TRUTHFULNESS OF, THE NOTARIZED DEED OF ABSOLUTE
SALE.
35
B.
THE COURT OF APPEALS GRAVELY ERRED IN IMPOSING ON
THE PETITIONERS THE BURDEN OF PROVING PAYMENT, AND
IN REFUSING TO RECOGNIZE AND RULE THAT IT WAS THE
RESPONDENTS - AS THE PARTIES ASSAILING THE DEED OF
ABSOLUTE SALE - WHO HAD FAILED TO DISCHARGE THEIR
BURDEN OF PROVING THAT THERE WAS NO CONSIDERATION
FOR THE TRANSACTION.
C.
THE COURT OF APPEALS GRAVELY ERRED IN REFUSING TO
RECEIVE IN EVIDENCE THE THREE (3) CHECKS, WHICH
PROVED BEYOND ANY DOUBT THAT THE PURCHASE PRICE
FOR THE LAHUG PROPERTY HAD BEEN PAID TO CARMEN
OZAMIZ, AFTER ASKING FOR THEM AND HAVING THEM
PRESENTED TO IT IN OPEN COURT, THUS COOPERATING WITH
RESPONDENTS’ EFFORTS TO SUPPRESS THE CHECKS (WHICH
THE COURT ITSELF AND RESPONDENTS CHALLENGED
PETITIONERS TO PRODUCE).
II.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT CARMEN
OZAMIZ’S MENTAL FACULTIES WERE SERIOUSLY IMPAIRED WHEN SHE
EXECUTED THE DEED OF ABSOLUTE SALE ON APRIL 28, 1989.
A.
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE
STATUTORY PRESUMPTION THAT CARMEN OZAMIZ WAS OF
SOUND MIND AND HAD THE REQUISITE CAPACITY TO
CONTRACT WHEN SHE EXECUTED THE DEED OF ABSOLUTE
SALE, AND IN REFUSING TO RULE THAT IT WAS THE
RESPONDENTS - AS THE PARTIES ALLEGING MENTAL
INCAPACITY- WHO HAD FAILED TO DISCHARGE THEIR BURDEN
OF REBUTTING THAT PRESUMPTION.
B.
THE COURT OF APPEALS GRAVELY ERRED IN REFUSING TO
ACCEPT AND GIVE DUE AND PREPONDERANT WEIGHT TO
UNREFUTED EVIDENCE, INCLUDING THE UNREFUTED
TESTIMONIES OF THE INSTRUMENTAL WITNESSES AND OF THE
NOTARY PUBLIC, THAT CARMEN OZAMIZ EXECUTED THE DEED
OF ABSOLUTE SALE FREELY, VOLUNTARILY, KNOWINGLY, AND
INTELLIGENTLY.
C.
THE COURT OF APPEALS GRAVELY ERRED IN GIVING WEIGHT
TO THE HEARSAY TESTIMONY OF DR. FAITH GO ON THE
MENTAL CONDITION OF CARMEN OZAMIZ ON THE DATE SHE
EXECUTED THE DEED OF ABSOLUTE SALE.
D.
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING, AND
IN REFUSING TO RECEIVE IN EVIDENCE, JUDGE TEODORICO
DURIAS’S TESTIMONY (THAT CARMEN OZAMIZ WAS OF SOUND
MIND WHEN SHE EXECUTED ANOTHER CONTRACT BARELY A
MONTH BEFORE SHE EXECUTED THE DEED OF ABSOLUTE
SALE) ON THE GROUND THAT THAT TESTIMONY WAS
FORGOTTEN EVIDENCE.
We shall first rule on the issue of whether to consider the testimony of Judge
Durias as newly discovered evidence. A motion for new trial upon the ground of
newly discovered evidence is properly granted only where there is concurrence
of the following requisites, namely: (a) the evidence had been discovered after
trial; (b) the evidence could not have been discovered and produced during trial
even with the exercise of reasonable diligence; and (c) the evidence is material
and not merely corroborative, cumulative or impeaching and is of such weight that
if admitted, would probably alter the result. All three (3) requisites must
characterize the evidence sought to be introduced at the new trial.

We find that the requirement of reasonable diligence has not been met by the
petitioners. As early as the pre-trial of the case at bar, the name of Judge Durias
has already cropped up as a possible witness for the defendants, herein
respondents. That the respondents chose not to present him is not an indicia per
se of suppression of evidence, since a party in a civil case is free to choose who
to present as his witness. Neither can Judge Durias’ testimony in another case be
considered as newly discovered evidence since the facts to be testified to by
Judge Durias which were existing before and during the trial, could have been
presented by the petitioners at the trial below.16 The testimony of Judge Durias
has been in existence waiting only to be elicited from him by questioning.17
It has been held that a lack of diligence is exhibited where the newly discovered
evidence was necessary or proper under the pleadings, and its existence must
have occurred to the party in the course of the preparation of the case, but no
effort was made to secure it; there is a failure to make inquiry of persons who
were likely to know the facts in question, especially where information was not
sought from co-parties; there is a failure to seek evidence available through public
records; there is a failure to discover evidence that is within the control of the
complaining party; there is a failure to follow leads contained in other evidence;
and, there is a failure to utilize available discovery procedures.18 Thus, the
testimony of Judge Durias cannot be considered as newly discovered evidence
to warrant a new trial.
In this petition at bench, herein petitioners essentially take exception to two (2)
main factual findings of the appellate court, namely, (a) that the notarized Deed
of Absolute Sale dated April 28, 1989 was a simulated contract, and (b) that
Carmen Ozamiz’s mental faculties were seriously impaired when she executed
the said contract on April 28, 1989. The petitioners allege that both conclusions
are contrary or opposed to well-recognized statutory presumptions of regularity
enjoyed by a notarized document and that a contracting party to a notarized
contract is of sound and disposing mind when she executes the contract.
The respondents posit a different view. They contend that clear and convincing
evidence refuted the presumptions on regularity of execution of the Deed of
Absolute Sale and existence of consideration thereof. Relying upon the
testimonies of Paz O. Montalvan, Concepcion Agac-ac, Carolina Lagura and Dr.
Faith Go, they aver that they were able to show that Carmen Ozamiz was already
physically and mentally incapacitated since the latter part of 1987 and could not
have executed the said Deed of Absolute Sale on April 28, 1989 covering the
disputed Lahug property. They also alleged that no error is ascribable to the
appellate court for not considering the allegedly rehearsed testimonies of the
instrumental witnesses and the notary public.
Factual findings of the appellate court are generally conclusive on this Court which
is not a trier of facts. It is not the function of the Supreme Court to analyze or
weigh evidence all over again. However, this rule is not without exception. If there
is a showing that the appellate court’s findings of facts complained of are totally
devoid of support in the record or that they are so glaringly erroneous as to
constitute grave abuse of discretion, this Court must discard such erroneous
findings of facts.19 We find that the exception applies in the case at bench.
Simulation is defined as "the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purposes of deception, the
appearances of a juridical act which does not exist or is different from what that
which was really executed."20 The requisites of simulation are: (a) an outward
declaration of will different from the will of the parties; (b) the false appearance
must have been intended by mutual agreement; and (c) the purpose is to deceive
third persons.21 None of these were clearly shown to exist in the case at bar.
Contrary to the erroneous conclusions of the appellate court, a simulated contract
cannot be inferred from the mere non-production of the checks. It was not the
burden of the petitioners to prove so. It is significant to note that the Deed of
Absolute Sale dated April 28, 1989 is a notarized document duly acknowledged
before a notary public. As such, it has in its favor the presumption of regularity,
and it carries the evidentiary weight conferred upon it with respect to its due
execution. It is admissible in evidence without further proof of its authenticity and
is entitled to full faith and credit upon its face.22
Payment is not merely presumed from the fact that the notarized Deed of Absolute
Sale dated April 28, 1989 has gone through the regular procedure as evidenced
by the transfer certificates of title issued in petitioners’ names by the Register of
Deeds. In other words, whosoever alleges the fraud or invalidity of a notarized
document has the burden of proving the same by evidence that is clear,
convincing, and more than merely preponderant.23 Therefore, with this well-
recognized statutory presumption, the burden fell upon the respondents to prove
their allegations attacking the validity and due execution of the said Deed of
Absolute Sale. Respondents failed to discharge that burden; hence, the
presumption in favor of the said deed stands. But more importantly, that notarized
deed shows on its face that the consideration of One Million Forty Thousand
Pesos (₱1,040,000.00) was acknowledged to have been received by Carmen
Ozamiz.
36
Simulation cannot be inferred from the alleged absence of payment based on the
testimonies of Concepcion Agac-ac, assistant of Carmen Ozamiz, and Nelfa
Perdido, part-time bookkeeper of Carmen Ozamiz. The testimonies of these two
(2) witnesses are unreliable and inconsistent.
While Concepcion Agac-ac testified that she was aware of all the transactions of
Carmen Ozamiz, she also admitted that not all income of Carmen Ozamiz passed
through her since Antonio Mendezona, as appointed administrator, directly
reported to Carmen Ozamiz.24 With respect to Nelfa Perdido, she testified that
most of the transactions that she recorded refer only to rental income and
expenses, and the amounts thereof were reported to her by Concepcion Agac-ac
only, not by Carmen Ozamiz. She does not record deposits or withdrawals in the
bank accounts of Carmen Ozamiz.25 Their testimonies hardly deserve any credit
and, hence, the appellate court misplaced reliance thereon.
Considering that Carmen Ozamiz acknowledged, on the face of the notarized
deed, that she received the consideration at One Million Forty Thousand Pesos
(₱1,040,000.00), the appellate court should not have placed too much emphasis
on the checks, the presentation of which is not really necessary. Besides, the
burden to prove alleged non-payment of the consideration of the sale was on the
respondents, not on the petitioners. Also, between its conclusion based on
inconsistent oral testimonies and a duly notarized document that enjoys
presumption of regularity, the appellate court should have given more weight to
the latter. Spoken words could be notoriously unreliable as against a written
document that speaks a uniform language.26
Furthermore, the appellate court erred in ruling that at the time of the execution
of the Deed of Absolute Sale on April 28, 1989 the mental faculties of Carmen
Ozamiz were already seriously impaired.27 It placed too much reliance upon the
testimonies of the respondents’ witnesses. However, after a thorough scrutiny of
the transcripts of the testimonies of the witnesses, we find that the respondents’
core witnesses all made sweeping statements which failed to show the true state
of mind of Carmen Ozamiz at the time of the execution of the disputed document.
The testimonies of the respondents’ witnesses on the mental capacity of Carmen
Ozamiz are far from being clear and convincing, to say the least.
Carolina Lagura, a househelper of Carmen Ozamiz, testified that when Carmen
Ozamiz was confronted by Paz O. Montalvan in January 1989 with the sale of the
Lahug property, Carmen Ozamiz denied the same. She testified that Carmen
Ozamiz understood the question then.28 However, this declaration is inconsistent
with her (Carolina’s) statement that since 1988 Carmen Ozamiz could not fully
understand the things around her, that she was physically fit but mentally could
not carry a conversation or recognize persons who visited her.29 Furthermore, the
disputed sale occurred on April 28, 1989 or three (3) months after this alleged
confrontation in January 1989. This inconsistency was not explained by the
respondents.
The revelation of Dr. Faith Go did not also shed light on the mental capacity of
Carmen Ozamiz on the relevant day - April 28, 1989 when the Deed of Absolute
Sale was executed and notarized. At best, she merely revealed that Carmen
Ozamiz was suffering from certain infirmities in her body and at times, she was
forgetful, but there was no categorical statement that Carmen Ozamiz succumbed
to what the respondents suggest as her alleged "second childhood" as early as
1987.1âwphi1 The petitioners’ rebuttal witness, Dr. William Buot, a doctor of
neurology, testified that no conclusion of mental incapacity at the time the said
deed was executed can be inferred from Dr. Faith Go’s clinical notes nor can such
fact be deduced from the mere prescription of a medication for episodic memory
loss.
It has been held that a person is not incapacitated to contract merely because of
advanced years or by reason of physical infirmities. Only when such age or
infirmities impair her mental faculties to such extent as to prevent her from
properly, intelligently, and fairly protecting her property rights, is she considered
incapacitated.30 The respondents utterly failed to show adequate proof that at the
time of the sale on April 28, 1989 Carmen Ozamiz had allegedly lost control of
her mental faculties.
We note that the respondents sought to impugn only one document, namely, the
Deed of Absolute Sale dated April 28, 1989, executed by Carmen Ozamiz.
However, there are nine (9) other important documents that were, signed by
Carmen Ozamiz either before or after April 28, 1989 which were not assailed by
the respondents.31 Such is contrary to their assertion of complete incapacity of
Carmen Ozamiz to handle her affairs since 1987. We agree with the trial court’s
assessment that "it is unfair for the [respondents] to claim soundness of mind of
Carmen Ozamiz when it benefits them and otherwise when it disadvantages
them."32 A person is presumed to be of sound mind at any particular time and the
condition is presumed to continue to exist, in the absence of proof to the
contrary.33Competency and freedom from undue influence, shown to have existed
in the other acts done or contracts executed, are presumed to continue until the
contrary is shown.34
 37

All the foregoing considered, we find the instant petition to be meritorious and the
same should be granted.

WHEREFORE, the instant petition is hereby GRANTED and the assailed

Decision and Resolution of the Court of Appeals are hereby REVERSED and SET
ASIDE. The Decision dated September 23, 1992 of the Regional Trial Court of
Cebu City, Branch 6, in Civil Case No. CEB-10766 is REINSTATED. No
pronouncement as to costs.

SO ORDERED.

G.R. No. 150429 August 29, 2006
ROBERTO G. FAMANILA, Petitioner,
vs.
THE COURT OF APPEALS (Spc. Fmr. Seventh Division) and BARBERSHIP
MANAGEMENT LIMITED and NFD INTERNATIONAL MANNING AGENTS,
INC. Respondents.
DECISION
YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari assailing the Decision 1 of the Court
of Appeals in CA-G.R. SP No. 50615 dated March 30, 2001 which affirmed the
Decision 2 of the National Labor Relations Commission (NLRC) dated March 31,
1998 dismissing petitioner’s complaint for payment of disability and other benefits
for lack of merit and the Resolution 3 dated October 5, 2001 of the Court of
Appeals denying petitioner’s motion for reconsideration.
The antecedent facts are as follows:
In 1989, respondent NFD International Manning Agents, Inc. hired the services of
petitioner Roberto G. Famanila as Messman 4 for Hansa Riga, a vessel registered
and owned by its principal and co-respondent, Barbership Management Limited.
On June 21, 1990, while Hansa Riga was docked at the port of Eureka, California,
U.S.A. and while petitioner was assisting in the loading operations, the latter
complained of a headache. Petitioner experienced dizziness and he subsequently
collapsed. Upon examination, it was determined that he had a sudden attack of
left cerebral hemorrhage from a ruptured cerebral aneurysm. 5 Petitioner
underwent a brain operation and he was confined at the Emmanuel Hospital in
Portland, Oregon, U.S.A. On July 19, 1990, he underwent a second brain
operation.
Owing to petitioner’s physical and mental condition, he was repatriated to the
Philippines. On August 21, 1990, he was examined at the American Hospital in
Intramuros, Manila where the examining physician, Dr. Patricia Abesamis
declared that he "cannot go back to sea duty and has been observed for 120
days, he is being declared permanently, totally disabled." 6
Thereafter, authorized representatives of the respondents convinced him to settle
his claim amicably by accepting the amount of US$13,200. 7 Petitioner accepted
the offer as evidenced by his signature in the Receipt and Release dated February
28, 1991. 8 His wife, Gloria Famanila and one Richard Famanila, acted as
witnesses in the signing of the release.
On June 11, 1997, petitioner filed a complaint 9 with the NLRC which was
docketed as NLRC OCW Case No. 6-838-97-L praying for an award of disability
benefits, share in the insurance proceeds, moral damages and attorney’s fees.
On September 29, 1997, Acting Executive Labor Arbiter Voltaire A. Balitaan
dismissed the complaint on the ground of prescription. Petitioner appealed the
decision with the NLRC. On March 31, 1998, the NLRC promulgated its
decision 10 finding the appeal to be without merit and ordered its dismissal. When
the motion for reconsideration11 was denied by the NLRC in its resolution dated
June 29, 1998, 12 petitioner filed a petition for certiorari with this Court. On
December 2, 1998, we resolved to refer the case to the Court of Appeals pursuant
to our ruling in St. Martin Funeral Home v. National Labor Relations
Commission. 13
On March 30, 2001, the Court of Appeals promulgated the assailed decision
which dismissed the petition for lack of merit. Petitioner’s motion for
reconsideration was denied, hence, the present petition for review raising the
following issues:
I. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN UPHOLDING THE
VALIDITY OF THE RECEIPT AND RELEASE SINCE PETITIONER’S CONSENT
THERETO WAS VITIATED THEREBY MAKING THE SAME VOID AND
UNENFORCEABLE.
II. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN HOLDING THAT
THE PRESCRIPTION PERIOD APPLICABLE TO THE CLAIM OF THE
PETITIONER IS THE 3-YEAR PERIOD PROVIDED FOR UNDER THE LABOR
CODE OF THE PHILIPPINES AND NOT THE 10-YEAR PERIOD PROVIDED
FOR UNDER THE CIVIL CODE.
38
Petitioner claims that he did not sign the Receipt and Release voluntarily or freely
because he was permanently disabled and in financial constraints. These factors
allegedly vitiated his consent which makes the Receipt and Release void and
unenforceable.
The petition lacks merit.
It is fundamental that the scope of the Supreme Court’s judicial review under Rule
45 of the Rules of Court is confined only to errors of law. It does not extend to
questions of fact. More so in labor cases where the doctrine applies with greater
force. 14 The Labor Arbiter and the NLRC have already determined the factual
issues, and these were affirmed by the Court of Appeals. Thus, they are accorded
not only great respect but also finality and are deemed binding upon this Court so
long as they are supported by substantial evidence. 15 We reviewed the records
of the case and we find no reason to deviate from the findings of the labor arbiter,
NLRC and the Court of Appeals.
A vitiated consent does not make a contract void and unenforceable. A vitiated
consent only gives rise to a voidable agreement. Under the Civil Code, the vices
of consent are mistake, violence, intimidation, undue influence or fraud. 16 If
consent is given through any of the aforementioned vices of consent, the contract
is voidable. 17 A voidable contract is binding unless annulled by a proper action in
court. 18
Petitioner contends that his permanent and total disability vitiated his consent to
the Receipt and Release thereby rendering it void and unenforceable. However,
disability is not among the factors that may vitiate consent. Besides, save for
petitioner’s self-serving allegations, there is no proof on record that his consent
was vitiated on account of his disability. In the absence of such proof of vitiated
consent, the validity of the Receipt and Release must be upheld. We agree with
the findings of the Court of Appeals that:
In the case at bar, there is nothing in the records to show that petitioner’s consent
was vitiated when he signed the agreement. Granting that petitioner has not fully
recovered his health at the time he signed the subject document, the same cannot
still lead to the conclusion that he did not voluntar[il]y accept the agreement, for
his wife and another relative witnessed his signing.
Moreover, the document entitled receipt and release which was attached by
petitioner in his appeal does not show on its face any violation of law or public
policy. In fact, petitioner did not present any proof to show that the consideration
for the same is not reasonable and acceptable. Absent any evidence to support
the same, the Court cannot, on its own accord, decide against the
unreasonableness of the consideration. 19
It is true that quitclaims and waivers are oftentimes frowned upon and are
considered as ineffective in barring recovery for the full measure of the worker’s
right and that acceptance of the benefits therefrom does not amount to
estoppel. 20 The reason is plain. Employer and employee, obviously do not stand
on the same footing. 21 However, not all waivers and quitclaims are invalid as
against public policy. If the agreement was voluntarily entered into and represents
a reasonable settlement, it is binding on the parties and may not later be disowned
simply because of change of mind. It is only where there is clear proof that the
waiver was wangled from an unsuspecting or gullible person, or the terms of the
settlement are unconscionable on its face, that the law will step in to annul the
questionable transaction. But where it is shown that the person making the waiver
did so voluntarily, with full understanding of what he was doing, and the
consideration for the quitclaim is credible and reasonable, the transaction must
be recognized as a valid and binding undertaking, 22 as in this case.
To be valid and effective, waivers must be couched in clear and unequivocal
terms, leaving no doubt as to the intention of those giving up a right or a benefit
that legally pertains to them. 23 We have reviewed the terms and conditions
contained in the Receipt and Release and we find the same to be clear and
unambiguous. The signing was even witnessed by petitioner’s wife, Gloria T.
Famanila and one Richard T. Famanila. The Receipt and Release provides in
part:
That for and in consideration of the sum of THIRTEEN THOUSAND TWO
HUNDRED DOLLARS (US$13,200.00) or its equivalent in Philippine currency
THREE HUNDRED SIXTY FIVE THOUSAND NINE HUNDRED FOUR PESOS
(365,904.00), the receipt of which is hereby acknowledged to my full and complete
satisfaction x x x I, ROBERTO G. FAMANILA, x x x hereby remise, release and
forever discharge said vessel "HANSA RIGA", her Owners, operators, managers,
charterers, agents, underwriters, P and I Club, master, officers, and crew and all
parties at interest therein or thereon, whether named or not named, including but
not limited to BARBER SHIP MANAGEMENT LIMITED, NFD INTERNATIONAL
MANNING AGENTS, INC. and ASSURANCEFORENIGEN GARD from any and
all claims, demands, debts, dues, liens, actions or causes of action, at law or in
equity, in common law or in admiralty, statutory or contractual, arising from and
under the laws of the United States of America, Norway, Hongkong or the
 39

Republic of the Philippines and/or any other foreign country now held, owned or
possessed by me or by any person or persons, arising from or related to or
concerning whether directly or indirectly, proximately or remotely, without being
limited to but including the said illness suffered by me on board the vessel
"HANSA RIGA" on or about 21st June 1990 at Portland, Oregon and disability
compensation in connection therewith.

This instrument is a GENERAL RELEASE intended to release all liabilities of any

character and/or claims or damages and/or losses and/or any other liabilities
whatsoever, whether contractual or statutory, at common law or in equity, tortious
or in admiralty, now or henceforth in any way related to or occurring as a
consequence of the illness suffered by me as Messman of the vessel "HANSA
RIGA", including but not limited to all damages and/or losses consisting of loss of
support, loss of earning capacity, loss of all benefits of whatsoever nature and
extent incurred, physical pain and suffering and/or all damages and/or indemnities
claimable in law, tort, contract, common law, equity and/or admiralty by me or by
any person or persons pursuant to the laws of the United States of America,
Norway, Hongkong or the Republic of the Philippines and of all other countries
whatsoever.

I hereby certify that I am of legal age and that I fully understand this instrument
which was read to me in the local dialect and I agree that this is a FULL AND
FINAL RELEASE AND DISCHARGE of all parties and things referred to herein,
and I further agree that this release may be pleaded as an absolute and final bar
to any suit or suits or legal proceedings that may hereafter be prosecuted by me
or by any one claiming by, through, or under me, against any of the persons or
things

referred to or related herein, for any matter or thing referred to or related herein. 24

It is elementary that a contract is perfected by mere consent and from that

moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. 25 Further, dire
necessity is not an acceptable ground for annulling the Receipt and Release since
it has not been shown that petitioner was forced to sign it. 26

Regarding prescription, the applicable prescriptive period for the money claims
against the respondents is the three year period pursuant to Article 291 of the
Labor Code which provides that:

ART. 291. Money Claims. – All money claims arising from employer-employee
relations accruing during the effectivity of this Code shall be filed within three (3)
years from the time the cause of action accrued; otherwise they shall be forever
barred.

xxxx

Since petitioner’s demand for an award of disability benefits is a money claim

arising from his employment, Article 291 of the Labor Code applies. From the time
petitioner was declared permanently and totally disabled on August 21, 1990
which gave rise to his entitlement to disability benefits up to the time that he filed
the complaint on June 11, 1997, more than three years have elapsed thereby
effectively barring his claim.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals

dated March 30, 2001 in CA-G.R. SP No. 50615 which affirmed the Decision of
the National Labor Relations Commission dismissing petitioner’s complaint for
disability and other benefits for lack of merit, and

the Resolution dated October 5, 2001 denying the motion for reconsideration,
are AFFIRMED.

SO ORDERED.

G.R. No. 159567 July 31, 2007
CORAZON CATALAN, LIBRADA CATALAN-LIM, EULOGIO CATALAN, MILA
CATALAN-MILAN, ZENAIDA CATALAN, ALEX CATALAN, DAISY CATALAN,
FLORIDA CATALAN and GEMMA CATALAN, Heirs of the late FELICIANO
CATALAN, Petitioners,
vs.
JOSE BASA, MANUEL BASA, LAURETA BASA, DELIA BASA, JESUS BASA
and ROSALINDA BASA, Heirs of the late MERCEDES
CATALAN, Respondents.
DECISION
PUNO, C.J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court of the Court of Appeals decision in CA-G.R. CV No. 66073, which affirmed
the judgment of the Regional Trial Court, Branch 69, Lingayen, Pangasinan, in
Civil Case No. 17666, dismissing the Complaint for Declaration of Nullity of
Documents, Recovery of Possession and Ownership, and damages.
The facts, which are undisputed by the parties, follow:
On October 20, 1948, FELICIANO CATALAN (Feliciano) was discharged from
active military service. The Board of Medical Officers of the Department of
Veteran Affairs found that he was unfit to render military service due to his
"schizophrenic reaction, catatonic type, which incapacitates him because of
flattening of mood and affect, preoccupation with worries, withdrawal, and sparce
(sic) and pointless speech."1
On September 28, 1949, Feliciano married Corazon Cerezo.2
On June 16, 1951, a document was executed, titled "Absolute Deed of
Donation,"3 wherein Feliciano allegedly donated to his sister MERCEDES
CATALAN(Mercedes) one-half of the real property described, viz:
A parcel of land located at Barangay Basing, Binmaley, Pangasinan. Bounded on
the North by heirs of Felipe Basa; on the South by Barrio Road; On the East by
heirs of Segundo Catalan; and on the West by Roman Basa. Containing an area
of Eight Hundred One (801) square meters, more or less.
The donation was registered with the Register of Deeds. The Bureau of Internal
Revenue then cancelled Tax Declaration No. 2876, and, in lieu thereof, issued
Tax Declaration No. 180804 to Mercedes for the 400.50 square meters donated
to her. The remaining half of the property remained in Feliciano’s name under Tax
Declaration No. 18081.5
On December 11, 1953, People’s Bank and Trust Company filed Special
Proceedings No. 45636 before the Court of First Instance of Pangasinan to
declare Feliciano incompetent. On December 22, 1953, the trial court issued its
Order for Adjudication of Incompetency for Appointing Guardian for the Estate
and Fixing Allowance7 of Feliciano. The following day, the trial court appointed
People’s Bank and Trust Company as Feliciano’s guardian.8 People’s Bank and
Trust Company has been subsequently renamed, and is presently known as the
Bank of the Philippine Islands (BPI).
On November 22, 1978, Feliciano and Corazon Cerezo donated Lots 1 and 3 of
their property, registered under Original Certificate of Title (OCT) No. 18920, to
their son Eulogio Catalan.9
On March 26, 1979, Mercedes sold the property in issue in favor of her children
Delia and Jesus Basa.10 The Deed of Absolute Sale was registered with the
Register of Deeds of Pangasinan on February 20, 1992, and Tax Declaration No.
12911 was issued in the name of respondents.11
On June 24, 1983, Feliciano and Corazon Cerezo donated Lot 2 of the
aforementioned property registered under OCT No. 18920 to their children Alex
Catalan, Librada Catalan and Zenaida Catalan. On February 14, 1983, Feliciano
and Corazon Cerezo donated Lot 4 (Plan Psu-215956) of the same OCT No.
18920 to Eulogio and Florida Catalan.12
On April 1, 1997, BPI, acting as Feliciano’s guardian, filed a case for Declaration
of Nullity of Documents, Recovery of Possession and Ownership,13 as well as
damages against the herein respondents. BPI alleged that the Deed of Absolute
Donation to Mercedes was void ab initio, as Feliciano never donated the property
to Mercedes. In addition, BPI averred that even if Feliciano had truly intended to
give the property to her, the donation would still be void, as he was not of sound
40
mind and was therefore incapable of giving valid consent. Thus, it claimed that if
the Deed of Absolute Donation was void ab initio, the subsequent Deed of
Absolute Sale to Delia and Jesus Basa should likewise be nullified, for Mercedes
Catalan had no right to sell the property to anyone. BPI raised doubts about the
authenticity of the deed of sale, saying that its registration long after the death of
Mercedes Catalan indicated fraud. Thus, BPI sought remuneration for incurred
damages and litigation expenses.
On August 14, 1997, Feliciano passed away. The original complaint was
amended to substitute his heirs in lieu of BPI as complainants in Civil Case No.
17666.
On December 7, 1999, the trial court found that the evidence presented by the
complainants was insufficient to overcome the presumption that Feliciano was
sane and competent at the time he executed the deed of donation in favor of
Mercedes Catalan. Thus, the court declared, the presumption of sanity or
competency not having been duly impugned, the presumption of due execution
of the donation in question must be upheld.14 It rendered judgment, viz:
WHEREFORE, in view of the foregoing considerations, judgment is hereby
rendered:
1. Dismissing plaintiff’s complaint;
2. Declaring the defendants Jesus Basa and Delia Basa the lawful
owners of the land in question which is now declared in their names
under Tax Declaration No. 12911 (Exhibit 4);
3. Ordering the plaintiff to pay the defendants Attorney’s fees of
₱10,000.00, and to pay the Costs.(sic)
SO ORDERED.15
Petitioners challenged the trial court’s decision before the Court of Appeals via a
Notice of Appeal pursuant to Rule 41 of the Revised Rules of Court. 16 The
appellate court affirmed the decision of the trial court and held, viz:
In sum, the Regional Trial Court did not commit a reversible error in disposing that
plaintiff-appellants failed to prove the insanity or mental incapacity of late (sic)
Feliciano Catalan at the precise moment when the property in dispute was
donated.
Thus, all the elements for validity of contracts having been present in the 1951
donation coupled with compliance with certain solemnities required by the Civil
Code in donation inter vivos of real property under Article 749, which provides:
xxx
Mercedes Catalan acquired valid title of ownership over the property in dispute.
By virtue of her ownership, the property is completely subjected to her will in
everything not prohibited by law of the concurrence with the rights of others (Art.
428, NCC).
The validity of the subsequent sale dated 26 March 1979 (Exhibit 3, appellees’
Folder of Exhibits) of the property by Mercedes Catalan to defendant-appellees
Jesus Basa and Delia Basa must be upheld. Nothing of the infirmities which
allegedly flawed its authenticity is evident much less apparent in the deed itself or
from the evidence adduced. As correctly stated by the RTC, the fact that the Deed
of Absolute Sale was registered only in 1992, after the death of Mercedes Catalan
does not make the sale void ab initio. Moreover, as a notarized document, the
deed of absolute sale carries the evidentiary weight conferred upon such public
document with respect to its due execution (Garrido vs. CA 236 SCRA 450). In a
similar vein, jurisprudence has it that documents acknowledged before a notary
public have in their favor the presumption of regularity, and to contradict the same,
there must be evidence that is clear, convincing and more than preponderant
(Salame vs. CA, 239 SCRA 256).
WHEREFORE, foregoing premises considered, the Decision dated December 7,
1999 of the Regional Trial Court, Branch 69, is hereby affirmed.
SO ORDERED.17
Thus, petitioners filed the present appeal and raised the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
HAS DECIDED CA-G.R. CV NO. 66073 IN A WAY PROBABLY NOT

IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS
OF THE HONORABLE COURT IN HOLDING THAT "THE REGIONAL
TRIAL COURT DID NOT COMMIT A REVERSIBLE ERROR IN
DISPOSING THAT PLAINTIFF-APPELLANTS (PETITIONERS)
FAILED TO PROVE THE INSANITY OR MENTAL INCAPACITY OF
THE LATE FELICIANO CATALAN AT THE PRECISE MOMENT
WHEN THE PROPERTY IN DISPUTE WAS DONATED";
2. WHETHER OR NOT THE CERTIFICATE OF DISABILITY FOR
DISCHARGE (EXHIBIT "S") AND THE REPORT OF A BOARD OF
OFFICERS CONVENED UNDER THE PROVISIONS OF ARMY
REGULATIONS (EXHIBITS "S-1" AND "S-2") ARE ADMISSIBLE IN
EVIDENCE;
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
HAS DECIDED CA-G.R. CV NO. 66073 IN A WAY PROBABLY NOT
IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS
OF THE HONORABLE COURT IN UPHOLDING THE SUBSEQUENT
SALE OF THE PROPERTY IN DISPUTE BY THE DONEE
MERCEDES CATALAN TO HER CHILDREN RESPONDENTS
JESUS AND DELIA BASA; AND-
4. WHETHER OR NOT CIVIL CASE NO. 17666 IS BARRED BY
PRESCRIPTION AND LACHES.18
Petitioners aver that the presumption of Feliciano’s competence to donate
property to Mercedes had been rebutted because they presented more than the
requisite preponderance of evidence. First, they presented the Certificate of
Disability for the Discharge of Feliciano Catalan issued on October 20, 1948 by
the Board of Medical Officers of the Department of Veteran Affairs. Second, they
proved that on December 22, 1953, Feliciano was judged an incompetent by the
Court of First Instance of Pangasinan, and put under the guardianship of BPI.
Based on these two pieces of evidence, petitioners conclude that Feliciano had
been suffering from a mental condition since 1948 which incapacitated him from
entering into any contract thereafter, until his death on August 14, 1997.
Petitioners contend that Feliciano’s marriage to Corazon Cerezo on September
28, 1948 does not prove that he was not insane at the time he made the
questioned donation. They further argue that the donations Feliciano executed in
favor of his successors (Decision, CA-G.R. CV No. 66073) also cannot prove his
competency because these donations were approved and confirmed in the
guardianship proceedings.19 In addition, petitioners claim that the Deed of
Absolute Sale executed on March 26, 1979 by Mercedes Catalan and her children
Jesus and Delia Basa is simulated and fictitious. This is allegedly borne out by
the fact that the document was registered only on February 20, 1992, more that
10 years after Mercedes Catalan had already died. Since Delia Basa and Jesus
Basa both knew that Feliciano was incompetent to enter into any contract, they
cannot claim to be innocent purchasers of the property in question. 20 Lastly,
petitioners assert that their case is not barred by prescription or laches under
Article 1391 of the New Civil Code because they had filed their case on April 1,
1997, even before the four year period after Feliciano’s death on August 14, 1997
had begun.21
The petition is bereft of merit, and we affirm the findings of the Court of Appeals
and the trial court.
A donation is an act of liberality whereby a person disposes gratuitously a thing
or right in favor of another, who accepts it.22 Like any other contract, an agreement
of the parties is essential. Consent in contracts presupposes the following
requisites: (1) it should be intelligent or with an exact notion of the matter to which
it refers; (2) it should be free; and (3) it should be spontaneous. 23 The parties'
intention must be clear and the attendance of a vice of consent, like any contract,
renders the donation voidable.24
In order for donation of property to be valid, what is crucial is the donor’s capacity
to give consent at the time of the donation. Certainly, there lies no doubt in the
fact that insanity impinges on consent freely given. 25 However, the burden of
proving such incapacity rests upon the person who alleges it; if no sufficient proof
to this effect is presented, capacity will be presumed.26
A thorough perusal of the records of the case at bar indubitably shows that the
evidence presented by the petitioners was insufficient to overcome the
presumption that Feliciano was competent when he donated the property in
question to Mercedes. Petitioners make much ado of the fact that, as early as
1948, Feliciano had been found to be suffering from schizophrenia by the Board
of Medical Officers of the Department of Veteran Affairs. By itself, however, the
allegation cannot prove the incompetence of Feliciano.
A study of the nature of schizophrenia will show that Feliciano could still be
presumed capable of attending to his property rights. Schizophrenia was brought
to the attention of the public when, in the late 1800s, Emil Kraepelin, a German
psychiatrist, combined "hebrephrenia" and "catatonia" with certain paranoid
41
states and called the condition "dementia praecox." Eugene Bleuler, a Swiss
psychiatrist, modified Kraepelin’s conception in the early 1900s to include cases
with a better outlook and in 1911 renamed the condition "schizophrenia."
According to medical references, in persons with schizophrenia, there is a gradual
onset of symptoms, with symptoms becoming increasingly bizarre as the disease
progresses.1avvphi1 The condition improves (remission or residual stage) and
worsens (relapses) in cycles. Sometimes, sufferers may appear relatively normal,
while other patients in remission may appear strange because they speak in a
monotone, have odd speech habits, appear to have no emotional feelings and are
prone to have "ideas of reference." The latter refers to the idea that random social
behaviors are directed against the sufferers.27 It has been proven that the
administration of the correct medicine helps the patient. Antipsychotic
medications help bring biochemical imbalances closer to normal in a
schizophrenic. Medications reduce delusions, hallucinations and incoherent
thoughts and reduce or eliminate chances of relapse.28Schizophrenia can result
in a dementing illness similar in many aspects to Alzheimer’s disease. However,
the illness will wax and wane over many years, with only very slow deterioration
of intellect.29
From these scientific studies it can be deduced that a person suffering from
schizophrenia does not necessarily lose his competence to intelligently dispose
his property. By merely alleging the existence of schizophrenia, petitioners failed
to show substantial proof that at the date of the donation, June 16, 1951, Feliciano
Catalan had lost total control of his mental faculties. Thus, the lower courts
correctly held that Feliciano was of sound mind at that time and that this condition
continued to exist until proof to the contrary was adduced.30 Sufficient proof of his
infirmity to give consent to contracts was only established when the Court of First
Instance of Pangasinan declared him an incompetent on December 22, 1953.31
It is interesting to note that the petitioners questioned Feliciano’s capacity at the
time he donated the property, yet did not see fit to question his mental
competence when he entered into a contract of marriage with Corazon Cerezo or
when he executed deeds of donation of his other properties in their favor. The
presumption that Feliciano remained competent to execute contracts, despite his
illness, is bolstered by the existence of these other contracts. Competency and
freedom from undue influence, shown to have existed in the other acts done or
contracts executed, are presumed to continue until the contrary is shown.32
Needless to state, since the donation was valid, Mercedes had the right to sell the
property to whomever she chose.33 Not a shred of evidence has been presented
to prove the claim that Mercedes’ sale of the property to her children was tainted
with fraud or falsehood. It is of little bearing that the Deed of Sale was registered
only after the death of Mercedes. What is material is that the sale of the property
to Delia and Jesus Basa was legal and binding at the time of its execution. Thus,
the property in question belongs to Delia and Jesus Basa.
Finally, we note that the petitioners raised the issue of prescription and laches for
the first time on appeal before this Court. It is sufficient for this Court to note that
even if the present appeal had prospered, the Deed of Donation was still a
voidable, not a void, contract. As such, it remained binding as it was not annulled
in a proper action in court within four years.34
IN VIEW WHEREOF, there being no merit in the arguments of the petitioners, the
petition is DENIED. The decision of the Court of Appeals in CA-G.R. CV No.
66073 is affirmed in toto.
SO ORDERED.

G.R. No. 139532 August 9, 2001
REGAL FILMS, INC., petitioner,
vs.
GABRIEL CONCEPCION, respondent.
VITUG, J.:
The case involves a compromise judgment issued by the Regional Trial Court of
Quezon City, later affirmed by the Court of Appeals, and now being assailed in
the instant petition for review.
Culled from the records, the facts that led to the controversy would not appear to
be in serious dispute.
In 1991, respondent Gabriel "Gabby" Conception, a television artist and movie
actor, through his manager Lolita Solis, entered into a contract with petitioner
Regal Films, Inc., for services to be rendered by respondent in petitioner's motion
pictures. Petitioner, in turn, undertook to give two parcels of land to respondent,
one located in Marikina and the other in Cavite, on top of the "talent fees" it had
agreed to pay.
In 1993, the parties renewed the contract, incorporating the same undertaking on
the part of petitioner to give respondent on the part of petitioner to give respondent
the two parcels of land mentioned in the first agreement. Despite the appearance
of respondent in several films produced by petitioner, the latter failed to comply
with its promise to convey to respondent the two aforementioned lots.1âwphi1.nêt
On 30 May 1994, respondent and his manager filed an action against petitioner
before the Regional Trial Court of Quezon City, docketed Civil Case No. Q-94-
20714 and raffled to Branch 76, for rescission of contract with damages. In his
complaint, respondent contended that he was entitled to rescind the contract, plus
damages, and to be released from further commitment to work exclusively for
petitioner owing to the latter's failure to honor the agreement.
Instead of filing an answer to the complaint, petitioner moved for its dismissal on
the allegation that the parties had settled their differences amicably. Petitioner
averred that both parties had executed an agreement, dated 17 June 1994, which
was to so operate as an addendum to the 1991 and 1993 contracts between
them. The agreement was signed by a representative of petitioner and by Solis
purportedly acting for and in behalf of respondent Concepcion.
The preliminary conference held by the trial court failed to produce a settlement
between the parties; thereupon, the trial court ordered Solis and respondent to
comment on petitioner's motion to dismiss.
On 30 September 1994, Solis filed a motion to dismiss the complaint reiterating
that she, acting for herself and for respondent Concepcion, had already settled
the case amicably with petitioner. On 17 October 1994, respondent Concepcion
himself opposed the motion to dismiss contending that the addendum, containing
provisions grossly disadvantageous to him, was executed without his knowledge
and consent. Respondent stated that Solis had since ceased to be his manager
and had to authority to sign the addendum for him.
During the preliminary conference held on 23 June 1995, petitioner intimated to
respondent and his counsel its willingness to allow respondent to be released
from his 1991 and 1993 contracts with petitioner rather than to further pursue
the addendum which respondent had challenged.
On 03 July 1995, respondent filed a manifestation with the trial court to the effect
that he was now willing to honor the addendum to the 1991 and 1993 contracts
and to have it considered as compromise agreement as to warrant a judgment in
accordance therewith. The manifestation elicited a comment from both petitioner
and Solis to the effect that the relationship between the parties had by then
become strained, following the notorious Manila Film Festival scam involving
respondent, but that it was still willing to release respondent from his contract.
On 24 October 1995, the trial court issued an order rendering judgment on
compromise based on the subject addendum which respondent had previously
challenged but later agreed to honor pursuant to his manifestation of 03 July 1995.
Petitioner moved for reconsideration; having been denied, it then elevated the
case to the Court of Appeals arguing that the trial court erred in treating
the addendum of 17 June 1994 as being a compromise agreement and in
depriving it of its right to procedural due process.
42
On 30 July 1999, the appellate court rendered judgment affirming the order of the
trial court of 24 October 1995; it ruled:
"In the instant case, there was an Addendum to the contract signed by
Lolita and Regal Films' representative to which addendum Concepcion
through his Manifestation expressed his conformity. There was,
therefore, consent of all the parties.
"The addendum/compromise agreement was perfected and is binding
on the parties and may not later be disowned simply because of a
change of mind of Regal Films and/or Lolita by claiming, in their
Opposition/Reply to Conception's Manifestion, that after the 1995
Metro Manila Films Festival scam/fiasco in which Concepcion was
involved, the relationship between the parties had become bitter to
render compliance with the terms and conditions of the Addendum no
longer possible and consequently release Concepcion from the 1991
and 1993 contracts."1
Dissatisfied, petitioner appealed to this Court claiming in its petition for review that
–
"I.
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL
COURT'S ACTION IN RENDERING JUDGMENT ON A
COMPROMISE BASED ON THE ADDENDUM WHEN PETITIONER
REGAL FILMS SUBMITTED THIS DOCUMENT TO THE TRIAL
COURT MERELY TO SERVE AS BASIS FOR ITS MOTION TO
DISMISS;
"II.
THE COURT OF APPEALS ERRED IN RENDERING JUDGMENT ON
A COMPROMISE WHEN THE PARTIES DID NOT AGREE TO SUCH
A COMPROMISE;
"III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE MINDS
OF THE PARTIES HAD MET TO ELEVATE THE PREVIOUSLY
REJECTED ADDENDUM TO THE LEVEL OF A JUDGMENT ON A
COMPROMISE."2
The petition is meritorious.
Petitioner argues that the subject addendum could not be the basis of the
compromise judgment. The Court agrees.
A compromise is an agreement between two or more persons who, for preventing
or putting an end to a lawsuit, adjust their respective positions by mutual consent
in the way they feel they can live with. Reciprocal concessions are the very heart
and life of every compromise agreement,3 where each party approximates and
concedes in the hope of gaining balanced by the danger of losing.4 It is, in
essence, a contract. Law and jurisprudence recite three minimum elements for
any valid contract – (a) consent; (b) object certain which is the subject matter of
the contract; and (c) cause of the obligation which is established. 5 Consent is
manifested by the meeting of the offer and cause which are to constitute the
agreement. The offer, however, must be certain and the acceptance seasonable
and absolute; if qualified, the acceptance would merely constitute a counter-offer.6
In this instance, the addendum was flatly rejected by respondent on the theses
(a) that he did not give his consent thereto nor authorized anyone to enter into the
agreement, and (b) that it contained provisions grossly disadvantageous to him.
The outright rejection of the addendum made known to the other ended the offer.
When respondent later filed his Manifestation, stating that he was, after all, willing
to honor the addendum, there was nothing to still accept.
Verily, consent could be given not only by the part himself but by anyone duly
authorized and acting for and in his behalf. But by respondent's own admission,
the addendum was entered into without his knowledge and consent. A contract
entered into in the name of another by one who ostensibly might have but who, in
reality, had no real authority or legal representation, or who, having such authority,
acted beyond his powers, would be unenforceable.7The addendum, let us then
assume, resulted in an unenforceable contract, might it not then be susceptible to
ratification by the person on whose behalf it was executed? The answer would
obviously be in the affirmative; however, that ratification should be made before
its revocation by the other contracting party.8 The adamant refusal of respondent
to accept the terms of the addendum constrained petitioner, during the
 43

preliminary conference held on 23 June 1995, to instead express its willingness

to release respondent from his contracts prayed for in his complaint and to thereby
forego the rejected addendum. Respondent's subsequent attempt to ratify
the addendum came much too late for, by then, the addendum had already been
deemed revoked by petitioner.

WHEREFORE, the petition is GRANTED, and the appealed judgment of the Court
of the appealed judgment of the Court of Appeals affirming that of the trial court
is SET ASIDE, and the case is remanded to the trial court for further proceedings.
No costs.

SO ORDERED.1âwphi1.nêt

G.R. No. 122134 October 3, 2003
ROMANA LOCQUIAO VALENCIA and CONSTANCIA L.
VALENCIA, petitioners,
vs.
BENITO A. LOCQUIAO, now deceased and substituted by JIMMY
LOCQUIAO, TOMASA MARA and the REGISTRAR OF DEEDS OF
PANGASINAN, respondents.
x----------------------------x
CONSTANCIA L. VALENCIA, petitioner,
vs.
BENITO A. LOCQUIAO, now deceased and substituted by JIMMY
LOCQUIAO, respondent.
DECISION
TINGA, J.:
The Old Civil Code1 and the Old Code of Civil Procedure,2 repealed laws that they
both are notwithstanding, have not abruptly become mere quiescent items of legal
history since their relevance do not wear off for a long time. Verily, the old statutes
proved to be decisive in the adjudication of the case at bar.
Before us is a petition for review seeking to annul and set aside the
joint Decision3 dated November 24, 1994, as well as the Resolution4 dated
September 8, 1995, of the former Tenth Division5 of the Court of Appeals in two
consolidated cases involving an action for annulment of title6 and an action for
ejectment.7
Both cases involve a parcel of land consisting of 4,876 square meters situated in
Urdaneta, Pangasinan. This land was originally owned by the spouses
Herminigildo and Raymunda Locquiao, as evidenced by Original Certificate of
Title No. 183838 issued on October 3, 1917 by the Register of Deeds of
Pangasinan.
On May 22, 1944, Herminigildo and Raymunda Locquiao executed a deed of
donation propter nuptias which was written in the Ilocano dialect, denominated
as Inventario Ti Sagut9 in favor of their son, respondent Benito Locquiao
(hereafter, respondent Benito) and his prospective bride, respondent Tomasa
Mara (hereafter, respondent Tomasa). By the terms of the deed, the donees were
gifted with four (4) parcels of land, including the land in question, as well as a
male cow and one-third (1/3) portion of the conjugal house of the donor parents,
in consideration of the impending marriage of the donees.
The donees took their marriage vows on June 4, 1944 and the fact of their
marriage was inscribed at the back of O.C.T. No. 18383.10
Herminigildo and Raymunda died on December 15, 1962 and January 9, 1968,
respectively, leaving as heirs their six (6) children, namely: respondent Benito,
Marciano, Lucio, Emeteria, Anastacia, and petitioner Romana, all surnamed
Locquiao11 . With the permission of respondents Benito and Tomasa, petitioner
Romana Valencia (hereinafter, Romana) took possession and cultivated the
subject land.12 When respondent Romana’s husband got sick sometime in 1977,
her daughter petitioner Constancia Valencia (hereafter, petitioner Constancia)
took over, and since then, has been in possession of the land. 13
Meanwhile, respondents Benito and Tomasa registered the Inventario Ti
Sagut with the Office of the Register of Deeds of Pangasinan on May 15,
1970.14 In due course, the original title was cancelled and in lieu thereof Transfer
Certificate of Title No. 8489715 was issued in the name of the respondents Benito
and Tomasa.
On March 18, 1973, the heirs of the Locquiao spouses, including respondent
Benito and petitioner Romana, executed a Deed of Partition with Recognition of
Rights,16 wherein they distributed among only three (3) of them, the twelve (12)
parcels of land left by their common progenitors, excluding the land in question
and other lots disposed of by the Locquiao spouses earlier. Contained in the deed
is a statement that respondent Benito and Marciano Locquiao, along with the heirs
of Lucio Locquiao, "have already received our shares in the estates of our parents,
by virtue of previous donations and conveyances," and that for that reason the
heirs of Lucio Locquaio were not made parties to the deed. All the living children
of the Locquaio spouses at the time, including petitioner Romana, confirmed the
previous dispositions and waived their rights to whomsoever the properties
covered by the deed of partition were adjudicated.17
44
Later on, disagreements among five (5) heirs or groups of heirs, including
petitioner Romana, concerning the distribution of two (2) of the lots covered by
the deed of partition which are Lots No. 2467 and 5567 of the Urdaneta Cadastral
Survey surfaced. As their differences were settled, the heirs concerned executed
a Deed of Compromise Agreement18 on June 12, 1976, which provided for the re-
distribution of the two (2) lots. Although not directly involved in the discord, Benito
signed the compromise agreement together with his feuding siblings, nephews
and nieces. Significantly, all the signatories to the compromise agreement,
including petitioner Romana, confirmed all the other stipulations and provisions of
the deed of partition.19
Sometime in 1983, the apparent calm pervading among the heirs was disturbed
when petitioner Constancia filed an action for annulment of title against the
respondents before the Regional Trial Court of Pangasinan.20 The record shows
that the case was dismissed by the trial court but it does not indicate the reason
for the dismissal.21
On December 13, 1983, respondent Benito filed with the Municipal Trial Court of
Urdaneta, Pangasinan a Complaint22 seeking the ejectment of petitioner
Constancia from the subject property.
On November 25, 1985, the Municipal Trial Court rendered a Decision,23 ordering
the defendant in the case, petitioner Constancia, to vacate the land in question.
Petitioners Romana and Constancia countered with a Complaint24 for the
annulment of Transfer Certificate of TitleNo. 84897 against respondents Benito
and Tomasa 25 which they filed with the Regional Trial Court of Pangasinan on
December 23, 1985. Petitioners alleged that the issuance of the transfer
certificate of title was fraudulent; that the Inventario Ti Sagut is spurious; that the
notary public who notarized the document had no authority to do so, and; that the
donation did not observe the form required by law as there was no written
acceptance on the document itself or in a separate public instrument.1a\^/phi1.net
Meanwhile, the decision in the ejectment case was appealed to the same RTC
where the case for annulment of title was also pending. Finding that the question
of ownership was the central issue in both cases, the court issued
an Order26 suspending the proceedings in the ejectment case until it shall have
decided the ownership issue in the title annulment case.
After trial, the RTC rendered a Decision27 dated January 30, 1989 dismissing the
complaint for annulment of title on the grounds of prescription and laches. It
likewise ruled that the Inventario Ti Sagut is a valid public document which
transmitted ownership over the subject land to the respondents. With the
dismissal of the complaint and the confirmation of the respondents’ title over the
subject property, the RTC affirmed in toto the decision of the MTC in the
ejectment case28 .
Dissatisfied, petitioners elevated the two (2) decisions to the respondent Court of
Appeals. Since they involve the same parties and the same property, the
appealed cases were consolidated by the appellate court.
On November 24, 1994, the Court of Appeals rendered the
assailed Decision affirming the appealed RTC decisions. The appellate court
upheld the RTC’s conclusion that the petitioners’ cause of action had already
prescribed, considering that the complaint for annulment of title was filed more
than fifteen (15) years after the issuance of the title, or beyond the ten (10) - year
prescriptive period for actions for reconveyance. It likewise rejected the
petitioners’ assertion that the donation propter nuptias is null and void for want of
acceptance by the donee, positing that the implied acceptance flowing from the
very fact of marriage between the respondents, coupled with the registration of
the fact of marriage at the back of OCT No. 18383, constitutes substantial
compliance with the requirements of the law.
The petitioners filed a Motion for Reconsideration29 but it was denied by the
appellate court in its Resolution30 dated September 8, 1995. Hence, this petition.
We find the petition entirely devoid of merit.
Concerning the annulment case, the issues to be threshed out are: (1) whether
the donation propter nuptias is authentic; (2) whether acceptance of the donation
by the donees is required; (3) if so, in what form should the acceptance appear,
and; (4) whether the action is barred by prescription and laches.
The Inventario Ti Sagut which contains the donation propter nuptias was
executed and notarized on May 22, 1944. It was presented to the Register of
Deeds of Pangasinan for registration on May 15, 1970. The photocopy of the
document presented in evidence as Exhibit "8" was reproduced from the original
kept in the Registry of Deeds of Pangasinan.31

The petitioners have launched a two-pronged attack against the validity of the
donation propter nuptias, to wit: first, the Inventario Ti Sagut is not authentic; and
second, even assuming that it is authentic, it is void for the donee’s failure to
accept the donation in a public instrument.
To buttress their claim that the document was falsified, the petitioners rely mainly
on the Certification32 dated July 9, 1984 of the Records Management and
Archives Office that there was no notarial record for the year 1944 of Cipriano V.
Abenojar who notarized the document on May 22, 1944 and that therefore a copy
of the document was not available.
The certification is not sufficient to prove the alleged inexistence or spuriousness
of the challenged document. The appellate court is correct in pointing out that the
mere absence of the notarial record does not prove that the notary public does
not have a valid notarial commission and neither does the absence of a file copy
of the document with the archives effect evidence of the falsification of the
document.33 This Court ruled that the failure of the notary public to furnish a
copy of the deed to the appropriate office is a ground for disciplining him,
but certainly not for invalidating the document or for setting aside the
transaction therein involved.34
Moreover, the heirs of the Locquaio spouses, including petitioner Romana, made
reference in the deed of partition and the compromise agreement to the previous
donations made by the spouses in favor of some of the heirs. As pointed out by
the RTC,35 respondent Benito was not allotted any share in the deed of partition
precisely because he received his share by virtue of previous donations. His name
was mentioned in the deed of partition only with respect to the middle portion of
Lot No. 2638 which is the eleventh (11th) parcel in the deed but that is the same
one-third (1/3) portion of Lot No. 2638 covered by O.C.T. No. 18259 included in
the donation propter nuptias.1awphi1.nétSimilarly, Marciano Locquiao and the
heirs of Lucio Locquiao were not allocated any more share in the deed of partition
since they received theirs by virtue of prior donations or conveyances.
The pertinent provisions of the deed of partition read:
…
That the heirs of Lucio Locquiao are not included in this Partition by reason of the
fact that in the same manner as we, BENITO and MARCIANO LOCQUIAO are
concerned, we have already received our shares in the estate of our parents
by virtue of previous donations and conveyances, and that we hereby
confirm said dispositions, waiving our rights to whomsoever will these
properties will now be adjudicated;
… Civil Code took effect only on August 30, 1950.47 The fact that in 1944 the
That we, the Parties herein, do hereby waive and renounce as against each
other any claim or claims that we may have against one or some of us, and
that we recognize the rights of ownership of our co-heirs with respect to
those parcels already distributed and adjudicated and that in the event that
one of us is cultivating or in possession of any one of the parcels of land already
adjudicated in favor of another heir or has been conveyed, donated or disposed
of previously, in favor of another heir, we do hereby renounce and waive our
right of possession in favor of the heir in whose favor the donation or
conveyance was made previously.36 (Emphasis supplied)
The exclusion of the subject property in the deed of partition dispels any doubt as
to the authenticity of the earlier Inventario Ti Sagut.
This brings us to the admissibility of the Deed of Partition with Recognition of
Rights, marked as Exhibit "2", and the Deed of Compromise Agreement, marked
as Exhibit "3".
The petitioners fault the RTC for admitting in evidence the deed of partition and
the compromise agreement on the pretext that the documents "were not properly
submitted in evidence", pointing out that "when presented to respondent Tomasa
Mara for identification, she simply stated that she knew about the documents but
she did not actually identify them."37
The argument is not tenable. Firstly, objection to the documentary evidence must
be made at the time it is formally offered.38 Since the petitioners did not even
bother to object to the documents at the time they were offered in evidence,39 it is
now too late in the day for them to question their admissibility. Secondly, the
documents were identified during the Pre-Trial, marked as Exhibits "2" and "3"
and testified on by respondent Tomasa.40 Thirdly, the questioned deeds, being
public documents as they were duly notarized, are admissible in evidence without
further proof of their due execution and are conclusive as to the truthfulness of
their contents, in the absence of clear and convincing evidence to the contrary.41 A
45
public document executed and attested through the intervention of the notary
public is evidence of the facts therein expressed in clear, unequivocal manner.42
Concerning the issue of form, petitioners insist that based on a provision43 of the
Civil Code of Spain (Old Civil Code), the acceptance by the donees should be
made in a public instrument. This argument was rejected by the RTC and the
appellate court on the theory that the implied acceptance of the donation had
flowed from the celebration of the marriage between the respondents, followed
by the registration of the fact of marriage at the back of OCT No. 18383.
The petitioners, the appellate court and the trial court all erred in applying the
requirements on ordinary donations to the present case instead of the rules on
donation propter nuptias. Underlying the blunder is their failure to take into
account the fundamental dichotomy between the two kinds of donations.
Unlike ordinary donations, donations propter nuptias or donations by reason of
marriage are those "made before its celebration, in consideration of the same and
in favor of one or both of the future spouses."44 The distinction is crucial because
the two classes of donations are not governed by exactly the same rules,
especially as regards the formal essential requisites.
Under the Old Civil Code, donations propter nuptias must be made in a public
instrument in which the property donated must be specifically
described.45 However, Article 1330 of the same Code provides that "acceptance
is not necessary to the validity of such gifts". In other words, the celebration
of the marriage between the beneficiary couple, in tandem with compliance with
the prescribed form, was enough to effectuate the donation propter nuptias under
the Old Civil Code.
Under the New Civil Code, the rules are different. Article 127 thereof provides that
the form of donations propter nuptias are regulated by the Statute of Frauds.
Article 1403, paragraph 2, which contains the Statute of Frauds requires that the
contracts mentioned thereunder need be in writing only to be enforceable.
However, as provided in Article 129, express acceptance "is not necessary for
the validity of these donations." Thus, implied acceptance is sufficient.
The pivotal question, therefore, is which formal requirements should be applied
with respect to the donation propter nuptias at hand. Those under the Old Civil
Code or the New Civil Code?
It is settled that only laws existing at the time of the execution of a contract are
applicable thereto and not later statutes, unless the latter are specifically intended
to have retroactive effect.46 Consequently, it is the Old Civil Code which applies
in this case since the donation propter nuptias was executed in 1944 and the New
Philippines was still under Japanese occupation is of no consequence. It is a well-
known rule of the Law of Nations that municipal laws, as contra-distinguished from
laws of political nature, are not abrogated by a change of sovereignty.48 This Court
specifically held that during the Japanese occupation period, the Old Civil Code
was in force.49 As a consequence, applying Article 1330 of the Old Civil Code in
the determination of the validity of the questioned donation, it does not matter
whether or not the donees had accepted the donation. The validity of the donation
is unaffected in either case.
Even the petitioners agree that the Old Civil Code should be applied. However,
they invoked the wrong provisions50thereof.
Even if the provisions of the New Civil Code were to be applied, the case of the
petitioners would collapse just the same. As earlier shown, even implied
acceptance of a donation propter nuptias suffices under the New Civil Code.51
With the genuineness of the donation propter nuptias and compliance with the
applicable mandatory form requirements fully established, petitioners’ hypothesis
that their action is imprescriptible cannot take off.
Viewing petitioners’ action for reconveyance from whatever feasible legal angle,
it is definitely barred by prescription. Petitioners’ right to file an action for the
reconveyance of the land accrued in 1944, when the Inventario Ti Sagut was
executed. It must be remembered that before the effectivity of the New Civil Code
in 1950, the Old Code of Civil Procedure (Act No. 190) governed
prescription.52 Under the Old Code of Civil Procedure, an action for recovery of
the title to, or possession of, real property, or an interest therein, can only be
brought within ten years after the cause of such action accrues.53 Thus,
petitioners’ action, which was filed on December 23, 1985, or more than forty (40)
years from the execution of the deed of donation on May 22, 1944, was clearly
time-barred.
Even following petitioners’ theory that the prescriptive period should commence
from the time of discovery of the alleged fraud, the conclusion would still be the
 46

same. As early as May 15, 1970, when the deed of donation was registered and
the transfer certificate of title was issued, petitioners were considered to have
constructive knowledge of the alleged fraud, following the jurisprudential rule that
registration of a deed in the public real estate registry is constructive notice to the
whole world of its contents, as well as all interests, legal and equitable, included
therein.54 As it is now settled that the prescriptive period for the reconveyance of
property allegedly registered through fraud is ten (10) years, reckoned from the
date of the issuance of the certificate of title,55 the action filed on December 23,
1985 has clearly prescribed.

In any event, independent of prescription, petitioners’ action is dismissible on the

ground of laches. The elements of laches are present in this case, viz:

(1) conduct on the part of the defendant, or one under whom he claims,
giving rise to the situation that led to the complaint and for which the
complainant seeks a remedy;

(2) delay in asserting the complainant’s rights, having had knowledge

or notice of defendant’s conduct and having been afforded an
opportunity to institute a suit;

(3) lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit, and

(4) injury or prejudice to the defendant in the event relief is accorded

to the complainant, or the suit is not held barred.56

Of the facts which support the finding of laches, stress should be made of the
following: (a) the petitioners Romana unquestionably gained actual knowledge of
the donation propter nuptias when the deed of partition was executed in 1973 and
the information must have surfaced again when the compromise agreement was
forged in 1976, and; (b) as petitioner Romana was a party-signatory to the two
documents, she definitely had the opportunity to question the donation propter
nuptias on both occasions, and she should have done so if she were of the
mindset, given the fact that she was still in possession of the land in dispute at
the time. But she did not make any move. She tarried for eleven (11) more years
from the execution of the deed of partition until she, together with petitioner
Constancia, filed the annulment case in 1985.

Anent the ejectment case, we find the issues raised by the petitioners to be factual
and, therefore, beyond this Court’s power of review. Not being a trier of facts, the
Court is not tasked to go over the proofs presented by the parties and analyze,
assess, and weigh them to ascertain if the trial court and the appellate court were
correct in according them superior credit in this or that piece of evidence of one
party or the other.57 In any event, implicit in the affirmance of the Court of Appeals
is the existence of substantial evidence supporting the decisions of the courts
below.

WHEREFORE, finding no reversible error in the assailed decision, the same is

hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.

G.R. No. 148116 April 14, 2004
ANTONIO K. LITONJUA and AURELIO K. LITONJUA, JR., petitioners,
vs.
MARY ANN GRACE FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA,
represented by GREGORIO T. ELEOSIDA, HEIRS OF DOMINGO B. TICZON,
represented by MARY MEDIATRIX T. FERNANDEZ, CRISTETA TICZON,
EVANGELINE JILL R. TICZON, ERLINDA T. BENITEZ, DOMINIC TICZON,
JOSEFINA LUISA PIAMONTE, JOHN DOES and JANE DOES, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals
in CA-G.R. CV No. 64940, which reversed and set aside the June 23, 1999
Decision2 of the Regional Trial Court of Pasig City, Branch 68, in Civil Case No.
65629, as well as its Resolution dated April 30, 2001 denying the petitioners’
motion for reconsideration of the aforesaid decision.
The heirs of Domingo B. Ticzon3 are
the owners of a parcel of land located in San
Pablo City, covered by Transfer Certificate of Title (TCT) No. T-36766 of the
Register of Deeds of San Pablo City.4 On the other hand, the heirs of Paz Ticzon
Eleosida, represented by Gregorio T. Eleosida, are the owners of a parcel of land
located in San Pablo City, covered by TCT No. 36754, also of the Register of
Deeds of San Pablo City.5
The Case for the Petitioners
Sometime in September 1995, Mrs. Lourdes Alimario and Agapito Fisico who
worked as brokers, offered to sell to the petitioners, Antonio K. Litonjua and
Aurelio K. Litonjua, Jr., the parcels of land covered by TCT Nos. 36754 and
36766. The petitioners were shown a locator plan and copies of the titles showing
that the owners of the properties were represented by Mary Mediatrix Fernandez
and Gregorio T. Eleosida, respectively. The brokers told the petitioners that they
were authorized by respondent Fernandez to offer the property for sale. The
petitioners, thereafter, made two ocular inspections of the property, in the course
of which they saw some people gathering coconuts.
In the afternoon of November 27, 1995, the petitioners met with respondent
Fernandez and the two brokers at the petitioners’ office in Mandaluyong City.6 The
petitioners and respondent Fernandez agreed that the petitioners would buy the
property consisting of 36,742 square meters, for the price of P150 per square
meter, or the total sum of P5,098,500. They also agreed that the owners would
shoulder the capital gains tax, transfer tax and the expenses for the
documentation of the sale. The petitioners and respondent Fernandez also
agreed to meet on December 8, 1995 to finalize the sale. It was also agreed upon
that on the said date, respondent Fernandez would present a special power of
attorney executed by the owners of the property, authorizing her to sell the
property for and in their behalf, and to execute a deed of absolute sale thereon.
The petitioners would also remit the purchase price to the owners, through
respondent Fernandez. However, only Agapito Fisico attended the meeting. He
informed the petitioners that respondent Fernandez was encountering some
problems with the tenants and was trying to work out a settlement with
them.7 After a few weeks of waiting, the petitioners wrote respondent Fernandez
on January 5, 1995, demanding that their transaction be finalized by January 30,
1996.8
When the petitioners received no response from respondent Fernandez, the
petitioners sent her another Letter9dated February 1, 1996, asking that the Deed
of Absolute Sale covering the property be executed in accordance with their
verbal agreement dated November 27, 1995. The petitioners also demanded the
turnover of the subject properties to them within fifteen days from receipt of the
said letter; otherwise, they would have no option but to protect their interest
through legal means.
Upon receipt of the above letter, respondent Fernandez wrote the petitioners on
February 14, 199610 and clarified her stand on the matter in this wise:
1) It is not true I agreed to shoulder registration fees and other
miscellaneous expenses, etc. I do not recall we ever discussed about
47
them. Nonetheless, I made an assurance at that time that there was
no liens/encumbrances and tenants on my property (TCT – 36755).
2) It is not true that we agreed to meet on December 8, 1995 in order
to sign the Deed of Absolute Sale. The truth of the matter is that you
were the one who emphatically stated that you would prepare a
Contract to Sell and requested us to come back first week of December
as you would be leaving the country then. In fact, what you were
demanding from us was to apprise you of the status of the property,
whether we would be able to ascertain that there are really no tenants.
Ms. Alimario and I left your office, but we did not assure you that we
would be back on the first week of December.
Unfortunately, some people suddenly appeared and claiming to be
"tenants" for the entire properties (including those belonging to my
other relatives.) Another thing, the Barangay Captain now refuses to
give a certification that our properties are not tenanted.
Thereafter, I informed my broker, Ms. Lulu Alimario, to relay to Mr.
Agapito that due to the appearance of "alleged tenants" who are
demanding for a one-hectare share, my cousin and I have thereby
changed our mind and that the sale will no longer push through. I
specifically instructed her to inform you thru your broker that we will
not be attending the meeting to be held sometime first week of
December.
In view thereof, I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We have
not demanded and received from you any earnest money, thereby, no
obligations exist. In the meantime, we hope that in the future we will
eventually be able to transact business since we still have other
properties in San Pablo City.11
Appended thereto was a copy of respondent Fernandez’ letter to the petitioners
dated January 16, 1996, in response to the latter’s January 5, 1996 letter.12
On April 12, 1996, the petitioners filed the instant Complaint for specific
performance with damages13 against respondent Fernandez and the registered
owners of the property. In their complaint, the petitioners alleged, inter alia, the
following:
4. On 27 November 1995, defendants offered to sell to plaintiffs two
(2) parcels of land covered by Transfer Certificates of Title Nos. 36766
and 36754 measuring a total of 36,742 square meters in Barrio
Concepcion, San Pablo City. … After a brief negotiation, defendants
committed and specifically agreed to sell to plaintiffs 33,990 square
meters of the two (2) aforementioned parcels of land at P150.00 per
square meter.
5. The parties also unequivocally agreed to the following:
(a) The transfer tax and all the other fees and expenses for the titling
of the subject property in plaintiffs’ names would be for defendants’
account.
(b) The plaintiffs would pay the entire purchase price of P5,098,500.00
for the aforementioned 33,990 square meters of land in plaintiffs’ office
on 8 December 1995.
6. Defendants repeatedly assured plaintiffs that the two (2) subject
parcels of land were free from all liens and encumbrances and that no
squatters or tenants occupied them.
7. Plaintiffs, true to their word, and relying in good faith on the
commitment of defendants, pursued the purchase of the subject
parcels of lands. On 5 January 1996, plaintiffs sent a letter of even date
to defendants, … setting the date of sale and payment on 30 January
1996.
7.1 Defendants received the letter on 12 January 1996 but
did not reply to it.
8. On 1 February 1996, plaintiffs again sent a letter of even date to
defendants demanding execution of the Deed of Sale.

8.1 Defendants received the same on 6 February 1996.
Again, there was no reply. Defendants thus reneged on
their commitment a second time.
9. On 14 February 1996, defendant Fernandez sent a written
communication of the same date to plaintiffs enclosing therein a copy
of her 16 January 1996 letter to plaintiffs which plaintiffs never received
before. Defendant Fernandez stated in her 16 January 1996 letter that
despite the meeting of minds among the parties over the 33,990
square meters of land for P150.00 per square meter on 27 November
1995, defendants suddenly had a change of heart and no longer
wished to sell the same. Paragraph 6 thereof unquestionably shows
defendants’ previous agreement as above-mentioned and their
unjustified breach of their obligations under it. …
10. Defendants cannot unilaterally, whimsically and capriciously
cancel a perfected contract to sell. …
11. Plaintiffs intended to use the subject property for their subdivision
project to support plaintiffs’ quarry operations, processing of aggregate
products and manufacture of construction materials. Consequently, by
reason of defendants’ failure to honor their just obligations, plaintiffs
suffered, and continue to suffer, actual damages, consisting in
unrealized profits and cost of money, in the amount of at least P5
Million.
12. Plaintiffs also suffered sleepless nights and mental anxiety on
account of defendants’ fraudulent actuations for which reason
defendants are liable to plaintiffs for moral damages in the amount of
at least P1.5 Million.
13. By reason of defendants’ above-described fraudulent actuations,
plaintiffs, despite their willingness and ability to pay the agreed
purchase price, have to date been unable to take delivery of the title to
the subject property. Defendants acted in a wanton, fraudulent and
malevolent manner in violating the contract to sell. By way of example
or correction for the public good, defendants are liable to plaintiff for
exemplary damages in the amount of P500,000.00.
14. Defendants’ bad faith and refusal to honor their just obligations to
plaintiffs constrained the latter to litigate and to engage the services of
undersigned counsel for a fee in the amount of at least P250,000.00.14
The petitioners prayed that, after due hearing, judgment be rendered in their favor
ordering the respondents to –
(a) Secure at defendants’ expense all clearances from the appropriate
government agencies that will enable defendants to comply with their
obligations under the Contract to Sell;
(b) Execute a Contract to Sell with terms agreed upon by the parties;
(c) Solidarily pay the plaintiffs the following amounts:
1. P5,000,000.00 in actual damages;
2. P1,500,000.00 in moral damages;
3. P500,000.00 in exemplary damages;
4. P250,000.00 in attorney’s fees.15
On July 5, 1996, respondent Fernandez filed her Answer to the complaint. 16 She
claimed that while the petitioners offered to buy the property during the meeting
of November 27, 1995, she did not accept the offer; thus, no verbal contract to
sell was ever perfected. She specifically alleged that the said contract to sell was
unenforceable for failure to comply with the statute of frauds. She also maintained
that even assuming arguendo that she had, indeed, made a commitment or
promise to sell the property to the petitioners, the same was not binding upon her
in the absence of any consideration distinct and separate from the price. She,
thus, prayed that judgment be rendered as follows:
1. Dismissing the Complaint, with costs against the plaintiffs;
2. On the COUNTERCLAIM, ordering plaintiffs to pay defendant moral
damages in the amount of not less than P2,000,000.00 and exemplary
48
damages in the amount of not less than P500,000.00 and attorney’s
fees and reimbursement expenses of litigation in the amount of
P300,000.00.17
On September 24, 1997, the trial court, upon motion of the petitioners, declared
the other respondents in default for failure to file their responsive pleading within
the reglementary period.18 At the pre-trial conference held on March 2, 1998, the
parties agreed that the following issues were to be resolved by the trial court: (1)
whether or not there was a perfected contract to sell; (2) in the event that there
was, indeed, a perfected contract to sell, whether or not the respondents
breached the said contract to sell; and (3) the corollary issue of damages.19
Respondent Fernandez testified that she requested Lourdes Alimario to look for
a buyer of the properties in San Pablo City "on a best offer basis." She was later
informed by Alimario that the petitioners were interested to buy the properties. On
November 27, 1995, along with Alimario and another person, she met with the
petitioners in the latter’s office and told them that she was at the conference
merely to hear their offer, that she could not bind the owners of the properties as
she had no written authority to sell the same. The petitioners offered to buy the
property at P150 per square meter. After the meeting, respondent Fernandez
requested Joy Marquez to secure a barangay clearance stating that the property
was free of any tenants. She was surprised to learn that the clearance could not
be secured. She contacted a cousin of hers, also one of the owners of the
property, and informed him that there was a prospective buyer of the property but
that there were tenants thereon. Her cousin told her that he was not selling his
share of the property and that he was not agreeable to the price of P150 per
square meter. She no longer informed the other owners of the petitioners’ offer.
Respondent Fernandez then asked Alimario to apprise the petitioners of the
foregoing developments, through their agent, Agapito Fisico. She was surprised
to receive a letter from the petitioners dated January 5, 1996. Nonetheless, she
informed the petitioners that she had changed her mind in pursuing the
negotiations in a Letter dated January 18, 1996. When she received petitioners’
February 1, 1996 Letter, she sent a Reply-Letter dated February 14, 1996.
After trial on the merits, the trial court rendered judgment in favor of the petitioners
on June 23, 1999,20 the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of plaintiffs ANTONIO K. LITONJUA and AURELIO
K. LITONJUA and against defendants MARY MEDIATRIX T.
FERNANDEZ, HEIRS OF PAZ TICZON ELEOSIDA, represented by
GREGORIO T. ELEOSIDA, JOHN DOES and JANE DOES; HEIRS
OF DOMINGO B. TICZON, represented by MARY MEDIATRIX T.
FERNANDEZ, CRISTETA TICZON, EVANGELINE JILL R. TICZON,
ERLINDA T. BENITEZ, DOMINIC TICZON, JOSEFINA LUISA
PIAMONTE, JOHN DOES and JANE DOES, ordering defendants to:
1. execute a Contract of Sale and/or Absolute Deed of Sale
with the terms agreed upon by the parties and to secure all
clearances from the concerned government agencies and
removal of any tenants from the subject property at their
expense to enable defendants to comply with their
obligations under the perfected agreement to sell; and
2. pay to plaintiffs the sum of Two Hundred Thousand
(P200,000.00) Pesos as and by way of attorney’s fees.21
On appeal to the Court of Appeals, the respondents ascribed the following errors
to the court a quo:
I. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS A
PERFECTED CONTRACT OF SALE OF THE TWO LOTS ON
NOVEMBER 27, 1995.
II. THE LOWER COURT ERRED IN NOT HOLDING THAT THE
VERBAL CONTRACT OF SALE AS CLAIMED BY PLAINTIFFS-
APPELLEES ANTONIO LITONJUA AND AURELIO LITONJUA WAS
UNENFORCEABLE.
III. THE LOWER COURT ERRED IN HOLDING THAT THE LETTER
OF DEFENDANT-APPELLANT FERNANDEZ DATED JANUARY 16,
1996 WAS A CONFIRMATION OF THE PERFECTED SALE AND
CONSTITUTED AS WRITTEN EVIDENCE THEREOF.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT A
SPECIAL POWER OF ATTORNEY WAS REQUIRED IN ORDER
THAT DEFENDANT-APPELLANT FERNANDEZ COULD
NEGOTIATE THE SALE ON BEHALF OF THE OTHER REGISTERED
CO-OWNERS OF THE TWO LOTS.

V. THE LOWER COURT ERRED IN AWARDING ATTORNEY’S FEES
IN THE DISPOSITIVE PORTION OF THE DECISION WITHOUT
STATING THE BASIS IN THE TEXT OF SAID DECISION.22
On February 28, 2001, the appellate court promulgated its decision reversing and
setting aside the judgment of the trial court and dismissing the petitioners’
complaint, as well as the respondents’ counterclaim. 23 The appellate court ruled
that the petitioners failed to prove that a sale or a contract to sell over the property
between the petitioners and the private respondent had been perfected.
Hence, the instant petition for review on certiorari under Rule 45 of the Revised
Rules of Court.
The petitioners submit the following issues for the Court’s resolution:
A. WHETHER OR NOT THERE WAS A PERFECTED CONTRACT
OF SALE BETWEEN THE PARTIES.
B. WHETHER OR NOT THE CONTRACT FALLS UNDER THE
COVERAGE OF THE STATUTE OF FRAUDS.
C. WHETHER OR NOT THE DEFENDANTS DECLARED IN
DEFAULT ARE BENEFITED BY THE ASSAILED DECISION OF THE
COURT OF APPEALS.24
The petition has no merit.
The general rule is that the Court’s jurisdiction under Rule 45 of the Rules of Court
is limited to the review of errors of law committed by the appellate court. As the
findings of fact of the appellate court are deemed continued, this Court is not duty-
bound to analyze and calibrate all over again the evidence adduced by the parties
in the court a quo.25 This rule, however, is not without exceptions, such as where
the factual findings of the Court of Appeals and the trial court are conflicting or
contradictory.26 Indeed, in this case, the findings of the trial court and its
conclusion based on the said findings contradict those of the appellate court.
However, upon careful review of the records of this case, we find no justification
to grant the petition. We, thus, affirm the decision of the appellate court.
On the first and second assignment of errors, the petitioners assert that there was
a perfected contract of sale between the petitioners as buyers and the
respondents-owners, through respondent Fernandez, as sellers. The petitioners
contend that the perfection of the said contract is evidenced by the January 16,
1996 Letter of respondent Fernandez.27 The pertinent portions of the said letter
are as follows:
… [M]y cousin and I have thereby changed our mind and that the sale
will no longer push through. I specifically instructed her to inform you
thru your broker that we will not be attending the meeting to be held
sometime first week of December.
In view thereof, I regret to formally inform you now that we are no
longer selling the property until all problems are fully settled. We have
not demanded and received from you any earnest money, thereby, no
obligations exist…28
The petitioners argue that the letter is a sufficient note or memorandum of the
perfected contract, thus, removing it from the coverage of the statute of frauds.
The letter specifically makes reference to a sale which respondent Fernandez
agreed to initially, but which the latter withdrew because of the emergence of
some people who claimed to be tenants on both parcels of land. According to the
petitioners, the respondents-owners, in their answer to the complaint, as well as
respondent Fernandez when she testified, admitted the authenticity and due
execution of the said letter. Besides, when the petitioner Antonio Litonjua testified
on the contract of sale entered into between themselves and the respondents-
owners, the latter did not object thereto. Consequently, the respondents-owners
thereby ratified the said contract of sale. The petitioners thus contend that the
appellate court’s declaration that there was no perfected contract of sale between
the petitioners and the respondents-owners is belied by the evidence, the
pleadings of the parties, and the law.
The petitioners’ contention is bereft of merit. In its decision, the appellate court
ruled that the Letter of respondent Fernandez dated January 16, 1996 is hardly
the note or memorandum contemplated under Article 1403(2)(e) of the New Civil
Code, which reads:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
49
…
(2) Those that do not comply with the Statute of Frauds as set forth in
this number. In the following cases an agreement hereafter made shall
be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot
be received without the writing, or secondary evidence of its contents:
…
(e) An agreement for the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein.29
The appellate court based its ruling on the following disquisitions:
In the case at bar, the letter dated January 16, 1996 of defendant-
appellant can hardly be said to constitute the note or memorandum
evidencing the agreement of the parties to enter into a contract of sale
as it is very clear that defendant-appellant as seller did not accept the
condition that she will be the one to pay the registration fees and
miscellaneous expenses and therein also categorically denied she had
already committed to execute the deed of sale as claimed by the
plaintiffs-appellees. The letter, in fact, stated the reasons beyond the
control of the defendant-appellant, why the sale could no longer push
through – because of the problem with tenants. The trial court zeroed
in on the statement of the defendant-appellant that she and her cousin
changed their minds, thereby concluding that defendant-appellant had
unilaterally cancelled the sale or backed out of her previous
commitment. However, the tenor of the letter actually reveals a
consistent denial that there was any such commitment on the part of
defendant-appellant to sell the subject lands to plaintiffs-appellees.
When defendant-appellant used the words "changed our mind," she
was clearly referring to the decision to sell the property at all (not
necessarily to plaintiffs-appellees) and not in selling the property to
herein plaintiffs-appellees as defendant-appellant had not yet made
the final decision to sell the property to said plaintiffs-appellees. This
conclusion is buttressed by the last paragraph of the subject letter
stating that "we are no longer selling the property until all problems are
fully settled." To read a definite previous agreement for the sale of the
property in favor of plaintiffs-appellees into the contents of this letter is
to unduly restrict the freedom of the contracting parties to negotiate
and prejudice the right of every property owner to secure the best
possible offer and terms in such sale transactions. We believe,
therefore, that the trial court committed a reversible error in finding that
there was a perfected contract of sale or contract to sell under the
foregoing circumstances. Hence, the defendant-appellant may not be
held liable in this action for specific performance with damages.30
In Rosencor Development Corporation vs. Court of Appeals,31 the term "statute of
frauds" is descriptive of statutes which require certain classes of contracts to be
in writing. The statute does not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. The purpose of the statute is to
prevent fraud and perjury in the enforcement of obligations, depending for their
existence on the unassisted memory of witnesses, by requiring certain
enumerated contracts and transactions to be evidenced by a writing signed by the
party to be charged. The statute is satisfied or, as it is often stated, a contract or
bargain is taken within the statute by making and executing a note or
memorandum of the contract which is sufficient to state the requirements of the
statute.32 The application of such statute presupposes the existence of a
perfected contract. However, for a note or memorandum to satisfy the statute, it
must be complete in itself and cannot rest partly in writing and partly in parol. The
note or memorandum must contain the names of the parties, the terms and
conditions of the contract and a description of the property sufficient to render it
capable of identification.33 Such note or memorandum must contain the essential
elements of the contract expressed with certainty that may be ascertained from
the note or memorandum itself, or some other writing to which it refers or within
which it is connected, without resorting to parol evidence.34 To be binding on the
persons to be charged, such note or memorandum must be signed by the said
party or by his agent duly authorized in writing.35
In City of Cebu v. Heirs of Rubi,36 we held that the exchange of written
correspondence between the parties may constitute sufficient writing to evidence
the agreement for purposes of complying with the statute of frauds.
In this case, we agree with the findings of the appellate court that there was no
perfected contract of sale between the respondents-owners, as sellers, and the
petitioners, as buyers.

There is no documentary evidence on record that the respondents-owners
specifically authorized respondent Fernandez to sell their properties to another,
including the petitioners. Article 1878 of the New Civil Code provides that a special
power of attorney is necessary to enter into any contract by which the ownership
of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration,37 or to create or convey real rights over immovable property,38 or
for any other act of strict dominion.39 Any sale of real property by one purporting
to be the agent of the registered owner without any authority therefor in writing
from the said owner is null and void.40 The declarations of the agent alone are
generally insufficient to establish the fact or extent of her authority.41 In this case,
the only evidence adduced by the petitioners to prove that respondent Fernandez
was authorized by the respondents-owners is the testimony of petitioner Antonio
Litonjua that respondent Fernandez openly represented herself to be the
representative of the respondents-owners,42 and that she promised to present to
the petitioners on December 8, 1996 a written authority to sell the
properties.43 However, the petitioners’ claim was belied by respondent Fernandez
when she testified, thus:
Q Madam Witness, what else did you tell to the plaintiffs?
A I told them that I was there representing myself as one of the owners
of the properties, and I was just there to listen to his proposal because
that time, we were just looking for the best offer and I did not have yet
any written authorities from my brother and sisters and relatives. I
cannot agree on anything yet since it is just a preliminary meeting, and
so, I have to secure authorities and relate the matters to my relatives,
brother and sisters, sir.
Q And what else was taken up?
A Mr. Antonio Litonjua told me that they will be leaving for another
country and he requested me to come back on the first week of
December and in the meantime, I should make an assurance that there
are no tenants in our properties, sir.44
The petitioners cannot feign ignorance of respondent Fernandez’ lack of authority
to sell the properties for the respondents-owners. It must be stressed that the
petitioners are noted businessmen who ought to be very familiar with the
intricacies of business transactions, such as the sale of real property.
The settled rule is that persons dealing with an assumed agent are bound at their
peril, and if they would hold the principal liable, to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to prove it. 45 In this case,
respondent Fernandez specifically denied that she was authorized by the
respondents-owners to sell the properties, both in her answer to the complaint
and when she testified. The Letter dated January 16, 1996 relied upon by the
petitioners was signed by respondent Fernandez alone, without any authority
from the respondents-owners. There is no evidence on record that the
respondents-owners ratified all the actuations of respondent Fernandez in
connection with her dealings with the petitioners. As such, said letter is not binding
on the respondents as owners of the subject properties.
Contrary to the petitioners’ contention, the letter of January 16, 199646 is not a
note or memorandum within the context of Article 1403(2) because it does not
contain the following: (a) all the essential terms and conditions of the sale of the
properties; (b) an accurate description of the property subject of the sale; and, (c)
the names of the respondents-owners of the properties. Furthermore, the letter
made reference to only one property, that covered by TCT No. T-36755.
We note that the petitioners themselves were uncertain as to the specific area of
the properties they were seeking to buy. In their complaint, they alleged to have
agreed to buy from the respondents-owners 33,990 square meters of the total
acreage of the two lots consisting of 36,742 square meters. In their Letter to
respondent Fernandez dated January 5, 1996, the petitioners stated that they
agreed to buy the two lots, with a total area of 36,742 square meters.47 However,
in their Letter dated February 1, 1996, the petitioners declared that they agreed
to buy a portion of the properties consisting of 33,990 square meters. 48 When he
testified, petitioner Antonio Litonjua declared that the petitioners agreed to buy
from the respondents-owners 36,742 square meters at P150 per square meter or
for the total price of P5,098,500.49
The failure of respondent Fernandez to object to parol evidence to prove (a) the
essential terms and conditions of the contract asserted by the petitioners and, (b)
her authority to sell the properties for the respondents-registered owners did not
and should not prejudice the respondents-owners who had been declared in
default.50
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of
the appellate court is AFFIRMED IN TOTO. Costs against the petitioners.
50
SO ORDERED.
G.R. No. 167812 December 19, 2006
JESUS M. GOZUN, petitioner,
vs.
JOSE TEOFILO T. MERCADO a.k.a. ‘DON PEPITO MERCADO, respondent.
DECISION
CARPIO MORALES, J.:
On challenge via petition for review on certiorari is the Court of Appeals’ Decision
of December 8, 2004 and Resolution of April 14, 2005 in CA-G.R. CV No.
763091 reversing the trial court’s decision2 against Jose Teofilo T. Mercado a.k.a.
Don Pepito Mercado (respondent) and accordingly dismissing the complaint of
Jesus M. Gozun (petitioner).
In the local elections of 1995, respondent vied for the gubernatorial post in
Pampanga. Upon respondent’s request, petitioner, owner of JMG Publishing
House, a printing shop located in San Fernando, Pampanga, submitted to
respondent draft samples and price quotation of campaign materials.
By petitioner’s claim, respondent’s wife had told him that respondent already
approved his price quotation and that he could start printing the campaign
materials, hence, he did print campaign materials like posters bearing
respondent’s photograph,3 leaflets containing the slate of party
candidates,4 sample ballots,5 poll watcher identification cards,6 and stickers.
Given the urgency and limited time to do the job order, petitioner availed of the
services and facilities of Metro Angeles Printing and of St. Joseph Printing Press,
owned by his daughter Jennifer Gozun and mother Epifania Macalino Gozun,
respectively.7
Petitioner delivered the campaign materials to respondent’s headquarters along
Gapan-Olongapo Road in San Fernando, Pampanga.8
Meanwhile, on March 31, 1995, respondent’s sister-in-law, Lilian Soriano (Lilian)
obtained from petitioner "cash advance" of P253,000 allegedly for the allowances
of poll watchers who were attending a seminar and for other related expenses.
Lilian acknowledged on petitioner’s 1995 diary9 receipt of the amount.10
Petitioner later sent respondent a Statement of Account11 in the total amount
of P2,177,906 itemized as follows: P640,310 for JMG Publishing
House; P837,696 for Metro Angeles Printing; P446,900 for St. Joseph Printing
Press; and P253,000, the "cash advance" obtained by Lilian.
On August 11, 1995, respondent’s wife partially paid P1,000,000 to petitioner who
issued a receipt12 therefor.
Despite repeated demands and respondent’s promise to pay, respondent failed
to settle the balance of his account to petitioner.
Petitioner and respondent being compadres, they having been principal sponsors
at the weddings of their respective daughters, waited for more than three (3) years
for respondent to honor his promise but to no avail, compelling petitioner to
endorse the matter to his counsel who sent respondent a demand
letter.13 Respondent, however, failed to heed the demand.14
Petitioner thus filed with the Regional Trial Court of Angeles City on November
25, 1998 a complaint15 against respondent to collect the remaining amount
of P1,177,906 plus "inflationary adjustment" and attorney’s fees.
In his Answer with Compulsory Counterclaim,16 respondent denied having
transacted with petitioner or entering into any contract for the printing of campaign
materials. He alleged that the various campaign materials delivered to him were
represented as donations from his family, friends and political supporters. He
added that all contracts involving his personal expenses were coursed through
and signed by him to ensure compliance with pertinent election laws.

On petitioner’s claim that Lilian, on his (respondent’s) behalf, had obtained from
him a cash advance of P253,000, respondent denied having given her authority
to do so and having received the same.
At the witness stand, respondent, reiterating his allegations in his Answer, claimed
that petitioner was his over-all coordinator in charge of the conduct of seminars
for volunteers and the monitoring of other matters bearing on his candidacy; and
that while his campaign manager, Juanito "Johnny" Cabalu (Cabalu), who was
authorized to approve details with regard to printing materials, presented him
some campaign materials, those were partly donated.17
When confronted with the official receipt issued to his wife acknowledging her
payment to JMG Publishing House of the amount of P1,000,000, respondent
claimed that it was his first time to see the receipt, albeit he belatedly came to
know from his wife and Cabalu that the P1,000,000 represented "compensation
[to petitioner] who helped a lot in the campaign as a gesture of goodwill."18
Acknowledging that petitioner is engaged in the printing business, respondent
explained that he sometimes discussed with petitioner strategies relating to his
candidacy, he (petitioner) having actively volunteered to help in his campaign;
that his wife was not authorized to enter into a contract with petitioner regarding
campaign materials as she knew her limitations; that he no longer questioned
the P1,000,000 his wife gave petitioner as he thought that it was just proper to
compensate him for a job well done; and that he came to know about petitioner’s
claim against him only after receiving a copy of the complaint, which surprised
him because he knew fully well that the campaign materials were donations.19
Upon questioning by the trial court, respondent could not, however, confirm if it
was his understanding that the campaign materials delivered by petitioner were
donations from third parties.20
Finally, respondent, disclaiming knowledge of the Comelec rule that if a campaign
material is donated, it must be so stated on its face, acknowledged that nothing
of that sort was written on all the materials made by petitioner.21
As adverted to earlier, the trial court rendered judgment in favor of petitioner, the
dispositive portion of which reads:
WHEREFORE, the plaintiff having proven its (sic) cause of action by
preponderance of evidence, the Court hereby renders a decision in
favor of the plaintiff ordering the defendant as follows:
1. To pay the plaintiff the sum of P1,177,906.00 plus 12% interest per
annum from the filing of this complaint until fully paid;
2. To pay the sum of P50,000.00 as attorney’s fees and the costs of
suit.
SO ORDERED.22
Also as earlier adverted to, the Court of Appeals reversed the trial court’s decision
and dismissed the complaint for lack of cause of action.
In reversing the trial court’s decision, the Court of Appeals held that other than
petitioner’s testimony, there was no evidence to support his claim that Lilian was
authorized by respondent to borrow money on his behalf. It noted that the
acknowledgment receipt23 signed by Lilian did not specify in what capacity she
received the money. Thus, applying Article 131724 of the Civil Code, it held that
petitioner’s claim for P253,000 is unenforceable.
On the accounts claimed to be due JMG Publishing House – P640,310, Metro
Angeles Printing – P837,696, and St. Joseph Printing Press – P446,900, the
appellate court, noting that since the owners of the last two printing presses were
not impleaded as parties to the case and it was not shown that petitioner was
authorized to prosecute the same in their behalf, held that petitioner could not
collect the amounts due them.
Finally, the appellate court, noting that respondent’s wife had paid P1,000,000 to
petitioner, the latter’s claim of P640,310 (after excluding the P253,000) had
already been settled.
Hence, the present petition, faulting the appellate court to have erred:
1. . . . when it dismissed the complaint on the ground that there is no
evidence, other than petitioner’s own testimony, to prove that Lilian R.
51
Soriano was authorized by the respondent to receive the cash advance
from the petitioner in the amount of P253,000.00.
xxxx
2. . . . when it dismissed the complaint, with respect to the amounts
due to the Metro Angeles Press and St. Joseph Printing Press on the
ground that the complaint was not brought by the real party in interest.
x x x x25
By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority
of the latter.26 Contracts entered into in the name of another person by one who
has been given no authority or legal representation or who has acted beyond his
powers are classified as unauthorized contracts and are declared unenforceable,
unless they are ratified.27
Generally, the agency may be oral, unless the law requires a specific
form.28 However, a special power of attorney is necessary for an agent to, as in
this case, borrow money, unless it be urgent and indispensable for the
preservation of the things which are under administration.29 Since nothing in this
case involves the preservation of things under administration, a determination of
whether Soriano had the special authority to borrow money on behalf of
respondent is in order.
Lim Pin v. Liao Tian, et al.30 held that the requirement of a special power of
attorney refers to the nature of the authorization and not to its form.
. . . The requirements are met if there is a clear mandate from the
principal specifically authorizing the performance of the act. As early
as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated
that such a mandate may be either oral or written. The one thing vital
being that it shall be express. And more recently, We stated that, if the
special authority is not written, then it must be duly established by
evidence:
"…the Rules require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the
special authority be in writing the Court has every reason to expect
that, if not in writing, the same be duly established by evidence other
than the self-serving assertion of counsel himself that such authority
was verbally given him."31 (Emphasis and underscoring supplied)
Petitioner submits that his following testimony suffices to establish that
respondent had authorized Lilian to obtain a loan from him, viz:
Q : Another caption appearing on Exhibit "A" is cash advance, it states
given on 3-31-95 received by Mrs. Lilian Soriano in behalf of Mrs.
Annie Mercado, amount P253,000.00, will you kindly tell the Court
and explain what does that caption means?
A : It is the amount representing the money borrowed from me by the
defendant when one morning they came very early and talked to
me and told me that they were not able to go to the bank to get money
for the allowances of Poll Watchers who were having a seminar at the
headquarters plus other election related expenses during that day, sir.
Q : Considering that this is a substantial amount which according to
you was taken by Lilian Soriano, did you happen to make her
acknowledge the amount at that time?
A : Yes, sir.32 (Emphasis supplied)
Petitioner’s testimony failed to categorically state, however, whether the loan was
made on behalf of respondent or of his wife. While petitioner claims that Lilian
was authorized by respondent, the statement of account marked as Exhibit "A"
states that the amount was received by Lilian "in behalf of Mrs. Annie Mercado."
Invoking Article 187333 of the Civil Code, petitioner submits that respondent
informed him that he had authorized Lilian to obtain the loan, hence,
following Macke v. Camps34 which holds that one who clothes another with
apparent authority as his agent, and holds him out to the public as such,
respondent cannot be permitted to deny the authority.
Petitioner’s submission does not persuade. As the appellate court observed:
 52

. . . Exhibit "B" [the receipt issued by petitioner] presented by plaintiff- trial court’s decision is modified in that the amount payable by respondent to
appellee to support his claim unfortunately only indicates the Two petitioner is reduced to P924,906.
Hundred Fifty Three Thousand Pesos (P253,0000.00) was received
by one Lilian R. Soriano on 31 March 1995, but without specifying for
what reason the said amount was delivered and in what capacity did SO ORDERED.
Lilian R. Soriano received [sic] the money. The note reads:

"3-31-95

261,120 ADVANCE MONEY FOR TRAINEE –

RECEIVED BY

RECEIVED FROM JMG THE AMOUNT OF 253,000 TWO

HUNDRED FIFTY THREE THOUSAND PESOS

(SIGNED)

LILIAN R. SORIANO

3-31-95"

Nowhere in the note can it be inferred that defendant-appellant was

connected with the said transaction. Under Article 1317 of the New
Civil Code, a person cannot be bound by contracts he did not authorize
to be entered into his behalf.35 (Underscoring supplied)

It bears noting that Lilian signed in the receipt in her name alone, without
indicating therein that she was acting for and in behalf of respondent. She thus
bound herself in her personal capacity and not as an agent of respondent or
anyone for that matter.

It is a general rule in the law of agency that, in order to bind the principal by a
mortgage on real property executed by an agent, it must upon its face purport to
be made, signed and sealed in the name of the principal, otherwise, it will bind
the agent only. It is not enough merely that the agent was in fact authorized to
make the mortgage, if he has not acted in the name of the principal. x x
x36 (Emphasis and underscoring supplied)

On the amount due him and the other two printing presses, petitioner explains
that he was the one who personally and directly contracted with respondent and
he merely sub-contracted the two printing establishments in order to deliver on
time the campaign materials ordered by respondent.

Respondent counters that the claim of sub-contracting is a change in petitioner’s

theory of the case which is not allowed on appeal.

In Oco v. Limbaring,37 this Court ruled:

The parties to a contract are the real parties in interest in an action

upon it, as consistently held by the Court. Only the contracting parties
are bound by the stipulations in the contract; they are the ones who
would benefit from and could violate it. Thus, one who is not a party to
a contract, and for whose benefit it was not expressly made, cannot
maintain an action on it. One cannot do so, even if the contract
performed by the contracting parties would incidentally inure to one's
benefit.38 (Underscoring supplied)

In light thereof, petitioner is the real party in interest in this case. The trial court’s
findings on the matter were affirmed by the appellate court.39 It erred, however, in
not declaring petitioner as a real party in interest insofar as recovery of the cost
of campaign materials made by petitioner’s mother and sister are concerned,
upon the wrong notion that they should have been, but were not, impleaded as
plaintiffs.

In sum, respondent has the obligation to pay the total cost of printing his campaign
materials delivered by petitioner in the total of P1,924,906, less the partial
payment of P1,000,000, or P924,906.

WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2004

and the Resolution dated April 14, 2005 of the Court of Appeals are
hereby REVERSED and SET ASIDE.

The April 10, 2002 Decision of the Regional Trial Court of Angeles City, Branch
57, is REINSTATED mutatis mutandis, in light of the foregoing discussions. The

G.R. No. 162421 August 31, 2007
NELSON CABALES and RITO CABALES, Petitioners,
vs.
COURT OF APPEALS, JESUS FELIANO and ANUNCIACION
FELIANO, Respondents.
DECISION
PUNO, C.J.:
This is a petition for review on certiorari seeking the reversal of the decision 1 of
the Court of Appeals dated October 27, 2003, in CA-G.R. CV No. 68319 entitled
"Nelson Cabales and Rito Cabales v. Jesus Feliano and Anunciacion Feliano,"
which affirmed with modification the decision2 of the Regional Trial Court of
Maasin, Southern Leyte, Branch 25, dated August 11, 2000, in Civil Case No. R-
2878. The resolution of the Court of Appeals dated February 23, 2004, which
denied petitioners’ motion for reconsideration, is likewise herein assailed.
The facts as found by the trial court and the appellate court are well established.
Rufino Cabales died on July 4, 1966 and left a 5,714-square meter parcel of land
located in Brgy. Rizal, Sogod, Southern Leyte, covered by Tax Declaration No.
17270 to his surviving wife Saturnina and children Bonifacio, Albino, Francisco,
Leonora, Alberto and petitioner Rito.
On July 26, 1971, brothers and co-owners Bonifacio, Albino and Alberto sold the
subject property to Dr. Cayetano Corrompido for ₱2,000.00, with right to
repurchase within eight (8) years. The three (3) siblings divided the proceeds of
the sale among themselves, each getting a share of ₱666.66.
The following month or on August 18, 1971, Alberto secured a note ("vale") from
Dr. Corrompido in the amount of ₱300.00.
In 1972, Alberto died leaving his wife and son, petitioner Nelson.
On December 18, 1975, within the eight-year redemption period, Bonifacio and
Albino tendered their payment of ₱666.66 each to Dr. Corrompido. But Dr.
Corrompido only released the document of sale with pacto de retro after Saturnina
paid for the share of her deceased son, Alberto, including his "vale" of ₱300.00.
On even date, Saturnina and her four (4) children Bonifacio, Albino, Francisco
and Leonora sold the subject parcel of land to respondents-spouses Jesus and
Anunciacion Feliano for ₱8,000.00. The Deed of Sale provided in its last
paragraph, thus:
It is hereby declared and understood that the amount of TWO THOUSAND TWO
HUNDRED EIGHTY SIX PESOS (P2,286.00) corresponding and belonging to the
Heirs of Alberto Cabales and to Rito Cabales who are still minors upon the
execution of this instrument are held
in trust by the VENDEE and to be paid and delivered only to them upon reaching
the age of 21.
On December 17, 1985, the Register of Deeds of Southern Leyte issued Original
Certificate of Title No. 17035 over the purchased land in the names of
respondents-spouses.
On December 30, 1985, Saturnina and her four (4) children executed an affidavit
to the effect that petitioner Nelson would only receive the amount of ₱176.34 from
respondents-spouses when he reaches the age of 21 considering that Saturnina
paid Dr. Corrompido ₱966.66 for the obligation of petitioner Nelson’s late father
Alberto, i.e., ₱666.66 for his share in the redemption of the sale with pacto de
retro as well as his "vale" of ₱300.00.
On July 24, 1986, 24-year old petitioner Rito Cabales acknowledged receipt of
the sum of ₱1,143.00 from respondent Jesus Feliano, representing the former’s
share in the proceeds of the sale of subject property.
In 1988, Saturnina died. Petitioner Nelson, then residing in Manila, went back to
his father’s hometown in Southern Leyte. That same year, he learned from his
uncle, petitioner Rito, of the sale of subject property. In 1993, he signified his
intention to redeem the subject land during a barangay conciliation process that
he initiated.
53
On January 12, 1995, contending that they could not have sold their respective
shares in subject property when they were minors, petitioners filed before the
Regional Trial Court of Maasin, Southern Leyte, a complaint for redemption of the
subject land plus damages.
In their answer, respondents-spouses maintained that petitioners were estopped
from claiming any right over subject property considering that (1) petitioner Rito
had already received the amount corresponding to his share of the proceeds of
the sale of subject property, and (2) that petitioner Nelson failed to consign to the
court the total amount of the redemption price necessary for legal redemption.
They prayed for the dismissal of the case on the grounds of laches and
prescription.
No amicable settlement was reached at pre-trial. Trial ensued and on August 11,
2000, the trial court ruled against petitioners. It held that (1) Alberto or, by his
death, any of his heirs including petitioner Nelson lost their right to subject land
when not one of them repurchased it from Dr. Corrompido; (2) Saturnina was
effectively subrogated to the rights and interests of Alberto when she paid for
Alberto’s share as well as his obligation to Dr. Corrompido; and (3) petitioner Rito
had no more right to redeem his share to subject property as the sale by
Saturnina, his legal guardian pursuant to Section 7, Rule 93 of the Rules of Court,
was perfectly valid; and it was shown that he received his share of the proceeds
of the sale on July 24, 1986, when he was 24 years old.
On appeal, the Court of Appeals modified the decision of the trial court. It held
that the sale by Saturnina of petitioner Rito’s undivided share to the property was
unenforceable for lack of authority or legal representation but that the contract
was effectively ratified by petitioner Rito’s receipt of the proceeds on July 24,
1986. The appellate court also ruled that petitioner Nelson is co-owner to the
extent of one-seventh (1/7) of subject property as Saturnina was not subrogated
to Alberto’s rights when she repurchased his share to the property. It further
directed petitioner Nelson to pay the estate of the late Saturnina Cabales the
amount of ₱966.66, representing the amount which the latter paid for the
obligation of petitioner Nelson’s late father Alberto. Finally, however, it denied
petitioner Nelson’s claim for redemption for his failure to tender or consign in court
the redemption money within the period prescribed by law.
In this petition for review on certiorari, petitioners contend that the Court of
Appeals erred in (1) recognizing petitioner Nelson Cabales as co-owner of subject
land but denied him the right of legal redemption, and (2) not recognizing
petitioner Rito Cabales as co-owner of subject land with similar right of legal
redemption.
First, we shall delineate the rights of petitioners to subject land.
When Rufino Cabales died intestate, his wife Saturnina and his six (6) children,
Bonifacio, Albino, Francisco, Leonora, Alberto and petitioner Rito, survived and
succeeded him. Article 996 of the New Civil Code provides that "[i]f a widow or
widower and legitimate children or descendants are left, the surviving spouse has
in the succession the same share as that of each of the children." Verily, the seven
(7) heirs inherited equally on subject property. Petitioner Rito and Alberto,
petitioner Nelson’s father, inherited in their own rights and with equal shares as
the others.
But before partition of subject land was effected, Alberto died. By operation of law,
his rights and obligations to one-seventh of subject land were transferred to his
legal heirs – his wife and his son petitioner Nelson.
We shall now discuss the effects of the two (2) sales of subject land to the rights
of the parties.
The first sale with pacto de retro to Dr. Corrompido by the brothers and co-owners
Bonifacio, Albino and Alberto was valid but only as to their pro-indiviso shares to
the land. When Alberto died prior to repurchasing his share, his rights and
obligations were transferred to and assumed by his heirs, namely his wife and his
son, petitioner Nelson. But the records show that it was Saturnina, Alberto’s
mother, and not his heirs, who repurchased for him. As correctly ruled by the
Court of Appeals, Saturnina was not subrogated to Alberto’s or his heirs’ rights to
the property when she repurchased the share.
In Paulmitan v. Court of Appeals,3 we held that a co-owner who redeemed the
property in its entirety did not make her the owner of all of it. The property
remained in a condition of co-ownership as the redemption did not provide for a
mode of terminating a co-ownership.4 But the one who redeemed had the right to
be reimbursed for the redemption price and until reimbursed, holds a lien upon
the subject property for the amount due.5 Necessarily, when Saturnina redeemed
for Alberto’s heirs who had then acquired his pro-indiviso share in subject
property, it did not vest in her ownership over the pro-indiviso share she
redeemed. But she had the right to be reimbursed for the redemption price and
held a lien upon the property for the amount due until reimbursement. The result

is that the heirs of Alberto, i.e., his wife and his son petitioner Nelson, retained
ownership over their pro-indiviso share.
Upon redemption from Dr. Corrompido, the subject property was resold to
respondents-spouses by the co-owners. Petitioners Rito and Nelson were then
minors and as indicated in the Deed of Sale, their shares in the proceeds were
held in trust by respondents-spouses to be paid and delivered to them upon
reaching the age of majority.
As to petitioner Rito, the contract of sale was unenforceable as correctly held by
the Court of Appeals. Articles 320 and 326 of the New Civil Code6 state that:
Art. 320. The father, or in his absence the mother, is the legal administrator of the
property pertaining to the child under parental authority. If the property is worth
more than two thousand pesos, the father or mother shall give a bond subject to
the approval of the Court of First Instance.
Art. 326. When the property of the child is worth more than two thousand pesos,
the father or mother shall be considered a guardian of the child’s property, subject
to the duties and obligations of guardians under the Rules of Court.
In other words, the father, or, in his absence, the mother, is considered legal
administrator of the property pertaining to the child under his or her parental
authority without need of giving a bond in case the amount of the property of the
child does not exceed two thousand pesos.7 Corollary to this, Rule 93, Section 7
of the Revised Rules of Court of 1964, applicable to this case, automatically
designates the parent as legal guardian of the child without need of any judicial
appointment in case the latter’s property does not exceed two thousand
pesos,8 thus:
Sec. 7. Parents as guardians. – When the property of the child under parental
authority is worth two thousand pesos or less, the father or the mother, without
the necessity of court appointment, shall be his legal guardian x x x x9
Saturnina was clearly petitioner Rito’s legal guardian without necessity of court
appointment considering that the amount of his property or one-seventh of subject
property was ₱1,143.00, which is less than two thousand pesos. However, Rule
96, Sec. 110 provides that:
Section 1. To what guardianship shall extend. – A guardian appointed shall have
the care and custody of the person of his ward, and the management of his estate,
or the management of the estate only, as the case may be. The guardian of the
estate of a nonresident shall have the management of all the estate of the ward
within the Philippines, and no court other than that in which such guardian was
appointed shall have jurisdiction over the guardianship.
Indeed, the legal guardian only has the plenary power of administration of the
minor’s property. It does not include the power of alienation which needs judicial
authority.11 Thus, when Saturnina, as legal guardian of petitioner Rito, sold the
latter’s pro-indiviso share in subject land, she did not have the legal authority to
do so.
Article 1403 of the New Civil Code provides, thus:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
xxxx
Accordingly, the contract of sale as to the pro-indiviso share of petitioner Rito was
unenforceable. However, when he acknowledged receipt of the proceeds of the
sale on July 24, 1986, petitioner Rito effectively ratified it. This act of ratification
rendered the sale valid and binding as to him.
With respect to petitioner Nelson, on the other hand, the contract of sale was void.
He was a minor at the time of the sale. Saturnina or any and all the other co-
owners were not his legal guardians with judicial authority to alienate or encumber
his property. It was his mother who was his legal guardian and, if duly authorized
by the courts, could validly sell his undivided share to the property. She did not.
Necessarily, when Saturnina and the others sold the subject property in its entirety
to respondents-spouses, they only sold and transferred title to their pro-indiviso
shares and not that part which pertained to petitioner Nelson and his mother.
Consequently, petitioner Nelson and his mother retained ownership over their
undivided share of subject property.12
54
But may petitioners redeem the subject land from respondents-spouses? Articles
1088 and 1623 of the New Civil Code are pertinent:
Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before
the partition, any or all of the co-heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the sale, provided they do so within
the period of one month from the time they were notified in writing of the sale by
the vendor.
Art. 1623. The right of legal pre-emption or redemption shall not be exercised
except within thirty days from the notice in writing by the prospective vendor, or
by the vendor, as the case may be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he
has given written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
Clearly, legal redemption may only be exercised by the co-owner or co-owners
who did not part with his or their pro-indiviso share in the property held in common.
As demonstrated, the sale as to the undivided share of petitioner Rito became
valid and binding upon his ratification on July 24, 1986. As a result, he lost his
right to redeem subject property.
However, as likewise established, the sale as to the undivided share of petitioner
Nelson and his mother was not valid such that they were not divested of their
ownership thereto. Necessarily, they may redeem the subject property from
respondents-spouses. But they must do so within thirty days from notice in writing
of the sale by their co-owners vendors. In reckoning this period, we held in Alonzo
v. Intermediate Appellate Court,13 thus:
x x x we test a law by its results; and likewise, we may add, by its purposes. It is
a cardinal rule that, in seeking the meaning of the law, the first concern of the
judge should be to discover in its provisions the intent of the lawmaker.
Unquestionably, the law should never be interpreted in such a way as to cause
injustice as this is never within the legislative intent. An indispensable part of that
intent, in fact, for we presume the good motives of the legislature, is to render
justice.
Thus, we interpret and apply the law not independently of but in consonance with
justice. Law and justice are inseparable, and we must keep them so. x x x x
x x x x While we may not read into the law a purpose that is not there, we
nevertheless have the right to read out of it the reason for its enactment. In doing
so, we defer not to "the letter that killeth" but to "the spirit that vivifieth," to give
effect to the lawmaker’s will.
In requiring written notice, Article 1088 (and Article 1623 for that matter)14 seeks
to ensure that the redemptioner is properly notified of the sale and to indicate the
date of such notice as the starting time of the 30-day period of redemption.
Considering the shortness of the period, it is really necessary, as a general rule,
to pinpoint the precise date it is supposed to begin, to obviate the problem of
alleged delays, sometimes consisting of only a day or two.1awph!1
In the instant case, the right of redemption was invoked not days but years after
the sale was made in 1978. We are not unmindful of the fact that petitioner Nelson
was a minor when the sale was perfected. Nevertheless, the records show that in
1988, petitioner Nelson, then of majority age, was informed of the sale of subject
property. Moreover, it was noted by the appellate court that petitioner Nelson was
likewise informed thereof in 1993 and he signified his intention to redeem subject
property during a barangay conciliation process. But he only filed the complaint
for legal redemption and damages on January 12, 1995, certainly more than thirty
days from learning about the sale.
In the face of the established facts, petitioner Nelson cannot feign ignorance of
the sale of subject property in 1978. To require strict proof of written notice of the
sale would be to countenance an obvious false claim of lack of knowledge thereof,
thus commending the letter of the law over its purpose, i.e., the notification of
redemptioners.
The Court is satisfied that there was sufficient notice of the sale to petitioner
Nelson. The thirty-day redemption period commenced in 1993, after petitioner
Nelson sought the barangay conciliation process to redeem his property. By
January 12, 1995, when petitioner Nelson filed a complaint for legal redemption
and damages, it is clear that the thirty-day period had already expired.
As in Alonzo, the Court, after due consideration of the facts of the instant case,
hereby interprets the law in a way that will render justice.15
 55

Petitioner Nelson, as correctly held by the Court of Appeals, can no longer redeem
subject property. But he and his mother remain co-owners thereof with
respondents-spouses. Accordingly, title to subject property must include them.

IN VIEW WHEREOF, the petition is DENIED. The assailed decision and

resolution of the Court of Appeals of October 27, 2003 and February 23, 2004 are
AFFIRMED WITH MODIFICATION. The Register of Deeds of Southern Leyte is
ORDERED to cancel Original Certificate of Title No. 17035 and to issue in lieu
thereof a new certificate of title in the name of respondents-spouses Jesus and
Anunciacion Feliano for the 6/7 portion, and petitioner Nelson Cabales and his
mother for the remaining 1/7 portion, pro indiviso.

SO ORDERED.

G.R. No. 178645 January 30, 2009
LINA PEÑALBER, Petitioner,
vs.
QUIRINO RAMOS, LETICIA PEÑALBER, and BARTEX INC., Respondents.
DECISION
CHICO-NAZARIO, J.:
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of
Court is the Decision1 dated 15 December 2006 of the Court of Appeals in CA-
G.R. CV No. 69731. Said Decision reversed and set aside the Decision2 dated 19
January 2000 of the Regional Trial Court (RTC) of Tuguegarao City, Branch 2, in
Civil Case No. 3672, which declared petitioner Lina Peñalber the owner of the
Bonifacio property subject of this case and ordered respondent spouses Quirino
Ramos and Leticia Peñalber to reconvey the same to petitioner.
The factual and procedural antecedents of the case are set forth hereunder.
Petitioner is the mother of respondent Leticia and the mother-in-law of respondent
Quirino, husband of Leticia. Respondent Bartex, Inc., on the other hand, is a
domestic corporation which bought from respondent spouses Ramos one of the
two properties involved in this case.
On 18 February 1987, petitioner filed before the RTC a Complaint for Declaration
of Nullity of Deeds and Titles, Reconveyance, Damages, [with] Application for a
Writ of Preliminary Prohibitory Injunction against the respondents. 3 It was
docketed as Civil Case No. 3672.
First Cause of Action
Firstly, petitioner alleged in her Complaint that she was the owner of a parcel of
land situated in Ugac Norte, Tuguegarao, Cagayan, with an area of 1,457 sq.m.
and covered by Transfer Certificate of Title (TCT) No. T-433734of the Register of
Deeds for the Province of Cagayan, registered in petitioner’s name. A residential
house and a warehouse were constructed on the said parcel of land which
petitioner also claimed to own (the land and the improvements thereon shall be
hereinafter referred to as the Ugac properties). Petitioner averred that in the
middle part of 1986, she discovered that TCT No. T-43373 was cancelled on 13
May 1983 and TCT No. T-580435 was issued in its stead in the name of
respondent spouses Ramos. Upon verification, petitioner learned that the basis
for the cancellation of her title was a Deed of Donation of a Registered Land,
Residential House and Camarin,6 which petitioner purportedly executed in favor
of respondent spouses Ramos on 27 April 1983. Petitioner insisted that her
signature on the said Deed of Donation was a forgery as she did not donate any
property to respondent spouses Ramos. When petitioner confronted the
respondent spouses Ramos about the false donation, the latter pleaded that they
would just pay for the Ugac properties in the amount of ₱1 Million. Petitioner
agreed to the proposition of the respondent spouses Ramos.
Subsequently, around 10 January 1987,7 petitioner found out that the respondent
spouses Ramos were selling the Ugac properties to respondent Bartex, Inc.
Petitioner then sent her son, Johnson Paredes (Johnson),8 to caution respondent
Bartex, Inc. that respondent spouses Ramos were not the lawful owners of the
said properties. Johnson was allegedly able to convey petitioner’s caveat to a
representative of respondent Bartex, Inc. Petitioner also warned respondent
spouses Ramos not to sell the Ugac properties anymore, otherwise, she would
file the necessary action against them. The respondent spouses Ramos then
assured her that they would do no such thing. As a precaution, petitioner executed
an Affidavit of Adverse Claim over the Ugac Properties on 19 January 1987 and
caused the same to be annotated on TCT No. T-58043 on the same day. Despite
petitioner’s warnings, respondent spouses Ramos still executed in favor of
respondent Bartex, Inc. a Deed of Absolute Sale9 over the Ugac properties on 12
January 1987 for a total price of ₱150,000.00. As a result, TCT No. T-58043 in
the name of respondent spouses Ramos was cancelled and TCT No. T-
6882510 in the name of respondent Bartex, Inc. was issued on 20 January 1987.
Petitioner contended that the Deed of Absolute Sale executed by respondent
spouses Ramos in favor of respondent Bartex, Inc. did not convey any valid title,
not only because respondent Bartex, Inc. was a buyer in bad faith, but also
because respondent spouses Ramos did not own the Ugac properties. Thus,
petitioner prayed for the declaration of nullity of (1) the Deed of Donation of a
Registered Land, Residential House and Camarin purportedly executed by
petitioner in favor respondent spouses Ramos; (2) TCT No. T-58043, issued in
the name of respondent spouses Ramos; (3) the Deed of Absolute Sale executed
by the respondent spouses Ramos in favor of respondent Bartex, Inc.; and (4)
TCT No. T-68825, issued in the name of respondent Bartex, Inc. Should
petitioner’s prayer not be granted, petitioner sought in the alternative that
56
respondent spouses Ramos be ordered to pay the assessed value of the Ugac
properties, which was about ₱1.5 Million. Petitioner further prayed that TCT No.
T-43373, in her name, be declared valid and active.
Second Cause of Action
Secondly, petitioner claimed that for many years prior to 1984, she operated a
hardware store in a building she owned along Bonifacio St., Tuguegarao,
Cagayan. However, the commercial lot (Bonifacio property) upon which the
building stood is owned by and registered in the name of Maria Mendoza
(Mendoza), from whom petitioner rented the same.
On 22 March 1982, petitioner allowed respondent spouses Ramos to manage the
hardware store. Thereafter, in 1984, Mendoza put the Bonifacio property up for
sale. As petitioner did not have available cash to buy the property, she allegedly
entered into a verbal agreement with respondent spouses Ramos with the
following terms:
[1.] The lot would be bought [by herein respondent spouses Ramos]
for and in behalf of [herein petitioner];
[2.] The consideration of ₱80,000.00 for said lot would be paid by
[respondent spouses Ramos] from the accumulated earnings of the
store;
[3.] Since [respondent spouses Ramos] have the better credit
standing, they would be made to appear in the Deed of Sale as the
vendees so that the title to be issued in their names could be used by
[them] to secure a loan with which to build a bigger building and expand
the business of [petitioner].
In accordance with the above agreement, respondent spouses Ramos allegedly
entered into a contract of sale11with Mendoza over the Bonifacio property,12 and
on 24 October 1984, TCT No. T-6276913 covering said property was issued in the
names of respondent spouses Ramos.
On 20 September 1984, respondent spouses Ramos returned the management
of the hardware store to petitioner. On the bases of receipts and disbursements,
petitioner asserted that the Bonifacio property was fully paid out of the funds of
the store and if respondent spouses Ramos had given any amount for the
purchase price of the said property, they had already sufficiently reimbursed
themselves from the funds of the store. Consequently, petitioner demanded from
respondent spouses Ramos the reconveyance of the title to the Bonifacio property
to her but the latter unjustifiably refused.
Petitioner insisted that respondent spouses Ramos were, in reality, mere trustees
of the Bonifacio property, thus, they were under a moral and legal obligation to
reconvey title over the said property to her. Petitioner, therefore, prayed that she
be declared the owner of the Bonifacio property; TCT No. T-62769, in the name
of respondent spouses, be declared null and void; and the Register of Deeds for
the Province of Cagayan be directed to issue another title in her name.
On 2 March 1987, respondent spouses Ramos accordingly filed before the RTC
their Answer14 to petitioner’s Complaint. As regards the first cause of action,
respondent spouses Ramos alleged that petitioner, together with her son,
Johnson, and the latter’s wife, Maria Teresa Paredes, mortgaged the Ugac
properties to the Development Bank of the Philippines (DBP) on 19 August 1990
for the amount of ₱150,000.00. When the mortgage was about to be foreclosed
because of the failure of petitioner to pay the mortgage debt, petitioner asked
respondent spouses Ramos to redeem the mortgaged property or pay her
mortgage debt to DBP. In return, petitioner promised to cede, convey and transfer
full ownership of the Ugac properties to them. Respondent spouses Ramos paid
the mortgage debt and, in compliance with her promise, petitioner voluntarily
transferred the Ugac properties to the former by way of a Deed of Donation dated
27 April 1983. After accepting the donation and having the Deed of Donation
registered, TCT No. T- 58043 was issued to respondent spouses Ramos and they
then took actual and physical possession of the Ugac properties. Respondent
spouses Ramos asserted that petitioner had always been aware of their intention
to sell the Ugac properties as they posted placards thereon stating that the said
properties were for sale. Respondent spouses Ramos further averred that
petitioner also knew that they finally sold the Ugac properties to respondent
Bartex, Inc. for ₱150,000.00. Thus, respondent spouses Ramos maintained that
petitioner was not entitled to any reimbursement for the Ugac properties.
With regard to petitioner’s second cause of action involving the Bonifacio property,
respondent spouses Ramos contended that they were given not only the
management, but also the full ownership of the hardware store by the petitioner,
on the condition that the stocks and merchandise of the store will be inventoried,
and out of the proceeds of the sales thereof, respondent spouses Ramos shall

pay petitioner’s outstanding obligations and liabilities. After settling and paying the
obligations and liabilities of petitioner, respondent spouses Ramos bought the
Bonifacio property from Mendoza out of their own funds.
Lastly, even if petitioner and respondent spouses Ramos belonged to the same
family, the spouses Ramos faulted petitioner for failing to exert efforts to arrive at
an amicable settlement of their dispute. Hence, respondent spouses Ramos
sought, by way of a counterclaim against petitioner, moral and exemplary
damages and attorney’s fees, for allegedly filing a false, flimsy and frivolous
complaint.
On 27 April 1987, respondent Bartex, Inc. filed before the RTC its own Answer to
petitioner’s Complaint, alleging, inter alia, that when a representative of the
corporation inquired about the Ugac properties for sale, respondent spouses
Ramos presented their owner’s duplicate copy of TCT No. T-58043, together with
the tax declarations covering the parcel of land and the buildings thereon.
Respondent Bartex, Inc. even verified the title and tax declarations covering the
Ugac properties with the Register of Deeds and the Office of the Municipal
Assessor as to any cloud, encumbrance or lien on the properties, but none were
found. Respondent spouses Ramos were then actually occupying the Ugac
properties and they only vacated the same after the consummation of the sale to
respondent Bartex, Inc. Respondent Bartex, Inc. claimed that the sale of the Ugac
properties by respondent spouses Ramos to the corporation was already
consummated on 12 January 1987, and the documents conveying the said
properties were by then being processed for registration, when petitioner caused
the annotation of an adverse claim at the back of TCT No. T-58043 on 19 January
1987. As respondent Bartex, Inc. was never aware of any imperfection in the title
of respondent spouses Ramos over the Ugac properties, it claimed that it was an
innocent purchaser in good faith.
Trial of the case thereafter ensued.
On 19 January 2000, the RTC promulgated its decision, ruling on petitioner’s first
cause of action in this wise:
On the first cause of action, the Court finds the testimony of [herein petitioner]
Lina Penalber (sic) denying her execution of the deed of donation over the Ugac
property in favor of [herein respondent spouses] Quirino Ramos and Leticia
Penalber-Ramos (sic) insufficient to support the said cause of action. A notarial
document is, by law, entitled to full faith and credit upon its face (Arrieta v. Llosa,
282 SCRA 248) and a high degree of proof is needed to overthrow the
presumption of truth in the recitals contained in a public document executed with
all legal formalities (People vs. Fabro, 277 SCRA 19). Hence, in order to
contradict the facts contained in a notarial document and the presumption of
regularity in its favor, these (sic) must be evidence that is clear, convincing and
more than merely preponderant (Calahat vs. Intermediate Appellate Court, 241
SCRA 356). In the case at bench, [petitioner] claims that she did not execute the
deed of donation over the Ugac property in favor of [respondent spouses Ramos].
Such denial, by itself, is not sufficient to overcome the presumption of regularity
of the notarial deed of donation and its entitlement to full faith and credit. While it
is true that, generally, the party who asserts the affirmative side of a proposition
has the burden of proof, which in this instance is (sic) the [respondent spouses
Ramos] who are asserting the validity of the deed of donation, [respondent
spouses Ramos] can merely rely on the above-stated presumption given to
notarial documents and need not present any evidence to support their claim of
validity and due execution of the notarized deed of donation. On the other hand,
[petitioner], in addition to her allegation that she did not execute any such deed of
donation in favor of [respondent spouses Ramos] should have had her allegedly
falsified signature on the deed of donation examined by qualified handwriting
experts to prove that, indeed, she did not execute the same. Her failure to do so
results in the failure of her cause.15 (Emphasis ours.)
With respect to petitioner’s second cause of action, the RTC adjudged that:
On the second cause of action, the Court finds the evidence preponderantly in
favor of the [herein petitioner]. The evidence on record shows that when
[petitioner] allowed [herein respondent spouses Ramos] full management of the
hardware store located on the Bonifacio property in March, 1982 (sic) an inventory
of the stocks in trade in the said store was made showing stocks worth
₱226,951.05* and when she got back the store from [respondent spouses
Ramos] on September 1984, another inventory was made [on] the stocks in trade
in the said store showing, stocks worth ₱110,005.88* or a difference of
₱116,946.17.* The only reason for an inventory having been made when the
hardware store was turned over to [respondent spouses Ramos] was, to the mind
of the Court, for the latter to account for the sales of such stocks. And to arrive at
the net amount due to [petitioner], all that is needed to be done is to deduct the
value of the stocks present at the store when management was returned to
[petitioner] in September 1984 from the value of the stocks found in the hardware
store when said management was given to [respondent spouses Ramos] in 1982.
[Petitioner] claims that the purchase price for the Bonifacio property was to be
taken from the proceeds of sales from the hardware store which, as the evidence
on record stands[,] shows a balance in her favor of more than ₱116,000.00.
57
[Respondent spouses Ramos] contend that said amount was expended to pay off
[petitioner’s] obligations to her suppliers. The record, however, is totally silent on
how much and when [respondent spouses Ramos] paid said alleged obligations
of [petitioner] or even who were the said suppliers thus paid. That [petitioner] and
[respondent spouses Ramos] agreed that the amount due [petitioner] from the
proceeds of the sales of her stocks in the hardware store would be applied to the
purchase price of the Bonifacio property is supported by the fact that [petitioner]
did not ever ask for an accounting of said proceeds, despite the fact that as early
as September, 1984 (sic) she already knew that her stocks left by her in March,
1982 (sic) was already sold by [respondent spouses Ramos] and that there was
a difference of ₱116,000.00 plus which was due to her.16(Emphasis ours.)
Thus, the RTC decreed:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1. Finding the evidence on record insufficient to prove the [herein
petitioner’s] first cause of action, and, hence, dismissing the same;
2. On the second cause of action, in favor of the [petitioner] and against
the [herein respondent spouses Ramos];
2.1 Declaring the [petitioner] the owner of Lot 2-B of
subdivision plan PST-2-01-019316 (sic) with an area of 195
square meters situated along Bonifacio Street,
Tuguegarao, Cagayan; and
2.2 Ordering the [respondent spouses Ramos] to reconvey
to the [petitioner] the said property (Bonifacio property).
With costs de oficio.17 (Emphasis ours.)
On 22 February 2000, respondent spouses Ramos filed with the RTC a Motion
for Reconsideration18 of the afore-mentioned decision, assailing the ruling of the
RTC on petitioner’s second cause of action on the ground that the alleged express
trust created between them and petitioner involving the Bonifacio property could
not be proven by parol evidence. In an Order19 dated 17 July 2000, the RTC
denied respondent spouses Ramos’ Motion for Reconsideration for lack of merit,
ratiocinating that respondent spouses Ramos failed to interpose timely objections
when petitioner testified on their alleged verbal agreement regarding the purchase
of the Bonifacio property. As such, respondent spouses Ramos were deemed to
have waived such objections, which cannot be raised anymore in their Motion for
Reconsideration. The RTC then reiterated its finding that petitioner’s evidence
clearly established her second cause of action. Additionally, the RTC held that the
requirement that the parties exert earnest efforts towards an amicable settlement
of the dispute had likewise been waived by the respondents as they filed no
motion regarding the same before the trial.
On 24 July 2000, respondent spouses Ramos elevated their case to the Court of
Appeals, insofar as the ruling of the RTC on petitioner’s second cause of action
was concerned.20 The appeal was docketed as CA-G.R. CV No. 69731.
On 15 December 2006, the Court of Appeals rendered the assailed Decision in
favor of respondent spouses Ramos.
Finding merit in the appeal, the appellate court observed that the second cause
of action involved not only the petitioner and her daughter, but also her son-in-
law, who was not covered by the term "family relations" under Article 15021 of the
Family Code. Therefore, Article 15122 of the Family Code, requiring the exertion
of earnest efforts toward a compromise, did not apply as the impediment arising
from the said provision was limited only to suits between members of the same
family or those encompassed in the term "family relations" under Article 150.
The Court of Appeals also declared that petitioner failed to prove her claim with
the required quantum of evidence. According to the Court of Appeals:
It appears that before management of the store was transferred to [herein
respondent spouses Ramos], a beginning inventory of the stocks of the hardware
store was made by [herein petitioner’s] other children showing stocks amounting
to Php226,951.05. After management of the hardware store was returned to
[petitioner], a second inventory was made with stocks amounting to
Php110,004.88 showing a difference of Php116,946.15. Contrary, however, to the
finding of the trial court, We find that said inventory showing such difference is not
conclusive proof to show that the said amount was used to pay the purchase price
of the subject lot. In fact, as testified by Johnson Paredes, son of [petitioner] who
made the computation on the alleged inventories, it is not known if the goods,
representing the amount of Php116,946.17, were actually sold or not. It may have
been taken without actually being sold.

It is a basic rule of evidence that bare allegations, unsubstantiated by evidence,
are not equivalent to proof. As between [petitioner’s] bare allegation of a verbal
trust agreement, and the deed of absolute sale between Maria Mendoza and
[respondent spouses Ramos], the latter should prevail.
Although oral testimony is allowed to prove that a trust exists, contrary to the
contention of [respondent spouses Ramos], and the court may rely on parol
evidence to arrive at a conclusion that an express trust exists, what is crucial is
the intention to create a trust. While oftentimes the intention is manifested by the
trustor in express or explicit language, such intention may be manifested by
inference from what the trustor has said or done, from the nature of the
transaction, or from the circumstances surrounding the creation of the purported
trust.
However, an inference of the intention to create a trust, made from language,
conduct or circumstances, must be made with reasonable certainty. It cannot rest
on vague, uncertain or indefinite declarations. An inference of intention to create
a trust, predicated only on circumstances, can be made only where they admit of
no other interpretation. Here, [petitioner] failed to establish with reasonable
certainty her claim that the purchase of the subject lot was pursuant to a verbal
trust agreement with [respondent spouses Ramos].23 (Emphasis ours.)
Thus, the Court of Appeals disposed of the case as follows:
WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED
and the Decision dated 19 January 2000 of the Regional Trial Court (RTC) of
Tuguegarao City, Branch 2, with respect to the second cause of action or the
Bonifacio Property in Civil Case No. 3672 is hereby REVERSED and SET ASIDE
and a new one entered DISMISSING the second cause of action of [herein
petitioner’s] complaint.24
On 12 January 2007, petitioner sought reconsideration25 of the foregoing
Decision, but it was denied by the appellate court in a Resolution26 dated 31 May
2007.
To have the ruling of the Court of Appeals overturned, petitioner brought her case
before us through the instant Petition, raising the following issues: (1) whether the
existence of a trust agreement between her and respondent spouses Ramos was
clearly established, and (2) whether such trust agreement was valid and
enforceable.
At the outset, it is apparent that petitioner is raising questions of fact in the instant
Petition. Be it noted that in a petition for review under Rule 45 of the Rules of
Court, only questions of law must be entertained. A question of law arises when
there is doubt as to what the law is on a certain state of facts, while there is a
question of fact when the doubt arises as to the truth or falsity of the alleged
facts.27 When the doubt or difference arises as to the truth or falsehood of alleged
facts or when the query necessarily solicits calibration of the whole evidence
considering mostly the credibility of witnesses, existence and relevancy of specific
surrounding circumstances, their relation to each other and to the whole and
probabilities of the situation, questions or errors of fact are raised.28 The rule that
only questions of law may be raised in a petition for review under Rule 45,
however, admits of certain exceptions,29among which is when the findings of the
trial court are grounded entirely on speculation, surmise and conjecture. As will
be discussed further, we find the afore-mentioned exception to be applicable in
the present Petition, thus, warranting a departure from the general rule.
In its technical legal sense, a trust is defined as the right, enforceable solely in
equity, to the beneficial enjoyment of property, the legal title to which is vested in
another, but the word "trust" is frequently employed to indicate duties, relations,
and responsibilities which are not strictly technical trusts.30 A person who
establishes a trust is called the trustor; one in whom confidence is reposed is
known as the trustee; and the person for whose benefit the trust has been created
is referred to as the beneficiary.31 There is a fiduciary relation between the trustee
and the beneficiary (cestui que trust) as regards certain property, real, personal,
money or choses in action.32
Trusts are either express or implied. Express trusts are created by the intention
of the trustor or of the parties. Implied trusts come into being by operation of
law.33 Express trusts are those which are created by the direct and positive acts
of the parties, by some writing or deed, or will, or by words either expressly or
impliedly evincing an intention to create a trust.34 No particular words are required
for the creation of an express trust, it being sufficient that a trust is clearly
intended.35 However, in accordance with Article 1443 of the Civil Code, when an
express trust concerns an immovable property or any interest therein, the same
may not be proved by parol or oral evidence.36
In the instant case, petitioner maintains that she was able to prove the existence
of a trust agreement between her and respondent spouses Ramos. She calls
attention to the fact that respondent spouses Ramos could not account for the
58
₱116,946.15 difference in the beginning inventory and the second inventory of
the stocks of the hardware store, and they failed to present proof to support their
allegation that the amount was used to pay the other obligations of petitioner. As
respondent spouses Ramos never denied the existence of the ₱116,946.15
difference, petitioner contends that they have the burden of proving where this
amount had gone, if indeed they did not use the same to buy the Bonifacio
property. Petitioner asserts that given the respondent spouses Ramos’ failure to
discharge such burden, the only conclusion would be that they did use the amount
to purchase the Bonifacio property.
Petitioner further alleges that based on the verbal agreement between her and
respondent spouses Ramos, a trust agreement was created and that the same is
valid and enforceable. Petitioner claims that she is the trustor for it was she who
entrusted the Bonifacio property to respondent spouses Ramos as the trustees,
with the condition that the same be used to secure a loan, the proceeds of which
would be used to build a bigger building to expand petitioner’s business. Petitioner
maintains that a trust agreement was clearly intended by the parties when
petitioner left the management of the hardware store to respondent spouses
Ramos, with the agreement that the proceeds from the sales from said store be
used to buy the lot upon which the store stands. The respondent spouses Ramos’
assumption of the management of the hardware store and their eventual purchase
of the Bonifacio property indubitably shows that respondent spouses Ramos
honored their obligation under the verbal agreement. Such being the case, it
behooved for the respondent spouses Ramos to hold the Bonifacio property for
petitioner’s benefit.
Petitioner’s arguments fail to persuade.
It bears stressing that petitioner has the burden of proving her cause of action in
the instant case and she may not rely on the weakness of the defense of
respondent spouses Ramos. Burden of proof is the duty of any party to present
evidence to establish his claim or defense by the amount of evidence required by
law, which is preponderance of evidence in civil cases. Preponderance of
evidence37 is the weight, credit, and value of the aggregate evidence on either
side and is usually considered to be synonymous with the term "greater weight of
the evidence" or "greater weight of the credible evidence. It is evidence which is
more convincing to the court as worthy of belief than that which is offered in
opposition thereto.38 Therefore, the party, whether plaintiff or defendant, who
asserts the affirmative of the issue has the burden of proof to obtain a favorable
judgment. For the plaintiff, the burden of proof never parts. 39 For the defendant,
an affirmative defense is one which is not a denial of an essential ingredient in
the plaintiff’s cause of action, but one which, if established, will be a good
defense i.e., an avoidance of the claim.40
From the allegations of the petitioner’s Complaint in Civil Case No. 3672, the
alleged verbal trust agreement between petitioner and respondent spouses
Ramos is in the nature of an express trust as petitioner explicitly agreed therein
to allow the respondent spouses Ramos to acquire title to the Bonifacio property
in their names, but to hold the same property for petitioner’s benefit. Given that
the alleged trust concerns an immovable property, however, respondent spouses
Ramos counter that the same is unenforceable since the agreement was made
verbally and no parol evidence may be admitted to prove the existence of an
express trust concerning an immovable property or any interest therein.
On this score, we subscribe to the ruling of the RTC in its Order dated 17 July
2000 that said spouses were deemed to have waived their objection to the parol
evidence as they failed to timely object when petitioner testified on the said verbal
agreement. The requirement in Article 1443 that the express trust concerning an
immovable or an interest therein be in writing is merely for purposes of proof, not
for the validity of the trust agreement. Therefore, the said article is in the nature
of a statute of frauds. The term statute of frauds is descriptive of statutes which
require certain classes of contracts to be in writing. The statute does not deprive
the parties of the right to contract with respect to the matters therein involved, but
merely regulates the formalities of the contract necessary to render it
enforceable.41 The effect of non-compliance is simply that no action can be
proved unless the requirement is complied with. Oral evidence of the contract will
be excluded upon timely objection. But if the parties to the action, during the trial,
make no objection to the admissibility of the oral evidence to support the contract
covered by the statute, and thereby permit such contract to be proved orally, it
will be just as binding upon the parties as if it had been reduced to writing.42
Per petitioner’s testimony,43 the Bonifacio property was offered for sale by its
owner Mendoza. Petitioner told respondent spouses Ramos that she was going
to buy the lot, but the title to the same will be in the latter’s names. The money
from the hardware store managed by respondent spouses Ramos shall be used
to buy the Bonifacio property, which shall then be mortgaged by the respondent
spouses Ramos so that they could obtain a loan for building a bigger store. The
purchase price of ₱80,000.00 was paid for the Bonifacio property. On 20
September 1984, the respondent spouses Ramos returned the management of
the store to petitioner. Thereafter, petitioner allowed her son Johnson to inventory
the stocks of the store. Johnson found out that the purchase price of ₱80,000.00
for the Bonifacio property was already fully paid. When petitioner told the
 59

respondent spouses Ramos to transfer the title to the Bonifacio property in her
name, the respondent spouses Ramos refused, thus, prompting petitioner to file
a complaint against them.

Similarly, Johnson testified44 that on 22 March 1982, petitioner turned over the
management of the hardware store to respondent spouses Ramos. During that
time, an inventory45 of the stocks of the store was made and the total value of the
said stocks were determined to be ₱226,951.05. When respondent spouses
Ramos returned the management of the store to petitioner on 20 September
1984, another inventory46 of the stocks was made, with the total value of the
stocks falling to ₱110,004.88. The difference of ₱116,946.16 was attributed to the
purchase of the Bonifacio property by the respondent spouses Ramos using the
profits from the sales of the store.

A careful perusal of the records of the case reveals that respondent spouses
Ramos did indeed fail to interpose their objections regarding the admissibility of
the afore-mentioned testimonies when the same were offered to prove the alleged
verbal trust agreement between them and petitioner. Consequently, these
testimonies were rendered admissible in evidence. Nevertheless, while
admissibility of evidence is an affair of logic and law, determined as it is by
its relevance and competence, the weight to be given to such evidence,
once admitted, still depends on judicial evaluation.47 Thus, despite the
admissibility of the said testimonies, the Court holds that the same carried little
weight in proving the alleged verbal trust agreement between petitioner and
respondent spouses.

Petitioner’s allegations as to the existence of an express trust agreement with

respondent spouses Ramos, supported only by her own and her son Johnson’s
testimonies, do not hold water. As correctly ruled by the Court of Appeals, a
resulting difference of ₱116,946.15 in the beginning inventory of the stocks of the
hardware store (before management was transferred to respondent spouses
Ramos) and the second inventory thereof (after management was returned to
petitioner), by itself, is not conclusive proof that the said amount was used to pay
the purchase price of the Bonifacio property, such as would make it the property
of petitioner held merely in trust by respondent spouses Ramos. Such a
conclusion adopted by the RTC is purely speculative and non sequitur. The
resulting difference in the two inventories might have been caused by other
factors and the same is capable of other interpretations (e. g., that the amount
thereof may have been written off as business losses due to a bad economic
condition, or that the stocks of the store might have been damaged or otherwise
their purchase prices have increased dramatically, etc.), the exclusion of which
rested upon the shoulders of petitioner alone who has the burden of proof in the
instant case. This petitioner miserably failed to do. The fact that respondent
spouses Ramos never denied the ₱116,946.15 difference, or that they failed to
present proof that they indeed used the said amount to pay the other obligations
and liabilities of petitioner is not sufficient to discharge petitioner’s burden to prove
the existence of the alleged express trust agreement.

WHEREFORE, premises considered, the instant Petition for Review on Certiorari

under Rule 45 of the Rules of Court is hereby DENIED. The assailed Decision of
the Court of Appeals in CA-G.R. CV No. 69731 dated 15 December 2006 is
hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 169681 November 5, 2009
THE ESTATE OF PEDRO C. GONZALES and HEIRS OF PEDRO C.
GONZALES, Petitioners,
vs.
THE HEIRS OF MARCOS PEREZ, Respondents.
DECISION
PERALTA, J.:
This resolves the instant Petition for Review on Certiorari under Rule 45 of the
Rules of Court praying for the nullification of the Decision1 of the Court of Appeals
(CA) dated April 25, 2005 in CA-G.R. CV No. 60998 and its Resolution2 dated
September 14, 2005. The challenged Decision of the CA reversed and set aside
the judgment of the Regional Trial Court (RTC) of Marikina City, Branch 272 in
Civil Case No. 94-57-MK while its assailed Resolution denied petitioners' motion
for reconsideration.
The antecedent facts are as follows:
The former Municipality of Marikina in the Province of Rizal (now City of Marikina,
Metro Manila) used to own a parcel of land located in Barrio Concepcion of the
said municipality covered by Original Certificate of Title (OCT) No. 6293 of the
Register of Deeds of Rizal. The said property was subdivided into three (3) lots,
namely, lots A, B and C, per subdivision plan (LRC) Psd-4571.4
On January 14, 1966, the Municipal Council of Marikina passed Resolution No.
9, series of 1966 which authorized the sale through public bidding of Municipal
Lots A and C.
On April 25, 1966, a public bidding was conducted wherein Pedro Gonzales was
the highest bidder. Two days thereafter, or on April 27, 1966, the Municipal
Council of Marikina issued Resolution No. 75 accepting the bid of Pedro.
Thereafter, a deed of sale was executed in favor of the latter which was later
forwarded to the Provincial Governor of Rizal for his approval. The Governor,
however, did not act upon the said deed.
Sometime in September 1966, Pedro sold to Marcos Perez a portion of Lot C,
denominated as Lot C-3, which contains an area of 375 square meters. The
contract of sale was embodied in a Deed of Sale5 which, however, was not
notarized. To segregate the subject property from the remaining portions of Lot
C, Marcos had the same surveyed wherein a technical description of the subject
lot was prepared by a surveyor.6
Subsequently, Pedro and Marcos died.
On February 7, 1992, the Municipality of Marikina, through its then Mayor Rodolfo
Valentino, executed a Deed of Absolute Transfer of Real Property over Lots A
and C in favor of the Estate of Pedro C. Gonzales. 7 On June 25, 1992, Transfer
Certificate of Title (TCT) No. 223361, covering Lot C, was issued in the name of
the said estate.8
Subsequently, herein petitioners executed an extra-judicial partition wherein Lot
C was subdivided into three lots. As a result of the subdivision, new titles were
issued wherein the 370-square-meter portion of Lot C-3 is now denominated as
Lot C-1 and is covered by TCT No. 2444479 and the remaining 5 square meters
of the subject lot (Lot C-3) now forms a portion of another lot denominated as Lot
C-2 and is now covered by TCT No. 244448.10
On October 1, 1992, herein respondents sent a demand letter to one of herein
petitioners asking for the reconveyance of the subject property.11 However,
petitioners refused to reconvey the said lot. As a consequence, respondents filed
an action for "Annulment and/or Rescission of Deed of Absolute Transfer of Real
Property x x x and for Reconveyance with Damages."12
On February 2, 1998, the RTC rendered its Decision with the following dispositive
portion:
WHEREFORE, foregoing premises, judgment is hereby rendered as follows:
1. DISMISSING the complaint subject of the case in caption for lack of
merit;
2. DECLARING VALID both Transfer Certificates of Title Nos. 244447
and 244448 issued by the Register of Deeds of Marikina;
60
3. DISMISSING the defendants' counterclaim.
No pronouncement as to costs.
SO ORDERED.13
The RTC ruled that since the Deed of Sale executed between Pedro and Marcos
was not notarized, the same is considered void and of no effect. In addition, the
trial court also held that Pedro became the owner of the subject lot only on
February 7, 1992; as such, he could not have lawfully transferred ownership
thereof to Marcos in 1966.
Herein respondents appealed the RTC Decision to the CA contending that the
RTC erred in relying only on Articles 1356 and 1358 of the Civil Code. Instead,
respondents assert that the RTC should also have applied the provisions of
Articles 1357, 1403 (2), 1405 and 1406 of the same Code.
On April 25, 2005, the CA rendered its presently assailed Decision disposing as
follows:
WHEREFORE, premises considered, the instant Appeal is
hereby GRANTED and the assailed Decision dated February 2, 1998
is REVERSED and SET ASIDE. TCT No. 244447 and partially, TCT No. 244448,
with respect to five (5) square meters, are declared NULL and VOID and
defendants-appellees are ordered to reconvey in favor of the plaintiffs-appellants
the subject property covered by said Transfer Certificates of Title (five square
meters only with respect to TCT No. 244448). The trial court's dismissal of
defendants-appellees' counterclaim is, however, AFFIRMED.
SO ORDERED.14
The CA held that a sale of real property, though not consigned in a public
instrument, is nevertheless valid and binding among the parties and that the form
required in Article 1358 of the Civil Code is not essential to the validity or
enforceability of the transactions but only for convenience.
Petitioners filed a motion for reconsideration, but the same was denied by the CA
in its Resolution of September 14, 2005 on the ground that the said motion was
filed out of time.
Hence, the present petition with the following assignment of errors:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, ITS
FINDINGS OF FACT RUN COUNTER TO THOSE OF THE TRIAL COURT,
THUS, IT HAS DECIDED THE CASE IN A WAY NOT IN ACCORD WITH LAW
AND JURISPRUDENCE.
WITH DUE RESPECT, THE ALLEGED DEED OF SALE IS SUSPECT AND
RIDDEN WITH INCONSISTENCIES. IN FACT, THE LOWER COURT HELD
THAT THE DEED OF SALE FAILED TO MEET THE SOLEMNITY
REQUIREMENTS PROVIDED UNDER THE LAW FOR ITS VALIDITY.
WITH DUE RESPECT, THE COURT OF APPEALS ERRED IN DISREGARDING
THE FINDINGS OF FACT AND THE APPLICATION OF LAW BY THE
REGIONAL TRIAL COURT THAT UNDER THE PURPORTED DEED OF SALE
THE VENDOR COULD NOT HAVE TRANSFERRED OWNERSHIP.15
In their first and last assigned errors, petitioners contend that Marcos, who is
respondents' predecessor-in-interest, could not have legally bought the disputed
parcel of land from petitioners' predecessor-in-interest, Pedro, in September 1966
because, during that time, Pedro had not yet acquired ownership of the subject
lot. Petitioners' assertion is based on the premise that as of February 29, 1968,
the Deed of Sale between Pedro and the Municipality of Marikina was still subject
to approval by the Provincial Governor of Rizal, as required under Section 2196
of the Revised Administrative Code. Considering that on the supposed date of
sale in favor of Marcos, the requisite approval of the Provincial Governor was not
yet secured, petitioners conclude that Pedro could not be considered as the owner
of the subject property and, as such, he did not yet possess the right to transfer
ownership thereof and, thus, could not have lawfully sold the same to Marcos.
The Court does not agree.
Section 2196 of the Revised Administrative Code provides:
SECTION 2196. Execution of deeds. – When the government of a municipality is
a party to a deed or an instrument which conveys real property or any interest

therein or which creates a lien upon the same, such deed or instrument shall be
executed on behalf of the municipal government by the mayor, upon resolution of
the council, with the approval of the governor.
In Municipality of Camiling v. Lopez,16 the Court found occasion to expound on
the nature and effect of the provincial governor's power to approve contracts
entered into by a municipal government as provided for under Section 2196 of the
Revised Administrative Code. The Court held, thus:
x x x The approval by the provincial governor of contracts entered into and
executed by a municipal council, as required in [S]ection 2196 of the Revised
Administrative Code, is part of the system of supervision that the provincial
government exercises over the municipal governments. It is not a prohibition
against municipal councils entering into contracts regarding municipal properties
subject of municipal administration or control. It does not deny the power, right or
capacity of municipal councils to enter into such contracts; such power or capacity
is recognized. Only the exercise thereof is subject to supervision by approval or
disapproval, i.e., contracts entered in pursuance of the power would ordinarily be
approved if entered into in good faith and for the best interests of the municipality;
they would be denied approval if found illegal or unfavorable to public or municipal
interest. The absence of the approval, therefore, does not per se make the
contracts null and void.17
This pronouncement was later reiterated in Pechueco Sons Company v.
Provincial Board of Antique,18 where the Court ruled more emphatically that:
In other words, as regards the municipal transactions specified in Section 2196 of
the Revised Administrative Code, the Provincial Governor has two courses of
action to take – either to approve or disapprove the same. And since absence
of such approval does not necessarily render the contract entered into by
the municipality null and void, the transaction remains voidable until such
time when by subsequent unfavorable action of the governor, for reasons
of public interest, the contract is thereby invalidated.19
It is clear from the above-quoted pronouncements of the Court that, pending
approval or disapproval by the Provincial Governor of a contract entered into by
a municipality which falls under the provisions of Section 2196 of the Revised
Administrative Code, such contract is considered voidable. In the instant case,
there is no showing that the contract of sale entered into between Pedro and the
Municipality of Marikina was ever acted upon by the Provincial Governor. Hence,
consistent with the rulings enunciated above, the subject contract should be
considered voidable. Voidable or annullable contracts, before they are set aside,
are existent, valid, and binding, and are effective and obligatory between the
parties.20
In the present case, since the contract was never annulled or set aside, it had the
effect of transferring ownership of the subject property to Pedro. Having lawfully
acquired ownership of Lots A and C, Pedro, in turn, had the full capacity to transfer
ownership of these parcels of land or parts thereof, including the subject property
which comprises a portion of Lot C.
It is wrong for petitioners to argue that it was only on June 25, 1992, when TCT
No. 223361 covering Lot C was issued in the name of the estate of Pedro, that he
became the owner thereof.
Article 1496 of the Civil Code provides:
The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501, or in any
other manner signifying an agreement that the possession is transferred from the
vendor to the vendee.
In conjunction with the above-stated provision, Article 1497 of the Civil Code
states that:
The thing sold shall be understood as delivered when it is placed in the control
and possession of the vendee.
In the present case, there is no dispute that Pedro took control and possession of
the said lot immediately after his bid was accepted by the Municipal Government
of Marikina. In fact, herein petitioners, in their Answer with Compulsory
Counterclaim admit that both Pedro and Marcos, together with their respective
heirs, were already occupying the subject property even before the same was
sold to Pedro and that, after buying the same, Pedro allowed Marcos and his
family to stay thereon.21 This only shows that upon perfection of the contract of
sale between the Municipality of Marikina and Pedro, the latter acquired
ownership of the subject property by means of delivery of the same to him.
61
Hence, the issuance of TCT No. 223361, as well as the execution of the Deed of
Absolute Transfer of Real Property on February 7, 1992 by the Municipal Mayor
of Marikina, could not be considered as the operative acts which transferred
ownership of Lot C to Pedro. Pedro already acquired ownership of the subject
property as early as 1966 when the same was delivered to him by the Municipality
of Marikina, and the execution of the Deed of Absolute Transfer of Real Property
as well as the consequent issuance of TCT No. 223316 are simply a confirmation
of such ownership.1avvphi1
It may not be amiss to point out at this juncture that the Deed of Absolute Transfer
of Real Property executed by the Mayor of Marikina was no longer subject to
approval by the Provincial Governor of Rizal because Marikina already became
part of Metro Manila on November 7, 1975.22 On December 8, 1996, Marikina
became a chartered city.23
In their second assignment of error, petitioners question the authenticity and due
execution of the Deed of Sale executed by Pedro in favor of Marcos. Petitioners
also argue that even assuming that Pedro actually executed the subject Deed of
Sale, the same is not valid because it was not notarized as required under the
provisions of Articles 1403 and 1358 of the Civil Code.
The Court is not persuaded.
The RTC, in its abbreviated discussion of the questions raised before it, did not
touch on the issue of whether the Deed of Sale between Pedro and Marcos is
authentic and duly executed. However, the CA, in its presently assailed Decision,
adequately discussed this issue and ruled as follows:
x x x In the present case, We are convinced that plaintiffs-appellants [herein
respondents] have substantially proven that Pedro, indeed, sold the subject
property to Marcos for ₱9,378.75. The fact that no receipt was presented to prove
actual payment of consideration, in itself, the absence of receipts, or any proof of
consideration, would not be conclusive since consideration is always presumed.
Likewise, the categorical statement in the trial court of Manuel P. Bernardo, one
of the witnesses in the Deed of Sale, that he himself saw Pedro sign such Deed
lends credence. This was corroborated by another witness, Guillermo Flores.
Although the defendants-appellees [herein petitioners] are assailing the
genuineness of the signatures of their parents on the said Deed, they presented
no evidence of the genuine signatures of their parents as would give this Court a
chance to scrutinize and compare it with the assailed signatures. Bare allegations,
unsubstantiated by evidence, are not equivalent to proof under our Rules.24
In the instant petition, petitioners would have us review the factual determinations
of the CA. However, settled is the rule that the Court is not a trier of facts and only
questions of law are the proper subject of a petition for review on certiorari in this
Court.25 While there are exceptions to this rule,26 the Court finds that the instant
case does not fall under any of them. Hence, the Court sees no reason to disturb
the findings of the CA, which are supported by evidence on record.
On the question of whether the subject Deed of Sale is invalid on the ground that
it does not appear in a public document, Article 1358 of the same Code
enumerates the acts and contracts that should be embodied in a public document,
to wit:
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest
therein are governed by Articles 1403, No. 2 and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of
those of the conjugal partnership of gains;
(3) The power to administer property, or any other power which has for
its object an act appearing or which should appear in a public
document, or should prejudice a third person; and
(4) The cession of actions or rights proceeding from an act appearing
in a public document.
All other contracts where the amount involved exceeds five hundred pesos must
appear in writing, even a private one. But sales of goods, chattels or things in
action are governed by Articles 1403, No. 2 and 1405.
On the other hand, pertinent portions of Article 1403 of the Civil Code provide as
follows:
 62

Art. 1403. The following contracts are unenforceable, unless they are ratified:

xxxx

(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or
a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the
making thereof;

xxxx

(e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein; x x x27

Under Article 1403(2), the sale of real property should be in writing and subscribed
by the party charged for it to be enforceable.28 In the case before the Court, the
Deed of Sale between Pedro and Marcos is in writing and subscribed by Pedro
and his wife Francisca; hence, it is enforceable under the Statute of Frauds.

However, not having been subscribed and sworn to before a notary public, the
Deed of Sale is not a public document and, therefore, does not comply with Article
1358 of the Civil Code.

Nonetheless, it is a settled rule that the failure to observe the proper form
prescribed by Article 1358 does not render the acts or contracts enumerated
therein invalid. It has been uniformly held that the form required under the said
Article is not essential to the validity or enforceability of the transaction, but merely
for convenience.29 The Court agrees with the CA in holding that a sale of real
property, though not consigned in a public instrument or formal writing, is,
nevertheless, valid and binding among the parties, for the time-honored rule is
that even a verbal contract of sale of real estate produces legal effects between
the parties.30 Stated differently, although a conveyance of land is not made in a
public document, it does not affect the validity of such conveyance. Article 1358
does not require the accomplishment of the acts or contracts in a public
instrument in order to validate the act or contract but only to insure its
efficacy.31 Thus, based on the foregoing, the Court finds that the CA did not err in
ruling that the contract of sale between Pedro and Marcos is valid and binding.

WHEREFORE, the instant petition is DENIED. The assailed Decision and

Resolution of the Court of Appeals in CA-G.R. CV No. 60998 are AFFIRMED.

SO ORDERED.

G.R. No. 194366 October 10, 2012
NAPOLEON D. NERI, ALICIA D. NERI-MONDEJAR, VISMINDA D. NERI-
CHAMBERS, ROSA D. NERI-MILLAN, DOUGLAS D. NERI, EUTROPIA D.
ILLUT-COCKINOS AND VICTORIA D. ILLUT-PIALA, Petitioners,
vs.
HEIRS OF HADJI YUSOP UY AND JULPHA* IBRAHIM UY, Respondents.
DECISION
PERLAS-BERNABE, J.:
In this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court,
petitioners Napoleon D. Neri (Napoleon), Alicia D. Neri-Mondejar (Alicia),
Visminda D. Neri-Chambers (Visminda), Rosa D. Neri-Millan (Rosa), Douglas D.
Neri (Douglas), Eutropia D. Illut-Cockinos (Eutropia), and Victoria D. Illut-Piala
(Victoria) seek to reverse and set aside the April 27, 2010 Decision2 and October
18, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 01031-MIN
which annulled the October 25, 2004 Decision4 of the Regional Trial Court (RTC)
of Panabo City, Davao del Norte and instead, entered a new one dismissing
petitioners’ complaint for annulment of sale, damages and attorney’s feesagainst
herein respondents heirs of spouses Hadji Yusop Uy and Julpha Ibrahim Uy (heirs
of Uy).
The Facts
During her lifetime, Anunciacion Neri (Anunciacion) had seven children, two (2)
from her first marriage with Gonzalo Illut (Gonzalo), namely: Eutropia and Victoria,
and five (5) from her second marriage with Enrique Neri (Enrique), namely:
Napoleon, Alicia, Visminda, Douglas and Rosa. Throughout the marriage of
spouses Enrique and Anunciacion, they acquired several homestead properties
with a total area of 296,555 square meters located in Samal, Davao del Norte,
embraced by Original Certificate of Title (OCT) Nos. (P-7998) P-21285 , (P-14608)
P-51536and P-20551 (P-8348)7 issued on February 15, 1957, August 27, 1962
and July 7, 1967, respectively.
On September 21, 1977, Anunciacion died intestate. Her husband, Enrique, in his
personal capacity and as natural guardian of his minor children Rosa and
Douglas, together with Napoleon, Alicia, and Vismindaexecuted an Extra-Judicial
Settlement of the Estate with Absolute Deed of Sale8 on July 7, 1979, adjudicating
among themselves the said homestead properties, and thereafter, conveying
themto the late spouses Hadji Yusop Uy and Julpha Ibrahim Uy (spouses Uy)for
a consideration of ₱ 80,000.00.
On June 11, 1996, the children of Enrique filed a complaint for annulment of saleof
the said homestead properties against spouses Uy (later substituted by their
heirs)before the RTC, docketed as Civil Case No.96-28, assailing the validity of
the sale for having been sold within the prohibited period. Thecomplaint was later
amended to include Eutropia and Victoriaas additional plaintiffs for having been
excluded and deprived of their legitimes as childrenof Anunciacion from her first
marriage.
In their amended answer with counterclaim, the heirs of Uy countered that the
sale took place beyond the 5-year prohibitory period from the issuance of the
homestead patents. They also denied knowledge of Eutropia and Victoria’s
exclusionfrom the extrajudicial settlement and sale of the subject properties, and
interposed further the defenses of prescription and laches.
The RTC Ruling
On October 25, 2004, the RTC rendered a decision ordering, among others, the
annulment of the Extra-Judicial Settlement of the Estate with Absolute Deed of
Sale. It ruled that while the sale occurred beyond the 5-year prohibitory period,
the sale is still void because Eutropia and Victoria were deprived of their
hereditary rights and that Enrique had no judicial authority to sell the shares of his
minor children, Rosa and Douglas.
Consequently, it rejected the defenses of laches and prescription raised by
spouses Uy, who claimed possession of the subject properties for 17 years,
holding that co-ownership rights are imprescriptible.
The CA Ruling
On appeal, the CAreversed and set aside the ruling of the RTC in its April 27,
2010 Decision and dismissed the complaint of the petitioners. It held that, while
Eutropia and Victoria had no knowledge of the extrajudicial settlement and sale
of the subject properties and as such, were not bound by it, the CA found it
unconscionable to permit the annulment of the sale considering spouses Uy’s
63
possession thereof for 17 years, and thatEutropia and Victoriabelatedlyfiled their
actionin 1997, ormore than two years fromknowledge of their exclusion as heirs
in 1994 when their stepfather died. It, however, did not preclude the excluded
heirs from recovering their legitimes from their co-heirs.
Similarly, the CA declared the extrajudicial settlement and the subsequent saleas
valid and binding with respect to Enrique and hischildren, holding that as co-
owners, they have the right to dispose of their respective shares as they consider
necessary or fit.While recognizing Rosa and Douglas to be minors at that time,
they were deemed to have ratified the sale whenthey failed to question it upon
reaching the age of majority.Italso found laches to have set in because of their
inaction for a long period of time.
The Issues
In this petition, petitioners imputeto the CA the following errors:
I. WHEN IT UPHELDTHE VALIDITY OF THE "EXTRA JUDICIAL SETTLEMENT
OF THE ESTATE WITH ABSOLUTE DEED OF SALE" AS FAR AS THE SHARES
OF EUTROPIA AND VICTORIA WERE CONCERNED, THEREBY DEPRIVING
THEM OF THEIR INHERITANCE;
II. WHEN IT DID NOT NULLIFY OR ANNUL THE "EXTRA JUDICIAL
SETTLEMENT OF THE ESTATE WITH ABSOLUTE DEED OF SALE" WITH
RESPECT TO THE SHARESOF ROSA AND DOUGLAS, THEREBY
DEPRIVING THEM OF THEIR INHERITANCE; and
III. WHEN IT FOUND THAT LACHES OR PRESCRIPTION HAS SET IN.
The Ruling of the Court
The petitionis meritorious.
It bears to stress that all the petitioners herein are indisputably legitimate children
of Anunciacion from her first and second marriages with Gonzalo and Enrique,
respectively, and consequently, are entitled to inherit from her in equal shares,
pursuant to Articles 979 and 980 of the Civil Code which read:
ART. 979. Legitimate children and their descendants succeed the parents and
other ascendants, without distinction as to sex or age, and even if they should
come from different marriages.
xxx
ART. 980. The children of the deceased shall always inherit from him in their own
right, dividing the inheritance in equal shares.
As such, upon the death of Anunciacion on September 21, 1977, her children and
Enrique acquired their respective inheritances,9 entitling them to their pro indiviso
shares in her whole estate, as follows:
Enrique 9/16 (1/2 of the conjugal assets + 1/16)
Eutropia 1/16
Victoria 1/16
Napoleon 1/16
Alicia 1/16
Visminda 1/16
Rosa 1/16
Douglas 1/16
Hence, in the execution of the Extra-Judicial Settlement of the Estate with
Absolute Deed of Sale in favor of spouses Uy, all the heirs of Anunciacionshould
have participated. Considering that Eutropia and Victoria were admittedly
excluded and that then minors Rosa and Douglas were not properly represented
therein, the settlement was not valid and binding uponthem and consequently, a
total nullity.
Section 1, Rule 74 of the Rules of Court provides:
SECTION 1. Extrajudicial settlement by agreement between heirs. – x x x

The fact of the extrajudicial settlement or administration shall be published in a
newspaper of general circulation in the manner provided in the next succeeding
section; but no extrajudicial settlement shall be binding upon any person who has
not participated therein or had no notice thereof. (Underscoring added)
The effect of excluding the heirs in the settlement of estate was further elucidated
in Segura v. Segura,10 thus:
It is clear that Section 1 of Rule 74 does not apply to the partition in question which
was null and void as far as the plaintiffs were concerned. The rule covers only
valid partitions. The partition in the present case was invalid because it excluded
six of the nine heirs who were entitled to equal shares in the partitioned property.
Under the rule "no extrajudicial settlement shall be binding upon any person who
has not participated therein or had no notice thereof." As the partition was a total
nullity and did not affect the excluded heirs, it was not correct for the trial court to
hold that their right to challenge the partition had prescribed after two years from
its execution…
However, while the settlement of the estate is null and void, the subsequent sale
of the subject propertiesmade by Enrique and his children, Napoleon, Alicia and
Visminda, in favor of the respondents isvalid but only with respect to their
proportionate shares therein.It cannot be denied that these heirs have acquired
their respective shares in the properties of Anunciacion from the moment of her
death11 and that, as owners thereof, they can very well sell their undivided share
in the estate.12
With respect to Rosa and Douglas who were minors at the time of the execution
of the settlement and sale, their natural guardian and father, Enrique, represented
them in the transaction. However, on the basis of the laws prevailing at that time,
Enrique was merely clothed with powers of administration and bereft of any
authority to dispose of their 2/16 shares in the estate of their mother, Anunciacion.
Articles 320 and 326 of the Civil Code, the laws in force at the time of the
execution of the settlement and sale, provide:
ART. 320. The father, or in his absence the mother, is the legal administrator of
the property pertaining to the child under parental authority. If the property is worth
more than two thousand pesos, the father or mother shall give a bond subject to
the approval of the Court of First Instance.
ART. 326. When the property of the child is worth more than two thousand pesos,
the father or mother shall be considered a guardian of the child’s property, subject
to the duties and obligations of guardians under the Rules of Court.
Corollarily, Section 7, Rule 93 of the Rules of Court also provides:
SEC. 7. Parents as Guardians. – When the property of the child under parental
authority is worth two thousand pesos or less, the father or the mother, without
the necessity of court appointment, shall be his legal guardian. When the property
of the child is worth more than two thousand pesos, the father or the mother shall
be considered guardian of the child’s property, with the duties and obligations of
guardians under these Rules, and shall file the petition required by Section 2
hereof. For good reasons, the court may, however, appoint another suitable
persons.
Administration includes all acts for the preservation of the property and the receipt
of fruits according to the natural purpose of the thing. Any act of disposition or
alienation, or any reduction in the substance of the patrimony of child, exceeds
the limits of administration.13 Thus, a father or mother, as the natural guardian of
the minor under parental authority, does not have the power to dispose or
encumber the property of the latter. Such power is granted by law only to a judicial
guardian of the ward’s property and even then only with courts’ prior approval
secured in accordance with the proceedings set forth by the Rules of Court.14
Consequently, the disputed sale entered into by Enrique in behalf of his minor
children without the proper judicial authority, unless ratified by them upon
reaching the age of majority,15 is unenforceable in accordance with Articles 1317
and 1403(1) of the Civil Code which provide:
ART. 1317. No one may contract in the name of another without being authorized
by the latter or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other contracting party.
ART. 1403. The following contracts are unenforceable, unless they are ratified:
64
(1) Those entered into the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
xxx
Ratification means that one under no disability voluntarily adopts and gives
sanction to some unauthorized act or defective proceeding, which without his
sanction would not be binding on him. It is this voluntary choice, knowingly made,
which amounts to a ratification of what was theretofore unauthorized, and
becomes the authorized act of the party so making the ratification.16 Once ratified,
expressly or impliedly such as when the person knowingly received benefits from
it, the contract is cleansed from all its defects from the moment it was
constituted,17 as it has a retroactive effect.
Records, however, show that Rosa had ratified the extrajudicial settlement of the
estate with absolute deed of sale. In Napoleon and Rosa’s Manifestation18 before
the RTC dated July 11, 1997,they stated:
"Concerning the sale of our parcel of land executed by our father, Enrique Neri
concurred in and conformed to by us and our other two sisters and brother (the
other plaintiffs), in favor of Hadji Yusop Uy and his spouse Hadja Julpa Uy on July
7, 1979, we both confirmed that the same was voluntary and freely made by all of
us and therefore the sale was absolutely valid and enforceable as far as we all
plaintiffs in this case are concerned;" (Underscoring supplied)
In their June 30, 1997 Joint-Affidavit,19 Napoleon and Rosa also alleged:
"That we are surprised that our names are included in this case since we do not
have any intention to file a case against Hadji Yusop Uy and Julpha Ibrahim Uy
and their family and we respect and acknowledge the validity of the Extra-Judicial
Settlement of the Estate with Absolute Deed of Sale dated July 7, 1979;"
(Underscoring supplied)
Clearly, the foregoing statements constitutedratification of the settlement of the
estate and the subsequent sale, thus, purging all the defects existing at the time
of its execution and legitimizing the conveyance of Rosa’s 1/16 share in the estate
of Anunciacion to spouses Uy. The same, however, is not true with respect to
Douglas for lack of evidence showing ratification.
Considering, thus, that the extrajudicial settlement with sale is invalid and
therefore, not binding on Eutropia, Victoria and Douglas, only the shares
ofEnrique, Napoleon, Alicia, Visminda and Rosa in the homestead properties
have effectivelybeen disposed in favor of spouses Uy. "A person can only sell
what he owns, or is authorized to sell and the buyer can as a consequence acquire
no more than what the sellercan legally transfer."20 On this score, Article 493 of
the Civil Codeis relevant, which provides:
Each co-owner shall have the full ownership of his part and of the fruits and
benefits pertaining thereto, and he may therefore alienate, assign or mortgage it,
and even substitute another person in its enjoyment, except when personal rights
are involved. But the effect of the alienation or the mortgage, with respect to the
co-owners, shall be limited to the portion which may be allotted to him in the
division upon the termination of the co-ownership.
Consequently, spouses Uy or their substituted heirs became pro indiviso co-
owners of the homestead properties with Eutropia, Victoria and Douglas, who
retained title to their respective 1/16 shares. They were deemed to be holding the
3/16 shares of Eutropia, Victoria and Douglas under an implied constructive trust
for the latter’s benefit, conformably with Article 1456 of the Civil Code which
states:"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." As such, it is only fair, just and equitable
that the amount paid for their shares equivalent to ₱ 5,000.0021 each or a total of
₱ 15,000.00 be returned to spouses Uy with legal interest.
On the issue of prescription, the Court agrees with petitioners that the present
action has not prescribed in so far as it seeks to annul the extrajudicial settlement
of the estate. Contrary to the ruling of the CA, the prescriptive period of 2 years
provided in Section 1 Rule 74 of the Rules of
Court reckoned from the execution of the extrajudicial settlement finds no
application to petitioners Eutropia, Victoria and Douglas, who were deprived of
their lawful participation in the subject estate. Besides, an "action or defense for
the declaration of the inexistence of a contract does not prescribe" in accordance
with Article 1410 of the Civil Code.
However, the action to recover property held in trust prescribes after 10 years
from the time the cause of action accrues,22 which is from the time of actual notice
 65

in case of unregistered deed.23 In this case, Eutropia, Victoria and Douglas

claimed to have knowledge of the extrajudicial settlement with sale after the death
of their father, Enrique, in 1994 which spouses Uy failed to refute. Hence, the
complaint filed in 1997 was well within the prescriptive period of 10 years.

WHEREFORE, the instant petition is GRANTED. The April 27, 2010 Decision and
October 18, 2010 Resolution of the Court of Appeals are REVERSED and SET
ASIDE and a new judgment is entered:

1. Declaring the Extra-Judicial Settlement of the Estate of Anunciacion

Neri NULL and VOID;

2. Declaring the Absolute Deed of Sale in favor of the late spouses

Hadji Yusop Uy and Julpha Ibrahim Uy as regards the 13/16 total
shares of the late Enrique Neri, Napoleon Neri, Alicia D. Neri-
Mondejar, Visminda D. Neri-Chambers and Rosa D. Neri-
Millan VALID;

3. Declaring Eutropia D. Illut-Cockinos, Victoria D. Illut-Piala and

Douglas D. Neri as the LAWFUL OWNERSof the 3/16 portions of the
subject homestead properties, covered by Original Certificate of Title
Nos. (P-7998) P-2128, (P-14608) P-5153 and P-20551 (P-8348); and

4. Ordering the estate of the late Enrique Neri, as well as Napoleon

Neri, Alicia D. Neri-Mondejar, Visminda D. Neri-Chambers and Rosa
D. Neri-Millan to return to the respondents jointly and solidarily the
amount paid corresponding to the 3/16 shares of Eutropia, Victoria and
Douglas in the total amount of ₱ 15,000.00, with legal interest at 6%
per annum computed from the time of payment until finality of this
decision and 12% per annum thereafter until fully paid.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 179625 February 24, 2014
NICANORA G. BUCTON (deceased), substituted by REQUILDA B.
YRAY, Petitioner,
vs.
RURAL BANK OF EL SALVADOR, INC., MISAMIS ORIENTAL, and
REYNALDO CUYONG, Respondents,
vs.
ERLINDA CONCEPCION AND HER HUSBAND AND AGNES BUCTON
LUGOD, Third Party Defendants.
DECISION
DEL CASTILLO, J.:
A mortgage executed by an authorized agent who signed in his own name without
indicating that he acted for and on behalf of his principal binds only the agent and
not the principal.
This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails
the August 17, 2005 Decision2and the June 7, 2007 Resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 60841.
Factual Antecedents
On April 29, 1988, petitioner Nicanora G. Bucton filed with the Regional Trial Court
(RTC) of Cagayan de Oro a case4 for Annulment of Mortgage, Foreclosure, and
Special Power of Attorney (SPA) against Erlinda Concepcion (Concepcion) and
respondents Rural Bank of El Salvador, Misamis Oriental, and Sheriff Reynaldo
Cuyong.5
Petitioner alleged that she is the owner of a parcel of land, covered by Transfer
Certificate of Title (TCT) No. T-3838, located in Cagayan de Oro City;6 that on
June 6, 1982, Concepcion borrowed the title on the pretext that she was going to
show it to an interested buyer;7 that Concepcion obtained a loan in the amount of
₱30,000.00 from respondent bank;8 that as security for the loan, Concepcion
mortgaged petitioner’s house and lot to respondent bank using a SPA9 allegedly
executed by petitioner in favor of Concepcion;10 that Concepcion failed to pay the
loan;11 that petitioner’s house and lot were foreclosed by respondent sheriff
without a Notice of Extra-Judicial Foreclosure or Notice of Auction Sale;12 and that
petitioner’s house and lot were sold in an auction sale in favor of respondent
bank.13
Respondent bank filed an Answer14 interposing lack of cause of action as a
defense.15 It denied the allegation of petitioner that the SPA was forged16 and
averred that on June 22, 1987, petitioner went to the bank and promised to settle
the loan of Concepcion before September 30, 1987.17 As to the alleged
irregularities in the foreclosure proceedings, respondent bank asserted that it
complied with the requirements of the law in foreclosing the house and lot. 18 By
way of cross-claim, respondent bank prayed that in the event of an adverse
judgment against it, Concepcion, its co-defendant, be ordered to indemnify it for
all damages.19
However, since summons could not be served upon Concepcion, petitioner
moved to drop her as a defendant,20which the RTC granted in its Order dated
October 19, 1990.21
This prompted respondent bank to file a Third-Party Complaint22 against spouses
Concepcion and Agnes Bucton Lugod (Lugod), the daughter of petitioner.
Respondent bank claimed that it would not have granted the loan and accepted
the mortgage were it not for the assurance of Concepcion and Lugod that the SPA
was valid.23 Thus, respondent bank prayed that in case it be adjudged liable, it
should be reimbursed by third-party defendants.24
On January 30, 1992, spouses Concepcion were declared in default for failing to
file a responsive pleading.25
During the trial, petitioner testified that a representative of respondent bank went
to her house to inform her that the loan secured by her house and lot was long
overdue.26 Since she did not mortgage any of her properties nor did she obtain a
loan from respondent bank, she decided to go to respondent bank on June 22,
1987 to inquire about the matter.27 It was only then that she discovered that her
house and lot was mortgaged by virtue of a forged SPA. 28 She insisted that her
signature and her husband’s signature on the SPA were forged29 and that ever
since she got married, she no longer used her maiden name, Nicanora Gabar, in
signing documents.30 Petitioner also denied appearing before the notary public,
who notarized the SPA.31 She also testified that the property referred to in the
66
SPA, TCT No. 3838, is a vacant lot and that the house, which was mortgaged and
foreclosed, is covered by a different title, TCT No. 3839.32
To support her claim of forgery, petitioner presented Emma Nagac who testified
that when she was at Concepcion’s boutique, she was asked by the latter to sign
as a witness to the SPA;33 that when she signed the SPA, the signatures of
petitioner and her husband had already been affixed;34 and that Lugod instructed
her not to tell petitioner about the SPA.35
Respondent bank, on the other hand, presented the testimonies of its
employees36 and respondent sheriff. Based on their testimonies, it appears that
on June 8, 1982, Concepcion applied for a loan for her coconut production
business37 in the amount of ₱40,000.00 but only the amount of ₱30,000.00 was
approved;38 that she offered as collateral petitioner’s house and lot using the
SPA;39 and that the proceeds of the loan were released to Concepcion and Lugod
on June 11, 1982.40
Edwin Igloria, the bank appraiser, further testified that Concepcion executed a
Real Estate Mortgage41 over two properties, one registered in the name of
petitioner and the other under the name of a certain Milagros Flores.42 He said
that he inspected petitioner’s property;43 that there were several houses in the
compound;44 and although he was certain that the house offered as collateral was
located on the property covered by TCT No. 3838, he could not explain why the
house that was foreclosed is located on a lot covered by another title, not included
in the Real Estate Mortgage.45
Ruling of the Regional Trial Court
On February 23, 1998, the RTC issued a Decision46 sustaining the claim of
petitioner that the SPA was forged as the signatures appearing on the SPA are
different from the genuine signatures presented by petitioner.47 The RTC opined
that the respondent bank should have conducted a thorough inquiry on the
authenticity of the SPA considering that petitioner’s residence certificate was not
indicated in the acknowledgement of the SPA.48 Thus, the RTC decreed:
WHEREFORE, the court hereby declares null and void or annuls the following:
1. The special power of attorney which was purportedly executed by
[petitioner] x x x;
2. The real estate mortgage x x x
3. The sheriff’s sale of Lot No. 2078-B-1-E, and the certificate of title
issued in favor of the Rural Bank of El Salavador [by] virtue thereof, as
well as the sheriff’s sale of the two[-]story house described in the real
estate mortgage.
4. The certificate of title in the name of the Rural Bank of El Salvador
if any, issued [by] virtue of the sheriff’s sale.
The court hereby also orders [respondent] bank to pay [petitioner] attorney’s fees
of ₱20,000 and moral damages of ₱20,000 as well as the costs of the case.
SO ORDERED.49
On reconsideration,50 the RTC in its May 8, 1998 Resolution51 rendered judgment
on the Third-Party Complaint filed by respondent bank, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered under the third-party complaint and
against third-party defendants Erlinda Concepcion and her husband:
To indemnify or reimburse [respondent bank] all sums of money plus interests
thereon or damages that [respondent bank] has in this case been forced to pay,
disburse or deliver to [petitioner] including the costs.
SO ORDERED.52
Ruling of the Court of Appeals
Dissatisfied, respondent bank elevated the case to the CA arguing that the SPA
was not forged53 and that being a notarized document, it enjoys the presumption
of regularity.54 Petitioner, on the other hand, maintained that the signatures were
forged55 and that she cannot be made liable as both the Promissory Note56 and

the Real Estate Mortgage, which were dated June 11, 1982, were signed by
Concepcion in her own personal capacity.57
On August 17, 2005, the CA reversed the findings of the RTC. The CA found no
cogent reason to invalidate the SPA, the Real Estate Mortgage, and Foreclosure
Sale as it was not convinced that the SPA was forged. The CA declared that
although the Promissory Note and the Real Estate Mortgage did not indicate that
Concepcion was signing for and on behalf of her principal, petitioner is estopped
from denying liability since it was her negligence in handing over her title to
Concepcion that caused the loss.58 The CA emphasized that under the Principle
of Equitable Estoppel, where one or two innocent persons must suffer a loss, he
who by his conduct made the loss possible must bear it.59 Thus:
WHEREFORE, the above premises considered, the Decision and the Resolution
of the Regional Trial Court (RTC), 10th Judicial Region, Br. 19 of Cagayan de Oro
City in Civil Case No. 88-113 is hereby REVERSED and SET ASIDE. The Second
Amended Complaint of Nicanora Bucton is DISMISSED. Accordingly, the
following are declared VALID:
1. The Special Power of Attorney of Nicanora Gabar in favor of Erlinda
Concepcion, dated June 7, 1982;
2. The Real Estate Mortgage, the foreclosure of the same, and the
foreclosure sale to the Rural Bank of El Salvador, Misamis Oriental;
and
3. The certificate of title issued to the Rural Bank of El Salavador,
Misamis Oriental as a consequence of the foreclosure sale.
Costs against [petitioner].
SO ORDERED.60
Petitioner moved for reconsideration61 but the same was denied by the CA in its
June 7, 2007 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
FIRST
X X X WHETHER X X X THE [CA] WAS RIGHT IN DECLARING THE
PETITIONER LIABLE ON THE LITIGATED LOAN/MORTGAGE WHEN (i) SHE
DID NOT EXECUTE EITHER IN PERSON OR BY ATTORNEY-IN-FACT
SUBJECT MORTGAGE; (ii) IT WAS EXECUTED BY CONCEPCION IN HER
PERSONAL CAPACITY AS MORTGAGOR, AND (iii) THE LOAN SECURED BY
THE MORTGAGE WAS CONCEPCION’S EXCLUSIVE LOAN FOR HER OWN
COCONUT PRODUCTION
SECOND
X X X WHETHER X X X UNDER ARTICLE 1878 (NEW CIVIL CODE) THE [CA]
WAS RIGHT IN MAKING PETITIONER A SURETY PRIMARILY ANSWERABLE
FOR CONCEPCION’S PERSONAL LOAN, IN THE ABSENCE OF THE
REQUIRED [SPA]
THIRD
WHETHER X X X THE [CA] WAS RIGHT WHEN IT RULED THAT
PETITIONER’S DECLARATIONS ARE SELF-SERVING TO JUSTIFY ITS
REVERSAL OF THE TRIAL COURT’S JUDGMENT, IN THE FACE OF THE
RESPONDENTS’ DOCUMENTARY EVIDENCES X X X, WHICH
INCONTROVERTIBLY PROVED THAT PETITIONER HAS ABSOLUTELY NO
PARTICIPATION OR LIABILITY ON THE LITIGATED LOAN/MORTGAGE
FOURTH
WHETHER X X X THE [CA] WAS RIGHT WHEN IT FOUND THAT IT WAS
PETITIONER’S NEGLIGENCE WHICH MADE THE LOSS POSSIBLE, DESPITE
[THE FACT] THAT SHE HAS NO PART IN [THE] SUBJECT LOAN/MORTGAGE,
THE BANK’S [FAILURE] TO CONDUCT CAREFUL EXAMINATION OF
APPLICANT’S TITLE AS WELL AS PHYSICAL INVESTIGATION OF THE LAND
OFFERED AS SECURITY, AND TO INQUIRE AND DISCOVER UPON ITS OWN
67
PERIL THE AGENT’S AUTHORITY, ALSO ITS INORDINATE HASTE IN THE
PROCESSING, EVALUATION AND APPROVAL OF THE LOAN.
FIFTH
WHETHER X X X THE [CA] WAS RIGHT WHEN IT DISREGARDED THE FALSE
TESTIMONY OF THE [RESPONDENT] BANK’S EMPLOYEE, [WHEN HE
DECLARED] THAT HE CONDUCTED ACTUAL INSPECTION OF THE
MORTGAGED PROPERTY AND INVESTIGATION WHERE HE ALLEGEDLY
VERIFIED THE QUESTIONED SPA.
SIXTH
WHETHER THE [CA] WAS RIGHT WHEN IT DISREGARDED ESTABLISHED
FACTS AND CIRCUMSTANCES PROVING THAT THE [SPA] IS A FORGED
DOCUMENT AND/OR INFECTED BY INFIRMITIES DIVESTING IT OF THE
PRESUMPTION OF REGULARITY CONFERRED BY LAW ON NOTARIZED
DEEDS, AND EVEN IF VALID, THE POWER WAS NOT EXERCISED BY
CONCEPCION.63
Petitioner’s Arguments
Petitioner maintains that the signatures in the SPA were forged64 and that she
could not be held liable for the loan as it was obtained by Concepcion in her own
personal capacity, not as an attorney-in-fact of petitioner.65 She likewise denies
that she was negligent and that her negligence caused the damage. 66 Instead,
she puts the blame on respondent bank as it failed to carefully examine the title
and thoroughly inspect the property.67 Had it done so, it would have discovered
that the house and lot mortgaged by Concepcion are covered by two separate
titles.68Petitioner further claims that respondent sheriff failed to show that he
complied with the requirements of notice and publication in foreclosing her house
and lot.69
Respondent bank’s Arguments
Respondent bank, on the other hand, relies on the presumption of regularity of
the notarized SPA.70 It insists that it was not negligent as it inspected the property
before it approved the loan,71 unlike petitioner who was negligent in entrusting her
title to Concepcion.72 As to the foreclosure proceedings, respondent bank
contends that under the Rural Bank Act, all loans whose principal is below
₱100,000.00 are exempt from publication.73 Hence, the posting of the Notice of
Foreclosure in the places defined by the rules was sufficient. 74 Besides,
respondent sheriff is presumed to have regularly performed his work.75
Our Ruling
The Petition is meritorious.
The Real Estate Mortgage was entered
into by Concepcion in her own personal
capacity.
As early as the case of Philippine Sugar Estates Development Co. v. Poizat,76 we
already ruled that "in order to bind the principal by a deed executed by an agent,
the deed must upon its face purport to be made, signed and sealed in the name
of the principal."77 In other words, the mere fact that the agent was authorized to
mortgage the property is not sufficient to bind the principal, unless the deed was
executed and signed by the agent for and on behalf of his principal. This ruling
was adhered to and reiterated with consistency in the cases of Rural Bank of
Bombon (Camarines Sur), Inc. v. Court of Appeals,78 Gozun v. Mercado,79 and
Far East Bank and Trust Company (Now Bank of the Philippine Island) v.
Cayetano.80
In Philippine Sugar Estates Development Co., the wife authorized her husband to
obtain a loan and to secure it with mortgage on her property. Unfortunately,
although the real estate mortgage stated that it was executed by the husband in
his capacity as attorney-in-fact of his wife, the husband signed the contract in his
own name without indicating that he also signed it as the attorney-in-fact of his
wife.
In Rural Bank of Bombon, the agent contracted a loan from the bank and executed
a real estate mortgage. However, he did not indicate that he was acting on behalf
of his principal.
In Gozun, the agent obtained a cash advance but signed the receipt in her name
alone, without any indication that she was acting for and on behalf of her principal.
 68

In Far East Bank and Trust Company, the mother executed an SPA authorizing
her daughter to contract a loan from the bank and to mortgage her properties. The
mortgage, however, was signed by the daughter and her husband as mortgagors
in their individual capacities, without stating that the daughter was executing the
mortgage for and on behalf of her mother.
Finally, Third-Party Defendants, Erlinda Concepcion and her husbahd, are hereby
ordered to pay respondent bank the unpaid obligation under the Promissory Note
dated June 11, 1982 with interest.
SO ORDERED.

Similarly, in this case, the authorized agent failed to indicate in the mortgage that
she was acting for and on behalf of her principal. The Real Estate Mortgage,
explicitly shows on its face, that it was signed by Concepcion in her own name
and in her own personal capacity. In fact, there is nothing in the document to show
that she was acting or signing as an agent of petitioner. Thus, consistent with the
law on agency and established jurisprudence, petitioner cannot be bound by the
acts of Concepcion.

In light of the foregoing, there is no need to delve on the issues of forgery of the
SPA and the nullity of the foreclosure sale. For even if the SPA was valid, the
Real Estate Mortgage would still not bind petitioner as it was signed by
Concepcion in her personal capacity and not as an agent of petitioner. Simply put,
the Real Estate Mortgage is void and unenforceable against petitioner.

Respondent bank was negligent.

At this point, we find it significant to mention that respondent bank has no one to
blame but itself.1âwphi1 Not only did it act with undue haste when it granted and
released the loan in less than three days, it also acted negligently in preparing the
Real Estate Mortgage as it failed to indicate that Concepcion was signing it for
and on behalf of petitioner. We need not belabor that the words "as attorney-in-
fact of," "as agent of," or "for and on behalf of," are vital in order for the principal
to be bound by the acts of his agent. Without these words, any mortgage, although
signed by the agent, cannot bind the principal as it is considered to have been
signed by the agent in his personal capacity.

Respondent bank is liable to pay

petitioner attorney’s fees, and the costs
of the suit.

Considering that petitioner was compelled to litigate or to incur expenses to

protect her interest,81 the RTC was right when it ruled that respondent bank is
liable to pay petitioner attorney’s fees in the amount of ₱20,000.00. However, we
are not convinced that petitioner is entitled to an award of moral damages as it
was not satisfactorily shown that respondent bank acted in bad faith or with
malice. Neither was it proven that respondent bank’s acts were the proximate
cause of petitioner’s wounded feelings. On the contrary, we note that petitioner is
not entirely free of blame considering her negligence in entrusting her title to
Concepcion. In any case, the RTC did not fully explain why petitioner is entitled
to such award.

Concepcion is liable to pay respondent

bank her unpaid obligation and
reimburse it for all damages, attorney’s
fees and costs of suit.

Concepcion, on the other hand, is liable to pay respondent bank her unpaid
obligation under the Promissory Note dated June 11, 1982, with interest. As we
have said, Concepcion signed the Promissory Note in her own personal capacity;
thus, she cannot escape liability. She is also liable to reimburse respondent bank
for all damages, attorneys' fees, and costs the latter is adjudged to pay petitioner
in this case.

WHEREFORE, the Petition is hereby GRANTED. The assailed August 17, 2005
Decision and the June 7, 2007 Resolution of the Court of Appeals in CA-G.R. CV
No. 60841 are hereby REVERSED and SET ASIDE.

The February 23, 1998 Decision of the Regional Trial Court of Cagayan de Oro,
Branch 19, in Civil Case No. 88-113 is hereby REINSTATED, insofar as it (a)
annuls the Real Estate Mortgage dated June 11, 1982, the Sheriffs Sale of
petitioner Nicanora Bucton's house and lot and the Transfer Certificate of Title
issued in the name of respondent Rural Bank of El Salvador, Misamis Oriental;
and (b) orders respondent bank to pay petitioner attorney's fees in the amount of
₱20,000.00 and costs of suit with MODIFICATION that the award of moral
damages in the amount of ₱20,000.00 is deleted for lack of basis.

Likewise, the May 8, 1998 Resolution of the Regional Trial Court of Cagayan de
Oro, Branch 19, in Civil Case No. 88-113 ordering the Third-Party Defendants,
Erlinda Concepcion and her husband, to indemnify or reimburse respondent bank
damages, attorneys' fees, and costs the latter is adjudged to pay petitioner, is
hereby REINSTATED.

G.R. No. 194964-65
UNIVERSITY OF MINDANAO, INC., Petitioner,
vs.
BANGKO SENTRAL NG PILIPINAS, ET AL., Respondents.
DECISION
LEONEN, J.:
Acts of an officer that are not authorized by the board of directors/trustees do not
bind the corporation unless the corporation ratifies the acts or holds the officer out
as a person with authority to transact on its behalf.
This is a Petition for Review on Certiorari1 of the Court of Appeals' December 17,
2009 Decision2 and December 20, 2010 Resolution.3 The Court of Appeals
reversed the Cagayan De Oro City trial court’s and the Iligan City trial court’s
Decisions to nullify mortgage contracts involving University of Mindanao’s
properties.4
University of Mindanao is an educational institution. For the year 1982, its Board
of Trustees was chaired by Guillermo B. Torres. His wife, Dolores P. Torres, sat
as University of Mindanao’s Assistant Treasurer.5
Before 1982, Guillermo B. Torres and Dolores P. Torres incorporated and
operated two (2) thrift banks: (1) First Iligan Savings & Loan Association, Inc.
(FISLAI); and (2) Davao Savings and Loan Association, Inc. (DSLAI). Guillermo
B. Torres chaired both thrift banks. He acted as FISLAI’s President, while his wife,
Dolores P. Torres, acted as DSLAI’s President and FISLAI’s Treasurer.6
Upon Guillermo B. Torres’ request, Bangko Sentral ng Pilipinas issued a P1.9
million standby emergency credit to FISLAI. The release of standby emergency
credit was evidenced by three (3) promissory notes dated February 8, 1982, April
7, 1982, and May 4, 1982 in the amounts of P500,000.00, P600,000.00, and
P800,000.00, respectively. All these promissory notes were signed by Guillermo
B. Torres, and were co-signed by either his wife, Dolores P. Torres, or FISLAI’s
Special Assistant to the President, Edmundo G. Ramos, Jr.7
On May 25, 1982, University of Mindanao’s Vice President for Finance, Saturnino
Petalcorin, executed a deed of real estate mortgage over University of Mindanao’s
property in Cagayan de Oro City (covered by Transfer Certificate of Title No. T-
14345) in favor of Bangko Sentral ng Pilipinas.8 "The mortgage served as security
for FISLAI’s P1.9 Million loan[.]"9 It was allegedly executed on University of
Mindanao’s behalf.10
As proof of his authority to execute a real estate mortgage for University of
Mindanao, Saturnino Petalcorin showed a Secretary’s Certificate signed on April
13, 1982 by University of Mindanao’s Corporate Secretary, Aurora de Leon.11 The
Secretary’s Certificate stated:
That at the regular meeting of the Board of Trustees of the aforesaid corporation
[University of Mindanao] duly convened on March 30, 1982, at which a quorum
was present, the following resolution was unanimously adopted:
"Resolved that the University of Mindanao, Inc. be and is
hereby authorized, to mortgage real estate properties with
the Central Bank of the Philippines to serve as security for
the credit facility of First Iligan Savings and Loan
Association, hereby authorizing the President and/or Vice-
president for Finance, Saturnino R. Petalcorin of the
University of Mindanao, Inc. to sign, execute and deliver the
covering mortgage document or any other documents
which may be proper[l]y required."12
The Secretary’s Certificate was supported by an excerpt from the minutes of the
January 19, 1982 alleged meeting of University of Mindanao’s Board of Trustees.
The excerpt was certified by Aurora de Leon on March 13, 1982 to be a true copy
of University of Mindanao’s records on file.13 The excerpt reads:
3 – Other Matters:
(a) Cagayan de Oro and Iligan properties: Resolution No. 82-1-8
Authorizing the Chairman to appoint Saturnino R. Petalcorin, Vice-President for
Finance, to represent the University of Mindanao to transact, transfer, convey,
lease, mortgage, or otherwise hypothecate any or all of the following properties
69
situated at Cagayan de Oro and Iligan City and authorizing further Mr. Petalcorin
to sign any or all documents relative thereto:
1. A parcel of land situated at Cagayan de Oro City, covered
and technically described in TRANSFER CERTIFICATE
OF TITLE No. T-14345 of the Registry of Deeds of Cagayan
de Oro City;
2. A parcel of land situated at Iligan City, covered and
technically described in TRANSFER CERTIFICATE OF
TITLE NO. T-15696 (a.t.) of the Registry of Deeds of Iligan
City; and
3. A parcel of land situated at Iligan City, covered and
technically described in TRANSFER CERTIFICATE OF
TITLE NO. T-15697 (a.f.) of the Registry of Deeds of Iligan
City.14
The mortgage deed executed by Saturnino Petalcorin in favor of Bangko Sentral
ng Pilipinas was annotated on the certificate of title of the Cagayan de Oro City
property (Transfer Certificate of Title No. 14345) on June 25, 1982. Aurora de
Leon’s certification was also annotated on the Cagayan de Oro City property’s
certificate of title (Transfer Certificate of Title No. 14345). 15
On October 21, 1982, Bangko Sentral ng Pilipinas granted FISLAI an additional
loan of P620,700.00. Guillermo B. Torres and Edmundo Ramos executed a
promissory note on October 21, 1982 to cover that amount.16
On November 5, 1982, Saturnino Petalcorin executed another deed of real estate
mortgage, allegedly on behalf of University of Mindanao, over its two properties
in Iligan City.1âwphi1 This mortgage served as additional security for FISLAI’s
loans. The two Iligan City properties were covered by Transfer Certificates of Title
Nos. T-15696 and T-15697.17
On January 17, 1983, Bangko Sentral ng Pilipinas’ mortgage lien over the Iligan
City properties and Aurora de Leon’s certification were annotated on Transfer
Certificates of Title Nos. T-15696 and T-15697.18 On January 18, 1983, Bangko
Sentral ng Pilipinas’ mortgage lien over the Iligan City properties was also
annotated on the tax declarations covering the Iligan City properties.19
Bangko Sentral ng Pilipinas also granted emergency advances to DSLAI on May
27, 1983 and on August 20, 1984 in the amounts of P1,633,900.00 and
P6,489,000.00, respectively.20
On January 11, 1985, FISLAI, DSLAI, and Land Bank of the Philippines entered
into a Memorandum of Agreement intended to rehabilitate the thrift banks, which
had been suffering from their depositors’ heavy withdrawals. Among the terms of
the agreement was the merger of FISLAI and DSLAI, with DSLAI as the surviving
corporation. DSLAI later became known as Mindanao Savings and Loan
Association, Inc. (MSLAI).21
Guillermo B. Torres died on March 2, 1989.22
MSLAI failed to recover from its losses and was liquidated on May 24, 1991.23
On June 18, 1999, Bangko Sentral ng Pilipinas sent a letter to University of
Mindanao, informing it that the bank would foreclose its properties if MSLAI’s total
outstanding obligation of P12,534,907.73 remained unpaid.24
In its reply to Bangko Sentral ng Pilipinas’ June 18, 1999 letter, University of
Mindanao, through its Vice President for Accounting, Gloria E. Detoya, denied
that University of Mindanao’s properties were mortgaged. It also denied having
received any loan proceeds from Bangko Sentral ng Pilipinas.25
On July 16, 1999, University of Mindanao filed two Complaints for nullification and
cancellation of mortgage. One Complaint was filed before the Regional Trial Court
of Cagayan de Oro City, and the other Complaint was filed before the Regional
Trial Court of Iligan City.26
University of Mindanao alleged in its Complaints that it did not obtain any loan
from Bangko Sentral ng Pilipinas. It also did not receive any loan proceeds from
the bank.27
University of Mindanao also alleged that Aurora de Leon’s certification was
anomalous. It never authorized Saturnino Petalcorin to execute real estate
mortgage contracts involving its properties to secure FISLAI’s debts. It never

ratified the execution of the mortgage contracts. Moreover, as an educational
institution, it cannot mortgage its properties to secure another person’s debts.28
On November 23, 2001, the Regional Trial Court of Cagayan de Oro City
rendered a Decision in favor of University of Mindanao,29 thus:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
plaintiff and against defendants:
1. DECLARING the real estate mortgage Saturnino R.
Petalcorin executed in favor of BANGKO SENTRAL NG
PILIPINAS involving Lot 421-A located in Cagayan de Oro
City with an area of 482 square meters covered by TCT No.
T-14345 as annuled [sic];
2. ORDERING the Register of Deeds of Cagayan de Oro
City to cancel Entry No. 9951 and Entry No. 9952 annotated
at the back of said TCT No. T-14345, Registry of Deeds of
Cagayan de Oro City;
Prayer for attorney’s fee [sic] is hereby denied there being no proof that in
demanding payment of the emergency loan, defendant BANGKO SENTRAL NG
PILIPINAS was motivated by evident bad faith,
SO ORDERED.30 (Citation omitted)
The Regional Trial Court of Cagayan de Oro City found that there was no board
resolution giving Saturnino Petalcorin authority to execute mortgage contracts on
behalf of University of Mindanao. The Cagayan de Oro City trial court gave weight
to Aurora de Leon’s testimony that University of Mindanao’s Board of Trustees
did not issue a board resolution that would support the Secretary’s Certificate she
issued. She testified that she signed the Secretary’s Certificate only upon
Guillermo B. Torres’ orders.31
Saturnino Petalcorin testified that he had no authority to execute a mortgage
contract on University of Mindanao’s behalf. He merely executed the contract
because of Guillermo B. Torres’ request.32
Bangko Sentral ng Pilipinas’ witness Daciano Pagui, Jr. also admitted that there
was no board resolution giving Saturnino Petalcorin authority to execute
mortgage contracts on behalf of University of Mindanao.33
The Regional Trial Court of Cagayan de Oro City ruled that Saturnino Petalcorin
was not authorized to execute mortgage contracts for University of Mindanao.
Hence, the mortgage of University of Mindanao’s Cagayan de Oro City property
was unenforceable. Saturnino Petalcorin’s unauthorized acts should be
annulled.34
Similarly, the Regional Trial Court of Iligan City rendered a Decision on December
7, 2001 in favor of University of Mindanao.35 The dispositive portion of the
Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendants, as follows:
1. Nullifying and canceling [sic] the subject Deed of Real Estate
Mortgage dated November 5, 1982 for being unenforceable or void
contract;
2. Ordering the Office of the Register of Deeds of Iligan City to cancel
the entries on TCT No. T-15696 and TCT No. T-15697 with respect to
the aforesaid Deed of Real Estate Mortgage dated November 5, 1982
and all other entries related thereto;
3. Ordering the defendant Bangko Sentral ng Pilipinas to return the
owner’s duplicate copies of TCT No. T-15696 and TCT No. 15697 to
the plaintiff;
4. Nullifying the subject [f]oreclosure [p]roceedings and the [a]uction
[s]ale conducted by defendant Atty. Gerardo Paguio, Jr. on October 8,
1999 including all the acts subsequent thereto and ordering the
Register of Deeds of Iligan City not to register any Certificate of Sale
pursuant to the said auction sale nor make any transfer of the
corresponding titles, and if already registered and transferred, to
cancel all the said entries in TCT No. T-15696 and TCT No. T-15697
70
and/or cancel the corresponding new TCTs in the name of defendant
Bangko Sentral ng Pilipinas;
5. Making the Preliminary Injunction per Order of this Court dated
October 13, 2000 permanent.
No pronouncement as to costs.36 (Citation omitted)
The Iligan City trial court found that the Secretary’s Certificate issued by Aurora
de Leon was fictitious37 and irregular for being unnumbered.38 It also did not
specify the identity, description, or location of the mortgaged properties. 39
The Iligan City trial court gave credence to Aurora de Leon’s testimony that the
University of Mindanao’s Board of Trustees did not take up the documents in its
meetings. Saturnino Petalcorin corroborated her testimony.40
The Iligan City trial court ruled that the lack of a board resolution authorizing
Saturnino Petalcorin to execute documents of mortgage on behalf of University of
Mindanao made the real estate mortgage contract unenforceable under Article
140341 of the Civil Code.42 The mortgage contract and the subsequent acts of
foreclosure and auction sale were void because the mortgage contract was
executed without University of Mindanao’s authority.43
The Iligan City trial court also ruled that the annotations on the titles of University
of Mindanao’s properties do not operate as notice to the University because
annotations only bind third parties and not owners.44 Further, Bangko Sentral ng
Pilipinas’ right to foreclose the University of Mindanao’s properties had already
prescribed.45
Bangko Sentral ng Pilipinas separately appealed the Decisions of both the
Cagayan de Oro City and the Iligan City trial courts.46
After consolidating both cases, the Court of Appeals issued a Decision on
December 17, 2009 in favor of Bangko Sentral ng Pilipinas, thus:
FOR THE REASONS STATED, the Decision dated 23 November 2001 of the
Regional Trial Court of Cagayan de Oro City, Branch 24 in Civil Case No. 99-414
and the Decision dated 7 December 2001 of the Regional Trial Court of Iligan
City, Branch 1 in Civil Case No. 4790 are REVERSED and SET ASIDE. The
Complaints in both cases before the trial courts are DISMISSED. The Writ of
Preliminary Injunction issued by the Regional Trial Court of Iligan City, Branch 1
in Civil Case No. 4790 is LIFTED and SET ASIDE.
SO ORDERED.47
The Court of Appeals ruled that "[a]lthough BSP failed to prove that the UM Board
of Trustees actually passed a Board Resolution authorizing Petalcorin to
mortgage the subject real properties,"48 Aurora de Leon’s Secretary’s Certificate
"clothed Petalcorin with apparent and ostensible authority to execute the
mortgage deed on its behalf[.]"49Bangko Sentral ng Pilipinas merely relied in good
faith on the Secretary’s Certificate.50 University of Mindanao is estopped from
denying Saturnino Petalcorin’s authority.51
Moreover, the Secretary’s Certificate was notarized. This meant that it enjoyed
the presumption of regularity as to the truth of its statements and authenticity of
the signatures.52 Thus, "BSP cannot be faulted for relying on the [Secretary’s
Certificate.]"53
The Court of Appeals also ruled that since University of Mindanao’s officers,
Guillermo B. Torres and his wife, Dolores P. Torres, signed the promissory notes,
University of Mindanao was presumed to have knowledge of the
transaction.54 Knowledge of an officer in relation to matters within the scope of his
or her authority is notice to the corporation.55
The annotations on University of Mindanao’s certificates of title also operate as
constructive notice to it that its properties were mortgaged.56 Its failure to disown
the mortgages for more than a decade was implied ratification. 57
The Court of Appeals also ruled that Bangko Sentral ng Pilipinas’ action for
foreclosure had not yet prescribed because the due date extensions that Bangko
Sentral ng Pilipinas granted to FISLAI extended the due date of payment to five
(5) years from February 8, 1985.58 The bank’s demand letter to Dolores P. Torres
on June 18, 1999 also interrupted the prescriptive period.59
University of Mindanao and Bangko Sentral ng Pilipinas filed a Motion for
Reconsideration60 and Motion for Partial Reconsideration respectively of the

Court of Appeals’ Decision. On December 20, 2010, the Court of Appeals issued
a Resolution, thus:
Acting on the foregoing incidents, the Court RESOLVES to:
1. GRANT the appellant’s twin motions for extension of
time to file comment/opposition and NOTE the Comment
on the appellee’s Motion for Reconsideration it
subsequently filed on June 23, 2010;
2. GRANT the appellee’s three (3) motions for extension of
time to file comment/opposition and NOTE the Comment
on the appellant’s Motion for Partial Reconsideration it filed
on July 26, 2010;
3. NOTE the appellant’s "Motion for Leave to File Attached
Reply Dated August 11, 2010" filed on August 13, 2010
and DENY the attached "Reply to Comment Dated July 26,
2010";
4. DENY the appellee’s Motion for Reconsideration as it
does not offer any arguments sufficiently meritorious to
warrant modification or reversal of the Court’s 17 December
2009 Decision. The Court finds that there is no compelling
reason to reconsider its ruling; and
5. GRANT the appellant’s Motion for Partial
Reconsideration, as the Court finds it meritorious,
considering that it ruled in its Decision that "BSP can still
foreclose on the UM’s real property in Cagayan de Oro City
covered by TCT No. T-14345." It then follows that the
injunctive writ issued by the RTC of Cagayan de Oro City,
Branch 24 must be lifted. The Court’s 17 December 2009
Decision is accordingly MODIFIED and AMENDED to read
as follows:
"FOR THE REASONS STATED, the Decision
dated 23 November 2001 of the Regional Trial
Court of Cagayan de Oro City, Branch 24 in Civil
Case No. 99-414 and the Decision dated 7
December 2001 of the Regional Trial Court of
Iligan City, Branch 1 in Civil Case No. 4790
are REVERSED and SET ASIDE. The
Complaints in both cases before the trial courts
are DISMISSED. The Writs of Preliminary
Injunction issued by the Regional Trial Court of
Iligan City, Branch 1 in Civil Case No. 4790 and
in the Regional Trial Court of Cagayan de Oro
City, Branch 24 in Civil Case No. 99-414
are LIFTED and SET ASIDE."
SO ORDERED.61 (Citation omitted)
Hence, University of Mindanao filed this Petition for Review.
The issues for resolution are:
First, whether respondent Bangko Sentral ng Pilipinas’ action to foreclose the
mortgaged properties had already prescribed; and
Second, whether petitioner University of Mindanao is bound by the real estate
mortgage contracts executed by Saturnino Petalcorin.
We grant the Petition.
I 1982.
Petitioner argues that respondent’s action to foreclose its mortgaged properties
had already prescribed.
Petitioner is mistaken.
Prescription is the mode of acquiring or losing rights through the lapse of
time.62 Its purpose is "to protect the diligent and vigilant, not those who sleep on
their rights."63
71
The prescriptive period for actions on mortgages is ten (10) years from the day
they may be brought.64 Actions on mortgages may be brought not upon the
execution of the mortgage contract but upon default in payment of the obligation
secured by the mortgage.65
A debtor is considered in default when he or she fails to pay the obligation on due
date and, subject to exceptions, after demands for payment were made by the
creditor. Article 1169 of the Civil Code provides:
ART. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform.
Article 1193 of the Civil Code provides that an obligation is demandable only upon
due date. It provides:
ART. 1193. Obligations for whose fulfillment a day certain has been fixed, shall
be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival
of the day certain.
A day certain is understood to be that which must necessarily come, although it
may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is
conditional, and it shall be regulated by the rules of the preceding Section.
In other words, as a general rule, a person defaults and prescriptive period for
action runs when (1) the obligation becomes due and demandable; and (2)
demand for payment has been made.
The prescriptive period neither runs from the date of the execution of a contract
nor does the prescriptive period necessarily run on the date when the loan
becomes due and demandable.66 Prescriptive period runs from the date of
demand,67 subject to certain exceptions.
In other words, ten (10) years may lapse from the date of the execution of contract,
without barring a cause of action on the mortgage when there is a gap between
the period of execution of the contract and the due date or between the due date
and the demand date in cases when demand is necessary.68
The mortgage contracts in this case were executed by Saturnino Petalcorin in
1982. The maturity dates of FISLAI’s loans were repeatedly extended until the
loans became due and demandable only in 1990.69 Respondent informed
petitioner of its decision to foreclose its properties and demanded payment in
1999.
The running of the prescriptive period of respondent’s action on the mortgages
did not start when it executed the mortgage contracts with Saturnino Petalcorin in
The prescriptive period for filing an action may run either (1) from 1990 when the
loan became due, if the obligation was covered by the exceptions under Article
1169 of the Civil Code; (2) or from 1999 when respondent demanded payment, if
the obligation was not covered by the exceptions under Article 1169 of the Civil
Code.
In either case, respondent’s Complaint with cause of action based on the
mortgage contract was filed well within the prescriptive period.

Given the termination of all traces of FISLAI’s existence,70 demand may have
been rendered unnecessary under Article 1169(3)71 of the Civil Code. Granting
that this is the case, respondent would have had ten (10) years from due date in
1990 or until 2000 to institute an action on the mortgage contract.
However, under Article 115572 of the Civil Code, prescription of actions may be
interrupted by (1) the filing of a court action; (2) a written extrajudicial demand;
and (3) the written acknowledgment of the debt by the debtor.
Therefore, the running of the prescriptive period was interrupted when respondent
sent its demand letter to petitioner on June 18, 1999. This eventually led to
petitioner’s filing of its annulment of mortgage complaints before the Regional
Trial Courts of Iligan City and Cagayan De Oro City on July 16, 1999.
Assuming that demand was necessary, respondent’s action was within the ten
(10)-year prescriptive period. Respondent demanded payment of the loans in
1999 and filed an action in the same year.
II
Petitioner argues that the execution of the mortgage contract was ultra vires. As
an educational institution, it may not secure the loans of third persons.73 Securing
loans of third persons is not among the purposes for which petitioner was
established.74
Petitioner is correct.
Corporations are artificial entities granted legal personalities upon their creation
by their incorporators in accordance with law. Unlike natural persons, they have
no inherent powers. Third persons dealing with corporations cannot assume that
corporations have powers. It is up to those persons dealing with corporations to
determine their competence as expressly defined by the law and their articles of
incorporation.75
A corporation may exercise its powers only within those definitions. Corporate
acts that are outside those express definitions under the law or articles of
incorporation or those "committed outside the object for which a corporation is
created"76 are ultra vires.
The only exception to this rule is when acts are necessary and incidental to carry
out a corporation’s purposes, and to the exercise of powers conferred by the
Corporation Code and under a corporation’s articles of incorporation.77This
exception is specifically included in the general powers of a corporation under
Section 36 of the Corporation Code:
SEC. 36. Corporate powers and capacity.—Every corporation incorporated under
this Code has the power and capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in
the articles of incorporation and the certificate of incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the
provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and
to amend or repeal the same in accordance with this Code;
6. In case of stock corporations, to issue or sell stocks to subscribers
and to sell treasury stocks in accordance with the provisions of this
Code; and to admit members to the corporation if it be a non-stock
corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease,
pledge, mortgage and otherwise deal with such real and personal
property, including securities and bonds of other corporations, as the
transaction of the lawful business of the corporation may reasonably
and necessarily require, subject to the limitations prescribed by law
and the Constitution;
8. To enter into merger or consolidation with other corporations as
provided in this Code;
72
9. To make reasonable donations, including those for the public
welfare or for hospital, charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation, domestic or foreign, shall
give donations in aid of any political party or candidate or for purposes
of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of
its directors, trustees, officers and employees; and
11. To exercise such other powers as may be essential or necessary
to carry out its purpose or purposes as stated in its articles of
incorporation. (Emphasis supplied)
Montelibano, et al. v. Bacolod-Murcia Milling Co., Inc.78 stated the test to
determine if a corporate act is in accordance with its purposes:
It is a question, therefore, in each case, of the logical relation of the act to the
corporate purpose expressed in the charter. If that act is one which is lawful in
itself, and not otherwise prohibited, is done for the purpose of serving corporate
ends, and is reasonably tributary to the promotion of those ends, in a substantial,
and not in a remote and fanciful, sense, it may fairly be considered within charter
powers. The test to be applied is whether the act in question is in direct and
immediate furtherance of the corporation’s business, fairly incident to the express
powers and reasonably necessary to their exercise. If so, the corporation has the
power to do it; otherwise, not.79 (Emphasis supplied)
As an educational institution, petitioner serves:
a. To establish, conduct and operate a college or colleges, and/or
university;
b. To acquire properties, real and/or personal, in connection with the
establishment and operation of such college or colleges;
c. To do and perform the various and sundry acts and things permitted
by the laws of the Philippines unto corporations like classes and kinds;
d. To engage in agricultural, industrial, and/or commercial pursuits in
line with educational program of the corporation and to acquire all
properties, real and personal[,] necessary for the purposes[;]
e. To establish, operate, and/or acquire broadcasting and television
stations also in line with the educational program of the corporation
and for such other purposes as the Board of Trustees may determine
from time to time;
f. To undertake housing projects of faculty members and employees,
and to acquire real estates for this purpose;
g. To establish, conduct and operate and/or invest in educational
foundations; [As amended on December 15, 1965][;]
h. To establish, conduct and operate housing and dental schools,
medical facilities and other related undertakings;
i. To invest in other corporations. [As amended on December 9, 1998].
[Amended Articles of Incorporation of the University of Mindanao, Inc.
– the Petitioner].80
Petitioner does not have the power to mortgage its properties in order to secure
loans of other persons. As an educational institution, it is limited to developing
human capital through formal instruction. It is not a corporation engaged in the
business of securing loans of others.
Hiring professors, instructors, and personnel; acquiring equipment and real
estate; establishing housing facilities for personnel and students; hiring a
concessionaire; and other activities that can be directly connected to the
operations and conduct of the education business may constitute the necessary
and incidental acts of an educational institution.
Securing FISLAI’s loans by mortgaging petitioner’s properties does not appear to
have even the remotest connection to the operations of petitioner as an
educational institution. Securing loans is not an adjunct of the educational
institution’s conduct of business.81 It does not appear that securing third-party
loans was necessary to maintain petitioner’s business of providing instruction to
individuals.

This court upheld the validity of corporate acts when those acts were shown to be
clearly within the corporation’s powers or were connected to the corporation’s
purposes.
In Pirovano, et al. v. De la Rama Steamship Co.,82 this court declared valid the
donation given to the children of a deceased person who contributed to the growth
of the corporation.83 This court found that this donation was within the broad
scope of powers and purposes of the corporation to "aid in any other manner any
person . . . in which any interest is held by this corporation or in the affairs or
prosperity of which this corporation has a lawful interest."84
In Twin Towers Condominium Corporation v. Court of Appeals, et al.,85 this court
declared valid a rule by Twin Towers Condominium denying delinquent members
the right to use condominium facilities.86 This court ruled that the condominium’s
power to promulgate rules on the use of facilities and to enforce provisions of the
Master Deed was clear in the Condominium Act, Master Deed, and By-laws of the
condominium.87 Moreover, the promulgation of such rule was "reasonably
necessary" to attain the purposes of the condominium project.88
This court has, in effect, created a presumption that corporate acts are valid if, on
their face, the acts were within the corporation’s powers or purposes. This
presumption was explained as early as in 1915 in Coleman v. Hotel De
France89 where this court ruled that contracts entered into by corporations in the
exercise of their incidental powers are not ultra vires.90
Coleman involved a hotel’s cancellation of an employment contract it executed
with a gymnast. One of the hotel’s contentions was the supposed ultra vires
nature of the contract. It was executed outside its express and implied powers
under the articles of incorporation.91
In ruling in favor of the contract’s validity, this court considered the incidental
powers of the hotel to include the execution of employment contracts with
entertainers for the purpose of providing its guests entertainment and increasing
patronage.92
This court ruled that a contract executed by a corporation shall be presumed valid
if on its face its execution was not beyond the powers of the corporation to
do.93 Thus:
When a contract is not on its face necessarily beyond the scope of the power of
the corporation by which it was made, it will, in the absence of proof to the
contrary, be presumed to be valid. Corporations are presumed to contract within
their powers. The doctrine of ultra vires, when invoked for or against a corporation,
should not be allowed to prevail where it would defeat the ends of justice or work
a legal wrong.94
However, this should not be interpreted to mean that such presumption applies to
all cases, even when the act in question is on its face beyond the corporation’s
power to do or when the evidence contradicts the presumption.
Presumptions are "inference[s] as to the existence of a fact not actually known,
arising from its usual connection with another which is known, or a conjecture
based on past experience as to what course human affairs ordinarily
take."95 Presumptions embody values and revealed behavioral expectations
under a given set of circumstances.
Presumptions may be conclusive96 or disputable.97
Conclusive presumptions are presumptions that may not be overturned by
evidence, however strong the evidence is.98 They are made conclusive not
because there is an established uniformity in behavior whenever identified
circumstances arise. They are conclusive because they are declared as such
under the law or the rules. Rule 131, Section 2 of the Rules of Court identifies two
(2) conclusive presumptions:
SEC. 2. Conclusive presumptions.— The following are instances of conclusive
presumptions:
(a) Whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing
true, and to act upon such belief, he cannot, in any litigation arising out
of such declaration, act or omission, be permitted to falsify it;
(b) The tenant is not permitted to deny the title of his landlord at the
time of the commencement of the relation of landlord and tenant
between them.
73
On the other hand, disputable presumptions are presumptions that may be
overcome by contrary evidence.99 They are disputable in recognition of the
variability of human behavior. Presumptions are not always true. They may be
wrong under certain circumstances, and courts are expected to apply them,
keeping in mind the nuances of every experience that may render the
expectations wrong.
Thus, the application of disputable presumptions on a given circumstance must
be based on the existence of certain facts on which they are meant to operate.
"[P]resumptions are not allegations, nor do they supply their
absence[.]"100Presumptions are conclusions. They do not apply when there are
no facts or allegations to support them.
If the facts exist to set in motion the operation of a disputable presumption, courts
may accept the presumption. However, contrary evidence may be presented to
rebut the presumption.
Courts cannot disregard contrary evidence offered to rebut disputable
presumptions. Disputable presumptions apply only in the absence of contrary
evidence or explanations. This court explained in Philippine Agila Satellite Inc. v.
Usec. Trinidad-Lichauco:101
We do not doubt the existence of the presumptions of "good faith" or "regular
performance of official duty," yet these presumptions are disputable and may be
contradicted and overcome by other evidence. Many civil actions are oriented
towards overcoming any number of these presumptions, and a cause of action
can certainly be geared towards such effect. The very purpose of trial is to allow
a party to present evidence to overcome the disputable presumptions involved.
Otherwise, if trial is deemed irrelevant or unnecessary, owing to the perceived
indisputability of the presumptions, the judicial exercise would be relegated to a
mere ascertainment of what presumptions apply in a given case, nothing more.
Consequently, the entire Rules of Court is rendered as excess verbiage, save
perhaps for the provisions laying down the legal presumptions.
If this reasoning of the Court of Appeals were ever adopted as a jurisprudential
rule, no public officer could ever be sued for acts executed beyond their official
functions or authority, or for tortious conduct or behavior, since such acts would
"enjoy the presumption of good faith and in the regular performance of official
duty." Indeed, few civil actions of any nature would ever reach the trial stage, if a
case can be adjudicated by a mere determination from the complaint or answer
as to which legal presumptions are applicable. For example, the presumption that
a person is innocent of a wrong is a disputable presumption on the same level as
that of the regular performance of official duty. A civil complaint for damages
necessarily alleges that the defendant committed a wrongful act or omission that
would serve as basis for the award of damages. With the rationale of the Court of
Appeals, such complaint can be dismissed upon a motion to dismiss solely on the
ground that the presumption is that a person is innocent of a wrong.102 (Emphasis
supplied, citations omitted)
In this case, the presumption that the execution of mortgage contracts was within
petitioner’s corporate powers does not apply. Securing third-party loans is not
connected to petitioner’s purposes as an educational institution.
III
Respondent argues that petitioner’s act of mortgaging its properties to guarantee
FISLAI’s loans was consistent with petitioner’s business interests, since petitioner
was presumably a FISLAI shareholder whose officers and shareholders interlock
with FISLAI. Respondent points out that petitioner and its key officers held
substantial shares in MSLAI when DSLAI and FISLAI merged. Therefore, it was
safe to assume that when the mortgages were executed in 1982, petitioner held
substantial shares in FISLAI.103
Parties dealing with corporations cannot simply assume that their transaction is
within the corporate powers. The acts of a corporation are still limited by its powers
and purposes as provided in the law and its articles of incorporation.
Acquiring shares in another corporation is not a means to create new powers for
the acquiring corporation. Being a shareholder of another corporation does not
automatically change the nature and purpose of a corporation’s business.
Appropriate amendments must be made either to the law or the articles of
incorporation before a corporation can validly exercise powers outside those
provided in law or the articles of incorporation. In other words, without an
amendment, what is ultra vires before a corporation acquires shares in other
corporations is still ultra vires after such acquisition.
Thus, regardless of the number of shares that petitioner had with FISLAI, DSLAI,
or MSLAI, securing loans of third persons is still beyond petitioner’s power to do.

It is still inconsistent with its purposes under the law104 and its articles of
incorporation.105
In attempting to show petitioner’s interest in securing FISLAI’s loans by adverting
to their interlocking directors and shareholders, respondent disregards petitioner’s
separate personality from its officers, shareholders, and other juridical persons.
The separate personality of corporations means that they are "vest[ed] [with]
rights, powers, and attributes [of their own] as if they were natural
persons[.]"106 Their assets and liabilities are their own and not their officers’,
shareholders’, or another corporation’s. In the same vein, the assets and liabilities
of their officers and shareholders are not the corporations’. Obligations incurred
by corporations are not obligations of their officers and shareholders. Obligations
of officers and shareholders are not obligations of corporations.107 In other words,
corporate interests are separate from the personal interests of the natural persons
that comprise corporations.
Corporations are given separate personalities to allow natural persons to balance
the risks of business as they accumulate capital. They are, however, given limited
competence as a means to protect the public from fraudulent acts that may be
committed using the separate juridical personality given to corporations.
Petitioner’s key officers, as shareholders of FISLAI, may have an interest in
ensuring the viability of FISLAI by obtaining a loan from respondent and securing
it by whatever means. However, having interlocking officers and stockholders with
FISLAI does not mean that petitioner, as an educational institution, is or must
necessarily be interested in the affairs of FISLAI.
Since petitioner is an entity distinct and separate not only from its own officers
and shareholders but also from FISLAI, its interests as an educational institution
may not be consistent with FISLAI’s.
Petitioner and FISLAI have different constituencies. Petitioner’s constituents
comprise persons who have committed to developing skills and acquiring
knowledge in their chosen fields by availing the formal instruction provided by
petitioner. On the other hand, FISLAI is a thrift bank, which constituencies
comprise investors.
While petitioner and FISLAI exist ultimately to benefit their stockholders, their
constituencies affect the means by which they can maintain their existence. Their
interests are congruent with sustaining their constituents’ needs because their
existence depends on that. Petitioner can exist only if it continues to provide for
the kind and quality of instruction that is needed by its constituents. Its operations
and existence are placed at risk when resources are used on activities that are
not geared toward the attainment of its purpose. Petitioner has no business in
securing FISLAI, DSLAI, or MSLAI’s loans. This activity is not compatible with its
business of providing quality instruction to its constituents.
Indeed, there are instances when we disregard the separate corporate
personalities of the corporation and its stockholders, directors, or officers. This is
called piercing of the corporate veil.
Corporate veil is pierced when the separate personality of the corporation is being
used to perpetrate fraud, illegalities, and injustices.108 In Lanuza, Jr. v. BF
Corporation:109
Piercing the corporate veil is warranted when "[the separate personality of a
corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or to
confuse legitimate issues." It is also warranted in alter ego cases "where a
corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct
of another corporation."110
These instances have not been shown in this case. There is no evidence pointing
to the possibility that petitioner used its separate personality to defraud third
persons or commit illegal acts. Neither is there evidence to show that petitioner
was merely a farce of a corporation. What has been shown instead was that
petitioner, too, had been victimized by fraudulent and unauthorized acts of its own
officers and directors.
In this case, instead of guarding against fraud, we perpetuate fraud if we accept
respondent’s contentions.
IV
74
Petitioner argues that it did not authorize Saturnino Petalcorin to mortgage its
properties on its behalf. There was no board resolution to that effect. Thus, the
mortgages executed by Saturnino Petalcorin were unenforceable.111
The mortgage contracts executed in favor of respondent do not bind petitioner.
They were executed without authority from petitioner.
Petitioner must exercise its powers and conduct its business through its Board of
Trustees. Section 23 of the Corporation Code provides:
SEC. 23. The board of directors or trustees.—Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among the members of the
corporation, who shall hold office for one (1) year and until their successors are
elected and qualified.
Being a juridical person, petitioner cannot conduct its business, make decisions,
or act in any manner without action from its Board of Trustees. The Board of
Trustees must act as a body in order to exercise corporate powers. Individual
trustees are not clothed with corporate powers just by being a trustee. Hence, the
individual trustee cannot bind the corporation by himself or herself.
The corporation may, however, delegate through a board resolution its corporate
powers or functions to a representative, subject to limitations under the law and
the corporation’s articles of incorporation.112
The relationship between a corporation and its representatives is governed by the
general principles of agency.113Article 1317 of the Civil Code provides that there
must be authority from the principal before anyone can act in his or her name:
ART. 1317. No one may contract in the name of another without being authorized
by the latter, or unless he has by law a right to represent him.
Hence, without delegation by the board of directors or trustees, acts of a person—
including those of the corporation’s directors, trustees, shareholders, or officers—
executed on behalf of the corporation are generally not binding on the
corporation.114
Contracts entered into in another’s name without authority or valid legal
representation are generally unenforceable. The Civil Code provides:
ART. 1317. . . .
A contract entered into in the name of another by one who has no authority or
legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose
behalf it has been executed, before it is revoked by the other contracting party.
....
ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers[.]
The unenforceable status of contracts entered into by an unauthorized person on
behalf of another is based on the basic principle that contracts must be consented
to by both parties.115 There is no contract without meeting of the minds as to the
subject matter and cause of the obligations created under the contract.116
Consent of a person cannot be presumed from representations of another,
especially if obligations will be incurred as a result. Thus, authority is required to
make actions made on his or her behalf binding on a person. Contracts entered
into by persons without authority from the corporation shall generally be
considered ultra vires and unenforceable117 against the corporation.
Two trial courts118 found that the Secretary’s Certificate and the board resolution
were either non-existent or fictitious. The trial courts based their findings on the
testimony of the Corporate Secretary, Aurora de Leon herself. She signed the
Secretary’s Certificate and the excerpt of the minutes of the alleged board
meeting purporting to authorize Saturnino Petalcorin to mortgage petitioner’s
properties. There was no board meeting to that effect. Guillermo B. Torres
ordered the issuance of the Secretary’s Certificate. Aurora de Leon’s testimony
was corroborated by Saturnino Petalcorin.

Even the Court of Appeals, which reversed the trial courts’ decisions, recognized
that "BSP failed to prove that the UM Board of Trustees actually passed a Board
Resolution authorizing Petalcorin to mortgage the subject real properties[.]"119
Well-entrenched is the rule that this court, not being a trier of facts, is bound by
the findings of fact of the trial courts and the Court of Appeals when such findings
are supported by evidence on record.120 Hence, not having the proper board
resolution to authorize Saturnino Petalcorin to execute the mortgage contracts for
petitioner, the contracts he executed are unenforceable against petitioner. They
cannot bind petitioner.
However, personal liabilities may be incurred by directors who assented to such
unauthorized act121 and by the person who contracted in excess of the limits of
his or her authority without the corporation’s knowledge.122
V
Unauthorized acts that are merely beyond the powers of the corporation under its
articles of incorporation are not void ab initio.
In Pirovano, et al., this court explained that corporate acts may be ultra vires but
not void.123 Corporate acts may be capable of ratification:124
[A] distinction should be made between corporate acts or contracts which are
illegal and those which are merely ultra vires. The former contemplates the doing
of an act which is contrary to law, morals, or public order, or contravene some
rules of public policy or public duty, and are, like similar transactions between
individuals, void. They cannot serve as basis of a court action, nor acquire validity
by performance, ratification, or estoppel. Mere ultra vires acts, on the other hand,
or those which are not illegal and void ab initio, but are not merely within the scope
of the articles of incorporation, are merely voidable and may become binding and
enforceable when ratified by the stockholders.125
Thus, even though a person did not give another person authority to act on his or
her behalf, the action may be enforced against him or her if it is shown that he or
she ratified it or allowed the other person to act as if he or she had full authority
to do so. The Civil Code provides:
ART. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.
ART. 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers. (Emphasis supplied)
Ratification is a voluntary and deliberate confirmation or adoption of a previous
unauthorized act.126 It converts the unauthorized act of an agent into an act of the
principal.127 It cures the lack of consent at the time of the execution of the contract
entered into by the representative, making the contract valid and enforceable.128 It
is, in essence, consent belatedly given through express or implied acts that are
deemed a confirmation or waiver of the right to impugn the unauthorized
act.129 Ratification has the effect of placing the principal in a position as if he or
she signed the original contract. In Board of Liquidators v. Heirs of M. Kalaw, et
al.:130
Authorities, great in number, are one in the idea that "ratification by a corporation
of an unauthorized act or contract by its officers or others relates back to the time
of the act or contract ratified, and is equivalent to original authority;" and that "[t]he
corporation and the other party to the transaction are in precisely the same
position as if the act or contract had been authorized at the time." The language
of one case is expressive: "The adoption or ratification of a contract by a
corporation is nothing more nor less than the making of an original contract. The
theory of corporate ratification is predicated on the right of a corporation to
contract, and any ratification or adoption is equivalent to a grant of prior
authority."131 (Citations omitted)
Implied ratification may take the form of silence, acquiescence, acts consistent
with approval of the act, or acceptance or retention of benefits.132 However,
silence, acquiescence, retention of benefits, and acts that may be interpreted as
approval of the act do not by themselves constitute implied ratification. For an act
to constitute an implied ratification, there must be no acceptable explanation for
the act other than that there is an intention to adopt the act as his or her
own.133 "[It] cannot be inferred from acts that a principal has a right to do
independently of the unauthorized act of the agent."134
75
No act by petitioner can be interpreted as anything close to ratification. It was not
shown that it issued a resolution ratifying the execution of the mortgage contracts.
It was not shown that it received proceeds of the loans secured by the mortgage
contracts. There was also no showing that it received any consideration for the
execution of the mortgage contracts. It even appears that petitioner was unaware
of the mortgage contracts until respondent notified it of its desire to foreclose the
mortgaged properties.
Ratification must be knowingly and voluntarily done.135 Petitioner’s lack of
knowledge about the mortgage executed in its name precludes an interpretation
that there was any ratification on its part.
Respondent further argues that petitioner is presumed to have knowledge of its
transactions with respondent because its officers, the Spouses Guillermo and
Dolores Torres, participated in obtaining the loan.136
Indeed, a corporation, being a person created by mere fiction of law, can act only
through natural persons such as its directors, officers, agents, and
representatives. Hence, the general rule is that knowledge of an officer is
considered knowledge of the corporation.
However, even though the Spouses Guillermo and Dolores Torres were officers
of both the thrift banks and petitioner, their knowledge of the mortgage contracts
cannot be considered as knowledge of the corporation.
The rule that knowledge of an officer is considered knowledge of the corporation
applies only when the officer is acting within the authority given to him or her by
the corporation. In Francisco v. Government Service Insurance System:137
Knowledge of facts acquired or possessed by an officer or agent of a corporation
in the course of his employment, and in relation to matters within the scope of his
authority, is notice to the corporation, whether he communicates such knowledge
or not.138
The public should be able to rely on and be protected from the representations of
a corporate representative acting within the scope of his or her authority. This is
why an authorized officer’s knowledge is considered knowledge of corporation.
However, just as the public should be able to rely on and be protected from
corporate representations, corporations should also be able to expect that they
will not be bound by unauthorized actions made on their account.
Thus, knowledge should be actually communicated to the corporation through its
authorized representatives. A corporation cannot be expected to act or not act on
a knowledge that had not been communicated to it through an authorized
representative. There can be no implied ratification without actual communication.
Knowledge of the existence of contract must be brought to the corporation’s
representative who has authority to ratify it. Further, "the circumstances must be
shown from which such knowledge may be presumed."139
The Spouses Guillermo and Dolores Torres’ knowledge cannot be interpreted as
knowledge of petitioner. Their knowledge was not obtained as petitioner’s
representatives. It was not shown that they were acting for and within the authority
given by petitioner when they acquired knowledge of the loan transactions and
the mortgages. The knowledge was obtained in the interest of and as
representatives of the thrift banks.
VI
Respondent argues that Saturnino Petalcorin was clothed with the authority to
transact on behalf of petitioner, based on the board resolution dated March 30,
1982 and Aurora de Leon’s notarized Secretary’s Certificate.140 According to
respondent, petitioner is bound by the mortgage contracts executed by Saturnino
Petalcorin.141
This court has recognized presumed or apparent authority or capacity to bind
corporate representatives in instances when the corporation, through its silence
or other acts of recognition, allowed others to believe that persons, through their
usual exercise of corporate powers, were conferred with authority to deal on the
corporation’s behalf.142
The doctrine of apparent authority does not go into the question of the
corporation’s competence or power to do a particular act. It involves the question
of whether the officer has the power or is clothed with the appearance of having
the power to act for the corporation. A finding that there is apparent authority is
not the same as a finding that the corporate act in question is within the
corporation’s limited powers.

The rule on apparent authority is based on the principle of estoppel. The Civil
Code provides:
ART. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon.
....
ART. 1869. Agency may be express, or implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
A corporation is estopped by its silence and acts of recognition because we
recognize that there is information asymmetry between third persons who have
little to no information as to what happens during corporate meetings, and the
corporate officers, directors, and representatives who are insiders to corporate
affairs.143
In People’s Aircargo and Warehousing Co. Inc. v. Court of Appeals,144 this court
held that the contract entered into by the corporation’s officer without a board
resolution was binding upon the corporation because it previously allowed the
officer to contract on its behalf despite the lack of board resolution.145
In Francisco, this court ruled that Francisco’s proposal for redemption of property
was accepted by and binding upon the Government Service Insurance System.
This court did not appreciate the Government Service Insurance System’s
defense that since it was the Board Secretary and not the General Manager who
sent Francisco the acceptance telegram, it could not be made binding upon the
Government Service Insurance System. It did not authorize the Board Secretary
to sign for the General Manager. This court appreciated the Government Service
Insurance System’s failure to disown the telegram sent by the Board Secretary
and its silence while it accepted all payments made by Francisco for the
redemption of property.146
There can be no apparent authority and the corporation cannot be estopped from
denying the binding affect of an act when there is no evidence pointing to similar
acts and other circumstances that can be interpreted as the corporation holding
out a representative as having authority to contract on its behalf. In Advance
Paper Corporation v. Arma Traders Corporation,147 this court had the occasion to
say:
The doctrine of apparent authority does not apply if the principal did not commit
any acts or conduct which a third party knew and relied upon in good faith as a
result of the exercise of reasonable prudence. Moreover, the agent’s acts or
conduct must have produced a change of position to the third party’s
detriment.148 (Citation omitted)
Saturnino Petalcorin’s authority to transact on behalf of petitioner cannot be
presumed based on a Secretary’s Certificate and excerpt from the minutes of the
alleged board meeting that were found to have been simulated. These documents
cannot be considered as the corporate acts that held out Saturnino Petalcorin as
petitioner’s authorized representative for mortgage transactions. They were not
supported by an actual board meeting.149
VII
Respondent argues that it may rely on the Secretary’s Certificate issued by Aurora
de Leon because it was notarized.
The Secretary’s Certificate was void whether or not it was notarized.
Notarization creates a presumption of regularity and authenticity on the
document. This presumption may be rebutted by "strong, complete and
conclusive proof"150 to the contrary. While notarial acknowledgment "attaches full
faith and credit to the document concerned[,]"151 it does not give the document its
validity or binding effect. When there is evidence showing that the document is
invalid, the presumption of regularity or authenticity is not applicable.
In Basilio v. Court of Appeals,152 this court was convinced that the purported
signatory on a deed of sale was not as represented, despite testimony from the
notary public that the signatory appeared before him and signed the
instrument.153 Apart from finding that there was forgery,154 this court noted:
76
The notary public, Atty. Ruben Silvestre, testified that he was the one who
notarized the document and that Dionisio Z. Basilio appeared personally before
him and signed the instrument himself. However, he admitted that he did not know
Dionisio Z. Basilio personally to ascertain if the person who signed the document
was actually Dionisio Z. Basilio himself, or another person who stood in his place.
He could not even recall whether the document had been executed in his office
or not.
Thus, considering the testimonies of various witnesses and a comparison of the
signature in question with admittedly genuine signatures, the Court is convinced
that Dionisio Z. Basilio did not execute the questioned deed of sale. Although the
questioned deed of sale was a public document having in its favor the
presumption of regularity, such presumption was adequately refuted by
competent witnesses showing its forgery and the Court’s own visual analysis of
the document.155 (Emphasis supplied, citations omitted)
In Suntay v. Court of Appeals,156 this court held that a notarized deed of sale was
void because it was a mere sham.157 It was not intended to have any effect
between the parties.158 This court said:
[I]t is not the intention nor the function of the notary public to validate and make
binding an instrument never, in the first place, intended to have any binding legal
effect upon the parties thereto.159
Since the notarized Secretary’s Certificate was found to have been issued without
a supporting board resolution, it produced no effect. It is not binding upon
petitioner. It should not have been relied on by respondent especially given its
status as a bank.
VIII
The banking institution is "impressed with public interest"160 such that the public’s
faith is "of paramount importance."161 Thus, banks are required to exercise the
highest degree of diligence in their transactions.162 In China Banking Corporation
v. Lagon,163 this court found that the bank was not a mortgagee in good faith for
its failure to question the due execution of a Special Power of Attorney that was
presented to it in relation to a mortgage contract.164 This court said:
Though petitioner is not expected to conduct an exhaustive investigation on the
history of the mortgagor’s title, it cannot be excused from the duty of exercising
the due diligence required of a banking institution. Banks are expected to exercise
more care and prudence than private individuals in their dealings, even those that
involve registered lands, for their business is affected with public
interest.165 (Citations omitted)
For its failure to exercise the degree of diligence required of banks, respondent
cannot claim good faith in the execution of the mortgage contracts with Saturnino
Petalcorin. Respondent’s witness, Daciano Paguio, Jr., testified that there was no
board resolution authorizing Saturnino Petalcorin to act on behalf of
petitioner.166 Respondent did not inquire further as to Saturnino Petalcorin’s
authority.
Banks cannot rely on assumptions. This will be contrary to the high standard of
diligence required of them.
VI
According to respondent, the annotations of respondent’s mortgage interests on
the certificates of titles of petitioner’s properties operated as constructive notice
to petitioner of the existence of such interests. 167 Hence, petitioners are now
estopped from claiming that they did not know about the mortgage.
Annotations of adverse claims on certificates of title to properties operate as
constructive notice only to third parties—not to the court or the registered
owner.1âwphi1 In Sajonas v. Court of Appeals:168
[A]nnotation of an adverse claim is a measure designed to protect the interest of
a person over a piece of real property where the registration of such interest or
right is not otherwise provided for by the Land Registration Act or Act 496 (now
[Presidential Decree No.] 1529 or the Property Registration Decree), and serves
a warning to third parties dealing with said property that someone is claiming an
interest on the same or a better right than that of the registered owner
thereof.169 (Emphasis supplied)
Annotations are merely claims of interest or claims of the legal nature and
incidents of relationship between the person whose name appears on the
document and the person who caused the annotation. It does not say anything
 77

about the validity of the claim or convert a defective claim or document into a valid
one. 170 These claims may be proved or disproved during trial.

Thus, annotations are not conclusive upon courts or upon owners who may not
have reason to doubt the security of their claim as their properties' title holders.

WHEREFORE, the Petition is GRANTED. The Court of Appeals' Decision dated

December 17, 2009 is REVERSED and SET ASIDE. The Regional Trial Courts'
Decisions of November 23, 2001 and December 7, 2001 are REINSTATED.

G.R. No. 198434
HEIRS OF LEANDRO NATIVIDAD AND JULIANA V. NATIVIDAD, Petitioners,
vs.
JUANA MAURICIO-NATIVIDAD, and SPOUSES JEAN NATIVIDAD CRUZ
AND JERRY CRUZ, Respondents.
DECISION
PERALTA, J.:
Challenged in the present petition for review on certiorari are the Decision1 and
Resolution2 of the Court of Appeals (CA), dated February 7, 2011 and August 25,
2011, respectively, in CA-G.R. CV No. 92840. The assailed CA Decision modified
the Decision of the Regional Trial Court (RTC) of San Mateo, Rizal, Branch 75, in
Civil Case No. 1637-02-SM, while the CA Resolution denied petitioners' motion
for reconsideration.
The present petition arose from an action for specific performance and/or
recovery of sum of money filed against herein respondents by the spouses
Leandro Natividad (Leandro) and Juliana Natividad (Juliana), who are the
predecessors of herein petitioners.
In their Complaint, Leandro and Juliana alleged that sometime in 1974, Sergio
Natividad (Sergio), husband of respondent Juana Mauricio-
Natividad (Juana) and father of respondent Jean Natividad-Cruz (Jean), obtained
a loan from the Development Bank of t.he Philippines (DBP). As security for the
loan, Sergio mortgaged two parcels of land, one of which is co-owned and
registered in his name and that of his siblings namely, Leandro, Domingo and
Adoracion. This property is covered by Original Certificate of Title (OCT) No.
5980. Sergio's siblings executed a Special Power of Attorney authorizing him to
mortgage the said property. The other mortgaged parcel of land, covered by OCT
No. 10271, was registered in the name of Sergio and Juana. Subsequently,
Sergio died without being able to pay his obligations with DBP. Since the loan
was nearing its maturity and the mortgaged properties were in danger of being
foreclosed, Leandro paid Sergio's loan obligations. Considering that respondents
were unable to reimburse Leandro for the advances he made in Sergio's favor,
respondents agreed that Sergio's share in the lot which he co-owned with his
siblings and the other parcel of land in the name of Sergio and Juana, shall be
assigned in favor of Leandro ahd Juliana. Leandro's and Sergio's brother,
Domingo, was tasked to facilitate the transfer of ownership of the subject
properties in favor of Leandro ·and Juliana. However, Domingo died without being
able to cause such transfer. Subsequently, despite demands and several follow-
ups made by petitioners, respondents failed and refused to honor their
undertaking.
Respondents filed their Answer denying the allegations in the complaint and
raising the following defenses: (1) respondents are not parties to the contract
between Sergio and DBP; (2) there is neither verbal nor written agreement
between petitioners and respondents that the latter shall reimburse whatever
payment was made by the former or their predecessor-in-interest; (3) Jean was
only a minor during the execution of the alleged agreement and is not a party
thereto; (4) that whatever liability or obligation of respondents is already barred
by prescription, laches and estoppel; (5) that the complaint states no cause of
action as respondents are not duty-bound to reimburse whatever alleged
payments were made by petitioners; and (6) there is no contract between the
parties to the effect that respondents are under obligation to transfer ownership
in petitioners' favor as reimbursement for the alleged payments made by
petitioners to DBP.
Respondents waived their right to present evidence arid they merely filed their
memorandum. Also, during pendency" of the trial, Leandro died and was
substituted by his heirs, herein petitioners.
On November. 4, 2008, the RTC rendered its Decision in favor of petitioners, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Defendants Juana Mauricio [Vda.] de Natividad and Jean Natividad-
Cruz are ordered to effect the transfer of title in OCT No. 5980 with
respect to the undivided share of the late Sergio Natividad; and in OCT
No. 10271 both of the Registry of Deeds of the Province of Rizal in
favor of plaintiff Juliana [V da.] de Natividad and the Heirs of the late
Leandro Natividad.
2. Defendants to pay jointly and severally, attorney's fees in the sum
of Thirty Thousand Pesos (P30,000.00); and cost of suit.
78
SO ORDERED.3
Aggrieved by the RTC Decision, respondents filed an Appeal with the CA.
On February 7, 2011, the CA promulgated its questioned Decision, disposing as
follows:
WHEREFORE, the appeal is PARTLY GRANTED. The Decision dated
November 4, 2008 is hereby MODIFIED in that defendants-appellants Juana
Mauricio-Natividad and Jean Natividad-Cruz are ordered instead to reimburse
plaintiffs-appellees Juliana Natividad and the heirs of the late Leandro Natividad
the amount of P162,514.88 representing the amount of the loan obligation paid to
the Development Bank of the Philippines, plus legal interest of 12% per annum
computed from June 23, 2001 until finality of the judgment, the total amount of
which shall be to the extent only of defendants-appellants' successional rights in
the mortgaged properties and Juana's conjugal share in [the] property covered by
OCT No. 10271. The award of attorney's fees and cost of suit are AFFIRMED.
SO ORDERED.4
Petitioners filed a Motion for Partial Reconsideration, while respondents filed their
own Motion for Reconsideration, both of which, however, were denied by the CA
in its assailed Resolution dated August 25, 2011.
Hence, the instant petition based on the following grounds:
I. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS'
RULING THAT THE VERBAL AGREEMENT TO CONVEY THE
PROPERTY SHARES OF SERGIO NATIVIDAD IN THE PAYMENT
OF HIS OBLIGATION IS COVERED BY THE STATUTE OF FRAUDS
DESPITE THE FACT THAT IT HAS BEEN PARTIALLY EXECUTED,
IS CONTRARY TO'EXISTING JURISPRUDENCE.
II. WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS
ERRED IN RULING THAT THE INTEREST ON THE UNPAID LOAN
.OBLIGATION SHOULD BE IMPOSED ONLY ON JUNE 23, 2001,
DATE OF THE DEMAND FOR PAYMENT INSTEAD OF
SEPTEMBER 23, 1994, WHEN THE PARTIES VERBALLY AGREED
TO CONVEY THEIR PROPERTY RIGHTS WITH THE EXECUTION
OF THE EXTRAJUDICIAL SETTLEMENT OF ESTATE OF SERGIO
NATIVIDAD.5
Petitioners, insist that there was a verbal agreement between respondents and
Leandro, their predecessor-in-interest, wherein the subject properties shall be
assigned to the latter as reimbursement for the payments he made in Sergio's
favor. To support this contention, petitioners relied heavily on the Extrajudicial
Settlement Among Heirs, which was executed by respondents to prove that there
was indeed such an agreement and that such a Settlement is evidence of the
partial execution of the said agreement. The provisions of the said Settlement are
as follows:
EXTRAJUDICIAL SETTLEMENT AMONG HEIRS
KNOW ALL MEN BY THESE PRESENTS:
This EXTRAJUDICIAL SETTLEMENT, made and entered into by and among:
JUAN M. NATIVIDAD, widow; JEAN N. CRUZ, married to JERRY CRUZ;
JOSELITO M. NATIVIDAD, single, all of legal age, Filipino citizens, and residents
of Malanday, San Mateo, Rizal
WITNESSETH
That the above-named parties, is the legitimate wife and children and sole heirs
of the deceased SERGIO NATIVIDAD, who died in San Mateo, Rizal on May 31,
1981;
That the said deceased, at the time of his death, left certain real estate properties
located at San Mateo, Rizal, and Montalban, Rizal, more particularly described as
follows:
a. A whole portion of a parcel of land (Plan Psu-295655, L.R. Case No.
Q-29, L.R.C. Record No. N-295___ , situated in the Barrio of
Malanday, Municipality of San Mateo, Province of Rizal, containing an
area of TWO HUNDRED EIGHT (208) SQUARE METERS, more or
less, and covered by OCT NO. 10271.

b. A one-fourth (1/4) share in the parcel of land situated in Guinayang,
San Mateo, Rizal, containing an area of 2,742 square meters, covered
by OCT No. 10493.
c. A one-fourth (1/4) share in the parcel of land situated in San Jose,
Montalban, Rizal, containing an area of 4,775 square meters, and
covered by OCT No. ON-403.
d. A one-fourth (1/4) share in the parcel of land situated in Cambal,
San Mateo, Rizal, containing an area of 13,456 square meters, and
covered by OCT No. 5980.
That no other personal properties are involved in this extrajudicial settlement.
That to the best knowledge and information of the parties hereto, the said
deceased left certain obligations amounting to P175,000.00 representing loan
obligations with the Development Bank of the Philippines.
That a notice of this extrajudicial settlement had been published once a week for
three consecutive weeks in ___________ a newspaper of general circulation
in_______, as certified by the said newspaper hereto attached as Annex "A";
That the parties hereto being all of legal age and with full civil capacity to contract,
hereby by these presents agree to divide and adjudicate, as they hereby divide
and adjudicate, among themselves the above-described real estate property in
equal shares and interest.
IN WITNESS WHEREOF, the parties have signed this document on this 2nd day
of September, 1994 in San Mateo, Rizal, Philippines.
x x x6
After a careful reading of the abovequoted Extra judicial Settlement Among Heirs,
the Court agrees with the CA that there is nothing in the said document which
would indicate that respondents agreed to the effect that the subject properties
shall be transferred in the name of Leandro as reimbursement for his payment of
Syrgio's loan obligations with the DBP. On the contrary, the second to the last
paragraph of the said Settlement clearly shows that herein respondents, as heirs
of Sergio, have divided the subject properties exclusively among themselves.
There is no competent evidence to prove the verbal agreement being claimed by
respondents. Aside from the subject Extrajudicial Settlement Among Heirs, the
self-serving claims of Leandro on the witness stand, as well as the cash
voucher, 7 which supposedly represented payment of P8,000.00 given to Atty.
Domingo Natividad for the expenses in transferring the title of the subject
properties in Leandro's favor, would hardly count as competent evidence in the
eyes of the law. Respondents' claim of the existence of a verbal agreement
between them, on one hand, and petitioners' predecessors-in-interest, on the
other, remains to be mere allegation. It is an age-old rule in civil cases that he
who alleges a fact has the burden of proving it and a mere allegation is not
evidence. 8
In relation to petitioners' contention that the subject verbal agreement actually
existed, they reiterate their contention that the conveyance of the subject
properties in their favor is not covered by the Statute of Frauds because they
claim that respondents' execution of the Extrajudicial Settlement Among Heirs
constitutes partial execution of their alleged agreement.
The Court does not agree.
Suffice it to say that there is no partial execution of any contract, whatsoever,
because petitioners failed to prove, in the first place, that there was a verbal
agreement that was entered into.
Even granting that such an agreement existed, the CA did not commit any en-or
in ruling that the assignment of the shares of Sergio in the subject properties in
petitioners' favor as payment of Sergio's obligation cannot be enforced if there is
no written contract to such effect. Under the Statute of Frauds 9, an agreement to
convey real properties shall be unenforceable by action in the absence of a written
note or memorandum thereof and subscribed by the party charged or by his
agent. As earlier discussed, the pieces of evidence presented by petitioners,
consisting of respondents' acknowledgment of Sergio's loan obligations with DBP
as embodied in the Extrajudicial Settlement Among Heirs, as well as the cash
voucher which allegedly represents payment for taxes and transfer of title in
petitioners' name do not serve as written notes or memoranda of the alleged
verbal agreement.
79
The foregoing, notwithstanding, the Court finds it proper to reiterate the CA ruling
that, in any case, since respondents had already acknowledged that Sergio had,
in fact, incurred loan obligations with the DBP, they are liable to reimburse the
amount paid by Leandro for the payment of the said obligation even if such
payment was made without their knowledge or consent.
Article 1236 of the Civil Code clearly provides that:
The creditor is not bound to accept payment or performance by a third person
who has no interest in the fulfillment of the obligation, unless there is a stipulation
to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the
debtor. (Emphasis supplied)
Neither can respondents evade liability by arguing that they were not parties to
the contract between Sergio and the DBP. As earlier stated, the fact remains that,
in the Extrajudicial Settlement Among Heirs, respondents clearly acknowledged
Sergio's loan obligations with the DBP. Being Sergio's heirs, they succeed not
only to the rights of Sergio but also to his obligations.
The following provisions of the Civil Code are clear on this matter, to wit:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to the extent of the value of the inheritance, of a person are
transmitted through his death to another or others either by will or by operation of
law.
Art. 776. The inheritance includes all the property, rights and obligations of a
person which are not extinguished by his death.
Art. 781. The inheritance of a person includes not only the property and the
transmissible rights and obligations existing at the time of his death, but also those
which have accrued thereto since the opening of the succession.
In the present case, respondents, being heirs of Sergio, are now liable to settle
his transmissible obligations, which include the amount due to petitioners, prior to
the distribution of the remainder of Sergio's estate to them, in accordance with
Section 1, 10 Rule 90 of the Rules of Court.
As to when the interest on the sum due from respondents should be reckoned,
the Court finds no error in the ruling of the CA that such interest should be
computed from June 23, 2001, the date when petitioners made a written demand
for the payment of respondents' obligation. 11 There is no merit in petitioners'
contention that the reckoning date should have been September 23, 1994, the
date when respondents executed the Extrajudicial Settlement Among Heirs,
because there is nothing therein to prove that petitioners, at that time, made a
demand for reimbursement.
However, the rate of interest should be modified in view of the issuance of Circular
No. 799, Series of 2013 by the Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB). The said Circular reduced the "rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in judgments, in the absence of
an express contract as to such rate of interest," from twelve percent (12%) to six
percent (6%) per annum. The Circular was made effective on July 1, 2013.
Hence, under the modified guidelines in the imposition of interest, as laid down in
the case of Nacar v. Gallery Frames, 12 this Court held that:
xxxx
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or
damages, except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be
on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance
of credit. (Emphasis supplied)
x x x13
The Court explained that:
[F]rom the foregoing, in the absence of an express stipulation as to the rate of
interest that would govern the parties, the rate of legal interest for loans or
forbearance of any money, goods or credits and the rate allowed in judgments
shall no longer be twelve percent (12%) per annum - as reflected in the case
of Eastern Shipping Lines and Subsection X305.1 of the Manual of Regulations
for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions, before its amendment by BSP-
MB Circular No. 799 - but will now be six percent (6%) per annum effective July
1, 2013. It should be noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013. Come July 1, 2013, the
new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable. 14
Thus, in accordance with the above ruling, the rate of interest on the principal
amount due to petitioners shall be 12% from June 23, 2001, the date when
petitioners made a demand for payment, to June 30, 2013. From July 1, 2013,
the effective date of BSP-MB Circular No. 799, until full satisfaction of the
monetary award, the rate of interest shall be 6%.
WHEREFORE, the instant petition is DENIED. The Decision and Resolution of
the Court of Appeals, dated February 7, 2011 and August 25, 2011, respectively,
in CA-G.R. CV No. 92840
are AFFIRMED with MODIFICATION by ORDERING respondents to pay
petitioners, in addition to the principal amount of P162,514.88, interest thereon at
the rate of twelve percent (12%) per annum, computed from June 23, 2001 to
June 30, 2013, and six percent (6%) per annum from July 1, 2013 until full
satisfaction of the judgment award.
SO ORDERED.
G.R. No. 165088 March 17, 2006
POTENCIANO RAMIREZ, Petitioner,
vs.
MA. CECILIA RAMIREZ, Respondent.
DECISION
AZCUNA, J.:
Petitioner Potenciano Ramirez filed this petition for review on certiorari under Rule
45 of the Rules of Court against the decision of the Court of Appeals (CA) in CA-
G.R. No. 69401.
On October 8, 1996, petitioner filed a complaint against respondent Ma. Cecilia
Ramirez before the Regional Trial Court of Olongapo City (RTC) for annulment
of: 1) a Deed of Donation; 2) Waiver of Possessory Rights; and 3) Transfer
Certificates of Title (TCT) Nos. T-5618 and T-5617.1 Petitioner claimed that
respondent caused the execution of the Deed of Donation and Waiver of
Possessory Rights to acquire ownership over the land and improvements then
covered by TCT Nos. T-4575 and T-4576. Using the Deed of Donation,
80
respondent allegedly succeeded in having TCT Nos. T-4575 and T-4576
cancelled and TCT Nos. T-5618 and T-5617 issued in her name. Furthermore,
petitioner alleged that with the Waiver of Possessory Rights, respondent was able
to cause the Office of the City Assessor to transfer to her name the tax
declarations on the improvements in the land.2
The Deed of Donation and Waiver of Possessory Rights were allegedly executed
by petitioner and his wife, Dolores Ramirez, on January 29, 1993 and October 24,
1995, respectively. However, the death certificate presented showed that Dolores
died on April 5, 1991 and, consequently, could not have executed the assailed
documents. Petitioner repudiated the other signatures appearing on the two
documents that were purportedly his and insisted that he did not intend to transfer
the properties to respondent.
In her Answer, respondent alleged that her father, petitioner, would not have filed
the case were it not for the fact that he remarried despite his age of 84 years. She
further claimed that it was her father’s idea to cause the preparation of the Deed
of Donation and Waiver of Possessory Rights to save on expenses for publication
and inheritance taxes.
After trial, the RTC ruled that the signature of Dolores on the Deed of Donation
was a forgery while her signature on the Waiver of Possessory Rights was
genuine. It also found petitioner’s signatures on both documents to be genuine. It
then held petitioner and respondent in pari delicto, as participants to the forgery,
and ruled that they must bear the consequences of their acts without cause of
action against each other in accordance with Article 1412 of the Civil Code. The
RTC dismissed the complaint.3
Petitioner went to the CA, which held that Dolores’s signature on the Deed of
Donation as well as her alleged signature appearing in the Waiver of Possessory
Rights were forgeries. The petition was denied and the CA likewise held both
parties in pari delicto.4
The issue is simple: whether petitioner and respondent are in pari delicto.
As one of the modes of acquiring ownership, donations are governed by Title 3,
Book III, of the Civil Code. Donations inter vivos are additionally governed by the
general provisions on obligations and contracts in all that is not determined by the
title governing donations.5 Hence, the rule on pari delicto under the general
provisions of contracts is applicable to the present case.
The Court agrees with the rulings of the CA and the RTC that petitioner and
respondent are in pari delicto. Nevertheless, both courts erred on the applicable
law. Article 1412 of the Civil Code, which they applied, refers to a situation where
the cause of the contract is unlawful or forbidden but does not constitute a
violation of the criminal laws, thus:
ARTICLE 1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover
what he has given by virtue of the contract, or demand the performance of the
other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he
has given by reason of the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand the return of what he
has given without any obligation to comply with his promise.
On the other hand, where the act involved constitutes a criminal offense, the
applicable provision is Article 1411:
ARTICLE 1411. When the nullity proceeds from the illegality of the cause or object
of the contract, and the act constitutes a criminal offense, both parties being
in pari delicto, they shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code relative to the disposal
of effects or instruments of a crime shall be applicable to the things or the price of
the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his
promise.
Petitioner alleged that the signatures of Dolores on the Deed of Donation and on
the Waiver of Possessory Rights are a forgery. Respondent does not deny this
allegation. Forging a person’s signature corresponds to the felony of falsification
under Section 4, Title IV of the Revised Penal Code. Hence, the act of forging
 81

Dolores’s signature constitutes a criminal offense under the terms of Article 1411
of the Civil Code.

The Court now proceeds to determine if there is ground to hold the parties in pari
delicto under Article 1411 of the Civil Code. Under this article, it must be shown
that the nullity of the contract proceeds from an illegal cause or object, and the
act of executing said contract constitutes a criminal offense. The second
requirement has already been discussed and is found to be present.

On the first element, petitioner claims that the "object or cause" of the Deed of
Donation and of the Waiver of Possessory Rights is the transferred real properties
and that there is nothing illegal about them. He maintains that the illegality instead
stems from the act of forgery which pertains to consent, which is not material to
the application of Article 1411. The argument is untenable. Object and cause are
two separate elements of a donation and the illegality of either element gives rise
to the application of the doctrine of pari delicto. Object is the subject matter of the
donation, while cause is the essential reason which moves the parties to enter
into the transaction. Petitioner wrongly asserts that the donated real properties
are both the object and cause of the donation. In fact, the donated properties
pertain only to the object. Therefore, while he is correct in stating that the object
of the donation is legal, his argument misses the point insofar as the cause is
concerned. The cause which moved the parties to execute the Deed of Donation
and the Waiver of Possessory Rights, the motive behind the forgery, is the desire
to evade the payment of publication expenses and inheritance taxes, which
became due upon the death of Dolores.6 Undeniably, the Deed of Donation and
the Waiver of Possessory Rights were executed for an illegal cause, thus
completing all the requisites for the application of Article 1411.

Both petitioner and respondent are, therefore, in pari delicto. Neither one may
expect positive relief from the courts from their illegal acts and transactions.
Consequently, they will be left as they were at the time the case was filed.

WHEREFORE, the petition is DENIED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 109355 October 29, 1999
SERAFIN MODINA, petitioner,
vs.
COURT OF APPEALS AND ERNESTO HONTARCIEGO, PAUL FIGUEROA,
TEODORO HIPALLA AND RAMON CHIANG, MERLINDA
CHIANG, respondents.
PURISIMA, J.:
At bar is a Petition for Review on Certiorari assailing the decision of the Court of
Appeals in CA G.R. CV No. 26051 affirming the decision of the trial court in the
case, entitled "Serafin Modina vs. Ernesto Hontarciego, Paulino Figueroa and
Ramon Chiang vs. Merlinda Plana Chiang, intervenors", which declared as void
and inexistent the deed of definite sale dated December 17, 1975 as well as the
Certificates of Title Nos. T-86912, T-86913, T-86914 in the name of Ramon
Chiang.1âwphi1.nêt
The facts that matter are as follows:
The parcels of land in question are those under the name of Ramon Chiang
(hereinafter referred to as CHIANG) covered by TCT Nos. T-86912, T-86913, and
T-86914. He theorized that subject properties were sold to him by his wife,
Merlinda Plana Chiang (hereinafter referred to as MERLINDA), as evidenced by
a Deed of Absolute Sale dated December 17, 1975, 1 and were subsequently sold
by CHIANG to the petitioner Serafin Modina (MODINA), as shown by the Deeds
of Sale, dated August 3, 1979 and August 24, 1979, respectively.
MODINA brought a Complaint for Recovery of Possession with Damages against
the private respondents, Ernesto Hontarciego, Paul Figueroa and Teodoro
Hipalla, docketed as Civil Case No. 13935 before the Regional Trial Court of Iloilo
City.
Upon learning the institution of the said case, MERLINDA presented a Complaint-
in-intervention, seeking the declaration of nullity of the Deed of Sale between her
husband and MODINA on the ground that the titles of the parcels of land in dispute
were never legally transferred to her husband. Fraudulent acts were allegedly
employed by him to obtain a Torrens Title in his favor. However, she confirmed
the validity of the lease contracts with the other private respondents.
MERLINDA also admitted that the said parcels of land were those ordered sold
by Branch 2 of the then Court of First Instance of Iloilo in Special Proceeding No.
2469 in "Intestate Estate of Nelson Plana" where she was appointed as the
administratix, being the widow of the deceased, her first husband. An Authority to
Sell was issued by the said Probate Court for the sale of the same properties. 2
After due hearing, the Trial Court decided in favor of MERLINDA, disposing thus:
WHEREFORE, judgment is hereby rendered (1) declaring
as void and inexistent the sale of Lots 10063, 10088, 10085
and 10089 of the Cadastral Survey of Sta. Barbara by
Merlinda Plana in favor of Ramon Chiang as evidenced by
the deed of definite sale dated December 17, 1975 (Exhibits
"H"; "3"-Chiang; "9" Intervenor) as well as the Certificates
of Title Nos. T-86912, T-86913, T-86914 and T-86915 in the
name of Ramon Chiang; (2) declaring as void and inexistent
the sale of the same properties by Ramon Chiang in favor
of Serafin Modina as evidenced by the deeds of sale
(Exhibits "A", "B", "6" — Chiang and "7" — Chiang) dated
August 3, and 24, 1979, as well as Certificates of Title Nos.
T-102631, 102630, 102632 and 102890 in the name of
Serafin Modina; (3) ordering the Register of Deeds of Iloilo
to cancel said certificates of title in the names of Ramon
Chiang and Serafin Modina and to reinstate the Certificates
of Title Nos. T-57960, T-57962, T-57963 and T-57864 in the
name of Nelson Plana; (4) ordering Serafin Modina to
vacate and restore possession of the lots in question to
Merlinda Plana Chiang; (5) ordering Ramon Chiang to
restitute and pay to Serafin Modina the sum of P145,800.00
and; (6) ordering Serafin Modina to pay Ernesto
Hontarciego the sum of P44,500.00 as actual and
compensatory damages plus the sum of P5,000.00, for and
as attorney's fees, with costs in favor of said defendants
against the plaintiff.
On appeal; the Court of Appeals affirmed the aforesaid decision in toto.
82
Dissatisfied therewith, petitioner found his way to this Court via the present
Petition for Review under the Rule 45 seeking to set aside the assailed decision
of the Court of Appeals.
Raised for resolution here are: (1) whether the sale of subject lots should be
nullified, (2) whether petitioner was not a purchaser in good faith, (3) whether the
decision of the trial court was tainted with excess of jurisdiction; and (4) whether
or not only three-fourths of subject lots should be returned to the private
respondent.
Anent the first issue, petitioner theorizes that the sale in question is null and void
for being violative of Article 1490 3of the New Civil Code prohibiting sales between
spouses. Consequently, what is applicable is Article 1412 4 supraon the principle
of in pari delicto, which leaves both guilty parties where they are, and keeps
undisturbed the rights of third persons to whom the lots involved were sold;
petitioner stressed.1âwphi1.nêt
Petitioner anchors his submission on the following statements of the Trial Court
which the Court of Appeals upheld, to wit:
Furthermore, under Art. 1490, husband and wife are
prohibited to sell properties to each other. And where, as in
this case, the sale is inexistent for lack of consideration, the
principle of in pari delicto non oritur actio does not apply.
(Vasquez vs. Porta, 98 Phil 490), (Emphasis ours) Thus,
Art. 1490 provides:
Art. 1490. The husband and the wife
cannot sell property to each other,
except:
(1) when a separation of propety was
agreed upon in the marriage
settlements; or
(2) when there has been a judicial
separation of property under Art. 191.
The exception to the rule laid down in Art. 1490 of the New
Civil Code not having existed with respect to the property
relations of Ramon Chiang and Merlinda Plana Chiang, the
sale by the latter in favor of the former of the properties in
question is invalid for being prohibited by law. Not being the
owner of subject properties, Ramon Chiang could not have
validly sold the same to plaintiff Serafin Modina. The sale
by Ramon Chiang in favor of Serafin Modina is, likewise,
void and inexistent.
xxx xxx xxx
The Court of Appeals, on the other hand, adopted the following findings a quo:
that there is no sufficient evidence establishing fault on the part of MERLINDA,
and therefore, the principle of in pari delicto is inapplicable and the sale was void
for want of consideration. In effect, MERLINDA can recover the lots sold by her
husband to petitioner MODINA. However, the Court of Appeals ruled that the sale
was void for violating Article 1490 of the Civil Code, which prohibits sales between
spouses.
The principle of in pari delicto non oritur actio 6 denies all recovery to the guilty
parties inter se. It applies to cases where the nullity arises from the illegality of the
consideration or the purpose of the contract. 7 When two persons are equally at
fault, the law does not relieve them. The exception to this general rule is when the
principle is invoked with respect to inexistent contracts. 8
In the petition under consideration, the Trial Court found that subject Deed of Sale
was a nullity for lack of any consideration. 9 This finding duly supported by
evidence was affirmed by the Court of Appeals. Well-settled is the rule that this
Court will not disturb such finding absent any evidence to the contrary. 10
Under Article 1409 11 of the New Civil Code, enumerating void contracts, a
contract without consideration is one such void contract. One of the
characteristics of a void or inexistent contract is that it produces no effect. So also,
inexistent contracts can be invoked by any person whenever juridical effects
founded thereon are asserted against him. A transferor can recover the object of
such contract by accion reivindicatoria and any possessor may refuse to deliver
it to the transferee, who cannot enforce the transfer. 12
 83

Thus, petitioner's insistence that MERLINDA cannot attack subject contract of
sale as she was a guilty party thereto is equally unavailing.
But the pivot of inquiry here is whether MERLINDA is barred by the principle of in
pari delicto from questioning subject Deed of Sale.
It bears emphasizing that as the contracts under controversy are inexistent
contracts within legal contemplation. Articles 1411 and 1412 of the New Civil
Code are inapplicable. In pari delicto doctrine applies only to contracts with illegal
consideration or subject matter, whether the attendant facts constitute an offense
or misdemeanor or whether the consideration involved is merely rendered
illegal. 13
The statement below that it is likewise null and void for being violative of Article
1490 should just be treated as a surplusage or an obiter dictum on the part of the
Trial Court as the issue of whether the parcels of land in dispute are conjugal in
nature or they fall under the exceptions provided for by law, was neither raised
nor litigated upon before the lower Court. Whether the said lots were ganancial
properties was never brought to the fore by the parties and it is too late to do so
now.
Furthermore, if this line of argument be followed, the Trial Court could not have
declared subject contract as null and void because only the heirs and the creditors
can question its nullity and not the spouses themselves who executed the contract
with full knowledge of the prohibition. 14
Records show that in the complaint-in-intervention of MERLINDA, she did not
aver the same as a ground to nullify subject Deed of Sale. In fact, she denied the
existence of the Deed of Sale in favor of her husband. In the said Complaint, her
allegations referred to the want of consideration of such Deed of Sale. She did
not put up the defense under Article 1490, to nullify her sale to her husband
CHIANG because such a defense would be inconsistent with her claim that the
same sale was inexistent.1âwphi1.nêt
The Trial Court debunked petitioner's theory that MERLINDA intentionally gave
away the bulk of her and her late husband's estate to defendant CHIANG as his
exclusive property, for want of evidentiary anchor. They insist on the Deed of Sale
wherein MERLINIDA made the misrepresentation that she was a widow and
CHIANG was single, when at the time of execution thereof, they were in fact
already married. Petitioner insists that this document conclusively established bad
faith on the part of MERLINDA and therefore, the principle of in pari delicto should
have been applied.
These issues are factual in nature and it is not for this Court to appreciate and
evaluate the pieces of evidence introduced below. An appellate court defers to
the factual findings of the Trial Court, unless petitioner can show a glaring mistake
in the appreciation of relevant evidence.
claim that he acted in good faith. His mere refusal to believe that such defect
exists, or his wilful closing of his eyes to the possibility of the existence of a defect
in his vendor's title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that he had
such notice of the defect as would have led to its discovery had he acted with that
measure of precaution which may reasonably be required of a prudent man in a
like situation. 15
Thus, petitioner cannot claim that the sale between him and MODINA falls under
the exception provided for by law.
With regard to the third issue posed by petitioner — whether the Trial Court's
decision allowing recovery on the part of Merlinda Chiang of subject properties
was void — petitioner's contention is untennable. It is theorized that as the sale
by MERLINDA was by virtue of an Order to Sell issued in the Intestate Estate
Proceedings of her late husband, Nelson Plana — to allow recovery will defeat
the said order of the Probate Court. Petitioner equated the aforesaid Order to Sell
as a judgment, which another court in a regular proceeding has no jurisdiction to
reverse.
Petitioner is under the mistaken impression that as the Order to Sell had become
a judgment in itself as to the validity of the sale of the properties involved, any
question as to its nullity should have been brought before the Court of Appeals on
appeal when the said Order was issued.
It is a well-settled rule that a Court of First Instance (now Regional Trial Court)
has jurisdiction over a case brought to rescind a sale made upon prior authority
of a Probate Court. This does not constitute an interference or review of the order
of a co-equal Court since the Probate Court has no jurisdiction over the question
of title to subject properties. Consequently, a separate action may be brought to
determine the question of ownership. 16
Lastly, on the issue of whether only three-fourths of the property in question
should have been returned to MERLINDA, petitioner's stance is equally
unsustainable. It is a settled doctrine that an issue which was neither averred in
the Complaint nor raised during the trial before the lower court cannot be raised
for the first time on appeal, as such a recourse would be offensive to the basic
rules of fair play, justice, and due process. 17
The issue of whether only three-fourths of subject property will be returned was
never an issue before the lower court and therefore, the petitioner cannot do it
now. A final word. In a Petition for Review, only questions of law may be raised.
It is perceived by the Court that what petitioner is trying to, albeit subtly, is for the
Court to examine the probative value or evidentiary weight of the evidence
presented below 18. The Court cannot do that unless the appreciation of the
pieces of evidence on hand is glaringly erroneous. But this is where petitioner
utterly failed.1âwphi1.nêt

WHEREFORE, the Petition is DENIED and the decision of the Court of Appeals,
Since one of the characteristics of a void or inexistent contract is that it does not dated September 30, 1992, in CA-G.R. CV No. 26051 AFFIRMED. No
produce any effect, MERLINDA can recover the property from petitioner who pronouncement as to costs.
never acquired title thereover.

SO ORDERED.
As to the second issue, petitioner stresses that his title should have been
respected since he is a purchaser in good faith and for value. The Court of
Appeals, however, opined that he (petitioner) is not a purchaser in good faith. It
found that there were circumstances known to MODINA which rendered their
transaction fraudulent under the attendant circumstances.

As a general rule, in a sale under the Torrens system, a void title cannot give rise
to a valid title. The exception is when the sale of a person with a void title is to a
third person who purchased it for value and in good faith.

A purchaser in good faith is one who buys the property of another without notice
that some other person has a right to or interest in such property and pays a full
and fair price at the time of the purchase or before he has notice of the claim or
interest of some other person in the property.

In the case under scrutiny, petitioner cannot claim that he was a purchaser in
good faith. There are circumstances which are indicia of bad faith on his part, to
wit: (1) He asked his nephew, Placido Matta, to investigate the origin of the
property and the latter learned that the same formed part of the properties of
MERLINDA's first husband; (2) that the said sale was between the spouses; (3)
that when the property was inspected, MODINA met all the lessees who informed
that subject lands belong to MERLINDA and they had no knowledge that the same
lots were sold to the husband.

It is a well-settled rule that a purchaser cannot close his eyes to facts which would
put a reasonable man upon his guard to make the necessary inquiries, and then

G.R. No. 144735 October 18, 2001
YU BUN GUAN, petitioner,
vs.
ELVIRA ONG, respondent.
PANGANIBAN, J.:
A simulated deed of sale has no legal effect, and the transfer certificate of title
issued in consequence thereof should be cancelled. Pari delicto does not apply
to simulated sales.
Statement of the Case
Before us is a Petition for Review under rule 45 of the Rules of Court, assailing
the April 25, 2000 Decision1 and the August 31, 2000 Resolution2 of the Court of
Appeals3 (CA) in CA-GR CV No. 61364. The decretal portion of the Decision
reads as follows:
"We cannot see any justification for the setting aside of the contested
Decision.
"THE FOREGOING CONSIDERED, the appealed Decision is hereby
AFFIRMED."4
The assailed Resolution denied petitioner's "Supplemental Motion for
Reconsideration with Leave to Submit [Newly] Discovered Evidence."
The CA sustained the Decision of the Regional Trial Court (RTC) of Makati City
(Branch 60), which had disposed as follows:5
"23. WHEREFORE, the Court hereby renders judgment as follows:
23.1 The Deed of Sale dated July 24, 1992 (Exh. EE on
Exh. 3) is declared VOID.
23.2 The plaintiff ELVIRA ONG is declared the OWNER of
the property covered by Transfer Certificate of Title No.
217614, Registry of Deeds, Makati (Exh. DD).
23.3 The Register of Deeds, City of Makati is ordered to:
23.2.1. Cancel Transfer Certificate of Title No.
181033 (Exh. HH); and
23.2.2. Issue in lieu thereof, a transfer certificate
of title in the name of ELVIRA A. ONG, of legal
age, single, Filipino';
23.[4]. The defendant YU BUN GUAN is ordered to pay to
the said plaintiff, the following:
23.[4].1. P48,631.00 – As reimbursement of the
capital gains tax (Exh. FF);
23.[4].2. Six (6) percent of P48,631.00 – per
annum from November 23, 1993, until the said
P48,631.00 is paid – as damages;
23.[4].3. P100,000.00 – as moral damages;
23.[4].4. P50,000.00 as exemplary damages;
23.[4].5. P100,000.00 – as attorney's fees.
23.[5]. The COUNTERCLAIM is DISMISSED.
23.[6]. Cost is taxed against the defendant.
"24. In Chambers, City of Makati, June 23, 1998.
84
The Facts
The antecedents of the case are succinctly summarized by the Court of Appeals
in this wise:
'[Herein respondent] said that she and [petitioner] are husband and
wife, having been married according to Chinese rites on April 30, 1961.
They lived together until she and her children were abandoned by
[petitioner] on August 26, 1992, because of the latter's 'incurable
promiscuity, volcanic temper and other vicious vices'; out of the
reunion were born three (3) children, now living with her [respondent].
"She purchased on March 20, 1968, out of her personal funds, a parcel
of land, then referred to as the Rizal property, from Aurora Seneris,
and supported by Title No. 26795, then subsequently registered on
April 17, 1968, in her name.1âwphi1.nêt
"Also during their marriage, they purchased, out of their conjugal funds,
a house and lot, in 1983, thereafter, registered in their names, under
Title No. 118884.
'Before their separation in 1992, she 'reluctantly agreed' to the
[petitioner's] 'importunings' that she execute a Deed of Sale of the J.P.
Rizal property in his favor, but on the promise that he would construct
a commercial building for the benefit of the children. He suggested that
the J.P. Rizal property should be in his name alone so that she would
not be involved in any obligation. The consideration for the 'simulated
sale' was that, after its execution in which he would represent himself
as single, a Deed of Absolute Sale would be executed in favor of the
three (3) children and that he would pay the Allied Bank, Inc. the loan
he obtained.
"Because of the 'glib assurances' of [petitioner], [respondent] executed
a Deed of Absolute Sale in 1992, but then he did not pay the
consideration of P200,000.00, supposedly the 'ostensible' valuable
consideration. On the contrary, she paid for the capital gains tax and
all the other assessments even amounting to not less than P60,000.00,
out of her personal funds.
"Because of the sale, a new title (TCT No. 181033) was issued in his
name, but to 'insure' that he would comply with his commitment, she
did not deliver the owner's copy of the title to him.
"Because of the refusal of [petitioner] to perform his promise, and also
because he insisted on delivering to him the owner's copy of the title
[to] the JP Rizal property, in addition to threats and physical violence,
she decided executing an Affidavit of Adverse Claim.
Also to avoid burdening the JP Rizal property with an additional loan
amount, she wrote the Allied Bank, Inc. on August 25, 1992,
withdrawing her authority for [petitioner] to apply for additional loans.
"To save their marriage, she even sought the help of relatives in an
earnest effort [at] reconciliation, not to mention a letter to [petitioner]
on November 3, 1992.
"[Petitioner], on the other hand, filed with the RTC, Makati, in 1993
(Case No. M-2905), a 'Petition for Replacement' of an owner's
duplicate title.
"Attached to the Petition was the Affidavit of Loss dated March 26,
1993, in which he falsely made it appear that the owner's copy of the
title was lost or misplaced, and that was granted by the court in an
Order dated September 17, 1993, following which a new owner's copy
of the title was issued to [petitioner].
"Upon discovery of the 'fraudulent steps' taken by the [petitioner],
[respondent] immediately executed an Affidavit of Adverse Claim on
November 29, 1993.
"She precisely asked the court that the sale of the JP Rizal property be
declared as null and void; for the title to be cancelled; payment of
actual, moral and exemplary damages; and attorney's fees.
"It was, on the other hand, the version of [petitioner] that sometime in
1968 or before he became a Filipino, 'through naturalization' the JP
Rizal property was being offered to him for sale. Because he was not

a Filipino, he utilized [respondent] as his 'dummy' and agreed to have
the sale executed in the name of [respondent], although the
consideration was his own and from his personal funds.
"When he finally acquired a Filipino citizenship in 1972, he purchased
another property being referred to as the 'Juno lot' out of his own funds.
If only to reflect the true ownership of the JP Rizal property, a Deed of
Sale was then executed in 1972. Believing in good faith that his
owner's copy of the title was lost and not knowing that the same was
surreptitiously 'concealed' by [respondent], he filed in 1993 a petition
for replacement of the owner's copy of the title, in court.
"[Petitioner] added that [respondent] could not have purchased the
property because she had no financial capacity to do so; on the other
hand, he was financially capable although he was financially capable
although he was disqualified to acquire the property by reason of his
nationality. [Respondent] was in pari delicto being privy to the
simulated sale.
"Before the court a quo, the issues were: who purchased the JP Rizal
property? [W]as the Deed of Sale void? and damages.6
Ruling of the Trial Court
After examining the evidence adduced by both parties, the RTC found that the JP
Rizal property was the paraphernal property of the respondent, because (1) the
title had been issued in her name; (2) petitioner had categorically admitted that
the property was in her name; (3) petitioner was estopped from claiming
otherwise, since he had signed the Deed of Absolute Sale that stated that she
was the "absolute and registered owner"; (4) she had paid the real property taxes
thereon.7
The trial court further held that the in pari delicto rule found in Articles 1411 and
1412 of the Civil Code was not applicable to the present case, because it would
apply only to existing contracts with an illegal cause or object, not to simulated or
fictitious contracts or to those that were inexistent due to lack of an essential
requisite such as cause or consideration.8 It likewise voided the Deed of Absolute
Sale of the JP Rizal property for having been simulated and executed during the
marriage of the parties.9
Ruling of the Court of Appeals
The Court of Appeals upheld the trial court's findings that the JP Rizal property
had been acquired by respondent alone, out of her own personal funds. It ruled
thus:
"x x x [T]he JP Rizal property was purchased by the [respondent]
alone; therefore it is a paraphernal property. As a matter of fact, the
title was issued in her name, Exh. 'DD' This was even admitted by
[petitioner] in the Answer that the sale was executed in her name
alone. He also signed the sale mentioning [respondent] to be an
absolute owner; therefore he should be estopped from claiming
otherwise. She alone likewise did the payment of the taxes.10
The CA debunked the contention of petitioner that he had purchased the property
out of his own funds and merely used respondent as his dummy.11 It also held
that the latter was not in pari delicto with him, because the contract was simulated
or fictitious due to the lack of consideration. The contract was deemed void for
having been executed during the couple's marriage.12 The CA likewise affirmed
the award of actual, moral and exemplary damages to respondent.13
Hence, this Petition.14
Issues
In his Memorandum, petitioner raises the following issues for the Court's
consideration:
I respondent. However, TCT No. 217614 had been issued earlier on April 17, 1968.
"Whether or not the Court of Appeals gravely erred in not applying [the]
rules on co-ownership under Article 144 of the New Civil Code in
determining the proprietary rights of the parties herein even as
respondent herself expressly declared that the money with which she
allegedly bought the property in question in 1968 came from her funds,
salaries and savings at the time she and petitioner already lived as
husband and wife.
85
II
"Whether or not the Court of Appeals likewise palpably erred in
declaring the sale of the subject property to herein petitioner in 1992
to be fictitious, simulated and inexistent.
III
"Whether or not the Court of Appeals further erred in not applying the
'[in] pari delicto' rule to the sale of the subject property in favor of the
petitioner in 1992 contrary to the express declaration to that effect in
the very same case it cited (Rodriguez v. Rodriguez; 20 SCRA 908) in
the decision herein sought to be reviewed.
IV
"Whether or not the Court of Appeals gravely erred in annul[l]ing the
title (TCT No. 181033) to the subject property in the name of herein
petitioner in the absence of actual fraud."15 (Underscoring in the
original.)
This Court's Ruling
The Petition is devoid of merit.
First Issue:
Nature of the Property
Petitioner contends that the JP Rizal property should be deemed as co-owned,
considering that respondent testified during trial that the money she used in
purchasing it had come from her income, salaries and savings, which are conjugal
in nature.
On the other hand, respondent maintains that the finding of the two lower courts
that the property was acquired using funds solely owned by her is binding and
supported by evidence. She further argues that the two defenses of petitioner are
contradictory to each other because, if the property is co-owned, he cannot claim
to own it in its entirety.
We find no reason to disturb the findings of the RTC and the CA that the source
of the money used to acquire the property was paraphernal. This issue is factual
in nature. It is axiomatic that "factual findings of the trial court, especially when
affirmed by the Court of Appeals, as in this case, are binding and conclusive on
the Supreme Court. It is not the function of this Court to reexamine the lower
courts' findings of fact. While there are exceptions to this rule, petitioner has not
shown its entitlement to any of them."16
The testimony of petitioner as to the source of the money he had supposedly used
to purchase the property was at best vague and unclear. At first he maintained
that the money came from his own personal funds. Then he said that it came from
his mother; and next, from his father. Time and time again, "we [have] held that
the unnatural and contradictory testimony of a witness, x x x makes him unreliable
x x x."17 His statement that the JP Rizal property was bought with his own money
can hardly be believed, when he himself was unsure as to the source of those
funds.
On the other hand, the capacity of respondent to purchase the subject property
cannot be questioned. It was sufficiently established during trial that she had the
means to do so. In fact, her testimony that she had purchased several other lots
using her personal funds was not disputed.
Equally without merit is the contention of petitioner that, because he was a
Chinese national at the time, respondent was merely used as a dummy in
acquiring the property; thus, she could not have legally acquired title thereto. He
testified that sometime during the last month of 1968, he had consulted a certain
Atty. Flores, who advised him that the property be registered in the name of
Thus, it appears that the subject property had already been bought and registered
in the name of respondent, long before Atty. Flores allegedly advised him to have
the property registered in her name.
We therefore agree with the CA's affirmation of the RTC's findings that the
property had been acquired using respondent's paraphernal property. The CA
rule thus:
 86

"The fact however, is that Yu never refuted Elvira's testimony that: (a) WHEREFORE, the Petition is hereby DENIED and the assailed.
the money with which she acquired the JP Rizal property came from": Decision AFFIRMED. Costs against petitioner.
(1) her income as a cashier in the Hong Kiat Hardware: a (2) income
from her paraphernal property – a lot in Guadalupe; (3) her savings
from the money which her parents gave her while she was still a SO ORDERED.
student; and (4) the money which her sister gave her for helping her
run the beauty parlor; (b) her parents were well off – they had stores,
apartments and beauty parlors from which they derived income; (c)
before her marriage she bought lots in different places (p. 8, TSN, Jan.
26, 1998; pp. 22-23, TSN March 10, 1998)."18

Second Issue:

Fictitious, Simulated and Inexistent Sale

Next, petitioner argues that there was a valid sale between the parties, and that
the consideration consisted of his promise to construct a commercial building for
the benefit of their three children and to pay the loan he had obtained from Allied
Bank.

We disagree. In Rongavilla v. Court of Appeals,19 the Court declared that a deed

of sale, in which the stated consideration had not in fact been paid, is null and
void:

"The 'problem' before the Court is whether a deed which states a

consideration that in fact did not exist, is a contract, without
consideration, and therefore void ab initio, or a contract with a false
consideration, and therefore, at least under the Old Civil Code,
voidable. x x x."

"In our view, therefore, the ruling of this Court in Ocejo, Perez & Co.
vs. Flores, 40 Phil. 921[,] is squarely applicable herein. In that case we
ruled that a contract of purchase and sale is null and null and void and
produces no effect whatsoever where the same is without cause or
consideration in that the purchase price which appears thereon as paid
has in fact never been paid by the purchaser to vendor."20

In the present case, it is clear from the factual findings of both lower courts that
the Deed of Sale was completely simulated and, hence, void and without effect.
No portion of the P200,000 consideration stated in the Deed was ever paid. And,
from the facts of the case, it is clear that neither party had any intention
whatsoever to pay that amount.

Instead, the Deed of Sale was executed merely to facilitate the transfer of the
property to petitioner pursuant to an agreement between the parties to enable him
to construct a commercial building and to sell the Juno property to their children.
Being merely a subterfuge, that agreement cannot be taken as the consideration
for the sale.

Third Issue:

Inapplicability of the in Pari Delicto Principle

The principle of in pari delicto provides that when two parties are equally at fault,
the law leaves them as they are and denies recovery by either one of them.
However, this principle does not apply with respect to inexistent and void
contracts. Said this Court in Modina v. Court of Appeals:21

"The principle of in pari delicto non oritur actio denies all recovery to
the guilty parties inter se. It applies to cases where the nullity arises
from the illegality of the consideration or the purpose of the contract.
When two persons are equally at fault, the law does not relieve them.
The exception to this general rule is when the principle is invoked with
respect to inexistent contracts."22

Fourth Issue:

Cancellation of TCT

Finally, based on the foregoing disquisition, it is quite obvious that the Court of
Appeals did not err in ordering the cancellation of TCT No. 181033, because the
Deed of Absolute Sale transferring ownership to petitioner was completely
simulated, void and without effect. In fact, there was no legal basis for the
issuance of the certificate itself.1âwphi1.nêt

G.R. No. 156364 September 3, 2007
JACOBUS BERNHARD HULST, petitioner,
vs.
PR BUILDERS, INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court assailing the Decision1 dated October 30, 2002 of the
Court of Appeals (CA) in CA-G.R. SP No. 60981.
The facts:
Jacobus Bernhard Hulst (petitioner) and his spouse Ida Johanna Hulst-Van
Ijzeren (Ida), Dutch nationals, entered into a Contract to Sell with PR Builders,
Inc. (respondent), for the purchase of a 210-sq m residential unit in respondent's
townhouse project in Barangay Niyugan, Laurel, Batangas.
When respondent failed to comply with its verbal promise to complete the project
by June 1995, the spouses Hulst filed before the Housing and Land Use
Regulatory Board (HLURB) a complaint for rescission of contract with interest,
damages and attorney's fees, docketed as HLRB Case No. IV6-071196-0618.
On April 22, 1997, HLURB Arbiter Ma. Perpetua Y. Aquino (HLURB Arbiter)
rendered a Decision2 in favor of spouses Hulst, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the complainant, rescinding the Contract to Sell and ordering
respondent to:
1) Reimburse complainant the sum of P3,187,500.00, representing the
purchase price paid by the complainants to P.R. Builders, plus interest
thereon at the rate of twelve percent (12%) per annum from the time
complaint was filed;
2) Pay complainant the sum of P297,000.00 as actual damages;
3) Pay complainant the sum of P100,000.00 by way of moral damages;
4) Pay complainant the sum of P150,000.00 as exemplary damages;
5) P50,000.00 as attorney's fees and for other litigation expenses; and
6) Cost of suit.
SO ORDERED.3
Meanwhile, spouses Hulst divorced. Ida assigned her rights over the purchased
property to petitioner.4 From then on, petitioner alone pursued the case.
On August 21, 1997, the HLURB Arbiter issued a Writ of Execution addressed to
the Ex-Officio Sheriff of the Regional Trial Court of Tanauan, Batangas directing
the latter to execute its judgment.5
On April 13, 1998, the Ex-Officio Sheriff proceeded to implement the Writ of
Execution. However, upon complaint of respondent with the CA on a Petition
for Certiorari and Prohibition, the levy made by the Sheriff was set aside, requiring
the Sheriff to levy first on respondent's personal properties. 6 Sheriff Jaime B.
Ozaeta (Sheriff) tried to implement the writ as directed but the writ was returned
unsatisfied.7
On January 26, 1999, upon petitioner's motion, the HLURB Arbiter issued an Alias
Writ of Execution.8
On March 23, 1999, the Sheriff levied on respondent's 15 parcels of land covered
by 13 Transfer Certificates of Title (TCT)9 in Barangay Niyugan, Laurel,
Batangas.10
87
In a Notice of Sale dated March 27, 2000, the Sheriff set the public auction of the
levied properties on April 28, 2000 at 10:00 a.m..11
Two days before the scheduled public auction or on April 26, 2000, respondent
filed an Urgent Motion to Quash Writ of Levy with the HLURB on the ground that
the Sheriff made an overlevy since the aggregate appraised value of the levied
properties at P6,500.00 per sq m is P83,616,000.00, based on the Appraisal
Report12 of Henry Hunter Bayne Co., Inc. dated December 11, 1996, which is over
and above the judgment award.13
At 10:15 a.m. of the scheduled auction date of April 28, 2000, respondent's
counsel objected to the conduct of the public auction on the ground that
respondent's Urgent Motion to Quash Writ of Levy was pending resolution. Absent
any restraining order from the HLURB, the Sheriff proceeded to sell the 15 parcels
of land. Holly Properties Realty Corporation was the winning bidder for all 15
parcels of land for the total amount of P5,450,653.33. The sum of P5,313,040.00
was turned over to the petitioner in satisfaction of the judgment award after
deducting the legal fees.14
At 4:15 p.m. of the same day, while the Sheriff was at the HLURB office to remit
the legal fees relative to the auction sale and to submit the Certificates of
Sale15 for the signature of HLURB Director Belen G. Ceniza (HLURB Director),
he received the Order dated April 28, 2000 issued by the HLURB Arbiter to
suspend the proceedings on the matter.16
Four months later, or on August 28, 2000, the HLURB Arbiter and HLURB Director
issued an Order setting aside the sheriff's levy on respondent's real
properties,17 reasoning as follows:
While we are not making a ruling that the fair market value of the levied
properties is PhP6,500.00 per square meter (or an aggregate value of
PhP83,616,000.00) as indicated in the Hunter Baynes Appraisal
Report, we definitely cannot agree with the position of the
Complainants and the Sheriff that the aggregate value of the
12,864.00-square meter levied properties is only around
PhP6,000,000.00. The disparity between the two valuations are [sic]
so egregious that the Sheriff should have looked into the matter first
before proceeding with the execution sale of the said properties,
especially when the auction sale proceedings was seasonably
objected by Respondent's counsel, Atty. Noel Mingoa. However,
instead of resolving first the objection timely posed by Atty. Mingoa,
Sheriff Ozaete totally disregarded the objection raised and, posthaste,
issued the corresponding Certificate of Sale even prior to the payment
of the legal fees (pars. 7 & 8, Sheriff's Return).
While we agree with the Complainants that what is material in an
execution sale proceeding is the amount for which the properties were
bidded and sold during the public auction and that, mere inadequacy
of the price is not a sufficient ground to annul the sale, the court is
justified to intervene where the inadequacy of the price shocks the
conscience (Barrozo vs. Macaraeg, 83 Phil. 378). The difference
between PhP83,616,000.00 and Php6,000,000.00 is
PhP77,616,000.00 and it definitely invites our attention to look into the
proceedings had especially so when there was only one bidder, the
HOLLY PROPERTIES REALTY CORPORATION represented by Ma,
Chandra Cacho (par. 7, Sheriff's Return) and the auction sale
proceedings was timely objected by Respondent's counsel (par. 6,
Sheriff's Return) due to the pendency of the Urgent Motion to Quash
the Writ of Levy which was filed prior to the execution sale.
Besides, what is at issue is not the value of the subject properties
as determined during the auction sale, but the determination of
the value of the properties levied upon by the Sheriff taking into
consideration Section 9(b) of the 1997 Rules of Civil Procedure x
x x.
xxxx
It is very clear from the foregoing that, even during levy, the Sheriff has
to consider the fair market value of the properties levied upon to
determine whether they are sufficient to satisfy the judgment, and any
levy in excess of the judgment award is void (Buan v. Court of Appeals,
235 SCRA 424).
x x x x18 (Emphasis supplied).
The dispositive portion of the Order reads:

WHEREFORE, the levy on the subject properties made by the Ex-
Officio Sheriff of the RTC of Tanauan, Batangas, is hereby SET ASIDE
and the said Sheriff is hereby directed to levy instead Respondent's
real properties that are reasonably sufficient to enforce its final and
executory judgment, this time, taking into consideration not only the
value of the properties as indicated in their respective tax declarations,
but also all the other determinants at arriving at a fair market value,
namely: the cost of acquisition, the current value of like properties, its
actual or potential uses, and in the particular case of lands, their size,
shape or location, and the tax declarations thereon.
SO ORDERED.19
A motion for reconsideration being a prohibited pleading under Section 1(h), Rule
IV of the 1996 HLURB Rules and Procedure, petitioner filed a Petition
for Certiorari and Prohibition with the CA on September 27, 2000.
On October 30, 2002, the CA rendered herein assailed Decision20 dismissing the
petition. The CA held that petitioner's insistence that Barrozo v. Macaraeg21 does
not apply since said case stated that "when there is a right to redeem inadequacy
of price should not be material" holds no water as what is obtaining in this case is
not "mere inadequacy," but an inadequacy that shocks the senses; that Buan v.
Court of Appeals22 properly applies since the questioned levy covered 15 parcels
of land posited to have an aggregate value of P83,616,000.00 which shockingly
exceeded the judgment debt of only around P6,000,000.00.
Without filing a motion for reconsideration,23 petitioner took the present recourse
on the sole ground that:
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
AFFIRMING THE ARBITER'S ORDER SETTING ASIDE THE LEVY
MADE BY THE SHERIFF ON THE SUBJECT PROPERTIES.24
Before resolving the question whether the CA erred in affirming the Order of the
HLURB setting aside the levy made by the sheriff, it behooves this Court to
address a matter of public and national importance which completely escaped the
attention of the HLURB Arbiter and the CA: petitioner and his wife are foreign
nationals who are disqualified under the Constitution from owning real property in
their names.
Section 7 of Article XII of the 1987 Constitution provides:
Sec. 7. Save in cases of hereditary succession, no private lands shall
be transferred or conveyed except to individuals, corporations, or
associations qualified to acquire or hold lands of the public
domain. (Emphasis supplied).
The capacity to acquire private land is made dependent upon the capacity to
acquire or hold lands of the public domain. Private land may be transferred or
conveyed only to individuals or entities "qualified to acquire lands of the public
domain." The 1987 Constitution reserved the right to participate in the disposition,
exploitation, development and utilization of lands of the public domain for Filipino
citizens25 or corporations at least 60 percent of the capital of which is owned by
Filipinos.26 Aliens, whether individuals or corporations, have been disqualified
from acquiring public lands; hence, they have also been disqualified from
acquiring private lands.27
Since petitioner and his wife, being Dutch nationals, are proscribed under the
Constitution from acquiring and owning real property, it is unequivocal that the
Contract to Sell entered into by petitioner together with his wife and respondent
is void. Under Article 1409 (1) and (7) of the Civil Code, all contracts whose cause,
object or purpose is contrary to law or public policy and those expressly prohibited
or declared void by law are inexistent and void from the beginning. Article 1410
of the same Code provides that the action or defense for the declaration of the
inexistence of a contract does not prescribe. A void contract is equivalent to
nothing; it produces no civil effect.28 It does not create, modify or extinguish a
juridical relation.29
Generally, parties to a void agreement cannot expect the aid of the law; the courts
leave them as they are, because they are deemed in pari delicto or "in equal
fault."30 In pari delicto is "a universal doctrine which holds that no action arises, in
equity or at law, from an illegal contract; no suit can be maintained for its specific
performance, or to recover the property agreed to be sold or delivered, or the
money agreed to be paid, or damages for its violation; and where the parties are
in pari delicto, no affirmative relief of any kind will be given to one against the
other."31
This rule, however, is subject to exceptions32 that permit the return of that which
may have been given under a void contract to: (a) the innocent party (Arts. 1411-
88
1412, Civil Code);33 (b) the debtor who pays usurious interest (Art. 1413, Civil
Code);34 (c) the party repudiating the void contract before the illegal purpose
is accomplished or before damage is caused to a third person and if public
interest is subserved by allowing recovery (Art. 1414, Civil Code);35 (d) the
incapacitated party if the interest of justice so demands (Art. 1415, Civil
Code);36 (e) the party for whose protection the prohibition by law is intended if the
agreement is not illegal per se but merely prohibited and if public policy would be
enhanced by permitting recovery (Art. 1416, Civil Code);37 and (f) the party for
whose benefit the law has been intended such as in price ceiling laws (Art. 1417,
Civil Code)38 and labor laws (Arts. 1418-1419, Civil Code).39
It is significant to note that the agreement executed by the parties in this case is
a Contract to Sell and not a contract of sale. A distinction between the two is
material in the determination of when ownership is deemed to have been
transferred to the buyer or vendee and, ultimately, the resolution of the question
on whether the constitutional proscription has been breached.
In a contract of sale, the title passes to the buyer upon the delivery of the thing
sold. The vendor has lost and cannot recover the ownership of the property until
and unless the contract of sale is itself resolved and set aside.40 On the other
hand, a contract to sell is akin to a conditional sale where the efficacy or obligatory
force of the vendor's obligation to transfer title is subordinated to the happening
of a future and uncertain event, so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation had never
existed.41 In other words, in a contract to sell, the prospective seller agrees to
transfer ownership of the property to the buyer upon the happening of an event,
which normally is the full payment of the purchase price. But even upon the
fulfillment of the suspensive condition, ownership does not automatically transfer
to the buyer. The prospective seller still has to convey title to the prospective
buyer by executing a contract of absolute sale.42
Since the contract involved here is a Contract to Sell, ownership has not yet
transferred to the petitioner when he filed the suit for rescission. While the intent
to circumvent the constitutional proscription on aliens owning real property was
evident by virtue of the execution of the Contract to Sell, such violation of the law
did not materialize because petitioner caused the rescission of the contract before
the execution of the final deed transferring ownership.
Thus, exception (c) finds application in this case. Under Article 1414, one who
repudiates the agreement and demands his money before the illegal act has taken
place is entitled to recover. Petitioner is therefore entitled to recover what he has
paid, although the basis of his claim for rescission, which was granted by the
HLURB, was not the fact that he is not allowed to acquire private land under the
Philippine Constitution. But petitioner is entitled to the recovery only of the amount
of P3,187,500.00, representing the purchase price paid to respondent. No
damages may be recovered on the basis of a void contract; being nonexistent,
the agreement produces no juridical tie between the parties involved.43 Further,
petitioner is not entitled to actual as well as interests thereon, 44 moral and
exemplary damages and attorney's fees.
The Court takes into consideration the fact that the HLURB Decision dated April
22, 1997 has long been final and executory. Nothing is more settled in the law
than that a decision that has acquired finality becomes immutable and unalterable
and may no longer be modified in any respect even if the modification is meant to
correct erroneous conclusions of fact or law and whether it was made by the court
that rendered it or by the highest court of the land.45The only recognized
exceptions to the general rule are the correction of clerical errors, the so-
called nunc pro tunc entries which cause no prejudice to any party, void
judgments, and whenever circumstances transpire after the finality of the decision
rendering its execution unjust and inequitable.46 None of the exceptions is present
in this case. The HLURB decision cannot be considered a void judgment, as it
was rendered by a tribunal with jurisdiction over the subject matter of the
complaint.47
Ineluctably, the HLURB Decision resulted in the unjust enrichment of petitioner at
the expense of respondent. Petitioner received more than what he is entitled to
recover under the circumstances.
Article 22 of the Civil Code which embodies the maxim, nemo ex alterius
incommode debet lecupletari (no man ought to be made rich out of another's
injury), states:
Art. 22. Every person who through an act of performance by another,
or any other means, acquires or comes into possession of something
at the expense of the latter without just or legal ground, shall return the
same to him.
The above-quoted article is part of the chapter of the Civil Code on Human
Relations, the provisions of which were formulated as basic principles to be
observed for the rightful relationship between human beings and for the stability
of the social order; designed to indicate certain norms that spring from the fountain

of good conscience; guides for human conduct that should run as golden threads
through society to the end that law may approach its supreme ideal which is the
sway and dominance of justice.48 There is unjust enrichment when a person
unjustly retains a benefit at the loss of another, or when a person retains money
or property of another against the fundamental principles of justice, equity and
good conscience.49
A sense of justice and fairness demands that petitioner should not be allowed to
benefit from his act of entering into a contract to sell that violates the constitutional
proscription.
This is not a case of equity overruling or supplanting a positive provision of law or
judicial rule. Rather, equity is exercised in this case "as the complement of legal
jurisdiction [that] seeks to reach and to complete justice where courts of law,
through the inflexibility of their rules and want of power to adapt their judgments
to the special circumstances of cases, are incompetent to do so."50
The purpose of the exercise of equity jurisdiction in this case is to prevent unjust
enrichment and to ensure restitution. Equity jurisdiction aims to do complete
justice in cases where a court of law is unable to adapt its judgments to the special
circumstances of a case because of the inflexibility of its statutory or legal
jurisdiction.51
The sheriff delivered to petitioner the amount of P5,313,040.00 representing the
net proceeds (bidded amount is P5,450,653.33) of the auction sale after
deducting the legal fees in the amount of P137,613.33.52 Petitioner is only entitled
to P3,187,500.00, the amount of the purchase price of the real property paid by
petitioner to respondent under the Contract to Sell. Thus, the Court in the exercise
of its equity jurisdiction may validly order petitioner to return the excess amount
of P2,125,540.00.
The Court shall now proceed to resolve the single issue raised in the present
petition: whether the CA seriously erred in affirming the HLURB Order setting
aside the levy made by the Sheriff on the subject properties.
Petitioner avers that the HLURB Arbiter and Director had no factual basis for
pegging the fair market value of the levied properties at P6,500.00 per sq m
or P83,616,000.00; that reliance on the appraisal report was misplaced since the
appraisal was based on the value of land in neighboring developed subdivisions
and on the assumption that the residential unit appraised had already been built;
that the Sheriff need not determine the fair market value of the subject properties
before levying on the same since what is material is the amount for which the
properties were bidded and sold during the public auction; that the pendency of
any motion is not a valid ground for the Sheriff to suspend the execution
proceedings and, by itself, does not have the effect of restraining the Sheriff from
proceeding with the execution.
Respondent, on the other hand, contends that while it is true that the HLURB
Arbiter and Director did not categorically state the exact value of the levied
properties, said properties cannot just amount to P6,000,000.00; that the HLURB
Arbiter and Director correctly held that the value indicated in the tax declaration
is not the sole determinant of the value of the property.
The petition is impressed with merit.
If the judgment is for money, the sheriff or other authorized officer must execute
the same pursuant to the provisions of Section 9, Rule 39 of the Revised Rules
of Court, viz:
Sec. 9. Execution of judgments for money, how enforced. –
(a) Immediate payment on demand. - The officer shall enforce an
execution of a judgment for money by demanding from the judgment
obligor the immediate payment of the full amount stated in the writ of
execution and all lawful fees. x x x
(b) Satisfaction by levy. - If the judgment obligor cannot pay all or part
of the obligation in cash, certified bank check or other mode of payment
acceptable to the judgment obligee, the officer shall levy upon the
properties of the judgment obligor of every kind and nature
whatsoever which may be disposed of for value and not
otherwise exempt from execution, giving the latter the option to
immediately choose which property or part thereof may be levied upon,
sufficient to satisfy the judgment. If the judgment obligor does not
exercise the option, the officer shall first levy on the personal
properties, if any, and then on the real properties if the personal
properties are insufficient to answer for the judgment.
89
The sheriff shall sell only a sufficient portion of the personal or
real property of the judgment obligor which has been levied upon.
When there is more property of the judgment obligor than is
sufficient to satisfy the judgment and lawful fees, he must sell
only so much of the personal or real property as is sufficient to
satisfy the judgment and lawful fees.
Real property, stocks, shares, debts, credits, and other personal
property, or any interest in either real or personal property, may be
levied upon in like manner and with like effect as under a writ of
attachment(Emphasis supplied).53
Thus, under Rule 39, in executing a money judgment against the property of the
judgment debtor, the sheriff shall levy on all property belonging to the judgment
debtor as is amply sufficient to satisfy the judgment and costs, and sell the same
paying to the judgment creditor so much of the proceeds as will satisfy the amount
of the judgment debt and costs. Any excess in the proceeds shall be delivered to
the judgment debtor unless otherwise directed by the judgment or order of the
court.54
Clearly, there are two stages in the execution of money judgments. First, the levy
and then the execution sale.
Levy has been defined as the act or acts by which an officer sets apart or
appropriates a part or the whole of a judgment debtor's property for the purpose
of satisfying the command of the writ of execution.55 The object of a levy is to take
property into the custody of the law, and thereby render it liable to the lien of the
execution, and put it out of the power of the judgment debtor to divert it to any
other use or purpose.56
On the other hand, an execution sale is a sale by a sheriff or other ministerial
officer under the authority of a writ of execution of the levied property of the
debtor.57
In the present case, the HLURB Arbiter and Director gravely abused their
discretion in setting aside the levy conducted by the Sheriff for the reason that the
auction sale conducted by the sheriff rendered moot and academic the motion to
quash the levy. The HLURB Arbiter lost jurisdiction to act on the motion to quash
the levy by virtue of the consummation of the auction sale. Absent any order from
the HLURB suspending the auction sale, the sheriff rightfully proceeded with the
auction sale. The winning bidder had already paid the winning bid. The legal fees
had already been remitted to the HLURB. The judgment award had already been
turned over to the judgment creditor. What was left to be done was only the
issuance of the corresponding certificates of sale to the winning bidder. In fact,
only the signature of the HLURB Director for that purpose was needed58 – a purely
ministerial act.
A purely ministerial act or duty is one which an officer or tribunal performs in a
given state of facts, in a prescribed manner, in obedience to the mandate of a
legal authority, without regard for or the exercise of his own judgment upon the
propriety or impropriety of the act done. If the law imposes a duty upon a public
officer and gives him the right to decide how or when the duty shall be performed,
such duty is discretionary and not ministerial. The duty is ministerial only when
the discharge of the same requires neither the exercise of official discretion nor
judgment.59 In the present case, all the requirements of auction sale under the
Rules have been fully complied with to warrant the issuance of the corresponding
certificates of sale.
And even if the Court should go into the merits of the assailed Order, the petition
is meritorious on the following grounds:
Firstly, the reliance of the HLURB Arbiter and Director, as well as the CA,
on Barrozo v. Macaraeg60 and Buan v. Court of Appeals61 is misplaced.
The HLURB and the CA misconstrued the Court's pronouncements
in Barrozo. Barrozo involved a judgment debtor who wanted to repurchase
properties sold at execution beyond the one-year redemption period. The
statement of the Court in Barrozo, that "only where such inadequacy shocks the
conscience the courts will intervene," is at best a mere obiter dictum. This
declaration should be taken in the context of the other declarations of the Court
in Barrozo,to wit:
Another point raised by appellant is that the price paid at the auction
sale was so inadequate as to shock the conscience of the court.
Supposing that this issue is open even after the one-year period has
expired and after the properties have passed into the hands of third
persons who may have paid a price higher than the auction sale
money, the first thing to consider is that the stipulation contains no
 90

statement of the reasonable value of the properties; and although
defendant' answer avers that the assessed value was P3,960 it also
avers that their real market value was P2,000 only. Anyway, mere
inadequacy of price – which was the complaint' allegation – is not
sufficient ground to annul the sale. It is only where such
inadequacy shocks the conscience that the courts will
intervene. x x x Another consideration is that the assessed value
being P3,960 and the purchase price being in effect P1,864 (P464 sale
price plus P1,400 mortgage lien which had to be discharged) the
conscience is not shocked upon examining the prices paid in the sales
in National Bank v. Gonzales, 45 Phil., 693 and Guerrero v. Guerrero,
57 Phil., 445, sales which were left undisturbed by this Court.
In the absence of a restraining order, no error, much less abuse of discretion, can
be imputed to the Sheriff in proceeding with the auction sale despite the pending
motion to quash the levy filed by the respondents with the HLURB. It is elementary
that sheriffs, as officers charged with the delicate task of the enforcement and/or
implementation of judgments, must, in the absence of a restraining order, act with
considerable dispatch so as not to unduly delay the administration of justice;
otherwise, the decisions, orders, or other processes of the courts of justice and
the like would be futile.71 It is not within the jurisdiction of the Sheriff to consider,
much less resolve, respondent's objection to the continuation of the conduct of
the auction sale. The Sheriff has no authority, on his own, to suspend the auction
sale. His duty being ministerial, he has no discretion to postpone the conduct of
the auction sale.

Furthermore, where there is the right to redeem – as in this case
– inadequacy of price should not be material because the
judgment debtor may re-acquire the property or else sell his right
to redeem and thus recover any loss he claims to have suffered
by reason of the price obtained at the execution sale.
x x x x (Emphasis supplied).62
In other words, gross inadequacy of price does not nullify an execution sale. In an
ordinary sale, for reason of equity, a transaction may be invalidated on the ground
of inadequacy of price, or when such inadequacy shocks one's conscience as to
justify the courts to interfere; such does not follow when the law gives the owner
the right to redeem as when a sale is made at public auction,63 upon the theory
that the lesser the price, the easier it is for the owner to effect redemption. 64 When
there is a right to redeem, inadequacy of price should not be material because
the judgment debtor may re-acquire the property or else sell his right to redeem
and thus recover any loss he claims to have suffered by reason of the price
obtained at the execution sale.65 Thus, respondent stood to gain rather than be
harmed by the low sale value of the auctioned properties because it possesses
the right of redemption. More importantly, the subject matter in Barrozo is the
auction sale, not the levy made by the Sheriff.
The Court does not sanction the piecemeal interpretation of a decision. To get the
true intent and meaning of a decision, no specific portion thereof should be
isolated and resorted to, but the decision must be considered in its entirety. 66
As regards Buan, it is cast under an entirely different factual milieu. It involved the
levy on two parcels of land owned by the judgment debtor; and the sale at public
auction of one was sufficient to fully satisfy the judgment, such that the levy and
attempted execution of the second parcel of land was declared void for being in
excess of and beyond the original judgment award granted in favor of the
judgment creditor.
In the present case, the Sheriff complied with the mandate of Section 9, Rule 39
of the Revised Rules of Court, to "sell only a sufficient portion" of the levied
properties "as is sufficient to satisfy the judgment and the lawful fees." Each of
the 15 levied properties was successively bidded upon and sold, one after the
other until the judgment debt and the lawful fees were fully satisfied. Holly
Properties Realty Corporation successively bidded upon and bought each of the
levied properties for the total amount of P5,450,653.33 in full satisfaction of the
judgment award and legal fees.67
Finally, one who attacks a levy on the ground of excessiveness carries the burden
of sustaining that contention.72 In the determination of whether a levy of execution
is excessive, it is proper to take into consideration encumbrances upon the
property, as well as the fact that a forced sale usually results in a sacrifice; that
is, the price demanded for the property upon a private sale is not the standard for
determining the excessiveness of the levy.73
Here, the HLURB Arbiter and Director had no sufficient factual basis to determine
the value of the levied property. Respondent only submitted an Appraisal Report,
based merely on surmises. The Report was based on the projected value of the
townhouse project after it shall have been fully developed, that is, on the
assumption that the residential units appraised had already been built. The
Appraiser in fact made this qualification in its Appraisal Report: "[t]he property
subject of this appraisal has not been constructed. The basis of the appraiser is
on the existing model units."74 Since it is undisputed that the townhouse project
did not push through, the projected value did not become a reality. Thus, the
appraisal value cannot be equated with the fair market value. The Appraisal
Report is not the best proof to accurately show the value of the levied properties
as it is clearly self-serving.
Therefore, the Order dated August 28, 2000 of HLURB Arbiter Aquino and
Director Ceniza in HLRB Case No. IV6-071196-0618 which set aside the sheriff's
levy on respondent's real properties, was clearly issued with grave abuse of
discretion. The CA erred in affirming said Order.
WHEREFORE, the instant petition is GRANTED. The Decision dated October 30,
2002 of the Court of Appeals in CA-G.R. SP No. 60981 is REVERSED and SET
ASIDE. The Order dated August 28, 2000 of HLURB Arbiter Ma. Perpetua Y.
Aquino and Director Belen G. Ceniza in HLRB Case No. IV6-071196-0618 is
declared NULL and VOID.HLURB Arbiter Aquino and Director Ceniza are
directed to issue the corresponding certificates of sale in favor of the winning
bidder, Holly Properties Realty Corporation. Petitioner is ordered to return to
respondent the amount of P2,125,540.00, without interest, in excess of the
proceeds of the auction sale delivered to petitioner. After the finality of herein
judgment, the amount of P2,125,540.00 shall earn 6% interest until fully paid.
SO ORDERED.

Secondly, the Rules of Court do not require that the value of the property levied
be exactly the same as the judgment debt; it can be less or more than the amount
of debt. This is the contingency addressed by Section 9, Rule 39 of the Rules of
Court. In the levy of property, the Sheriff does not determine the exact valuation
of the levied property. Under Section 9, Rule 39, in conjunction with Section 7,
Rule 57 of the Rules of Court, the sheriff is required to do only two specific things
to effect a levy upon a realty: (a) file with the register of deeds a copy of the order
of execution, together with the description of the levied property and notice of
execution; and (b) leave with the occupant of the property copy of the same order,
description and notice.68 Records do not show that respondent alleged non-
compliance by the Sheriff of said requisites.

Thirdly, in determining what amount of property is sufficient out of which to secure

satisfaction of the execution, the Sheriff is left to his own judgment. He may
exercise a reasonable discretion, and must exercise the care which a reasonably
prudent person would exercise under like conditions and circumstances,
endeavoring on the one hand to obtain sufficient property to satisfy the purposes
of the writ, and on the other hand not to make an unreasonable and unnecessary
levy.69 Because it is impossible to know the precise quantity of land or other
property necessary to satisfy an execution, the Sheriff should be allowed a
reasonable margin between the value of the property levied upon and the amount
of the execution; the fact that the Sheriff levies upon a little more than is necessary
to satisfy the execution does not render his actions improper. 70 Section 9, Rule
39, provides adequate safeguards against excessive levying. The Sheriff is
mandated to sell so much only of such real property as is sufficient to satisfy the
judgment and lawful fees.

G.R. No. 127540 October 17, 2001
EUGENIO DOMINGO, CRISPIN MANGABAT and SAMUEL
CAPALUNGAN, petitioners,
vs.
HON. COURT OF APPEALS, FELIPE C. RIGONAN and CONCEPCION R.
RIGONAN, respondents.
EUGENIO DOMINGO, CRISPIN MANGABAT and SAMUEL
CAPALUNGAN, petitioners,
vs.
HON. COURT OF APPEALS, THE DIRECTOR OF LANDS, and FELIPE C.
RIGONAN and CONCEPCION R. RIGONAN, respondents.
QUISUMBNG, J.:
This petition1 seeks to annul the decision of the Court of Appeals dated August
29, 1996, which set aside the decision of the Regional Trial Court of Batac, Ilocos
Norte, Branch 17, in Civil Case No. 582-17 for reinvindicacionconsolidated with
Cadastral Case No. 1.2 The petition likewise seeks to annul the resolution dated
December 11, 1996, denying petitioners' motion for reconsideration.
The facts of this case, culled from the records, are as follows:
Paulina Rigonan owned three (3) parcels of land, located at Batac and Espiritu,
Ilocos Norte, including the house and warehouse on one parcel. She allegedly
sold them to private respondents, the spouses Felipe and Concepcion Rigonan,
who claim to be her relatives. In 1966, herein petitioners Eugenio Domingo,
Crispin Mangabat and Samuel Capalungan, who claim to be her closest surviving
relatives, allegedly took possession of the properties by means of stealth, force
and intimidation, and refused to vacate the same. Consequently, on February 2,
1976, herein respondent Felipe Rigonan filed a complaint for reinvindicacion
against petitioners in the Regional Trial Court of Batac, Ilocos Norte. On July 3,
1977, he amended the complaint and included his wife as co-plaintiff. They
alleged that they were the owners of the three parcels of land through the deed
of sale executed by Paulina Rigonan on January 28, 1965; that since then, they
had been in continuous possession of the subject properties and had introduced
permanent improvements thereon; and that defendants (now petitioners) entered
the properties illegally, and they refused to leave them when asked to do so.
Herein petitioners, as defendants below, contested plaintiffs' claims. According to
defendants, the alleged deed of absolute sale was void for being spurious as well
as lacking consideration. They said that Paulina Rigonan did not sell her
properties to anyone. As her nearest surviving kin within the fifth degree of
consanguinity, they inherited the three lots and the permanent improvements
thereon when Paulina died in 1966. They said they had been in possession of the
contested properties for more than 10 years. Defendants asked for damages
against plaintiffs.
During trial, Juan Franco, Notary Public Evaristo P. Tagatag3 and plaintiff Felipe
Rigonan testified for plaintiffs (private respondents now).
Franco testified that he was a witness to the execution of the questioned deed of
absolute sale. However, when cross-examined and shown the deed he stated
that the deed was not the document he signed as a witness, but rather it was the
will and testament made by Paulina Rigonan.
Atty. Tagatag testified that he personally prepared the deed, he saw Paulina
Rigonan affix her thumbprint on it and he signed it both as witness and notary
public. He further testified that he also notarized Paulina's last will and testament
dated February 19, 1965. The will mentioned the same lots sold to private
respondents. When asked why the subject lots were still included in the last will
and testament, he could not explain. Atty. Tagatag also mentioned that he
registered the original deed of absolute sale with the Register of Deeds.
Plaintiff Felipe Rigonan claimed that he was Paulina's close relative. Their fathers
were first cousins. However, he could not recall the name of Paulina's grandfather.
His claim was disputed by defendants, who lived with Paulina as their close kin.
He admitted the discrepancies between the Register of Deeds' copy of the deed
and the copy in his possession. But he attributed them to the representative from
the Office of the Register of Deeds who went to plaintiffs house after that Office
received a subpoena duces tecum. According to him, the representative showed
him blanks in the deed and then the representative filled in the blanks by copying
from his (plaintiffs) copy.
Counsel for defendants (petitioners herein) presented as witnesses Jose Flores,
the owner of the adjacent lot; Ruben Blanco, then acting Registrar of Deeds in
Ilocos Norte; and Zosima Domingo, wife of defendant Eugenio Domingo.
91
Jose Flores testified that he knew defendants, herein petitioners, who had lived
on the land with Paulina Rigonan since he could remember and continued to live
there even after Paulina's death. He said he did not receive any notice nor any
offer to sell the lots from Paulina, contrary to what was indicated in the deed of
sale that the vendor had notified all the adjacent owners of the sale. He averred
he had no knowledge of any sale between Paulina and private respondents.
Ruben Blanco, the acting Registrar of Deeds, testified that only the carbon copy,
also called a duplicate original, of the deed of sale was filed in his office, but he
could not explain why this was so.
Zosima Domingo testified that her husband, Eugenio Domingo, was Paulina's
nephew. Paulina was a first cousin of Eugenio's father. She also said that they
lived with Paulina and her husband, Jose Guerson, since 1956. They took care of
her, spent for her daily needs and medical expenses, especially when she was
hospitalized prior to her death. She stated that Paulina was never badly in need
of money during her lifetime.
On March 23, 1994, the trial court rendered judgment in favor of defendants (now
the petitioners). It disposed:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of defendants and against the plaintiffs, and as prayed for, the
Amended Complaint is hereby DISMISSED.
Defendants are hereby declared, by virtue of intestate succession, the
lawful owners and possessors of the house including the bodega and
the three (3) parcels of land in suit and a Decree of Registration
adjudicating the ownership of the said properties to defendants is
hereby issued.
The alleged deed of sale ( Exhs. "A", "A-1", "1" and "1-a") is hereby
declared null and void and fake and the prayer for the issuance of a
writ of preliminary injunction is hereby denied.
Plaintiffs are hereby ordered to pay defendants:
a) P20,000.00 as moral damages;
b) P10,000.00 as exemplary damages;
c) P10,000.00 attorney's fees and other litigation expenses.
No pronouncement as to costs.4
Private respondents herein appealed to the Court of Appeals.
On August 29, 1996, the CA reversed the trial court's decision, thus:
WHEREFORE, the decision dated March 23, 1994 is hereby SET
ASIDE. The plaintiffs-appellants Felipe Rigonan and Concepcion
Rigonan are declared the owners of the properties under litigation and
the defendants-appellees are hereby ordered to VACATE the subject
properties and SURRENDER the possession thereof to the heirs of the
plaintiffs-appellants.
Costs against the defendants-appellees.5
Hence, this petition assigning the following as errors:
I
THE RESPONDENT COURT OF APPEALS HAS DECIDED QUESTIONS OF
LEGAL SUBSTANCE AND SIGNIFICANCE NOT IN ACCORDANCE WITH THE
EVIDENCE, LAW AND WITH THE APPLICABLE DECISIONS OF THIS
HONORABLE COURT.
II
THAT THE FINDINGS OF RESPONDENT COURT OF APPEALS ARE
CONTRARY TO THOSE OF THE TRIAL COURT AND CLEARLY VIOLATES
THE RULE THAT THE FACTUAL FINDINGS OF TRIAL COURTS ARE
ENTITLED TO GREAT WEIGHT AND RESPECT ON APPEAL, ESPECIALLY

WHEN SAID FINDINGS ARE ESTABLISHED BY UNREBUTTED TESTIMONIAL
AND DOCUMENTARY EVIDENCE.
III
THAT THE FINDINGS AND CONCLUSIONS OF RESPONDENT COURT OF
APPEALS ARE GROUNDED ENTIRELY ON SPECULATIONS, SURMISES,
CONJECTURES, OR ON INFERENCES MANIFESTLY MISTAKEN.
IV
THAT THE RESPONDENT COURT OF APPEALS MANIFESTLY
OVERLOOKED CERTAIN RELEVANT FACTS NOT DISPUTED BY THE
PARTIES AND WHICH, IF PROPERLY CONSIDERED, WOULD JUSTIFY A
DIFFERENT CONCLUSION.
V
THAT THE FINDINGS OF FACT OF RESPONDENT COURT OF APPEALS ARE
PREMISED ON SUPPOSED ABSENCE OF EVIDENCE BUT IS
CONTRADICTED BY THE EVIDENCE ON RECORD THUS CONSTITUTES
GRAVE ABUSE OF DISCRETION.6
The basic issue for our consideration is, did private respondents sufficiently
establish the existence and due execution of the Deed of Absolute and
Irrevocable Sale of Real Property? Marked as Exhibits "A," "A-1," "1" and "1-a,"
this deed purportedly involved nine (9) parcels of land, inclusive of the three (3)
parcels in dispute, sold at the price of P850 by Paulina Rigonan to private
respondents on January 28, 1965, at Batac, Ilocos Norte. 7 The trial court found
the deed "fake," being a carbon copy with no typewritten original presented; and
the court concluded that the document's execution "was tainted with alterations,
defects, tamperings, and irregularities which render it null and void ab initio".8
Petitioners argue that the Court of Appeals erred in not applying the doctrine that
factual findings of trial courts are entitled to great weight and respect on appeal,
especially when said findings are established by unrebutted testimonial and
documentary evidence. They add that the Court of Appeals, in reaching a different
conclusion, had decided the case contrary to the evidence presented and the law
applicable to the case. Petitioners maintain that the due execution of the deed of
sale was not sufficiently established by private respondents, who as plaintiffs had
the burden of proving it. First, the testimonies of the two alleged instrumental
witnesses of the sale, namely, Juan Franco and Efren Sibucao, were dispensed
with and discarded when Franco retracted his oral and written testimony that he
was a witness to the execution of the subject deed. As a consequence, the
appellate court merely relied on Atty. Tagatag's (the notary public) testimony,
which was incredible because aside from taking the double role of a witness and
notary public, he was a paid witness. Further his testimony, that the subject deed
was executed in the house of Paulina Rigonan, was rebutted by Zosima Domingo,
Paulina's housekeeper, who said that she did not see Atty. Tagatag, Juan Franco
and Efren Sibucao in Paulina's house on the alleged date of the deed's execution.
Secondly, petitioners said that private respondents failed to account for the
typewritten original of the deed of sale and that the carbon copy filed with the
Register of Deeds was only a duplicate which contained insertions and erasures.
Further, the carbon copy was without an affidavit of explanation, in violation of the
Administrative Code as amended, which requires that if the original deed of sale
is not presented or available upon registration of the deed, the carbon copy or so-
called "duplicate original" must be accompanied by an affidavit of explanation,
otherwise, registration must be denied.9
Thirdly, petitioners aver that the consideration of only P850 for the parcels of land
sold, together with a house and a warehouse, was another indication that the sale
was fictitious because no person who was financially stable would sell said
property at such a grossly inadequate consideration.
Lastly, petitioners assert that there was abundant evidence that at the time of the
execution of the deed of sale, Paulina Rigonan was already senile. She could not
have consented to the sale by merely imprinting her thumbmark on the deed.
In their comment, private respondents counter that at the outset the petition must
be dismissed for it lacks a certification against forum shopping. Nonetheless, even
disregarding this requirement, the petition must still be denied in due course for it
does not present any substantial legal issue, but factual or evidentiary ones which
were already firmly resolved by the Court of Appeals based on records and the
evidence presented by the parties. Private respondents' claim that the factual
determination by the trial court lacks credibility for it was made by the trial judge
who presided only in one hearing of the case. The trial judge could not validly say
that the deed of absolute sale was "fake" because no signature was forged,
92
according to private respondents; and indeed a thumbmark, said to be the seller's
own, appears thereon.
In their reply, petitioners said that the copy of the petition filed with this Court was
accompanied with a certification against forum shopping. If private respondents'
copy did not contain same certification, this was only due to inadvertence.
Petitioners ask for the Court's indulgence for anyway there was substantial
compliance with Revised Circular No. 28-91.
On the contention that here only factual issues had been raised, hence not the
proper subject for review by this Court, petitioners reply that this general rule
admits of exceptions, as when the factual findings of the Court of Appeals and the
trial court are contradictory; when the findings are grounded entirely on
speculations, surmises or conjectures; and when the Court of Appeals overlooked
certain relevant facts not disputed by the parties which if properly considered
would justify a different conclusion. All these, according to petitioners, are present
in this case.
Before proceeding to the main issue, we shall first settle procedural issues raised
by private respondents.
While the trial judge deciding the case presided over the hearings of the case only
once, this circumstance could not have an adverse effect on his decision. The
continuity of a court and the efficacy of its proceedings are not affected by the
death, resignation or cessation from the service of the presiding judge. A Judge
may validly render a decision although he has only partly heard the testimony of
the witnesses.10 After all, he could utilize and rely on the records of the case,
including the transcripts of testimonies heard by the former presiding judge.
On the matter of the certification against forum-shopping, petitioners aver that
they attached one in the copy intended for this Court. This is substantial
compliance. A deviation from a rigid enforcement of the rules may be allowed to
attain their prime objective for, after all, the dispensation of justice is the core
reason for the court's existence.11
While the issues raised in this petition might appear to be mainly factual, this
petition is properly given due course because of the contradictory findings of the
trial court and the Court of Appeals. Further, the later court apparently overlooked
certain relevant facts which justify a different conclusion. 12 Moreover, a
compelling sense to make sure that justice is done, and done rightly in the light of
the issues raised herein, constrains us from relying on technicalities alone to
resolve this petition.
Now, on the main issue. Did private respondents establish the existence and due
execution of the deed of sale? Our finding is in the negative. First, note that private
respondents as plaintiffs below presented only a carbon copy of this deed. When
the Register of Deeds was subpoenaed to produce the deed, no original
typewritten deed but only a carbon copy was presented to the trial court. Although
the Court of Appeals calls it a "duplicate original," the deed contained filled in
blanks and alterations. None of the witnesses directly testified to prove positively
and convincingly Paulina's execution of the original deed of sale. The carbon copy
did not bear her signature, but only her alleged thumbprint. Juan Franco testified
during the direct examination that he was an instrumental witness to the deed.
However, when cross-examined and shown a copy of the subject deed, he
retracted and said that said deed of sale was not the document he signed as
witness.13 He declared categorically he knew nothing about it.14
We note that another witness, Efren Sibucao, whose testimony should have
corroborated Atty. Tagatag's, was not presented and his affidavit was withdrawn
from the court,15 leaving only Atty. Tagatag's testimony, which aside from being
uncorroborated, was self-serving.
Secondly, we agree with the trial court that irregularities abound regarding the
execution and registration of the alleged deed of sale. On record, Atty. Tagatag
testified that he himself registered the original deed with the Register of
Deeds.16 Yet, the original was nowhere to be found and none could be presented
at the trial. Also, the carbon copy on file, which is allegedly a duplicate original,
shows intercalations and discrepancies when compared to purported copies in
existence. The intercalations were allegedly due to blanks left unfilled by Atty.
Tagatag at the time of the deed's registration. The blanks were allegedly filled in
much later by a representative of the Register of Deeds. In addition, the alleged
other copies of the document bore different dates of entry: May 16, 1966, 10:20
A.M.17 and June 10, 1966, 3:16 P.M.,18 and different entry numbers: 66246,
74389 19 and 64369. 20 The deed was apparently registered long after its alleged
date of execution and after Paulina's death on March 20, 1966. 21Admittedly, the
alleged vendor Paulina Rigonan was not given a copy.22
Furthermore, it appears that the alleged vendor was never asked to vacate the
premises she had purportedly sold. Felipe testified that he had agreed to let
Paulina stay in the house until her death.23 In Alcos v. IAC, 162 SCRA 823 (1988),
 93

the buyer's immediate possession and occupation of the property was deemed
corroborative of the truthfulness and authenticity of the deed of sale. The alleged
vendor's continued possession of the property in this case throws an inverse
implication, a serious doubt on the due execution of the deed of sale. Noteworthy,
the same parcels of land involved in the alleged sale were still included in the will
subsequently executed by Paulina and notarized by the same notary public, Atty.
Tagatag.24 These circumstances, taken together, militate against unguarded
acceptance of the due execution and genuineness of the alleged deed of sale.

Thirdly, we have to take into account the element of consideration for the sale.
The price allegedly paid by private respondents for nine (9) parcels, including the
three parcels in dispute, a house and a warehouse, raises further questions.
Consideration is the why of a contract, the essential reason which moves the
contracting parties to enter into the contract.25 On record, there is unrebutted
testimony that Paulina as landowner was financially well off. She loaned money
to several people.26 We see no apparent and compelling reason for her to sell the
subject parcels of land with a house and warehouse at a meager price of P850
only.

In Rongavilla vs. CA, 294 SCRA 289 (1998), private respondents were in their
advanced years, and were not in dire need of money, except for a small amount
of P2,000 which they said were loaned by petitioners for the repair of their house's
roof. We ruled against petitioners, and declared that there was no valid sale
because of lack of consideration.

In the present case, at the time of the execution of the alleged contract, Paulina
Rigonan was already of advanced age and senile. She died an octogenarian on
March 20, 1966, barely over a year when the deed was allegedly executed on
January 28, 1965, but before copies of the deed were entered in the registry
allegedly on May 16 and June 10, 1966. The general rule is that a person is not
incompetent to contract merely because of advanced years or by reason of
physical infirmities.27 However, when such age or infirmities have impaired the
mental faculties so as to prevent the person from properly, intelligently, and firmly
protecting her property rights then she is undeniably incapacitated. The
unrebutted testimony of Zosima Domingo shows that at the time of the alleged
execution of the deed, Paulina was already incapacitated physically and mentally.
She narrated that Paulina played with her waste and urinated in bed. Given these
circumstances, there is in our view sufficient reason to seriously doubt that she
consented to the sale of and the price for her parcels of land. Moreover, there is
no receipt to show that said price was paid to and received by her. Thus, we are
in agreement with the trial court's finding and conclusion on the matter:

The whole evidence on record does not show clearly that the fictitious
P850.00 consideration was ever delivered to the vendor. Undisputably,
the P850.00 consideration for the nine (9) parcels of land including the
house and bodega is grossly and shockingly inadequate, and the sale
is null and void ab initio.28

WHEREFORE, the petition is GRANTED. The decision and resolution of the

Court of Appeals dated August 29, 1996 and December 11, 1996, respectively,
are REVERSED and SET ASIDE. The decision of the Regional Trial Court of
Batac, Ilocos Norte, Branch 17, dated March 23, 1994, is REINSTATED.

Costs against private respondents.

SO ORDERED.

G.R. No. 160556 August 3, 2007
TEOFILO BAUTISTA, represented by FRANCISCO MUÑOZ, Attorney-in-
Fact, Petitioner,
vs.
ALEGRIA BAUTISTA, ANGELICA BAUTISTA, PRISCILLA BAUTISTA,
GILBERT BAUTISTA, JIM BAUTISTA, GLENDA BAUTISTA, GUEN
BAUTISTA, GELACIO BAUTISTA, GRACIA BAUTISTA, PEDRO S. TANDOC
and CESAR TAMONDONG, Respondents.
DECISION
CARPIO MORALES, J.:
During her lifetime, Teodora Rosario was the owner of a 211.80-square meter
parcel of land (the property) in Poblacion, San Carlos City, Pangasinan, covered
by Transfer Certificate of Title (TCT) No. 12951. She died intestate on January
19, 1970, leaving behind her spouse Isidro Bautista (Isidro) and five children,
namely: Teofilo Bautista (Teofilo), Alegria Bautista (Alegria), Angelica Bautista
(Angelica), Pacita Bautista (Pacita) and Gil Bautista (Gil).
On April 21, 1981, Isidro and four of his five children – Pacita, Gil, Alegria, and
Angelica – executed a Deed of Extra-Judicial Partition1 of the property in which
Isidro waived his share in favor of his said four children. Teofilo was excluded
from the partition.
Alegria and Angelica, who, under the Deed of Extra-Judicial Partition, acquired ½
of the property, sold the same, by Deed of Absolute Sale dated May 14, 1981, to
their sibling Pacita and her common-law husband Pedro Tandoc (Pedro).2
Pacita and Pedro soon obtained tax declarations3 and TCT No. 187774 in their
names over 209.85 square meters of the property including the shares they
purchased from Angelica and Alegria.
Pacita, with Pedro’s conformity, later conveyed via Deed of Absolute Sale5 dated
April 13, 1993 ½ of the property in favor of Cesar Tamondong, Pedro’s nephew.
On January 24, 1994, herein petitioner Teofilo, represented by his attorney-in-fact
Francisco Muñoz, filed a Complaint6 against his siblings Alegria and Angelica,
along with Pedro (the common-law husband of his already deceased sister
Pacita), Priscilla Bautista (wife of his already deceased brother Gil), Pricilla’s
children Gilbert, Jim, Glenda, Guen, and Gelacio and Cesar Tamondong before
the Regional Trial Court (RTC) of San Carlos City, for annulment of documents,
partition, recovery of ownership, possession and damages.
In his complaint, petitioner claimed that his co-heirs defrauded him of his rightful
share of the property and that the deed of sale executed by Pacita in favor of
Cesar Tamondong was fictitious as it was impossible for her to have executed the
same in Manila, she being already seriously ill at the time.7
In their Answer,8 the defendants-herein respondents sisters Alegria and Angelica,
who were joined therein by their co-defendants-respondents Priscilla, Gilbert, Jim,
Glenda, Guen, Gelacio, and Gracia, claimed that it was Pacita who caused the
execution of the Deed of Extra-Judicial Partition and because they trusted Pacita,
they signed the document without scrutinizing it; and that they learned about the
contents of the partition only upon Teofilo’s filing of the Complaint.
By way of cross-claim9 against Pedro and Cesar Tamondong, the answering
defendants-respondents claimed that a few weeks after the partition, Pacita
approached Angelica and Alegria to borrow their share in the property on her
representation that it would be used as security for a business loan; and that
agreeing to accommodate Pacita, Angelica and Alegria signed a document which
Pacita prepared which turned out to be the deed of absolute sale in Pacita’s favor.
In their Answer with Counterclaim,10 Pedro and Cesar Tamondong claimed that
they were buyers in good faith.11 In any event, they contended that prescription
had set in, and that the complaint was a mere rehash of a previous complaint for
falsification of public document which had been dismissed by the prosecutor’s
office.12
By Decision13 of June 24, 1999, Branch 57 of the RTC of San Carlos City
rendered judgment in favor of Teofilo, disposing as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
94
1) Declaring as null and void and of no force and effect the following
documents:
a) Deed of Extra-Judicial Partition dated April 21, 1981;
b) Deed of Absolute Sale [d]ated May 14, 1981;
c) Transfer Certificate of Title No. 18777;
d) Tax Declaration Nos. 59941, 45999, and 46006;
e) Deed of Absolute Sale dated April 13, 1993;
2) Ordering the partition of the land in question among the compulsory
heirs of the late Spouses Isidro Bautista and Teodora Rosario
3) Ordering defendants Cesar Tamondong and Pedro Tandoc to
vacate the premises.
No pronouncement[s] as to cost.14 (Underscoring supplied)
On appeal by Pedro and Cesar Tamondong, the Court of Appeals, by
Decision15 of February 21, 2003, reversed and set aside the trial court’s decision
and dismissed Teofilo’s complaint on the ground of prescription.16 His Motion for
Reconsideration17 having been denied,18 Teofilo filed the present Petition for
Review on Certiorari.19
The petition is impressed with merit.
The Court of Appeals, in holding that prescription had set in, reasoned:
Unquestionably, the Deed of Extra-judicial Partition is invalid insofar as it affects
the legitimate share pertaining to the defendant-appellee in the property in
question.1avvphi1 There can be no question that the Deed of Extra-judicial
Partition was fraudulently obtained. Hence, an action to set it aside on the ground
of fraud could be instituted. Such action for the annulment of the said partition,
however, must be brought within four years from the discovery of the fraud.
Significantly, it cannot be denied, either, that by its registration in the manner
provided by law, a transaction may be known actually or constructively.
In the present case, defendant-appellee is deemed to have been constructively
notified of the extra-judicial settlement by reason of its registration and annotation
in the certificate of title over the subject lot on December 21, 1981. From the time
of its registration, defendant-appellee had four (4) years or until 21 December
1985, within which to file his objections or to demand the appropriate settlement
of the estate. Unfortunately, defendant-appellee failed to institute the present civil
action within said period, having filed the same only on 17 January 1994 or more
than twelve (12) years from the registration of the deed of extra-judicial partition.
Hence, defendant-appellee’s right to question the deed of extra-judicial partition
has prescribed.
Even on the extreme assumption that defendant-appellee’s complaint in Civil
Case No. SC-1797 is an action for reconveyance of a portion of the property which
rightfully belongs to him based upon an implied trust resulting from fraud, said
remedy is already barred by prescription. An action of reconveyance of land
based upon an implied or constructive trust prescribes after ten years from the
registration of the deed or from the issuance of the title.
xxxx
The complaint of defendant-appellee was filed only on 17 January 1994, while the
deed of extra-judicial partition was registered and inscribed on Transfer Certificate
of Title 12951, on 21 December 1981. Clearly, the complaint was filed twelve (12)
years and twenty-seven (27) days after the inscription of the deed of extra-judicial
partition on TCT 12951. Hence, even if We consider defendant-appellee’s
complaint as an action for reconveyance against plaintiff-appellants on the basis
of implied trust, we find and so hold that his remedy for reconveyance has also
prescribed.20 (Underscoring supplied)
As gathered from the above-quoted portion of its decision, the Court of Appeals
applied the prescriptive periods for annulment on the ground of fraud and for
reconveyance of property under a constructive trust.
The extra-judicial partition executed by Teofilo’s co-heirs was invalid, however.
So Segura v. Segura21 instructs:

x x x The partition in the present case was invalid because it excluded six of the
nine heirs who were entitled to equal shares in the partitioned property. Under the
rule, "no extra-judicial settlement shall be binding upon any person who has not
participated therein or had no notice thereof." As the partition was a total
nullity and did not affect the excluded heirs, it was not correct for the trial court to
hold that their right to challenge the partition had prescribed after two years x x
x22 (Underscoring supplied)
The deed of extra-judicial partition in the case at bar being invalid, the action to
have it annulled does not prescribe.23
Since the deed of extra-judicial partition is invalid, it transmitted no rights to
Teofilo’s co-heirs.24 Consequently, the subsequent transfer by Angelica and
Alegria of ½ of the property to Pacita and her husband Pedro, as well as the
transfer of ½ of the property to Cesar Tamondong is invalid, hence, conferring no
rights upon the transferees under the principle of nemo dat quod non habet.25
WHEREFORE, the petition is GRANTED. The decision of the court a quo is SET
ASIDE and the Decision of the Regional Trial Court of San Carlos City,
Pangasinan, Branch 57 is REINSTATED.
SO ORDERED.
G.R. No. 160956 February 13, 2008
JOAQUIN QUIMPO, SR., substituted by Heirs of Joaquin Quimpo,
Sr., petitioners,
vs.
CONSUELO ABAD VDA. DE BELTRAN, IRENEO ABAD, DANILO ABAD,
MARITES ABAD, ANITA AND HELEN ABAD, respondents.
RESOLUTION
NACHURA, J.:
This Petition for Review on Certiorari assails the July 22, 2003 Decision1 of the
Court of Appeals in CA-G.R. CV No. 56187, and the October 16, 2003 Resolution
denying the motion for its reconsideration.
Eustaquia Perfecto-Abad (Eustaquia) was the owner of several parcels of land in
Goa, Camarines Sur, described as follows:
Parcel I - Residential land situated at Abucayan, Goa, Camarines Sur
covering an area of 684 square-meters;
Parcel II – Coconut land situated at Abucayan, Goa, Camarines Sur
covering an area of 4.3731 hectares;
Parcel III – Residential land situated at San Jose Street, Goa,
Camarines Sur covering an area of 1,395 square meters; and
Parcel IV – Abaca and coconut land situated at Abucayan, Goa,
Camarines Sur covering an area 42.6127 hectares.2
Eustaquia died intestate in 1948 leaving these parcels of land to her grandchild
and great grandchildren, namely, Joaquin Quimpo and respondents Consuelo,
Ireneo, Danilo, Marites, Anita and Helen, all surnamed Abad.
In 1966, Joaquin and respondents undertook an oral partition of parcel III (San
Jose property) and parcel IV. Half of the properties was given to Joaquin and the
other half to the respondents. However, no document of partition was executed,
because Joaquin refused to execute a deed. Consuelo and Ireneo occupied their
respective shares in the San Jose property, and installed several tenants over
their share in parcel IV. Joaquin, on the other hand, became the administrator of
the remaining undivided properties and of the shares of respondents Danilo,
Marites, Anita and Helen, who were still minors at that time.
In 1989, Danilo, Marites, Anita and Helen wanted to take possession of the
portions allotted to them, but Joaquin prevented them from occupying the same.
Joaquin also refused to heed respondents’ demand for partition of parcels I and
II, prompting respondents to file a complaint for judicial partition and/or recovery
of possession with accounting and damages with the Regional Trial Court (RTC)
of Camarines Sur.3
95
Joaquin denied the material allegations in the complaint, and averred, as his
special and affirmative defenses, lack of cause of action and prescription. He
asserted absolute ownership over parcels III and IV, claiming that he purchased
these lands from Eustaquia in 1946, evidenced by deeds of sale executed on
August 23, 1946 and December 2, 1946. He, likewise, claimed continuous,
peaceful and adverse possession of these lots since 1946, and alleged that
Consuelo’s occupation of the portion of the San Jose property was by mere
tolerance.4
During the pendency of the case, Joaquin died. Accordingly, he was substituted
by his wife, Estela Tena-Quimpo and his children, namely, Jose, Adelia, Joaquin,
Anita, Angelita, Amelia, Arlene, Joy and Aleli, all surnamed Quimpo (the
Quimpos).
On December 12, 1996, the RTC rendered a Decision5 in favor of respondents,
declaring them as co-owners of all the properties left by Eustaquia. It rejected
Joaquin’s claim of absolute ownership over parcels III and IV, and declared void
the purported deeds of sale executed by Eustaquia for lack of consideration and
consent. The court found that at the time of the execution of these deeds, Joaquin
was not gainfully employed and had no known source of income, which shows
that the deeds of sale state a false and fictitious consideration. Likewise,
Eustaquia could not have possibly given her consent to the sale because she was
already 91 years old at that time. The RTC also sustained the oral partition among
the heirs in 1966. According to the trial court, the possession and occupation of
land by respondents Consuelo and Ireneo, and Joaquin’s acquiescence for 23
years, furnish sufficient evidence that there was actual partition of the properties.
It held that Joaquin and his heirs are now estopped from claiming ownership over
the entire San Jose property as well as over parcel IV.
The RTC disposed, thus:
WHEREFORE, decision is hereby rendered in favor of the plaintiffs
Consuelo Vda. de Beltran, Ireneo Abad, Marites Abad, Danilo Abad,
Anita Abad and Helen Abad and against defendant Joaquin Quimpo,
substituted by the latter’s wife Estela Tena and their children, Amparo,
Jose, Amelia, Joaquin Jr., Adelia, Arlene, Anita, Joy, Angelita and Aleli,
all surnamed Quimpo, as follows:
1. Ordering the above-named substituted defendants, and
the plaintiffs to execute their written agreement of partition
with respect to parcel Nos. III and IV more particularly
described in paragraph 7 of the complaint, and for them to
execute an agreement of partition with respect to parcel
Nos. I and II, both parcels are more particularly described
in paragraph 7 of the complaint;
2. Declaring the plaintiffs Danilo Abad, Marites Abad, Anita
Abad and Helen Abad the owner of six (6) hectares a
portion included in parcel No. IV also described in
paragraph 7 of the complaint, and therefore, entitled to its
possession and ordering the said substituted defendants to
deliver that portion to them as their share thereto;
3. Ordering the above-named substituted defendants to pay
plaintiffs the sum of Six Thousand Pesos (P6,000.00),
Philippine Currency, as reasonable attorney’s fees and the
sum of One Thousand Pesos (P1,000.00) also of Philippine
Currency, as litigation expenses and for the said
defendants to pay the costs.
The counterclaim, not being proved, the same is hereby
ordered dismissed.
SO ORDERED.6
On appeal, the CA affirmed the RTC ruling. Sustaining the RTC, the CA declared
that it was plausible that Eustaquia’s consent was vitiated because she was then
91 years old and sickly. It was bolstered by the fact that the deeds of sale only
surfaced 43 years after its alleged execution and 23 years from the time of the
oral partition. The CA also rejected petitioners’ argument that the action was
barred by prescription and laches, explaining that prescription does not run
against the heirs so long as the heirs, for whose benefit prescription is invoked,
have not expressly or impliedly repudiated the co-ownership. The CA found no
repudiation on Joaquin’s part. It, therefore, concluded that respondents’ action
could not be barred by prescription or laches.
The Quimpos, thus, filed the instant petition for review on certiorari imputing the
following errors to the CA:

1) THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT PETITIONERS DID NOT ACQUIRE OWNERSHIP OVER [THE]
SUBJECT PARCELS OF LAND BY WAY OF DEEDS OF ABSOLUTE
SALE EXECUTED IN THEIR FAVOR;
2) THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT CO-OWNERSHIP EXISTS AMONG PETITIONERS AND
RESPONDENTS OVER THE SUBJECT PARCELS OF LAND;
3) THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT RESPONDENTS HAVE PROVEN THEIR FILIATION TO THE
ORIGINAL OWNER OF THE SUBJECT PARCELS OF LAND BY
MERE SCANT EVIDENCE;
4) THE HONORABLE COURT OF APPEALS ERRED IN NOT
RULING THAT LACHES HAS TIME–BARRED THE RESPONDENTS
FROM ASSAILING THE ABSOLUTE OWNERSHIP OF
PETITIONERS OVER THE SUBJECT PARCELS OF LAND; AND
5) THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT RESPONDENTS ARE ENTITLED TO ATTORNEY’S FEES.7
The Quimpos insist on the validity of the deeds of sale between Joaquin and
Eustaquia. They assail the probative value and weight given by the RTC and the
CA in favor of the respondents’ pieces of evidence while refusing to give credence
or value to the documents they presented. Specifically, they contend that the
notarized deeds of sale and the tax declarations should have adequately
established Joaquin’s ownership of parcels III and IV.
The contention has no merit. Well-entrenched is the rule that the Supreme Court’s
role in a petition under Rule 45 is limited to reviewing or reversing errors of law
allegedly committed by the appellate court. Factual findings of the trial court,
especially when affirmed by the Court of Appeals, are conclusive on the parties.
Since such findings are generally not reviewable, this Court is not duty-bound to
analyze and weigh all over again the evidence already considered in the
proceedings below, unless the factual findings complained of are devoid of
support from the evidence on record or the assailed judgment is based on a
misapprehension of facts.8
Petitioners fail to convince us that the CA committed reversible error in affirming
the trial court and in giving no weight to the pieces of evidence they presented.
The stated consideration for the sale are P5,000.00 and P6,000.00, respectively,
an amount which was so difficult to raise in the year 1946. Respondents
established that at the time of the purported sale Joaquin Quimpo was not
gainfully employed. He was studying in Manila and Eustaquia was the one
supporting him; that when Eustaquia died two (2) years later, Joaquin was not
able to continue his studies. The Quimpos failed to override this. Except for the
incredible and unpersuasive testimony of Joaquin’s daughter, Adelia Magsino, no
other testimonial or documentary evidence was offered to prove that Joaquin was
duly employed and had the financial capacity to buy the subject properties in
1946.
In Rongavilla v. Court of Appeals,9 reiterated in Cruz v. Bancom Finance
Corp,10 we held that a deed of sale, in which the stated consideration has not
been, in fact, paid is a false contract; that it is void ab initio. Furthermore, Ocejo
v. Flores,11 ruled that a contract of purchase and sale is null and void and
produces no effect whatsoever where it appears that the same is without cause
or consideration which should have been the motive thereof, or the purchase price
which appears thereon as paid but which in fact has never been paid by the
purchaser to the vendor.
Likewise, both the trial court and the CA found that Eustaquia was 91 years old,
weak and senile, at the time the deeds of sale were executed. In other words, she
was already mentally incapacitated by then, and could no longer be expected to
give her consent to the sale. The RTC and CA cannot, therefore, be faulted for
not giving credence to the deeds of sale in favor of Joaquin.
Petitioners also presented Tax Declaration Nos. 3650,12 3708,13 and 365914 to
substantiate Joaquin’s claim of absolute dominion over parcels III and IV. But we
note that these tax declarations are all in the name of Eustaquia Perfecto-Abad.
These documents, therefore, do not support their claim of absolute dominion
since 1946, but enervate it instead. Besides, the fact that the disputed property
may have been declared for taxation purposes in the name of Joaquin Quimpo
does not necessarily prove ownership for it is well settled that a tax declaration or
tax receipts are not conclusive evidence of ownership.15 The CA, therefore,
correctly found this proof inadequate to establish Joaquin’s claim of absolute
dominion.
96
For forty-three (43) years, Consuelo and Ireneo occupied their portions of the San
Jose property and significantly, Joaquin never disturbed their possession. They
also installed tenants in parcel IV, and Joaquin did not prevent them from doing
so, nor did he assert his ownership over the same. These unerringly point to the
fact that there was indeed an oral partition of parcels III and IV.
In Maglucot-aw v. Maglucot,16 we held, viz.:
[P]artition may be inferred from circumstances sufficiently strong to
support the presumption. Thus, after a long possession in severalty, a
deed of partition may be presumed. It has been held that recitals in
deeds, possession and occupation of land, improvements made
thereon for a long series of years, and acquiescence for 60 years,
furnish sufficient evidence that there was an actual partition of land
either by deed or by proceedings in the probate court, which had been
lost and were not recorded.
Furthermore, in Hernandez v. Andal,17 we explained that:
On general principle, independent and in spite of the statute of frauds,
courts of equity have enforced oral partition when it has been
completely or partly performed.
Regardless of whether a parol partition or agreement to
partition is valid and enforceable at law, equity will in proper
cases, where the parol partition has actually been
consummated by the taking of possession in severalty and
the exercise of ownership by the parties of the respective
portions set off to each, recognize and enforce such parol
partition and the rights of the parties thereunder. Thus, it
has been held or stated in a number of cases involving an
oral partition under which the parties went into possession,
exercised acts of ownership, or otherwise partly performed
the partition agreement, that equity will confirm such
partition and in a proper case decree title in accordance with
the possession in severalty.
In numerous cases it has been held or stated that parol
partitions may be sustained on the ground of estoppel of
the parties to assert the rights of a tenant in common as to
parts of land divided by parol partition as to which
possession in severalty was taken and acts of individual
ownership were exercised. And a court of equity will
recognize the agreement and decree it to be valid and
effectual for the purpose of concluding the right of the
parties as between each other to hold their respective parts
in severalty.
A parol partition may also be sustained on the ground that
the parties thereto have acquiesced in and ratified the
partition by taking possession in severalty, exercising acts
of ownership with respect thereto, or otherwise recognizing
the existence of the partition.
A number of cases have specifically applied the doctrine of
part performance, or have stated that a part performance is
necessary, to take a parol partition out of the operation of
the statute of frauds. It has been held that where there was
a partition in fact between tenants in common, and a part
performance, a court of equity would have regard to and
enforce such partition agreed to by the parties.
The CA, therefore, committed no reversible error in sustaining the oral partition
over parcels III and IV and in invalidating the deeds of sale between Eustaquia
and Joaquin.
Similarly, we affirm the CA ruling that respondents are co-owners of the subject
four (4) parcels of land, having inherited the same from a common ancestor –
Eustaquia Perfecto-Abad. Petitioners’ assertion that respondents failed to prove
their relationship to the late Eustaquia deserves scant consideration.
During the pre-trial, Joaquin Quimpo admitted that:
Eustaquia Perfecto Abad and Diego Abad had two (2) children by the
names of Leon Abad and Joaquin Abad; that Leon Abad has three (3)
children namely: Anastacia, Wilfredo and Consuelo, all surnamed
Abad; that Joaquin Abad has only one (1) child, a daughter by the
name of Amparo; that Wilfredo has four (4) children, namely, Danilo,

Helen, Marites and Anita; Amparo has one child, son Joaquin Quimpo,
x x x 18
Consuelo was the grandchild of Eustaquia, while respondents Danilo, Helen,
Marites, Anita and also Joaquin Quimpo were Eustaquia’s great grandchildren.
As such, respondents can rightfully ask for the confirmation of the oral partition
over parcels III and IV, and the partition of parcels I and II. Jurisprudence is replete
with rulings that any co-owner may demand at any time the partition of the
common property unless a co-owner has repudiated the co-ownership. This
action for partition does not prescribe and is not subject to laches.19
Finally, petitioners challenge the attorney’s fees in favor of respondents.
The grant of attorney’s fees depends on the circumstances of each case and lies
within the discretion of the court. It may be awarded when a party is compelled to
litigate or to incur expenses to protect its interest by reason of an unjustified act
by the other,20 as in this case.
In fine, we find no reversible error in the assailed rulings of the Court of Appeals.
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court
of Appeals in CA-G.R. CV No. 56187, are AFFIRMED.
G.R. No. 158040 April 14, 2008
SPOUSES ONESIFORO and ROSARIO ALINAS, petitioner,
vs.
SPOUSES VICTOR and ELENA ALINAS, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of
Court, praying that the Decision1 of the Court of Appeals (CA) dated September
25, 2002, and the CA Resolution2 dated March 31, 2003, denying petitioners'
motion for reconsideration, be reversed and set aside.
The factual antecedents of the case are as follows.
Spouses Onesiforo and Rosario Alinas (petitioners) separated sometime in 1982,
with Rosario moving to Pagadian City and Onesiforo moving to Manila. They left
behind two lots identified as Lot 896-B-9-A with a bodega standing on it and Lot
896-B-9-B with petitioners' house. These two lots are the subject of the present
petition.
Petitioner Onesiforo Alinas (Onesiforo) and respondent Victor Alinas (Victor) are
brothers. Petitioners allege that they entrusted their properties to Victor and Elena
Alinas (respondent spouses) with the agreement that any income from rentals of
the properties should be remitted to the Social Security System (SSS) and to the
Rural Bank of Oroquieta City (RBO), as such rentals were believed sufficient to
pay off petitioners' loans with said institutions. Lot 896-B-9-A with the bodega was
mortgaged as security for the loan obtained from the RBO, while Lot 896-B-9-B
with the house was mortgaged to the SSS. Onesiforo alleges that he left blank
papers with his signature on them to facilitate the administration of said properties.
Sometime in 1993, petitioners discovered that their two lots were already titled in
the name of respondent spouses.
Records show that after Lot 896-B-9-A was extra-judicially foreclosed, Transfer
Certificate of Title (TCT) No. T-118533 covering said property was issued in the
name of mortgagee RBO on November 13, 1987. On May 2, 1988, the duly
authorized representative of RBO executed a Deed of Installment Sale of Bank's
Acquired Assets4conveying Lot 896-B-9-A to respondent spouses. RBO's TCT
over Lot 896-B-9-A was then cancelled and on February 22, 1989, TCT No. T-
126645 covering said lot was issued in the name of respondent spouses.
Lot 896-B-9-B was also foreclosed by the SSS and on November 17, 1986, the
Ex-Oficio City Sheriff of Ozamis City issued a Certificate of Sale6 over said
property in favor of the SSS. However, pursuant to a Special Power of
Attorney7 signed by Onesiforo in favor of Victor, dated March 10, 1989, the latter
was able to redeem, on the same date, Lot 896-B-9-B from the SSS for the sum
of P111,110.09. On June 19, 1989, a Certificate of Redemption8 was issued by
the SSS.
97
Onesiforo's signature also appears in an Absolute Deed of Sale9 likewise dated
March 10, 1989, selling Lot 896-B-9-B to respondent spouses. The records also
show a notarized document dated March 10, 1989 and captioned
Agreement10 whereby petitioner Onesiforo acknowledged that his brother Victor
used his own money to redeem Lot 896-B-9-B from the SSS and, thus, Victor
became the owner of said lot. In the same Agreeement, petitioner Onesiforo
waived whatever rights, claims, and interests he or his heirs, successors and
assigns have or may have over the subject property. On March 15, 1993, by virtue
of said documents, TCT No. 1739411 covering Lot 896-B-9-B was issued in the
name of respondent spouses.
On June 25, 1993, petitioners filed with the Regional Trial Court (RTC) of Ozamis
City a complaint for recovery of possession and ownership of their conjugal
properties with damages against respondent spouses.
After trial, the RTC rendered its Decision dated November 13, 1995, finding that:
1. Plaintiffs have not proven that they entrusted defendant spouses
with the care and administration of their properties. It was Valeria
Alinas, their mother, whom plaintiff Onesiforo requested/directed to
"take care of everything and sell everything" and Teresita Nuñez, his
elder sister, to whom he left a "verbal" authority to administer his
properties.
2. Plaintiffs have not proven their allegation that defendant spouses
agreed to pay rent of P1,500.00 a month for the occupancy of plaintiffs'
house, which rent was to be remitted to the SSS and Rural Bank of
Oroquieta to pay off plaintiffs' loan and to keep for plaintiffs the rest of
the rent after the loans would have been paid in full.
3. Plaintiff Onesiforo's allegation that defendants concocted deeds of
conveyances (Exh. "M", "N" & "O") with the use of his signatures in
blank is not worthy of credence. Why his family would conspire to rob
him at a time when life had struck him with a cruel blow in the form of
a failed marriage that sent him plummeting to the depths of despair is
not explained and likewise defies comprehension. That his signatures
appear exactly on the spot where they ought to be in Exhs. "M", "N" &
"O" belies his pretension that he affixed them on blank paper only for
the purpose of facilitating his sister Terry's acts of administration.
This Court, therefore, does not find that defendant spouses had
schemed to obtain title to plaintiffs' properties or enriched themselves
at the expense of plaintiffs.12
with the following dispositive portion:
WHEREFORE, this Court renders judgment:
1. declaring [respondents] Victor Jr. and Elena Alinas
owners of Lot 896-B-9-A with the building (bodega)
standing thereon and affirming the validity of their
acquisition thereof from the Rural Bank of Oroquieta, Inc.;
2. declaring [petitioners] Onesiforo and Rosario Alinas
owners of Lot 896-B-9-B with the house standing thereon,
plaintiff Onesiforo's sale thereof to defendants spouses
without the consent of his wife being null and void and
defendant spouses' redemption thereof from the SSS not
having conferred its ownership to them;
3. ordering [petitioners] to reimburse [respondents] Victor
Jr. and Elena Alinas the redemption sum of P111,100.09,
paid by them to the SSS (without interest as it shall be
compensated with the rental value of the house they
occupy) within sixty days from the finality of this judgment;
4. ordering [respondents] to vacate the subject house within
thirty days from receiving the reimbursement mentioned in
No. 3 above; and
5. reinstating TCT No. T-7248 in the name of [petitioners]
and cancelling TCT No. T-17394 in the name of
[respondents].
No costs.
SO ORDERED.13

Only respondent spouses appealed to the CA assailing the RTC's ruling that they
acquired Lot 896-B-9-B from the SSS by mere redemption and not by purchase.
They likewise question the reimbursement by petitioners of the redemption price
without interest.
On September 25, 2002, the CA promulgated herein assailed Decision, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing disquisitions, the first
paragraph of the dispositive portion of the assailed decision is
AFFIRMED and the rest MODIFIED as follows:
1. declaring [respondents] Victor Jr. and Elena Alinas
owners of Lot 896-B-9-A with the building (bodega)
standing thereon and affirming the validity of their
acquisition thereof from the Rural Bank of Oroquieta, Inc.;
2. declaring Onesiforo's sale of Lot 896-B-9-B together with
the house standing thereon to [respondents] in so far as
Rosario Alinas, his wife's share of one half thereof is
concerned, of no force and effect;
3. ordering [petitioners] Rosario Alinas to reimburse
[respondents] the redemption amount of P55,550.00 with
interest of 12% per annum from the time of redemption until
fully paid.
4. ordering the [respondents] to convey and transfer one
half portion of Lot 896-B-9-B unto Rosario Alinas, which
comprises her share on the property simultaneous to the
tender of the above redemption price, both to be
accomplished within sixty (60) days from finality of this
judgment.
5. in the event of failure of [respondents] to execute the acts
as specified above, [petitioner] Rosario Alinas may proceed
against them under Section 10, Rule 39 of the 1997 Rules
of Civil Procedure.
6. on the other hand, failure of [petitioner] Rosario Alinas to
reimburse the redemption price within sixty (60) days from
the finality of this decision will render the conveyance and
sale of her share by her husband to [respondents], of full
force and effect.
No costs.
SO ORDERED.14
Petitioners moved for reconsideration but the CA denied said motion per herein
assailed Resolution dated March 31, 2003.
Hence, the present petition on the following grounds:
The Honorable Court of Appeals abuse [sic] its discretion in
disregarding the testimony of the Register of Deeds, Atty. Nerio Nuñez,
who swore that the signatures appearing on various TCTs were not his
own;
The Honorable Court of Appeals manifestly abuse [sic] its discretion in
declaring the respondents to be the owners of Lot 896-B-9-A with the
building (bodega) standing thereon when they merely redeemed the
property and are therefore mere trustees of the real owners of the
property;
It was pure speculation and conjecture and surmise for the Honorable
Court of Appeals to impose an obligation to reimburse upon petitioners
without ordering respondents to account for the rentals of the
properties from the time they occupied the same up to the present time
and thereafter credit one against the other whichever is higher.15
The first issue raised by petitioners deserves scant consideration. By assailing
the authenticity of the Registrar of Deeds' signature on the certificates of title, they
are, in effect, questioning the validity of the certificates.
Section 48 of Presidential Decree No. 1529 provides, thus:
98
Sec. 48. Certificate not subject to collateral attack. - A certificate of title
shall not be subject to collateral attack. It cannot be altered, modified,
or cancelled except in a direct proceeding in accordance with law.
Pursuant to said provision, the Court ruled in De Pedro v. Romasan Development
Corporation16 that:
It has been held that a certificate of title, once registered, should not
thereafter be impugned, altered, changed, modified, enlarged or
diminished except in a direct proceeding permitted by law. x x x
The action of the petitioners against the respondents, based on the
material allegations of the complaint, is one for recovery of
possession of the subject property and damages. However, such
action is not a direct, but a collateral attack of TCT No.
236044.17 (Emphasis supplied)
As in De Pedro, the complaint filed by herein petitioners with the RTC is also one
for recovery of possession and ownership. Verily, the present case is merely a
collateral attack on TCT No. T-17394, which is not allowed by law and
jurisprudence.
With regard to the second issue, petitioners’ claim that it was the CA which
declared respondent spouses owners of Lot 896-B-9-A (with bodega) is
misleading. It was the RTC which ruled that respondent spouses are the owners
of Lot 896-B-9-A and, therefore, since only the respondent spouses appealed to
the CA, the issue of ownership over Lot 896-B-9-A is not raised before the
appellate court. Necessarily, the CA merely reiterated in the dispositive portion of
its decision the RTC's ruling on respondent spouses' ownership of Lot 896-B-9-
A.
It is a basic principle that no modification of judgment or affirmative relief can be
granted to a party who did not appeal.18 Hence, not having appealed from the
RTC Decision, petitioners can no longer seek the reversal or modification of the
trial court's ruling that respondent spouses had acquired ownership of Lot 896-B-
9-A by virtue of the sale of the lot to them by RBO.
Furthermore, the CA did not commit any reversible error in affirming the trial
court's factual findings as the records are indeed bereft of proof to support the
petitioners’ allegations that they left the care and administration of their properties
to respondent spouses; and that there is an agreement between petitioners and
respondent spouses regarding remittance to the SSS and the RBO of rental
income from their properties. Thus, respondent spouses may not be held
responsible for the non-payment of the loan with RBO and the eventual
foreclosure of petitioners' Lot 896-B-9-A.
Petitioners do not assail the validity of the foreclosure of said lot but argues that
respondent spouses merely redeemed the property from RBO. This is, however,
belied by evidence on record which shows that ownership over the lot had duly
passed on to the RBO, as shown by TCT No. T-11853 registered in its name; and
subsequently, RBO sold the lot with its improvements to respondent spouses.
Needless to stress, the sale was made after the redemption period had lapsed.
The trial court, therefore, correctly held that respondent spouses acquired their
title over the lot from RBO and definitely not from petitioners.
However, with regard to Lot 896-B-9-B (with house), the Court finds it patently
erroneous for the CA to have applied the principle of equity in sustaining the
validity of the sale of Onesiforo’s one-half share in the subject property to
respondent spouses.
Although petitioners were married before the enactment of the Family Code on
August 3, 1988, the sale in question occurred in 1989. Thus, their property
relations are governed by Chapter IV on Conjugal Partnership of Gains of the
Family Code.
The CA ruling completely deviated from the clear dictate of Article 124 of the
Family Code which provides:
Art. 124. The administration and enjoyment of the conjugal partnership
property shall belong to both spouses jointly. x x x
In the event that one spouse is incapacitated or otherwise unable to
participate in the administration of the conjugal properties, the other
spouse may assume sole powers of administration. These powers do
not include the powers of disposition or encumbrance which must have
the authority of the court or the written consent of the other spouse. In
the absence of such authority or consent the disposition or

encumbrance shall be void. x x x (Underscoring and emphasis
supplied)
In Homeowners Savings & Loan Bank v. Dailo,19 the Court categorically stated
thus:
In Guiang v. Court of Appeals, it was held that the sale of a conjugal
property requires the consent of both the husband and wife. In applying
Article 124 of the Family Code, this Court declared that the absence
of the consent of one renders the entire sale null and void,
including the portion of the conjugal property pertaining to the
husband who contracted the sale. x x x
xxxx
x x x By express provision of Article 124 of the Family Code, in the
absence of (court) authority or written consent of the other spouse, any
disposition or encumbrance of the conjugal property shall be void. 20
Thus, pursuant to Article 124 of the Family Code and jurisprudence, the sale of
petitioners' conjugal property made by petitioner Onesiforo alone is void in its
entirety.
It is true that in a number of cases, this Court abstained from applying the literal
import of a particular provision of law if doing so would lead to unjust, unfair and
absurd results.21
In the present case, the Court does not see how applying Article 124 of the Family
Code would lead to injustice or absurdity. It should be noted that respondent
spouses were well aware that Lot 896-B-9-B is a conjugal property of petitioners.
They also knew that the disposition being made by Onesiforo is without the
consent of his wife, as they knew that petitioners had separated, and, the sale
documents do not bear the signature of petitioner Rosario. The fact that Onesiforo
had to execute two documents, namely: the Absolute Deed of Sale dated March
10, 1989 and a notarized Agreement likewise dated March 10, 1989, reveals that
they had full knowledge of the severe infirmities of the sale. As held in Heirs of
Aguilar-Reyes v. Spouses Mijares,22 "a purchaser cannot close his eyes to facts
which should put a reasonable man on his guard and still claim he acted in good
faith."23 Such being the case, no injustice is being foisted on respondent spouses
as they risked transacting with Onesiforo alone despite their knowledge that the
subject property is a conjugal property.
Verily, the sale of Lot 896-B-9-B to respondent spouses is entirely null and void.
However, in consonance with the salutary principle of non-enrichment at
another’s expense, the Court agrees with the CA that petitioners should reimburse
respondent spouses the redemption price paid for Lot 896-B-9-B in the amount
of P111,110.09 with legal interest from the time of filing of the complaint.
In Heirs of Aguilar-Reyes, the husband's sale of conjugal property without the
consent of the wife was annulled but the spouses were ordered to refund the
purchase price to the buyers, it was ruled that an interest of 12% per annumon
the purchase price to be refunded is not proper. The Court elucidated as follows:
The trial court, however, erred in imposing 12% interest per annum on
the amount due the respondents. In Eastern Shipping Lines, Inc. v.
Court of Appeals, it was held that interest on obligations not
constituting a loan or forbearance of money is six percent (6%)
annually. If the purchase price could be established with certainty at
the time of the filing of the complaint, the six percent (6%) interest
should be computed from the date the complaint was filed until finality
of the decision. In Lui vs. Loy, involving a suit for reconveyance and
annulment of title filed by the first buyer against the seller and the
second buyer, the Court, ruling in favor of the first buyer and annulling
the second sale, ordered the seller to refund to the second buyer (who
was not a purchaser in good faith) the purchase price of the lots. It was
held therein that the 6% interest should be computed from the date of
the filing of the complaint by the first buyer. After the judgment
becomes final and executory until the obligation is satisfied, the
amount due shall earn interest at 12% per year, the interim period
being deemed equivalent to a forbearance of credit.
Accordingly, the amount of P110,000.00 due the respondent
spouses which could be determined with certainty at the time of
the filing of the complaint shall earn 6% interest per annum from
June 4, 1986 until the finality of this decision. If the adjudged
principal and the interest (or any part thereof) remain unpaid
thereafter, the interest rate shall be twelve percent (12%) per
99
annum computed from the time the judgment becomes final and
executory until it is fully satisfied.24
Thus, herein petitioners should reimburse respondent spouses the redemption
price plus interest at the rate of 6% per annum from the date of filing of the
complaint, and after the judgment becomes final and executory, the amount due
shall earn 12% interest per annum until the obligation is satisfied.
Petitioners pray that said redemption price and interest be offset or compensated
against the rentals for the house and bodega.
The records show that the testimonial evidence for rentals was only with regard
to the bodega.25 However, the Court has affirmed the ruling of the RTC that Lot
896-B-9-A with the bodega had been validly purchased by respondent spouses
from the RBO and a TCT over said property was issued in the name of respondent
spouses on February 22, 1989. Testimonial evidence shows that the bodega was
leased out by respondent spouses only beginning January of 1990 when
ownership had been transferred to them.26 Hence, any rentals earned from the
lease of said bodega rightfully belongs to respondent spouses and cannot be
offset against petitioners' obligation to respondent spouses.
As to rentals for Lot 896-B-9-B and the house thereon, respondent Victor testified
that they never agreed to rent the house and when they finally took over the same,
it was practically inhabitable and so they even incurred expenses to repair the
house.27 There is absolutely no proof of the rental value for the house, considering
the condition it was in; as well as for the lot respondent spouses are occupying.
Respondent spouses, having knowledge of the flaw in their mode of acquisition,
are deemed to be possessors in bad faith under Article 52628 of the Civil Code.
However, they have a right to be refunded for necessary expenses on the property
as provided under Article 54629 of the same Code. Unfortunately, there is no
credible proof to support respondent spouses' allegation that they spent more
than P400,000.00 to repair and make the house habitable.
Set-off or compensation is governed by Article 1279 of the Civil Code which
provides, thus:
Article 1279. In order that compensation may be proper, it is
necessary:
1. That each one of the obligors be bound principally, and that he be
at the time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable;
5. That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
Therefore, under paragraph 4 of the foregoing provision, compensation or set-off
is allowed only if the debts of both parties against each other is already liquidated
and demandable. To liquidate means "to make the amount of indebtedness or an
obligation clear and settled in the form of money."30 In the present case, no
definite amounts for rentals nor for expenses for repairs on subject house has
been determined. Thus, in the absence of evidence upon which to base the
amount of rentals, no compensation or set-off can take place between petitioners
and respondent spouses.
While the courts are empowered to set an amount as reasonable compensation
to the owners for the use of their property, this Court cannot set such amount
based on mere surmises and conjecture
WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of
Appeals dated September 25, 2002 is MODIFIED to read as follows:
1. declaring respondent spouses Victor Jr. and Elena Alinas owners of Lot 896-
B-9-A with the building (bodega) standing thereon and affirming the validity of
their acquisition thereof from the Rural Bank of Oroquieta, Inc.;
 100

2. declaring Onesiforo's sale of Lot 896-B-9-B together with the house

standing thereon to respondent spouses null and void ab initio;

3. ordering petitioners to jointly and severally reimburse respondent spouses the

redemption amount of P111,110.09 with interest at 6% per annum from the
date of filing of the complaint, until finality of this decision. After this
decision becomes final, interest at the rate of 12% per annum on the
principal and interest (or any part thereof) shall be imposed until full
payment;

4. ordering the respondent spouses to convey and transfer Lot 896-B-9-B to

petitioners and vacate said premises within fifteen (15) days from finality of this
Decision; and

5. in the event of failure of respondent spouses to execute the acts as specified

above, petitioners may proceed against them under Section 10, Rule 39 of the
1997 Rules of Civil Procedure.

No costs.

SO ORDERED.

G.R. No. 196577 February 25, 2013
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
BARBARA SAMPAGA POBLETE, Respondent.
DECISION
CARPIO, J.:
The Case
This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals'
Decision2 dated 28 September 20 I 0 and its Resolution3 dated 19 April 2011 in C
A-G.R. CV No. 91666. The Court of Appeals (C A) affirmed in toto the Decision4 of
the Regional Trial Court (RTC) of San Jose, Occidental Mindoro, Branch 46, in
Civil Case No. R-1331.
The Facts
The facts, as culled from the records, are as follows:
Petitioner Land Bank of the Philippines (Land Bank) is a banking institution
organized and existing under Philippine laws. Respondent Barbara Sampaga
Poblete (Poblete) is the registered owner of a parcel of land, known as Lot No.
29, with an area of 455 square meters, located in Buenavista, Sablayan,
Occidental Mindoro, under Original Certificate of Title (OCT) No. P-12026. In
October 1997, Poblete obtained a ₱300,000.00 loan from Kabalikat ng
Pamayanan ng Nagnanais Tumulong at Yumaman Multi-Purpose Cooperative
(Kapantay). Poblete mortgaged Lot No. 29 to Kapantay to guarantee payment of
the loan. Kapantay, in turn, used OCT No. P-12026 as collateral under its Loan
Account No. 97-CC-013 with Land Bank-Sablayan Branch.
In November 1998, Poblete decided to sell Lot No. 29 to pay her loan. She
instructed her son-in-law Domingo Balen (Balen) to look for a buyer. Balen
referred Angelito Joseph Maniego (Maniego) to Poblete. According to Poblete,
Maniego agreed to buy Lot No. 29 for ₱900,000.00, but Maniego suggested that
a deed of absolute sale for ₱300,000.00 be executed instead to reduce the taxes.
Thus, Poblete executed the Deed of Absolute Sale dated 9 November 1998 (Deed
dated 9 November 1998) with ₱300,000.00 as consideration.5 In the Deed dated
9 November 1998, Poblete described herself as a "widow." Poblete, then, asked
Balen to deliver the Deed dated 9 November 1998 to Maniego and to receive the
payment in her behalf. Balen testified that he delivered the Deed dated 9
November 1998 to Maniego. However, Balen stated that he did not receive from
Maniego the agreed purchase price. Maniego told Balen that he would pay the
amount upon his return from the United States. In an Affidavit dated 19 November
1998, Poblete stated that she agreed to have the payment deposited in her Land
Bank Savings Account.6
Based on a Certification issued by Land Bank-Sablayan Branch Department
Manager Marcelino Pulayan on 20 August 1999,7 Maniego paid Kapantay’s Loan
Account No. 97-CC-013 for ₱448,202.08. On 8 June 2000, Maniego applied for a
loan of ₱1,000,000.00 with Land Bank, using OCT No. P 12026 as collateral. Land
Bank alleged that as a condition for the approval of the loan, the title of the
collateral should first be transferred to Maniego.
On 14 August 2000, pursuant to a Deed of Absolute Sale dated 11 August 2000
(Deed dated 11 August 2000),8 the Register of Deeds of Occidental Mindoro
issued Transfer Certificate of Title (TCT) No. T-20151 in Maniego’s name. On 15
August 2000, Maniego and Land Bank executed a Credit Line Agreement and a
Real Estate Mortgage over TCT No. T- 20151. On the same day, Land Bank
released the ₱1,000,000.00 loan proceeds to Maniego. Subsequently, Maniego
failed to pay the loan with Land Bank. On 4 November 2002, Land Bank filed an
Application for Extra-judicial Foreclosure of Real Estate Mortgage stating that
Maniego’s total indebtedness amounted to ₱1,154,388.88.
On 2 December 2002, Poblete filed a Complaint for Nullification of the Deed dated
11 August 2000 and TCT No. T-20151, Reconveyance of Title and Damages with
Prayer for Temporary Restraining Order and/or Issuance of Writ of Preliminary
Injunction. Named defendants were Maniego, Land Bank, the Register of Deeds
of Occidental Mindoro and Elsa Z. Aguirre in her capacity as Acting Clerk of Court
of RTC San Jose, Occidental Mindoro. In her Complaint, Poblete alleged that
despite her demands on Maniego, she did not receive the consideration of
₱900,000.00 for Lot No. 29. She claimed that without her knowledge, Maniego
used the Deed dated 9 November 1998 to acquire OCT No. P-12026 from
Kapantay. Upon her verification with the Register of Deeds, the Deed dated 11
August 2000 was used to obtain TCT No. T-20151. Poblete claimed that the Deed
dated 11 August 2000 bearing her and her deceased husband’s, Primo Poblete,
supposed signatures was a forgery as their signatures were forged. As proof of
101
the forgery, Poblete presented the Death Certificate dated 27 April 1996 of her
husband and Report No. 294-502 of the Technical Services Department of the
National Bureau of Investigation showing that the signatures in the Deed dated
11 August 2000 were forgeries. Accordingly, Poblete also filed a case for estafa
through falsification of public document against Maniego and sought injunction of
the impending foreclosure proceeding.
On 7 January 2003, Land Bank filed its Answer with Compulsory Counterclaim
and Cross-claim. Land Bank claimed that it is a mortgagee in good faith and it
observed due diligence prior to approving the loan by verifying Maniego’s title with
the Office of the Register of Deeds. Land Bank likewise interposed a cross-claim
against Maniego for the payment of the loan, with interest, penalties and other
charges. Maniego, on the other hand, separately filed his Answer. Maniego
denied the allegations of Poblete and claimed that it was Poblete who forged the
Deed dated 11 August 2000. He also alleged that he paid the consideration of the
sale to Poblete and even her loans from Kapantay and Land Bank.
The Ruling of the Regional Trial Court
On 28 December 2007, the RTC of San Jose, Occidental Mindoro, Branch 46,
rendered a Decision in favor of Poblete, the dispositive portion of which reads:
WHEREFORE, by preponderance of evidence, judgment is hereby rendered in
favor of the plaintiff and against the defendants, as follows:
1. Declaring the Deed of Sale dated August 11, 2000 over O.C.T. No.
P-12026, as null and void;
2. Declaring Transfer of Certificate of Title No. T-20151 as null and
void, it having been issued on the basis of a spurious and forged
document;
3. The preliminary [i]njunction issued directing the defendants to refrain
from proceedings [sic] with the auction sale of the plaintiff’s properties,
dated February 10, 2002, is hereby made permanent;
4. Ordering defendant Angelito Joseph Maniego to return to the plaintiff
O.C.T. No. P-12026; and
5. Ordering defendant Angelito Joseph Maniego to pay plaintiff the
amount of ₱50,000.00, as and for reasonable attorney’s fees.
Judgment is furthermore rendered on the cross-claim of defendant Land Bank of
the Philippines against defendant Angelito Joseph Maniego, as follows:
A. Ordering defendant Angelito Joseph Maniego to pay his co-
defendant [L]and Bank of the Philippines his loan with a principal of
₱1,000,000.00, plus interests, penalties and other charges thereon;
and
B. Ordering defendant Angelito Joseph Maniego to pay the costs of
this suit.
SO ORDERED.9
The RTC ruled that the sale between Poblete and Maniego was a nullity. The RTC
found that the agreed consideration was ₱900,000.00 and Maniego failed to pay
the consideration. Furthermore, the signatures of Poblete and her deceased
husband were proven to be forgeries. The RTC also ruled that Land Bank was
not a mortgagee in good faith because it failed to exercise the diligence required
of banking institutions. The RTC explained that had Land Bank exercised due
diligence, it would have known before approving the loan that the sale between
Poblete and Maniego had not been consummated. Nevertheless, the RTC
granted Land Bank’s cross-claim against Maniego.
In an Order dated 17 March 2008, the RTC denied the Motion for Reconsideration
filed by Land Bank for want of merit. Thereafter, Land Bank and Maniego
separately challenged the RTC’s Decision before the CA.
The Ruling of the Court of Appeals
On 28 September 2010, the CA promulgated its Decision affirming in toto the
Decision of the RTC.10 Both Land Bank and Maniego filed their Motions for
Reconsideration but the CA denied both motions on 19 April 2011.11

In a Resolution dated 13 July 2011,12 the Second Division of this Court denied the
Petition for Review on Certiorari filed by Maniego. This Resolution became final
and executory on 19 January 2012.
On the other hand, Land Bank filed this petition.
The Issues
Land Bank seeks a reversal and raises the following issues for resolution:
1. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH
DIVISION) ERRED IN UPHOLDING THE FINDING OF THE TRIAL
COURT DECLARING TCT NO. T-20151 AS NULL AND VOID. THE
COURT OF APPEALS MISCONSTRUED AND MISAPPRECIATED
THE EVIDENCE AND THE LAW IN NOT FINDING TCT NO. T-20151
REGISTERED IN THE NAME OF ANGELITO JOSEPH MANIEGO AS
VALID.
2. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH
DIVISION) MISCONSTRUED THE EVIDENCE AND THE LAW IN
NOT FINDING LAND BANK A MORTGAGEE IN GOOD FAITH.
3. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH
DIVISION) MISCONSTRUED THE EVIDENCE AND THE LAW IN
NOT FINDING THE RESPONDENT AND ANGELITO JOSEPH
MANIEGO AS IN PARI DELICTO.
4. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH
DIVISION) ERRED IN NOT APPLYING THE PRINCIPLE OF
ESTOPPEL OR LACHES ON RESPONDENT IN THAT THE
PROXIMATE CAUSE OF HER LOSS WAS HER NEGLIGENCE TO
SAFEGUARD HER RIGHTS OVER THE SUBJECT PROPERTY,
THEREBY ENABLING ANGELITO JOSEPH MANIEGO TO
MORTGAGE THE SAME WITH LAND BANK.13
The Ruling of the Court
We do not find merit in the petition.
A petition for review under Rule 45 of the Rules of Court specifically provides that
only questions of law may be raised, subject to exceptional circumstances14 which
are not present in this case. Hence, factual findings of the trial court, especially if
affirmed by the CA, are binding on us.15 In this case, both the RTC and the CA
found that the signatures of Poblete and her deceased husband in the Deed dated
11 August 2000 were forged by Maniego. In addition, the evidence is
preponderant that Maniego did not pay the consideration for the sale. Since the
issue on the genuineness of the Deed dated 11 August 2000 is essentially a
question of fact, we are not dutybound to analyze and weigh the evidence again.16
It is a well-entrenched rule, as aptly applied by the CA, that a forged or fraudulent
deed is a nullity and conveys no title.17 Moreover, where the deed of sale states
that the purchase price has been paid but in fact has never been paid, the deed
of sale is void ab initio for lack of consideration.18 Since the Deed dated 11 August
2000 is void, the corresponding TCT No. T-20151 issued pursuant to the same
deed is likewise void. In Yu Bun Guan v. Ong,19 the Court ruled that there was no
legal basis for the issuance of the certificate of title and the CA correctly cancelled
the same when the deed of absolute sale was completely simulated, void and
without effect. In Ereña v. Querrer-Kauffman,20 the Court held that when the
instrument presented for registration is forged, even if accompanied by the
owner’s duplicate certificate of title, the registered owner does not thereby lose
his title, and neither does the mortgagee acquire any right or title to the property.
In such a case, the mortgagee under the forged instrument is not a mortgagee
protected by law.21
The issue on the nullity of Maniego’s title had already been foreclosed when this
Court denied Maniego’s petition for review in the Resolution dated 13 July 2011,
which became final and executory on 19 January 2012.22 It is settled that a
decision that has acquired finality becomes immutable and unalterable and may
no longer be modified in any respect, even if the modification is meant to correct
erroneous conclusions of fact or law and whether it will be made by the court that
rendered it or by the highest court of the land.23 This is without prejudice, however,
to the right of Maniego to recover from Poblete what he paid to Kapantay for the
account of Poblete, otherwise there will be unjust enrichment by Poblete.
Since TCT No. T-20151 has been declared void by final judgment, the Real Estate
Mortgage constituted over it is also void. In a real estate mortgage contract, it is
essential that the mortgagor be the absolute owner of the property to be
mortgaged; otherwise, the mortgage is void.24
102
Land Bank insists that it is a mortgagee in good faith since it verified Maniego’s
title, did a credit investigation, and inspected Lot No. 29. The issue of being a
mortgagee in good faith is a factual matter, which cannot be raised in this
petition.25 However, to settle the issue, we carefully examined the records to
determine whether or not Land Bank is a mortgagee in good faith.1âwphi1
There is indeed a situation where, despite the fact that the mortgagor is not the
owner of the mortgaged property, his title being fraudulent, the mortgage contract
and any foreclosure sale arising therefrom are given effect by reason of public
policy.26 This is the doctrine of "the mortgagee in good faith" based on the rule
that buyers or mortgagees dealing with property covered by a Torrens Certificate
of Title are not required to go beyond what appears on the face of the
title.27 However, it has been consistently held that this rule does not apply to
banks, which are required to observe a higher standard of diligence.28 A bank
whose business is impressed with public interest is expected to exercise more
care and prudence in its dealings than a private individual, even in cases involving
registered lands.29 A bank cannot assume that, simply because the title offered
as security is on its face free of any encumbrances or lien, it is relieved of the
responsibility of taking further steps to verify the title and inspect the properties to
be mortgaged.30
Applying the same principles, we do not find Land Bank to be a mortgagee in
good faith.
Good faith, or the lack of it, is a question of intention. 31 In ascertaining intention,
courts are necessarily controlled by the evidence as to the conduct and outward
acts by which alone the inward motive may, with safety, be determined. 32
Based on the evidence, Land Bank processed Maniego’s loan application upon
his presentation of OCT No. P-12026, which was still under the name of Poblete.
Land Bank even ignored the fact that Kapantay previously used Poblete’s title as
collateral in its loan account with Land Bank.33 In Bank of Commerce v. San
Pablo, Jr.,34 we held that when "the person applying for the loan is other than the
registered owner of the real property being mortgaged, [such fact] should have
already raised a red flag and which should have induced the Bank x x x to make
inquiries into and confirm x x x [the] authority to mortgage x x x. A person who
deliberately ignores a significant fact that could create suspicion in an otherwise
reasonable person is not an innocent purchaser for value."
The records do not even show that Land Bank investigated and inspected the
property to ascertain its actual occupants. Land Bank merely mentioned that it
inspected Lot No. 29 to appraise the value of the property. We take judicial notice
of the standard practice of banks, before approving a loan, to send
representatives to the premises of the land offered as collateral to investigate its
real owners.35 In Prudential Bank v. Kim Hyeun Soon,36 the Court held that the
bank failed to exercise due diligence although its representative conducted an
ocular inspection, because the representative concentrated only on the appraisal
of the property and failed to inquire as to who were the then occupants of the
property.
Land Bank claims that it conditioned the approval of the loan upon the transfer of
title to Maniego, but admits processing the loan based on Maniego’s assurances
that title would soon be his.37 Thus, only one day after Maniego obtained TCT No.
T-20151 under his name, Land Bank and Maniego executed a Credit Line
Agreement and a Real Estate Mortgage. Because of Land Bank’s haste in
granting the loan, it appears that Maniego’s loan was already completely
processed while the collateral was still in the name of Poblete. This is also
supported by the testimony of Land Bank Customer Assistant Andresito Osano.38
Where the mortgagee acted with haste in granting the mortgage loan and did not
ascertain the ownership of the land being mortgaged, as well as the authority of
the supposed agent executing the mortgage, it cannot be considered an innocent
mortgagee.39
Since Land Bank is not a mortgagee in good faith, it is not entitled to protection.
The injunction against the foreclosure proceeding in the present case should be
made permanent. Since Lot No. 29 has not been transferred to a third person who
is an innocent purchaser for value, ownership of the lot remains with Poblete. This
is without prejudice to the right of either party to proceed against Maniego.
On the allegation that Poblete is in pari delicto with Maniego, we find the principle
inapplicable. The pari delicto rule provides that "when two parties are equally at
fault, the law leaves them as they are and denies recovery by either one of
them."40 We adopt the factual finding of the RTC and the CA that only Maniego is
at fault.
Finally, on the issues of estoppel and laches, such were not raised before the trial
court.1âwphi1 I fence, we cannot rule upon the same. It is settled that an issue
which was neither alleged in the complaint nor raised during the trial cannot be
raised for the tirst time on appeal, as such a recourse would be offensive to the
 103

basic rules of t}1ir play, justice and due process, since the opposing party would
be deprived of the opp01iunity to introduce evidence rebutting such new issue.41

WHEREFORE, we DENY the petition. We AFFIRM the 28 September 2010

Decision and the 19 April 2011 Resolution of the Court of Appeals in CA-Ci.R. CV
No. 91666. The injunction against the foreclosure proceeding, issued by the
Regional Trial Court of San Jose, Occidental Mindoro, Branch 46, is made
permanent. Costs against Land Bank.

SO ORDERED.

G.R. No. 160600 January 15, 2014
DOMINGO GONZALO, Petitioner,
vs.
JOHN TARNATE, JR., Respondent.
DECISION
BERSAMIN, J.:
The doctrine of in pari delicto which stipulates that the guilty parties to an illegal
contract are not entitled to any relief, cannot prevent a recovery if doing so violates
the public policy against unjust enrichment.
Antecedents
After the Department of Public Works and Highways (DPWH) had awarded on
July 22, 1997 the contract for the improvement of the Sadsadan-Maba-ay Section
of the Mountain Province-Benguet Road in the total amount of 7 014 963 33 to
his company, Gonzalo Construction,1 petitioner Domingo Gonzalo (Gonzalo)
subcontracted to respondent John Tarnate, Jr. (Tarnate) on October 15, 1997,
the supply of materials and labor for the project under the latter s business known
as JNT Aggregates. Their agreement stipulated, among others, that Tarnate
would pay to Gonzalo eight percent and four percent of the contract price,
respectively, upon Tarnate s first and second billing in the project.2
In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of
assignment whereby he, as the contractor, was assigning to Tarnate an amount
equivalent to 10% of the total collection from the DPWH for the project. This 10%
retention fee (equivalent to ₱233,526.13) was the rent for Tarnate’s equipment
that had been utilized in the project. In the deed of assignment, Gonzalo further
authorized Tarnate to use the official receipt of Gonzalo Construction in the
processing of the documents relative to the collection of the 10% retention fee
and in encashing the check to be issued by the DPWH for that purpose. 3 The
deed of assignment was submitted to the DPWH on April 15, 1999. During the
processing of the documents for the retention fee, however, Tarnate learned that
Gonzalo had unilaterally rescinded the deed of assignment by means of an
affidavit of cancellation of deed of assignment dated April 19, 1999 filed in the
DPWH on April 22, 1999;4 and that the disbursement voucher for the 10%
retention fee had then been issued in the name of Gonzalo, and the retention fee
released to him.5
Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail.
Thus, he brought this suit against Gonzalo on September 13, 1999 in the Regional
Trial Court (RTC) in Mountain Province to recover the retention fee of
₱233,526.13, moral and exemplary damages for breach of contract, and
attorney’s fees.6
In his answer, Gonzalo admitted the deed of assignment and the authority given
therein to Tarnate, but averred that the project had not been fully implemented
because of its cancellation by the DPWH, and that he had then revoked the deed
of assignment. He insisted that the assignment could not stand independently due
to its being a mere product of the subcontract that had been based on his contract
with the DPWH; and that Tarnate, having been fully aware of the illegality and
ineffectuality of the deed of assignment from the time of its execution, could not
go to court with unclean hands to invoke any right based on the invalid deed of
assignment or on the product of such deed of assignment.7
Ruling of the RTC
On January 26, 2001, the RTC, opining that the deed of assignment was a valid
and binding contract, and that Gonzalo must comply with his obligations under
the deed of assignment, rendered judgment in favor of Tarnate as follows:
WHEREFORE, premises considered and as prayed for by the plaintiff, John
Tarnate, Jr. in his Complaint for Sum of Money, Breach of Contract With Damages
is hereby RENDERED in his favor and against the above-named defendant
Domingo Gonzalo, the Court now hereby orders as follows:
1. Defendant Domingo Gonzalo to pay the Plaintiff, John Tarnate, Jr.,
the amount of TWO HUNDRED THIRTY THREE THOUSAND FIVE
HUNDRED TWENTY SIX and 13/100 PESOS (₱233,526.13)
representing the rental of equipment;
2. Defendant to pay Plaintiff the sum of THIRTY THOUSAND
(₱30,000.00) PESOS by way of reasonable Attorney’s Fees for having
forced/compelled the plaintiff to litigate and engage the services of a
lawyer in order to protect his interest and to enforce his right. The claim
104
of the plaintiff for attorney’s fees in the amount of FIFTY THOUSAND
PESOS (₱50,000.00) plus THREE THOUSAND PESOS (₱3,000.00)
clearly appears to be unconscionable and therefore reduced to Thirty
Thousand Pesos (₱30,000.00) as aforestated making the same to be
reasonable;
3. Defendant to pay Plaintiff the sum of FIFTEEN THOUSAND PESOS
(₱15,000.00) by way of litigation expenses;
4. Defendant to pay Plaintiff the sum of TWENTY THOUSAND PESOS
(₱20,000.00) for moral damages and for the breach of contract; and
5. To pay the cost of this suit.
Award of exemplary damages in the instant case is not warranted for there is no
showing that the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner analogous to the case of Xentrex Automotive, Inc. vs. Court
of Appeals, 291 SCRA 66.8
Gonzalo appealed to the Court of Appeals (CA).
Decision of the CA
On February 18, 2003, the CA affirmed the RTC.9
Although holding that the subcontract was an illegal agreement due to its object
being specifically prohibited by Section 6 of Presidential Decree No. 1594; that
Gonzalo and Tarnate were guilty of entering into the illegal contract in violation of
Section 6 of Presidential Decree No. 1594; and that the deed of assignment, being
a product of and dependent on the subcontract, was also illegal and
unenforceable, the CA did not apply the doctrine of in pari delicto, explaining that
the doctrine applied only if the fault of one party was more or less equivalent to
the fault of the other party. It found Gonzalo to be more guilty than Tarnate, whose
guilt had been limited to the execution of the two illegal contracts while Gonzalo
had gone to the extent of violating the deed of assignment. It declared that the
crediting of the 10% retention fee equivalent to ₱233,256.13 to his account had
unjustly enriched Gonzalo; and ruled, accordingly, that Gonzalo should reimburse
Tarnate in that amount because the latter’s equipment had been utilized in the
project.
Upon denial of his motion for reconsideration,10 Gonzalo has now come to the
Court to seek the review and reversal of the decision of the CA.
Issues
Gonzalo contends that the CA erred in affirming the RTC because: (1) both parties
were in pari delicto; (2) the deed of assignment was void; and (3) there was no
compliance with the arbitration clause in the subcontract.
Gonzalo submits in support of his contentions that the subcontract and the deed
of assignment, being specifically prohibited by law, had no force and effect; that
upon finding both him and Tarnate guilty of violating the law for executing the
subcontract, the RTC and the CA should have applied the rule of in pari delicto,
to the effect that the law should not aid either party to enforce the illegal contract
but should leave them where it found them; and that it was erroneous to accord
to the parties relief from their predicament.11
Ruling
We deny the petition for review, but we delete the grant of moral damages,
attorney’s fees and litigation expenses.
There is no question that every contractor is prohibited from subcontracting with
or assigning to another person any contract or project that he has with the DPWH
unless the DPWH Secretary has approved the subcontracting or assignment. This
is pursuant to Section 6 of Presidential Decree No. 1594, which provides:
Section 6. Assignment and Subcontract. – The contractor shall not assign,
transfer, pledge, subcontract or make any other disposition of the contract or any
part or interest therein except with the approval of the Minister of Public Works,
Transportation and Communications, the Minister of Public Highways, or the
Minister of Energy, as the case may be. Approval of the subcontract shall not
relieve the main contractor from any liability or obligation under his contract with
the Government nor shall it create any contractual relation between the
subcontractor and the Government.
 105

Gonzalo, who was the sole contractor of the project in question, subcontracted
the implementation of the project to Tarnate in violation of the statutory prohibition.
Their subcontract was illegal, therefore, because it did not bear the approval of
the DPWH Secretary. Necessarily, the deed of assignment was also illegal,
because it sprung from the subcontract. As aptly observed by the CA:
x x x. The intention of the parties in executing the Deed of Assignment was merely
to cover up the illegality of the sub-contract agreement. They knew for a fact that
the DPWH will not allow plaintiff-appellee to claim in his own name under the Sub-
Contract Agreement.
Obviously, without the Sub-Contract Agreement there will be no Deed of
Assignment to speak of. The illegality of the Sub-Contract Agreement necessarily
affects the Deed of Assignment because the rule is that an illegal agreement
cannot give birth to a valid contract. To rule otherwise is to sanction the act of
entering into transaction the object of which is expressly prohibited by law and
thereafter execute an apparently valid contract to subterfuge the illegality. The
legal proscription in such an instance will be easily rendered nugatory and
meaningless to the prejudice of the general public.12
Under Article 1409 (1) of the Civil Code, a contract whose cause, object or
purpose is contrary to law is a void or inexistent contract. As such, a void contract
cannot produce a valid one.13 To the same effect is Article 1422 of the Civil Code,
which declares that "a contract, which is the direct result of a previous illegal
contract, is also void and inexistent."
We do not concur with the CA’s finding that the guilt of Tarnate for violation of
Section 6 of Presidential Decree No. 1594 was lesser than that of Gonzalo, for,
as the CA itself observed, Tarnate had voluntarily entered into the agreements
with Gonzalo.14 Tarnate also admitted that he did not participate in the bidding for
the project because he knew that he was not authorized to contract with the
DPWH.15 Given that Tarnate was a businessman who had represented himself in
the subcontract as "being financially and organizationally sound and established,
with the necessary personnel and equipment for the performance of the
project,"16 he justifiably presumed to be aware of the illegality of his agreements
with Gonzalo. For these reasons, Tarnate was not less guilty than Gonzalo.
RTC and the CA properly adjudged Gonzalo liable to pay Tarnate the equivalent
amount of the 10% retention fee (i.e., ₱233,526.13).
Gonzalo sought to justify his refusal to turn over the ₱233,526.13 to Tarnate by
insisting that he (Gonzalo) had a debt of ₱200,000.00 to Congressman Victor
Dominguez; that his payment of the 10% retention fee to Tarnate was conditioned
on Tarnate paying that debt to Congressman Dominguez; and that he refused to
give the 10% retention fee to Tarnate because Tarnate did not pay to
Congressman Dominguez.23 His justification was unpersuasive, however,
because, firstly, Gonzalo presented no proof of the debt to Congressman
Dominguez; secondly, he did not competently establish the agreement on the
condition that supposedly bound Tarnate to pay to Congressman
Dominguez;24 and, thirdly, burdening Tarnate with Gonzalo’s personal debt to
Congressman Dominguez to be paid first by Tarnate would constitute another
case of unjust enrichment.
The Court regards the grant of moral damages, attorney’s fees and litigation
expenses to Tarnate to be inappropriate. We have ruled that no damages may be
recovered under a void contract, which, being nonexistent, produces no juridical
tie between the parties involved.25 It is notable, too, that the RTC and the CA did
not spell out the sufficient factual and legal justifications for such damages to be
granted.
Lastly, the letter and spirit of Article 22 of the Civil Code command Gonzalo to
make a full reparation or compensation to Tarnate. The illegality of their contract
should not be allowed to deprive Tarnate from being fully compensated through
the imposition of legal interest. Towards that end, interest of 6% per annum
reckoned from September 13, 1999, the time of the judicial demand by Tarnate,
is imposed on the amount of ₱233,526.13. Not to afford this relief will make a
travesty of the justice to which Tarnate was entitled for having suffered too long
from Gonzalo’s unjust enrichment.
WHEREFORE, we AFFIRM the decision promulgated on February 18, 2003, but
DELETE the awards of moral damages, attorney’s fees and litigation expenses;
IMPOSE legal interest of 6% per annum on the principal oL₱233,526.13 reckoned
from September 13, 1999; and DIRECT the petitioner to pay the costs of suit.

According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal SO ORDERED.
contract cannot recover from one another and are not entitled to an affirmative
relief because they are in pari delicto or in equal fault. The doctrine of in pari
delicto is a universal doctrine that holds that no action arises, in equity or at law,
from an illegal contract; no suit can be maintained for its specific performance, or
to recover the property agreed to be sold or delivered, or the money agreed to be
paid, or damages for its violation; and where the parties are in pari delicto, no
affirmative relief of any kind will be given to one against the other.17

Nonetheless, the application of the doctrine of in pari delicto is not always

rigid.1âwphi1 An accepted exception arises when its application contravenes
well-established public policy.18 In this jurisdiction, public policy has been defined
as "that principle of the law which holds that no subject or citizen can lawfully do
that which has a tendency to be injurious to the public or against the public
good."19

Unjust enrichment exists, according to Hulst v. PR Builders, Inc.,20 "when a

person unjustly retains a benefit at the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity
and good conscience." The prevention of unjust enrichment is a recognized public
policy of the State, for Article 22 of the Civil Code explicitly provides that "[e]very
person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him." It is well to note that
Article 22 "is part of the chapter of the Civil Code on Human Relations, the
provisions of which were formulated as basic principles to be observed for the
rightful relationship between human beings and for the stability of the social order;
designed to indicate certain norms that spring from the fountain of good
conscience; guides for human conduct that should run as golden threads through
society to the end that law may approach its supreme ideal which is the sway and
dominance of justice."21

There is no question that Tarnate provided the equipment, labor and materials for
the project in compliance with his obligations under the subcontract and the deed
of assignment; and that it was Gonzalo as the contractor who received the
payment for his contract with the DPWH as well as the 10% retention fee that
should have been paid to Tarnate pursuant to the deed of
assignment.22 Considering that Gonzalo refused despite demands to deliver to
Tarnate the stipulated 10% retention fee that would have compensated the latter
for the use of his equipment in the project, Gonzalo would be unjustly enriched at
the expense of Tarnate if the latter was to be barred from recovering because of
the rigid application of the doctrine of in pari delicto. The prevention of unjust
enrichment called for the exception to apply in Tarnate’s favor. Consequently, the

G.R. No. 166790 November 19, 2014
JUAN P. CABRERA, Petitioner,
vs.
HENRY YSAAC, Respondent.
DECISION
LEONEN, J.:
Unless all the co-owners have agreed to partition their property, none of them
may sell a definite portion of the land. The co-owner may only sell his or her
proportionate interest in the co-ownership. A contract of sale which purports to
sell a specific or definite portion of unpartitioned land is null and void ab initio.
In this petition for review on certiorari,1 Juan P. Cabrera assails the Court of
Appeals' decision dated June 19, 20032and resolution dated January 3,
2005.3 These decisions ruled that a specific performance to execute a deed of
sale over a parcel of land is not available as a relief for Juan Cabrera.
It appears that the heirs of Luis and Matilde Ysaac co-owned a 5,517-square-
meter parcel of land located in Sabang, Naga City, covered by Original Certificate
of Title (OCT) No. 506.4 One of the co-owners is respondent, Henry Ysaac.
Henry Ysaac leased out portions of the property to several lessees. Juan Cabrera,
one of the lessees, leased a 95-square-meter portion of the land beginning in
1986.5
On May 6, 1990, Henry Ysaac needed money and offered to sell the 95-square-
meter piece of land to Juan Cabrera.6 He told Henry Ysaac that the land was too
small for his needs because there was no parking space for his vehicle.7
In order to address Juan Cabrera’s concerns, Henry Ysaac expanded his offer to
include the two adjoining lands that Henry Ysaac was then leasing to the Borbe
family and the Espiritu family. Those three parcels of land have a combined area
of 439-square-meters. However, Henry Ysaac warned Juan Cabrera that the sale
for those two parcels could only proceed if the two families agree to it.
Juan Cabrera accepted the new offer. Henry Ysaac and Juan Cabrera settled on
the price of ₱250.00 per square meter, but Juan Cabrera stated that he could only
pay in full after his retirement on June 15, 1992.8 Henry Ysaac agreed but
demanded for an initial payment of ₱1,500.00, which Juan Cabrera paid.9
According to Juan Cabrera, Henry Ysaac informed him that the Borbe family and
the Espiritu family were no longer interested in purchasing the properties they
were leasing. Since Mamerta Espiritu of the Espiritu family initially considered
purchasing the property and had made an initial deposit for it, Juan Cabrera
agreed to reimbursethis earlier payment. On June 9, 1990, Juan Cabrera paid the
amount of ₱6,100.00.10 Henry Ysaac issued a receipt for this amount. ₱3,100.00
of the amount paid was reimbursed to Mamerta Espiritu and, in turn, she
gaveJuan Cabrera the receipts issued to her by Henry Ysaac.11
On June 15, 1992, Juan Cabrera tried to pay the balance of the purchase price to
Henry Ysaac. However,at that time, Henry Ysaac was in the United States. The
only person in Henry Ysaac’s residence was his wife. The wife refused to accept
Juan Cabrera’s payment.12
Sometime in September 1993, JuanCabrera alleged that Henry Ysaac
approached him, requesting to reduce the area of the land subject of their
transaction. Part of the 439-square-meter land was going to be made into a
barangay walkway, and another part was being occupied by a family that was
difficult to eject.13 Juan Cabrera agreed to the proposal. The land was surveyed
again. According to Juan Cabrera, Henry Ysaac agreed to shoulder the costs of
the resurvey, which Juan Cabrera advanced in the amount of ₱3,000.00.
The resurvey shows that the area now covered by the transaction was 321 square
meters.14 Juan Cabrera intended to show the sketch plan and pay the amount
due for the payment of the lot. However, on that day, Henry Ysaac was in Manila.
Once more, Henry Ysaac’s wife refused to receive the payment because of lack
of authority from her husband.15
On September 21, 1994, Henry Ysaac’s counsel, Atty. Luis Ruben General, wrote
a letter addressed to Atty. Leoncio Clemente, Juan Cabrera’s counsel. 16 Atty.
General informed Atty. Clemente that his client is formally rescinding the contract
of sale because Juan Cabrera failed to pay the balance of the purchase price of
the land between May 1990 and May 1992. The letter also stated that Juan
Cabrera’s initial payment of ₱1,500.00 and the subsequent payment of ₱6,100.00
106
were going to be applied as payment for overdue rent of the parcel of land Juan
Cabrera was leasing from Henry Ysaac.17 The letter also denied the allegation of
Juan Cabrera that Henry Ysaac agreed to shoulder the costs of the resurveying
of the property.18 Juan Cabrera, together with his uncle, Delfin Cabrera, went to
Henry Ysaac’s house on September 16, 1995 to settle the matter.19 Henry Ysaac
told Juan Cabrera that he could no longer sell the property because the new
administrator of the property was his brother, Franklin Ysaac.20
Due to Juan Cabrera’s inability to enforce the contract of sale between him and
Henry Ysaac, he decided to file a civil case for specific performance on
September 20, 1995.21 Juan Cabrera prayed for the execution of a formal deed
of sale and for the transfer of the title of the property in his name. 22 He tendered
the sum of ₱69,650.00 to the clerk of court as payment of the remaining balance
of the original sale price.23 On September 22, 1995, a notice of lis pendenswas
annotated on OCT No. 560.24
In his answer with counterclaim,25 Henry Ysaac prayed for the dismissal of Juan
Cabrera’s complaint.26 He also prayed for compensation in the form of moral
damages, attorney’s fees, and incidental litigation expenses.27
Before the Regional Trial Court decided the case, the heirs of Luis and Matilde
Ysaac, under the administration of Franklin Ysaac, sold their property to the local
government ofNaga City on February 12, 1997.28 The property was turned into a
projectfor the urban poor of the city.29 During the trial, Corazon Borbe Combe of
the Borbe family testified that contrary to what Juan Cabrera claimed, her family
never agreed to sell the land they were formerly leasing from Henry Ysaac in favor
of Juan Cabrera.30 The Borbe family bought the property from NagaCity’s urban
poor program after the salebetween the Ysaacs and the local government of Naga
City.31
On September 22, 1999, the Regional Trial Court of Naga City ruled that the
contract of sale between Juan Cabrera and Henry Ysaac was duly rescinded
when the former failed to pay the balance of the purchase price in the period
agreed upon.32 The Regional Trial Court found that there was an agreement
between Juan Cabrera and Henry Ysaac as to the sale of land and the
corresponding unit price.33 However, aside from the receipts turned over by
Mamerta Espiritu of the Espiritu family to Juan Cabrera, there was no "evidence
that the other adjoining lot occupants agreed to sell their respective landholdings"
to Juan Cabrera.34 The Regional Trial Court also doubted that Juan Cabrera was
willing and able to pay Henry Ysaac on June 15, 1992. According to the trial court:
[A]fter the said refusal of Henry Ysaac’s wife, plaintiff [Juan Cabrera] did not
bother to write tothe defendant [Henry Ysaac] or to any of the co-owners his
intention to pay for the land or he could have consigned the amount in court at
the same time notifying [Henry Ysaac] of the consignation in accordance with
Article 1256 of the Civil Code. Furthermore, in September, 1993 [Juan Cabrera]
was able to meet [Henry Ysaac] whenthe latter allegedly talked to him about the
reduction of the areahe was going to buy. There is no showing that [Juan Cabrera]
again tendered his payment to Henry Ysaac. Instead, he allegedly made his offer
after he had the land resurveyed but defendant was then in Manila. There is no
evidence as to what date this offer was made. . . . . .
[T]he court does not see any serious demand made for performance of the
contract on the part of [Juan Cabrera] in 1992 when he allegedly promised to pay
the balance of the purchase price. Neither could he demand for the sale of the
adjoining lots because the occupants thereof did not manifest their consent
thereto. At the most, he could have demanded the sale of the lot which he was
occupying. If his payment was refused in 1995, he cannot demand for damages
because the rescission of the contract was relayed to him in writing in Exhibit
"4".35
The Regional Trial Court dismissed Juan Cabrera’s complaint and Henry Ysaac’s
counterclaim.36 Juan Cabrera appealed the Regional Trial Court’s decision.37
The Court of Appeals agreed with the Regional Trial Court that there was a
perfected contract of sale between Juan Cabrera and Henry Ysaac. 38 According
to the Court of Appeals, even if the subject of the sale is part of Henry Ysaac’s
undivided property, a co-owner may sell a definite portion of the property.39
The Court of Appeals also ruled that the contract of sale between Juan Cabrera
and Henry Ysaac was not validly rescinded.40 For the rescission to be valid under
Article 1592 of the Civil Code, it should have been done through a judicial or
notarial act and not merely through a letter.41
However, due to the sale of the entire property of the Ysaac family in favor of the
local government of Naga City, the Court of Appeals ruled that the verbal contract
between Juan Cabrera and Henry Ysaac cannot be subject to the remedy of
specific performance.42 The local government of Naga City was an innocent
purchaser for value, and following the rules on double sales, it had a preferential
right since the sale it entered into was in a public instrument, while the one with

Juan Cabrera was only made orally.43 The only recourse the Court of Appeals
could do is to order Henry Ysaac to return the initial payment of the purchase
price of ₱10,600.00 (₱1,500.00 and ₱6,100.00 as evidenced by the receipts
issued by Henry Ysaac to Juan Cabrera, and ₱3,000.00 for the surveying
expenses) as payment of actual damages. The Court of Appeals likewise
awarded attorney’s fees and litigation costs. To wit:
WHEREFORE, premises considered, the assailed decision of the lower court is
hereby SET ASIDE and a new one is entered as follows:
1. Declaring that there is no valid rescission of the contract of sale of
the subject lot between plaintiff-appellant [Juan P. Cabrera] and
defendant-appellee [Henry Ysaac]; however, specific performance is
not an available relief to plaintiff because of the supervening sale of
the property to the City of Naga, an innocent purchaser and for value;
2. Ordering [Henry Ysaac] to pay [Juan P. Cabrera] actual damages in
the amount of ₱10,600.00, with legal interest of 12% per annum from
September 20, 1995 until paid;
3. Ordering [Henry Ysaac] to pay [Juan P. Cabrera], the amount of
thirty thousand pesos (₱30,000.00) by way of attorney’s fees and
litigation expenses.
Henry Ysaac filed his motion for reconsideration dated July 14, 2003 of the
decision of the Court of Appeals.44 On the other hand, Juan Cabrera immediately
filed a petition for reviewon certiorari with this court. 45 In the resolution dated
October 15, 2003, this court denied the petition "for being premature since
respondent’s motion for reconsideration of the questioned decision of the Court
of Appeals is still pending resolution."46
In the resolution dated January 3,2005, the Court of Appeals denied Henry
Ysaac’s motion for reconsideration. On February24, 2005, Juan Cabrera filed
another petition with this court, questioning the propriety of the Court of Appeals’
decision and resolution.
This court initially noted that the petition was filed out of time. The stamp on the
petition states that it was received by this court on March 24, 2005,47 while the
reglementary period to file the petition expired on February 28, 2005. Thus, the
petition was dismissed in this court’s resolution dated April 27, 2005.48 Petitioner
filed a motion for reconsideration.49 However, the same was denied with finality
in this court’s resolution dated August 17, 2005.50
In a letter addressed to the Chief Justice, petitioner argued that it would be unfair
to him if a clerical error would deprive his petition from being judged on the merits.
Petitioner emphasized that the registry receipts show that he filed the petition on
February 24, 2005, not March 24, 2005, as noted by this court in his
pleading.51 This court treated the letter as a second motion for reconsideration. In
the resolution dated March 31, 2006, this court found merit in petitioner’s
letter.52 The petition was reinstated, and respondent was ordered to file his
comment.53Respondent filed his comment on September 18, 2006.54 This court
required petitioner to file a reply,55 which petitioner complied with on January 15,
2007.56
The issues raised by petitioner and respondent are summarized as follows:
1. Whether this court could take cognizance of issues not raised by
petitioner but by respondent in his comment to the petition for review;
2. Whether there was a valid contractof sale between petitioner and
respondent;
3. Whether the contract ofsale still subsisted;
a. Whether the contract was terminated through rescission;
b. Whether the contract was no longer enforceable due to
the supervening sale of the property to the local
government of Naga City;
4. Whether petitioner is entitled to the execution of a deed of sale in
his favor; and
5. Whether petitioner is entitled to actual damages, attorney’s fees,
and costs of litigation.
107
The petition should be denied.
I
This court can resolve issues raised by both parties
Petitioner stated that the errors inthis case are: (1) "the [Court of Appeals] erred
in holding that the relief of specific performance is not available to [petitioner]
supposedly because of the supervening sale of [the] property to the City
Government of Naga";57 and (2) "consequently, the [Court of Appeals] erred in
not ordering the execution of the necessary deed of sale in favor of
[petitioner]."58 Petitioner argues that this court should limit its adjudication to these
two errors.59
On the other hand, respondent raised issues on the validity of the contract of sale
in favor of petitioner, and the propriety of the award of actual damages with
interest, attorney’s fees, and litigation expenses.60
For petitioner, if respondent wanted to raise issues regarding the Court of
Appeals’ decision, respondent should have interposed a separate appeal.61
Petitioner’s position is erroneous. This court can resolve issues and assignments
of error argued by petitioner and respondent.
This court "is clothed with ample authority to review matters, even if they are not
assigned as errors in their appeal,if it finds that their consideration is necessary
to arriveat a just decision of the case."62 We can consider errors not raised by the
parties,more so if these errors were raised by respondent.
Respondent raised different issues compared with those raised by petitioner.
However, the assignment of error of respondent was still responsive to the main
argument of petitioner. Petitioner’s argument works on the premise that there was
a valid contract. By attacking the validity of the contract, respondent was merely
responding to the premise of petitioner’s main argument. The issue is relevant to
the final disposition of this case; hence, it should be considered by this court in
arriving at a decision.
II
There was no valid contract of sale between petitioner and respondent
Petitioner agrees with the decision of the Court of Appeals that there was a
perfected contract of sale between him and respondent.63
Respondent, however, argues that there was no contract between him and
petitioner because under Article 1475 of the Civil Code, there has to be a meeting
of the minds as to the price and the object of the contract. 64 Respondent argues
that there was no meeting of the minds as to the final price65 and size66 of the
property subject of the sale.
In addition, while respondent admits that he was willing to sell the property being
leased from him by the Borbe family and the Espiritu family, petitioner presented
no evidence to show that these families agreed to the sale in favor of petitioner.
During trial, Corazon Borbe Combe of the Borbe family testified that her family
never agreed to allow the sale of the property in favor of petitioner.67 Respondent
likewise alleged that Mamerta Espiritu of the Espiritu family eventually bought the
property occupied by her family, which is contrary to the claim that petitioner
obtained the consent of Mamerta Espiritu to have the land sold in his
favor.68 Petitioner replied that respondent sold 113 square meters of the 321-
square-meter property to the Espiritu family on January 17, 1996.69 Petitioner
argued that Mamerta Espiritu was not a buyer in good faith because in 1990, she
voluntarily agreed to surrender the lot for sale in favor of petitioner because she
did not have the money to pay for the lot. Hence, the sale in favor of Mamerta
Espiritu should not supersede the sale in favor of petitioner.70
The Regional Trial Court ruled that there was a valid contract of sale, although it
found that there was no evidence to support petitioner’s claim that he was able to
secure the consent of the Espiritu family and the Borbe family to the sale of the
land.71 There was a valid contract of sale subject to a suspensive condition, but
the suspensive condition was not complied with.
For the Court of Appeals, there was a valid contract of sale.72 The Court of
Appeals’ ruling was based on the idea that a co-owner could sell a definite portion
of the land owned in common, and not because the suspensive conditions of the
contract were complied with. In ruling this way, the Court of Appeals relied on
Pamplona v. Morato,73 which stated that:

. . . [A] "co-owner may validly sell his undivided share of the property owned in
common. (If the part sold happens to be his allotted share after partition, the
transaction is entirely valid). Now then if there has been no express partition as
yet, but the co-owner who sells points out to his buyers the boundaries of the
parthe was selling, and the other coowners make no objection, there is in effect
already a partial partition, and the sale of the definite portioncan no longer be
assailed."74
We find that there was no contract of sale. It was null ab initio.
As defined by the Civil Code, "[a] contract is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something
or to render some service."75 For there to be a valid contract, there must be
consent of the contracting parties, an object certain which is the subject matter of
the contract, and cause of the obligation which is established.76 Sale is a special
contract. The seller obligates himself to deliver a determinate thing and to transfer
its ownership to the buyer. In turn, the buyer pays for a price certain in money or
its equivalent.77 A "contract of sale is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon the
price."78 The seller and buyer must agree as to the certain thing that will be subject
of the sale as well as the price in which the thing will be sold. The thing to be sold
is the object of the contract, while the price is the cause or consideration.
The object of a valid sales contract must be owned by the seller. If the seller is
not the owner, the seller must be authorized by the owner to sell the object.79
Specific rules attach when the seller co-ownsthe object of the contract. Sale of a
portion of the property is considered an alteration of the thing owned in common.
Under the Civil Code, such disposition requires the unanimous consent of the
other co-owners.80 However, the rules also allow a co-owner to alienate his or her
part in the co-ownership.81
These two rules are reconciled through jurisprudence.
If the alienation precedes the partition, the co-owner cannot sell a definite portion
of the land without consent from his or her co-owners. He or she could only sell
the undivided interest of the co-owned property.82 As summarized in Lopez v.
Ilustre,83 "[i]f he is the owner of an undivided half of a tract of land, he has a right
to sell and convey an undivided half, but he has no right to divide the lot into two
parts, and convey the whole of one part by metes and bounds."84
The undivided interestof a co-owner is also referred to as the "ideal or abstract
quota" or "proportionate share." On the other hand, the definite portion of the land
refers to specific metes and bounds of a co-owned property.
To illustrate, if a ten-hectare property is owned equally by ten coowners, the
undivided interest of a co-owner is one hectare. The definite portion of that interest
is usually determined during judicial or extrajudicial partition. After partition, a
definite portion of the property held in common is allocated to a specific co-owner.
The co-ownership is dissolved and, in effect, each of the former co-owners is free
to exercise autonomously the rights attached to his or her ownership over the
definite portion of the land. It is crucial that the co-owners agree to which portion
of the land goes to whom.
Hence, prior to partition, a sale of a definite portion of common property requires
the consent of all co-owners because it operates to partition the land with respect
to the co-owner selling his or her share. The co-owner or seller is already marking
which portion should redound to his or her autonomous ownership upon future
partition.
The object of the sales contract between petitioner and respondent was a definite
portion of a co-owned parcel of land. At the time of the alleged sale between
petitioner and respondent, the entire property was still held in common. This is
evidenced by the original certificate of title, which was under the names of Matilde
Ysaac, Priscilla Ysaac, Walter Ysaac, respondent Henry Ysaac, Elizabeth Ysaac,
Norma Ysaac, Luis Ysaac, Jr., George Ysaac, Franklin Ysaac, Marison Ysaac,
Helen Ysaac, Erlinda Ysaac, and Maridel Ysaac.85
The rules allow respondent to sell his undivided interestin the coownership.
However, this was not the object of the sale between him and petitioner. The
object of the sale was a definite portion. Even if it was respondent who was
benefiting from the fruits of the lease contract to petitioner, respondent has "no
right to sell or alienate a concrete, specific or determinate part of the thing owned
in common, because his right over the thing is represented by quota or ideal
portion without any physical adjudication."86
There was no showing that respondent was authorized by his coowners to sell
the portion of land occupied by Juan Cabrera, the Espiritu family, or the Borbe
108
family. Without the consent of his co-owners, respondent could not sell a definite
portion of the co-owned property.
Respondent had no right to define a 95-square-meter parcel of land, a 439-
square-meter parcel of land, or a 321-square-meter parcel of land for purposes of
selling to petitioner. The determination of those metes and bounds are not binding
to the co-ownership and, hence, cannot be subject to sale, unless consented to
by all the co-owners.
In finding that there was a valid contract of sale between petitioner and
respondent, the Court of Appeals erred in the application of Pamplona v.
Moreto.87 The ruling in Pamplona should be read and applied only in situations
similar to the context of that case.
Pamplona involved the Spouses Moreto who owned three (3) parcels of land with
a total area of 2,346 square meters. The spouses had six (6) children. After the
wife had died, the husband sold one of the parcels to the Pamplona family, even
if the conjugal partnership had not yet been liquidated. The parcel sold measured
781 square meters, which was less than the ideal share of the husband in the
estate. This court allowed the sale to prosper because of the tolerance from the
husband’s co-heirs. This court ruled:
The title may be pro-indiviso or inchoate but the moment the coowner as vendor
pointed out its location and even indicated the boundaries over which the fences
were to be erected without objection, protest or complaint bythe other co-owners,
on the contrary they acquiesced and tolerated such alienation, occupation and
possession, We rule that a factual partition or termination of the co-ownership,
although partial, was created, and barred not only the vendor, Flaviano Moreto,
butalso his heirs, the private respondents herein from asserting as against the
vendees petitioners any right or title in derogation of the deed of sale executed by
said vendor Flaviano Moreto.88 (Emphasis supplied)
In Pamplona, the co-heirs of Flaviano Moreto only questioned the sale to the
Pamplona family nine (9) years after the sale. By then, the Pamplona family had
exercised several acts of ownership over the land. That is why this court
considered it acquiescence or tolerance on the part of the co-heirs when they
allowed the Pamplonas to take possession and build upon the land sold, and only
questioned these acts several years later.
The ruling in Pamplonadoes not apply to petitioner. There was no evidence
adduced during the trial that respondent’s co-owners acquiesced or tolerated the
sale to petitioner. The co-owners tolerated petitioner’s possession of a portion of
their land because petitioner was a lessee over a 95-square-meter portion of the
property, not the buyer of the 321-squaremeter portion.
There was also no evidence of consent to sell from the co-owners. When
petitioner approached respondent in 1995 to enforce the contract of sale,
respondent referred him to Franklin Ysaac, the administrator over the entire
property. Respondent’s act suggests the absence of consent from the co-owners.
Petitioner did not show that he sought Franklin Ysaac’s consent as administrator
and the consent of the other co-owners. Without the consent of the co-owners, no
partial partition operated in favor of the sale to petitioner.
At best, the agreement between petitioner and respondent is a contract to sell,
not a contract of sale. A contract to sell is a promise to sell an object, subject to
suspensive conditions.89 Without the fulfillment of these suspensive conditions,
the sale does not operate to determine the obligation of the seller to deliver the
object.
A co-owner could enter into a contract to sell a definite portion of the property.
However, such contract is still subject to the suspensive condition of the partition
of the property, and that the other co-owners agree that the part subject of the
contract to sell vests in favor of the co-owner’s buyer. Hence, the co-owners’
consent is an important factor for the sale to ripen.
A non-existent contract cannot be a
source of obligations, and it cannot
be enforced by the courts
Since petitioner believes that there was a perfected contract of sale between him
and respondent, he argues that a deed of sale should be formally executed.
Petitioner agrees with the Court of Appeals’ finding that there was no valid
rescission of the contract in accordance with Article 1592 of the Civil
Code.90 However, petitioner disagrees with the Court of Appeals when it ruled that
the contract was no longer enforceable due to the supervening sale with the local
government of Naga City. Petitioner argues that the sale in favor of the local
government of Naga City was not made in good faith. Before the sale was
finalized between the local government and the heirs of Luis and Matilde Ysaac,
petitioner had a notice of lis pendens annotated to OCT No. 506. 91 It was

presumed that the local government had due notice of petitioner’s adverse claim,
thus, it cannot be considered an innocent purchaser.
For respondent, due to the inexistence of a valid contract of sale, petitioner cannot
demand specific performance from respondent.92 Respondent disagrees with the
Court of Appeals when it stated that Article 1592 of the rescission of contract of
sale applies. There is no need to apply Article 1592 because there was no
contract to begin with.93 The contract between respondent and petitioner was
terminated by virtue of the letter dated September 21, 1994.94
We rule in favor of respondent.
The absence of a contract of sale means that there is no source of obligations for
respondent, as seller, orpetitioner, as buyer. Rescission is impossible because
there is no contract to rescind. The rule in Article 1592 that requires a judicial or
notarial act to formalize rescission of a contract of sale of an immovable property
does not apply. This court does not need to rule whether a letter is a valid method
of rescinding a sales contract over an immovable property because the question
is moot and academic.
Even if we assume that respondent had full ownership of the property and that he
agreed to sell a portion of the property to petitioner, the letter was enough to
cancel the contract to sell. Generally, "[t]he power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not comply with what is
incumbent on him."95
For the sale of immovable property, the following provision governs its rescission:
Article 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescissionof the contract has
been made upon him either judicially or by notarial act. After the demand, the
court may not grant him a new term.
This provision contemplates (1) a contract of sale of an immovable property and
(2) a stipulation in the contract that failure to pay the price at the time agreed upon
will cause the rescission of the contract. The vendee or the buyer can still pay
even after the time agreed upon, if the agreement between the parties has these
requisites. This right of the vendee to pay ceases when the vendor or the seller
demands the rescission of the contract judicially or extra judicially. In case of an
extra judicial demand to rescind the contract, it should be notarized.
Hence, this provision does not apply if it is not a contract of sale of an immovable
property and merely a contract to sellan immovable property. A contract to sell is
"where the ownership or title is retained by the seller and is not to pass until the
full payment of the price, such payment being a positive suspensive condition and
failure of which is not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring binding
force."96
In a similar case entitled Manuel v. Rodriguez,97 Eusebio Manuel offered to buy
the land owned by Payatas Subdivision, Inc. The Secretary Treasurer of Payatas
Subdivision, Eulogio Rodriguez, Sr., agreed to sell the land to Eusebio Manuel
after negotiations. Similar to this case, the agreement was only made orally and
not in writing. An initial payment was made, and a final payment was to be
madenine (9) to ten (10) months later. Manuel never paid for the latter installment;
hence, Eulogio Rodriguez cancelled their agreement and sold the land to
someone else.
In Manuel, this court categorically stated that Article 1592 "does not apply to a
contract to sell or promise to sell, where title remains with the vendor until
fulfillment to a positive suspensive condition, such as full payment of the
price."98 This court upheld that the contract to sell was validly cancelled through
the non-payment of Eusebio Manuel. The same conclusion applies in this case.
The law does not prescribe a form to rescind a contract to sell immovable
property. In Manuel, the non-payment operated to cancel the contract. If mere
non-payment is enough to cancel a contract to sell, the letter given to petitioner’s
lawyer is also an acceptable form of rescinding the contract. The law does not
require notarization for a letter to rescind a contract to sell immovable property.
Notarization is only required if a contract of sale is being rescinded.
Petitioner argued that he was willing to comply with the suspensive condition on
the contract to sell because he was ready to pay the balance of the purchase
price on June 15, 1992.99 However, his argument is unmeritorious. As ruled by
the Regional Trial Court, petitioner should have resorted to the various modes of
consignment when respondent’s wife refused to accept the payment on
respondent’s behalf.100
109
Therefore, even if we assumed that the contract between petitioner and
respondents were perfected, the strict requisites in Article 1592 did not apply
because the only perfected contract was a contract to sell, not a contract of sale.
The courts cannot enforce the right of petitioner to buy respondent’s property. We
cannot order the execution of a deed of sale between petitioner and respondent.
The question of double sale also becomes moot and academic. There was no
valid sale between petitioner and respondent, while there was a valid sale
between the local government of Naga City and respondent and his coowners.
Since there is only one valid sale, the ruleon double sales under Article 1544 of
the Civil Code does not apply.101
Compensatory damages, attorney’s
fees, and costs of litigation
Respondent argued that petitioner is not entitled to the compensatory damages
that the Court of Appeals awarded. According to respondent, petitioner continues
to occupy the 95-square-meter property that he has been leasing since 1986
because the parcel was not included in the sale to the local government of Naga
City.102 Since April 30, 1990, petitioner has not been paying rent to respondent
despite his continued occupation of the property.103Therefore, there was no unjust
enrichment on the part of respondent when he applied petitioner’s initial payment
over the sale of the property as payment for rent.
Respondent argued further that the award of attorney’s fees and litigation
expenses in favor of petitioner was also erroneous because prior to this litigation,
respondent already informed petitioner that his claim has no basis in law and
fact.104 Yet, petitioner persisted on filing this case.105
We rule that petitioner is entitled to the return of the amount of money because
he paid it as consideration for ownership of the land. Since the ownership of the
land could not be transferred to him, the money he paid for that purpose must be
returned to him. Otherwise, respondent will be unjustly enriched.
Respondent’s claim for rent in arrears is a separate cause of action from this
case.1âwphi1 For petitioner’s earnestmoney payment to be considered payment
for his rent liabilities, the rules of compensation under Article 1279 of the Civil
Code must be followed.106
It was not proven during trial if petitioner's rental liability to respondent is due, or
if it is already liquidated and demandable. Hence, this court is limited to uphold
the ruling of the Court of Appeals, but such payment could be subject to the rule
on compensation.
However, petitioner is not entitled to attorney's fees and the costs of litigation. The
Court of Appeals awarded attorney's fees to petitioner "just to protect his right
[because petitioner] reached this court to seek justice for himself."107
Contrary to the Court of Appeals' ruling, we find that petitioner did not have a clear
right over the property in question. The Court of Appeals awarded attorney's fees
and litigation costs on the premise that the contract between petitioner and
respondent was perfected. Without a valid contract that stipulates his rights,
petitioner risked litigation in order to determine if he has rights, and not to protect
rights that he currently has. Hence, the award of attorney's fees and litigation
costs was not properly justified.
WHEREFORE, the petition is DENIED. The Court of Appeals' decision dated
June 19, 2003 in CA-G.R. CV No. 65869 is SET ASIDE. The contract between
petitioner and respondent is DECLARED invalid and, therefore, cannot be subject
to specific performance. Respondent is ORDERED to return ₱10,600.00 to
petitioner, with legal interest of 12% per annum from September 20, 1995 until
June 30, 2013 and 6% per annum from July 1, 2013 ·until fully paid. The award
of attorney's fees and litigation expenses is DELETED.
SO ORDERED.

G.R. No. 193551 November 19, 2014
HEIRS OF GREGORIO LOPEZ, represented by Rogelia Lopez, et
al., Petitioners,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES [Now substituted by Philippine
Investment Two (SPVAMC), Inc.], Respondents.
DECISION
LEONEN, J.:
This case involves the application of the doctrine on innocent purchaser or
mortgagee for value. It also involves the application of the doctrines on sales by
persons who are not owners of the property.
This is a Rule 45 petition1 filed on October 15, 2010, assailing the Court of
Appeals May 8, 2009 decision2 and August 16, 2010 resolution.3 The Court of
Appeals reversed and set aside the Regional Trial Court's December 27, 2005
decision,4 which ordered the nullification of the affidavit of self-adjudication
executed by Enrique Lopez, and the documents relating
to the sale and mortgage of the property to respondent Development Bank of the
Philippines.
Gregoria Lopez owned a 2,734-square-meter property in Bustos, Bulacan.5 She
died on March 19, 19226 and was survived by her three sons: Teodoro Lopez,
Francisco Lopez, and Carlos Lopez.7 Tax Declaration No. 613 was issued under
the names of Teodoro, Francisco, and Carlos.8
9
Teodoro, Francisco, and Carlos died. Only Teodoro was survived by children:
Gregorio, Enrique, Simplicio, and Severino.10
Petitioners in this case are Simplicio substituted by his daughter Eliza Lopez, and
the heirs of Gregorio and Severino.11 Enrique is deceased.12
Petitioners discovered that on November 29, 1990, Enrique executed an affidavit
of self-adjudication declaring himself to be Gregoria Lopez’s only surviving heir,
thereby adjudicating upon himself the land in Bulacan.13 He sold the property to
Marietta Yabut.14
Petitioners demanded from Marietta the nullification of Enrique’s affidavit of self-
adjudication and the deed of absolute sale.15 They also sought to redeem
Enrique’s one-fourth share.16 Marietta, who was already in possession of the
property, refused.17
Sometime in 1993, Marietta obtained a loan from Development Bank of the
Philippines (DBP) and mortgaged the property to DBP as security.18 At the time
of the loan, the property was covered by Tax Declaration No. 18727, with the
agreement that the land shall be brought under the Torrens system.19 On July 26,
1993, an original certificate of title was issued in Marietta’s name.20 Marietta and
DBP "executed a supplemental document dated 28 February 1995 placing the
subject [property]within the coverage of the mortgage."21 The mortgage was
annotated to the title.22
Sometime between 1993 and 1994, petitioners filed a complaint23 and an
amended complaint24 with the Regional Trial Court for the annulment of
document, recovery of possession, and reconveyance of the property. They
prayed that judgment be rendered, ordering the annulment of Enrique’s affidavit
of self-adjudication, the deed of sale executed by Enrique and Marietta, and the
deed of real estate mortgage executed by Marietta in favor of DBP. 25Petitioners
also prayed for the reconveyance of their three-fourth share in the property, their
exercise of their right of redemption of Enrique’s one-fourth share, as well as
attorney’s fees and costs of suit.26
Petitioners caused the annotation of a notice of lis pendens at the back of the
original certificate of title.27 The annotation was inscribed on June 27, 1994.28
Marietta failed to pay her loan to DBP.29 "DBP instituted foreclosure proceedings
on the . . . land."30 It was "awarded the sale of the [property] as the highest
bidder."31 "The Certificate of Sale was registered with the Register of Deeds . . .
on 11 September 1996."32 Marietta failed to redeem the property.33 The title to the
property was "consolidated in favor of DBP."34
On December 27, 2005, the Regional Trial Court ruled in favor of
petitioners.35 The Regional Trial Court found that the affidavit of self-adjudication
110
and the deed of absolute sale did not validly transfer to Marietta the title to the
property.36 Enrique could not transfer three-fourths of the property since this
portion belonged to his co-heirs.37 The Regional Trial Court also found that
Marietta was not an innocent purchaser for value because when the deed of
absolute sale was executed, the property was only covered by a tax declaration
in the name of the heirs of Gregoria Lopez,38 thus:
[Marietta] should have looked further into the veracity of vendor Enrique Lopez’
claim of ownership over the subject property considering that he has not
presented her any other proof of his ownership when the said Deed of Absolute
Sale was executed other than his mere allegation of ownership thereof.39
Hence, the issuance of the original certificate of title would not protect Marietta.
Title is not vested through a certificate.40 At best, Marietta’s ownership over the
subject property would cover only Enrique’s share.41
The Regional Trial Court also found that DBP was not a mortgagee in good faith
because at the time of the execution of the mortgage contract, a certificate of title
was yet to be issued in favor of Marietta.42 Marietta’s title at that time was still
based on a tax declaration.43 Based on jurisprudence, a tax declaration is not a
conclusive proof of ownership.44 The DBP should have exerted due diligence in
ascertaining Marietta’s title to the property.45
The Regional Trial Court ordered the nullification of Enrique’s affidavit of self-
adjudication, the sale of the three-fourth portion of the subject property in favor of
Marietta, the reconveyance of the three-fourth share of the property in favor of
petitioners, the nullification of the real estate mortgage executed in favor of DBP,
and the surrender of possession of the property to petitioners.46 The trial court
also ordered DBP to pay attorney’s fees.
DBP, substituted by Philippine Investment Two (PI Two), appealed to the Court
of Appeals.47 The Court of Appeals reversed the decision of the Regional Trial
Court in the decision48 promulgated on May 8, 2009. It held that DBP was a
mortgagee in good faith:
[W]ith the absence of any evidence to show that the DBP was ever privy to the
fraudulent execution of the late Enrique Lopez’ [sic] affidavit of Adjudication over
the subject land, the right of the former over the same must be protected and
respected by reason of public policy.49
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, the appeal is GRANTED. The 27 December 2005 Decision of the
Regional Trial Court is hereby REVERSED and SET ASIDE as to defendant-
appellant Development Bank of the Philippines and dismissing the complaint
against the latter [now substituted by Philippine Investment Two (SPV-AMC),
Inc.]50
The Court of Appeals denied petitioners’ motion for reconsideration on August 16,
2010.51 Petitioners filed a Rule 45 petition52 before this court on October 15, 2010.
The issue in this case is whether the property was validly transferred to Marietta
and, eventually, to DBP.
Petitioners argued that the Court of Appeals erred in its application of the doctrine
on "innocent purchaser for value."53 DBP should have exercised diligence in
ascertaining Marietta’s claim of ownership since at the time of the mortgage, the
property was only covered by a tax declaration under Marietta’s name.54 As a
financial institution of which "greater care and prudence"55 is required, DBP
should not have relied on the face of a certificate of title to the property. 56
On the other hand, DBP’s position, citing Blanco v. Esquierdo, 57 was that since
its participation in Enrique’s execution of the affidavit of self-adjudication was not
shown on record, it could not have been aware that there was any irregularity in
the sale in favor of Marietta and in her title to the property. 58 Moreover, Marietta
was in possession of the property at the time of the contract with
DBP.59 Therefore, DBP should enjoy the protection accorded to innocent
purchasers for value.60
We find merit in the petition.
I
Validity of Enrique’s affidavit and the sale to Marietta
We have consistently upheld the principle that "no one can give what one does
not have."61 A seller can only sell what he or she owns, or that which he or she

does not own but has authority to transfer, and a buyer can only acquire what the
seller can legally transfer.62
This principle is incorporated in our Civil Code. It provides that in a contract of
sale, the seller binds himself to transfer the ownership of the thing sold, thus:
Art. 1458. By the contract of sale, one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
The seller cannot perform this obligation if he or she does not have a right to
convey ownership of the thing. Hence, Article 1459 of the Civil Code provides:
Art. 1459. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered.
Title or rights to a deceased person’s property are immediately passed to his or
her heirs upon death.63 The heirs’ rights become vested without need for them to
be declared "heirs."64 Before the property is partitioned, the heirs are co-owners
of the property.65
In this case, the rights to Gregoria Lopez’s property were automatically passed to
her sons — Teodoro, Francisco, and Carlos — when she died in 1922.66 Since
only Teodoro was survived by children, the rights to the property ultimately passed
to them when Gregoria Lopez’s sons died.67 The children entitled to the property
were Gregorio, Simplicio, Severino, and Enrique.
Gregorio, Simplicio, Severino, and Enrique became co-owners of the property,
with each of them entitled toan undivided portion of only a quarter of the property.
Upon their deaths, their children became the co-owners of the property, who were
entitled to their respective shares, such that the heirs of Gregorio became entitled
to Gregorio’s one-fourth share, and Simplicio’s and Severino’s respective heirs
became entitled to their corresponding onefourth shares in the property.68 The
heirs cannot alienate the shares that do not belong to them. Article 493 of the Civil
Code provides:
Art. 493. Each co-owner shall have the full ownership of his part and of the fruits
and benefits pertaining thereto, and he may therefore alienate, assign or
mortgage it, and even substitute another person in its enjoyment, except when
personal rights are involved. But the effect of the alienation or the mortgage, with
respect to the co-owners, shall be limited to the portion which may be allotted to
him in the division upon the termination of the co-ownership.
Since Enrique’s right to the property was limited to his one-fourth share, he had
no right to sell the undivided portions that belonged to his siblings or their
respective heirs. Any sale by one heir of the rest of the property will not affect the
rights of the other heirs who did not consent to the sale. Such sale is void with
respect to the shares of the other heirs.
Regardless of their agreement, Enrique could only convey to Marietta his
undivided one-fourth share of the property, and Marietta could only acquire that
share. This is because Marietta obtained her rights from Enrique who, in the first
place, had no title or interest over the rest of the property that he could convey.
This is despite Enrique’s execution of the affidavit of self-adjudication wherein he
declared himself to be the only surviving heir of Gregoria Lopez. The affidavit of
self-adjudication is invalid for the simple reason that it was false. At the time of its
execution, Enrique’s siblings were still alive and entitled to the three-fourth
undivided share of the property. The affidavit of self-adjudication did not have the
effect of vesting upon Enrique ownership or rights to the property.
The issuance of the original certificate of title in favor of Marietta does not cure
Enrique’s lack of title or authority to convey his co-owners’ portions of the
property. Issuance of a certificate of title is not a grant of title over petitioners’
undivided portions of the property.69 The physical certificate of title does not vest
in a person ownership or right over a property.70 It is merely an evidence of such
ownership or right.71
Marietta could acquire valid title over the whole property if she were an innocent
purchaser for value. An innocent purchaser for value purchases a property without
any notice of defect or irregularity as to the right or interest of the seller. 72 He or
she is without notice that another person holds claim to the property being
purchased.73
As a rule, an ordinary buyer may rely on the certificate of title issued in the name
of the seller.74 He or she need not look "beyond what appears on the face [of the
certificate of title]."75 However, the ordinary buyer will not be considered an
innocent purchaser for value if there is anything on the certificate of title that
111
arouses suspicion, and the buyer failed to inquire or take steps to ensure that
there is no cloud on the title, right, or ownership of the property being sold.
Marietta cannot claim the protection accorded by law to innocent purchasers for
value because the circumstances do not make this available to her.
In this case, there was no certificate of title to rely on when she purchased the
property from Enrique. At the time of the sale, the property was still unregistered.
What was available was only a tax declaration issued under the name of "Heirs
of Lopez."
"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 clear title of the registered owner."76 It does not apply when the land is not yet
registered with the Registry of Deeds.
At the very least, the unregistered status of the property should have prompted
Marietta to inquire further as to Enrique’s right over the property. She did not.
Hence, she was not an innocent purchaser for value. She acquired no title over
petitioners’ portions of the property.
II
Validity of the mortgage
One of the requisites of a valid mortgage contract is ownership of the property
being mortgaged.77 Article 2085 of the Civil Code enumerates the requisites of a
mortgage contract: Art. 2085. The following requisites are essential to the
contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfilment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property.
Applying this provision and having established that Marietta acquired no valid title
or ownership from Enrique over the undivided portions of the property, this court
finds that no valid mortgage was executed over the same property in favor of
DBP. Without a valid mortgage, there was also no valid foreclosure sale and no
transfer of ownership of petitioners’ undivided portions to DBP. In other words,
DBP acquired no right over the undivided portions since its predecessor-in-
interest was not the owner and held no authority to convey the property.
As in sales, an exception to this rule is if the mortgagee is a "mortgagee in good
faith."78 This exception was explained in Torbela v. Rosario:
Under this doctrine, even if the mortgagor is not the owner of the mortgaged
property, the mortgage contract and any foreclosure sale arising therefrom are
given effect by reason of public policy. This principle is based on the rule that all
persons dealing with property covered by a Torrens Certificate of Title, as buyers
or mortgagees, are not required to go beyond what appears on the face of the
title. This is the same rule that underlies the principle of "innocent purchasers for
value." The prevailing jurisprudence is that a mortgagee has a right to rely in good
faith on the certificate of title of the mortgagor to the property given as security
and in the absence of any sign that might arouse suspicion, has no obligation to
undertake further investigation. Hence, even if the mortgagor is not the rightful
owner of, or does not have a valid title to, the mortgaged property, the mortgagee
in good faith is, nonetheless, entitled to protection.79
DBP claims that it is covered by this exception. DBP is mistaken. The exception
applies when, at the time of the mortgage, the mortgagor has already obtained a
certificate of title under his or her name.80 It does not apply when, as in this case,
the mortgagor had yet to register the property under her name.81
The facts show that DBP disregarded circumstances that should have aroused
suspicion. For instance, at the time of the mortgage with DBP, Marietta only had
a tax declaration under her name to show that she was the owner of the property.
A tax declaration, by itself, neither proves ownership of property nor grants title.
Yet, DBP agreed to accept the property as security even though Marietta’s claim
 112

was supported only by the tax declaration, and a certificate of title was yet to be
issued under her name.

Granting that Marietta was in possession of the property, DBP should have
inquired further as to Marietta’s rights over the property since no certificate of title
was issued to her. DBP took the risks attendant to the absence of a certificate of
title. It should bear the burden of checking the ownership as well as the validity of
the deed of sale. This is despite the eventual issuance of a certificate of title in
favor of Marietta.

The rule on "innocent purchasers or [mortgagees] for value" is applied more

strictly when the purchaser or the mortgagee is a bank.1âwphi1 Banks are
expected to exercise higher degree of diligence in their dealings, including those
involving lands. Banks may not rely simply on the face of the certificate of title.

Thus, in Cruz v. Bancom Finance Corporation,82 this court ruled that:

Respondent . . . is not an ordinary mortgagee; it is a mortgagee-bank. As such,

unlike private individuals, it is expected to exercise greater care and prudence in
its dealings, including those involving registered lands. A banking institution is
expected to exercise due diligence before entering into a mortgage contract. The
ascertainment of the status or condition of a property offered to it as security for
a loan must be a standard and indispensable part of its operations.83 (Citations
omitted)

DBP failed to exercise the degree of diligence required of banks when it accepted
the unregistered property as security for Marietta’s loan despite circumstances
that should have aroused its suspicion.

Citing Blanco v. Esquierdo, DBP argued that since it did not participate in the
dealings between Enrique and Marietta, it should be considered as an innocent
mortgagee for value.

Blanco involves an alleged widow of the deceased who adjudicated to herself the
deceased’s property and thereafter mortgaged the property to DBP. 84 The
brothers and sisters of the deceased filed an action for the annulment of the
affidavit executed by the alleged widow and the cancellation of the certificate of
title under her name.85 The trial court ordered the cancellation of the certificate of
title issued to the alleged widow, including the registration of the mortgage deed. 86

In Blanco, this court declared that DBP was a mortgagee in good faith, thus:

The trial court, in the decision complained of, made no finding that the defendant
mortgagee bank was a party to the fraudulent transfer of the land to Fructuosa
Esquierdo. Indeed, there is nothing alleged in the complaint which may implicate
said defendant mortgagee in the fraud, or justify a finding that it acted in bad faith.
On the other hand, the certificate of title was in the name of the mortgagor
Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank.
Such being the case, the said defendant bank, as mortgagee, had the right to rely
on what appeared in the certificate and, in the absence of anything to excite
suspicion, was under no obligation to look beyond the certificate and investigate
the title of the mortgagor appearing on the face of said certificate. (De Lara, et al.
vs. Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838; Joaquin vs. Madrid, et al., 106
Phil., 1060). Being thus an innocent mortgagee for value, its right or lien upon the
land mortgaged must be respected and protected, even if the mortgagor obtained
her title thereto thru fraud.87

DBP's reliance on Blanco is misplaced. In Blanco, the certificate of title had

already been issued under the name of the mortgagor when the property was
mortgaged to DBP. This is not the situation in this case.

To reiterate, the protection accorded to mortgagees in good faith cannot be

extended to mortgagees of properties that are not yet registered or registered but
not under the mortgagor's name.

Therefore, the Regional Trial Court did not err in ordering the nullification of the
documents of sale and mortgage. Contracts involving the sale or mortgage of
unregistered property by a person who was not the owner or by an unauthorized
person are void.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals

dated May 8, 2009 and its resolution dated August 16, 2010 are reversed and
SET ASIDE. The December 27, 2005 decision of the Regional Trial Court is
REINSTATED.

SO ORDERED.

G.R. No. 195247 June 29, 2015
ANASTACIO TINGALAN, substituted by his heirs, namely: ROMEO L.
TINGALAN, ELPEDIO L. TINGALAN, JOHNNY L. TINGALAN and LAURETA
T. DELA CERNA, Petitioners,
vs.
SPOUSES RONALDO and WINONA MELLIZA, Respondents.
DECISION
VILLARAMA, JR., J.:
At bar is a petition for review on certiorari of the Decision1 and Resolution2 of the
Court of Appeals (CA) in CA-G.R. CV No. 01874-MIN dated June 23, 2010 and
January 12, 2011, respectively, which affirmed in toto the Decision3 of the
Regional Trial Court (RTC), Branch 10, Malaybalay City, in Civil Case No. 3120-
01 dated December 8, 2008. The trial court ordered the cancellation of Original
Certificate of Title (OCT) No. P-8757 of petitioner Anastacio Tingalan (Anastacio),
its corresponding tax declaration and the transfer of title of the tax declaration
under the name of respondent-spouses Ronaldo and Winona Melliza.
The original owner in fee simple of the subject property was petitioner Anastacio4 -
a member of the Bukidnon Tribe. His ownership is evidenced by OCT No. P-8757
Free Patent No. (X-4) 2195 and Tax Declaration No. 13-021-5522 over a five-
hectare5 property located in Dalwangan, Malaybalay City, Bukidnon. The free
patent was issued under his name on October 4, 1976.
In a Deed of Absolute Sale (Deed) dated March 28, 1977, petitioner Anastacio
sold the subject property to respondent-spouses. Since then, respondent-
spouses have been in actual, exclusive, peaceful, uninterrupted and adverse
possession of the subject property. The Owner's Duplicate Certificate of Title and
Tax Declaration were also issued under the names of respondent-spouses who
paid for the transfer and real property taxes pertaining to the property in question.
Around 23 years later, or on June 7, 2000, one Elena Tunanan (Elena) filed an
adverse claim over the subject property. Petitioner Anastacio countered and
demanded that respondent-spouses vacate the property, but the latter refused
claiming ownership over the same as supported by the Deed executed between
them and petitioner Anastacio on March 28, 1977. Petitioner Anastacio then filed
a complaint before the Office of the Barangay Captain but the summons were
unheeded by respondent-spouses.
On October 22, 2001, Anastacio filed Civil Case No. 3120-01 with the court a quo
for Quieting of Title and Recovery of Possession against respondent-spouses and
Elena. In the complaint, petitioner Anastacio claimed that he remains to be the
owner of the subject property as his title under OCT No. P-8757 has never been
cancelled and that the sale was null and void since the Deed was executed within
the five-year prohibitory period under the Public Land Act, as amended. The Deed
was also written in the English language which, allegedly, he could neither speak
nor understand. He further averred that being a member of a cultural minority, the
Deed should have been approved by the Chairman of the Commission on
National Integration under Sections 120 and 124 of Republic Act No. 3872, 6as
amended.
Respondent-spouses countered that in view of the Deed dated March 28, 1977,
the Owner's Duplicate Certificate of Title and Tax Declaration were issued under
their names and they have been in actual, exclusive and uninterrupted possession
of the subject property since the execution of the Deed. They further posited the
following allegations: that the Certificate to File Action was legally flawed because
petitioner Anastacio did not pay the docket fees; that the petition was defective
because it did not indicate the assessed value of the subject property which is
important in the determination of the jurisdiction of the trial court; and, that the
action was barred by prescription. To counter respondent-spouses' assertion,
petitioners maintained that notwithstanding the delivery of the title to and transfer
of possession over the subject property to respondent-spouses, these
circumstances could not have validated the sale because the Deed was executed
within the five-year prohibitory period under the Public Land Act, as amended,
making it void ab initio.
On December 8, 2008, the trial court dismissed the case for lack of cause of action
and ordered the Register of Deeds to cancel OCT No. P-8757 and the
corresponding tax declaration over the subject property, viz.:
WHEREFORE, premises considered and finding preponderance of evidence in
favor of the respondents, the court orders dismissal of this Complaint for lack of
cause of action. To order the Register of Deeds for the cancellation of OCT P-
8757 and its Tax Declaration transferring its name to respondents Renaldo
Melliza, to pay ₱30,000 for attorney's fees and (P]10,000 as litigation expenses.
To pay the cost.
113
SO ORDERED.7
The trial court upheld the validity of the sale despite the Deed being executed
within the five-year prohibitory period because "the sale executed by petitioner to
the respondent is not the kind of violation as contemplated in accordance of (sic)
Sec[tion] 18 of [the] Public Land Act" as the transfer was not yet completed by the
issuance of a new certificate of title under the name of respondent-spouses.8 On
the issue on the validity of the Deed due to petitioner Anastacio's alleged inability
to understand its stipulations which are written in English, the trial court held that
being a notarized document, the Deed enjoys the presumption of regularity. The
trial court also observed that Anastacio voluntarily sold the subject property as
evidenced by the Affidavit of Non-Tenancy and the Certification/Receipt for the
amount of Six Thousand Pesos (₱6,000.00). It likewise did not give credence to
petitioner Anastacio's claim that his membership to a cultural minority required
the approval of the Deed from the Chairman of the Commission on National
Integration since he failed to present any proof or certification relative to his tribal
identity from the National Commission on Indigenous Peoples. Finally, the trial
court held that the failure of Anastacio to act within a considerable length of time
barred his action on the ground of estoppel by laches.
On appeal, the CA affirmed the decision of the trial court in toto in its assailed
Decision dated June 23, 2010, viz.:
FOR THESE REASONS, the assailed Decision of the trial court is AFFIRMED in
toto. No costs. SO ORDERED.9
The appellate court held that the case was barred by laches due to the 24-year
delay of petitioner Anastacio in filing the petition. The CA considered such delay
as unconscionable and prejudicial to the rights of third persons who relied on his
inaction as the original patentee of the subject property, viz.:
After a careful analysis of the facts and circumstances of the case, as borne out
by the evidence, this Court finds the four elements mentioned to be present in the
case at bar. First, Anastacio sold the land which was covered by a free patent title
dated March 28, 1977 and the sale was made knowingly in violation of the Public
Land Act. Second, from the date of the sale on March 28, 1977, Anastacio, the
patentee could have instituted the action to annul the sale and regain the
possession and ownership of the land. But notwithstanding the invalidity of the
sale, patentee Anastacio, who knew of the invalidity and has had all the
opportunity to institute an action for the annulment of the sale as a matter of law,
did not bother at all to file a suit to annul the sale or to recover the land. Not until
24 years later. Third, the Spouses Melliza who are the vendees never expected
or believed that Anastacio would bring an action to annul the sale and recover the
land. The fact that the vendees told Anastacio that he could repurchase his
property within the five (5)[-]year period from the execution of the deed of sale but
instead of repurchasing it, Anastacio gave the title to the Spouses seven years
after the execution of the deed of sale in 1977 and did not bother them since then
and fourth, it would be unjust and inequitable to still permit appellant to recover
his property after that long, unexplained inaction. The long period of time more or
less 24 years from the execution of the sale, had allowed the Spouses to invest
considerable amount of money, time, and effort in developing and transforming
the questioned property into a beautiful orchard, aside from the residential house,
poultry, barn and other plantations made by the Spouses.10
The heirs of Anastacio, as substitutes, moved for reconsideration of the CA
Decision on July 19, 2010. The appellate court denied the motion in its Resolution
dated January 12, 2011, viz.:
After due deliberation of the petitioners' motion for reconsideration, this Court
finds that the motion is without merit, as all issues and arguments interposed by
the petitioners' (sic) have been amply passed upon in the Decision sought to be
reconsidered. In the Court's considered view, nothing more is left to be discussed,
clarified or done in the case. We perceive no just ground to warrant a review of
Our resolution. No overriding or special reason has been given as to why
petitioners' motion for reconsideration should be granted.11
Hence, this petition raising a lone assignment of error, viz.:
THE COURT OF APPEALS, WITH DUE RESPECT, MAY HAVE ERRED IN
HOLDING THAT EVEN IF THE DEED OF SALE WAS NOT VALID, APPELLANT
ANASTACIO TINGALAN AND HIS SUCCESSORS IN INTEREST, ARE NOW
BARRED BY LACHES FROM ASSERTING THEIR RIGHTS OVER THE
SUBJECT PROPERTY, AFTER FAILING TO EXERCISE THEIR RIGHTS FOR
AN UNREASONABLE LENGTH OF TIME.12
We grant the petition.
The contract of sale entered into between petitioner Anastacio and respondent-
spouses on March 28, 1977 is null and void from inception for being contrary to

law and public policy. As a void contract - it is imprescriptible and not susceptible
of ratification.
The law is clear under Section 118 of the Public Land Act, as amended, that
unless made in favor of the government or any of its branches, units or institutions,
lands acquired under free patent or homestead provisions shall not be subject to
any form of encumbrance for a term of five years from and after the date of
issuance of the patent or grant, viz.:
SEC. 118. Except in favor of the Government or any of its branches, units, or
institutions, or legally constituted banking corporations, lands acquired under free
patent or homestead provisions shall not be subject to encumbrance or alienation
from the date of the approval of the application and for a term of five years from
and after the date of issuance of the patent or grant, nor shall they become liable
to the satisfaction of any debt contracted prior to the expiration of said period; but
the improvements or crops on the land may be mortgaged or pledged to qualified
persons, associations, or corporations.
No alienation, transfer, or conveyance of any homestead after five years and
before twenty-five years after issuance of title shall be valid without the approval
of the Secretary of Agriculture and Natural Resources, which approval shall not
be denied except on constitutional and legal grounds.
Following Section 118, the subject land could not have been validly alienated or
encumbered on March 28, 1977 which was way within five years from the date of
the issuance of the free patent under the name of petitioner Anastacio on October
4, 1976. The legal consequences of such sale - clearly made within the prohibitory
period - are stated under Section 124 of the Public Land Act, as amended, viz.:
SEC. 124. Any acquisition, conveyance, alienation, transfer, or other contract
made or executed in violation of any of the provisions of sections one hundred
and eighteen, one hundred and twenty, one hundred and twenty-one, one
hundred and twenty-two, and one hundred and twenty-three of this Act shall be
unlawful and null and void from its execution and shall produce the effect of
annulling and cancelling the grant, title, patent, or permit originally issued,
recognized or confirmed, actually or presumptively, and cause the reversion of
the property and its improvements to the State.13
The foregoing provision of law unambiguously classifies the subject contract of
sale executed on March 28, 1977 as unlawful and null and void ab initio for being
in violation of Section 118, i.e., entered into within the five-year prohibitory period.
This provision of law is clear and explicit and a contract which purports to alienate,
transfer, convey or encumber any homestead within the prohibitory period is void
from its execution.14 The Court has held in a number of cases that such provision
of law is Mandatory15 with the purpose of promoting a specific public policy to
preserve and keep in the family of the patentee that portion of the public land
which the State has gratuitously given to them.16
The trial court, as affirmed by the appellate court, ruled that the subject sale
entered into between petitioner Anastacio and respondent-spouses "is not the
kind of violation as contemplated in accordance of (sic) Sec. 118 of [the] Public
Land Act"17 due to the following clause contained in the Deed, viz. :
"That this deed of sale is subject to the condition that vendee will ask permission
from [the] Sec. of Agriculture and Natural Resources for its transfer x x x failure
to do so, this contract will be binding Oct. 4, 1981 x x x."18
In view of this clause in the Deed, both courts a quo construed the contract as a
conditional sale with the following legal effects, viz.:
As the Deed of Sale was considered conditional and there was no complete
conveyance or transfer that occurred, the five (5)-year prohibitory period is not
applicable in this instant case. The Deed of Sale is but a preliminary step for the
issuance of a new certificate of title which is the final step to accomplish
registration.
To effect the land sold, the presentation of the Deed of Sale and its entry in the
day book must be done with the surrender of the owner's certificate of title. It is
the Deed of Sale that is registered in respondent's favor and the Transfer
Certificate of Title subsequently obtained over the property which has superior
right thereon. x x x
In the instant case, such did not happen, with the name still intact of the petitioner
there was no complete transfer yet of the ownership or conveyance hence the
sale executed by petitioner to the respondent is not the kind of violation as
contemplated in accordance of (sic) Sec. 118 of [the] Public Land Act.19
We do not agree.
114
The subject property was clearly encumbered within the mandatory five-year
prohibitory period in flagrant violation of the Public Land Act, as amended. The
inclusion of the afore-quoted clause in the Deed did not operate to effectively
exclude the subject sale from the mandatory prohibition. Petitioner Anastacio and
respondent-spouses knew that the sale of the subject land was prohibited by law
in 1977, and the conditional clause in the Deed was included in order to
circumvent the legal prohibition of the sale. Both parties knew that the
"permission" of the Secretary of Agriculture and Natural Resources could not have
been legally procured within the prohibitory period, and the expected failure of
herein respondent-spouses to get such permission would make the contract
binding on October 4, 1981 -or after the five-year prohibition. Despite this
condition, however, respondent-spouses occupied the subject property
immediately after the contract of sale was executed on March 28, 1977 -
exercising acts of ownership even during the prohibitory period. This was admitted
by one of the spouses in following testimony as quoted in the assailed decision of
the trial court, viz.:
Q - When this Deed of Sale was executed in 1977[,] you occupied the property?
A - Immediately after I gave the money, I occupied the property.
Q - When did you give the money?
A- 1977[.]
Q- When was the title given?
A - 6 or 7 years later because we did not live there. I live in Butuan.
Q - But you cultivated the property in 1977?
A- Yes[,] your [H]onor[.]
Q- And there was no disturbance from them?
A- No disturbance, nothing[.]
xxxx
(TSN pp. 24-26 4/3/08, Facturan)20
It is clear as day that during the period of the five-year prohibition, the scheme
devised by petitioner Anastacio and respondent-spouses had resulted in
practically depriving the grantees - herein petitioner Anastacio and his heirs - that
piece of land that the government had gratuitously given to them, giving rise to a
situation which is the exact antithesis of the primordial aim of our free patent and
homestead provisions under the Public Land Act, as amended.
Our ruling in the case of Manzano, et al. v. Ocampo, et al.21 is both pertinent and
informative, viz.:
The law prohibiting any transfer or alienation of homestead land within five years
from the issuance of the patent does not distinguish between executory and
consummated sales; and it would hardly be in keeping with the primordial aim of
this prohibition to preserve and keep in the family of the homesteader the piece
of land that the state had gratuitously given to them, to hold valid a homestead
sale actually perfected during the period of prohibition but with the execution of
the formal deed of conveyance and the delivery of possession of the land sold to
the buyer deferred until after the expiration of the prohibitory period, purposely to
circumvent the very law that prohibits and declares invalid such transaction to
protect the homesteader and his family. To hold valid such arrangements would
be to throw the door wide open to all possible fraudulent subterfuges and
schemes that persons interested in land given to homesteaders may devise to
circumvent and defeat the legal provision prohibiting their alienation within five
years from the issuance of the homesteader's patent.
We, therefore, hold that the sale in question is illegal and void for having been
made within five years from the date of Manzano's patent, in violation of section
118 of the Public Land Law. x x x22
A void contract produces no legal effect whatsoever in accordance with the
principle "quad nullum est nullum producit effectum."23 It could not transfer title to
the subject property and there could be no basis for the issuance of a title from
petitioner Anastacio's name to the names of respondent-spouses. It is not
susceptible of ratification and the action for the declaration of its absolute nullity
is imprescriptible.24 It was therefore error for both courts a quo to rule that
 115

"[p]etitioner's failure to act on such considerable time has already barred him by WHEREFORE, IN VIEW OF THE FOREGOING, the Decision and Resolution of
estoppel and laches."25 We quote the pertinent portion of the appellate court's the Court of Appeals dated June 23, 2010 and January 12, 2011, respectively, in
assailed decision where it discussed its basis for ruling that !aches exists in the CA-G.R. CV No. 01874-MIN are REVERSED and SET ASIDE. A new judgment
case at bar: is hereby entered:

x x x Appellees in their brief admitted that deceased appellant can repurchase the
property at the same price within the five (5)[-]year period from the execution of
the deed of sale.
x x x In the case at bar, Anastacio Tingalan, the original patentee could have
repurchased back (sic) his property or if not an action to recover back his property
but it did not.
Instead, appellant Anastacio waited for more than 24 years to institute this case.
It was only on October 22, 2001 or 24 years after that petitioner-appellant initiated
an action to recover his property wherein the Spouses Melliza assumed that
Anastacio Tingalan had already given up his right to recover back the property
within five (5) years from the conveyance and being the owner, they cultivated
and made improvements to the subject property. Appellant Anastacio who was
not in possession of the property, asserted his claim 24 years after the appellees
were already in possession and acquired the subject property; such delay is
unconscionable and would prejudice the rights of third parties who placed reliance
on the inaction of Anastacio, the original patentee.26
We disagree.
1. Declaring NULL AND VOID the sale of the subject parcel of land
situated at Dalwangan, Malaybalay City covered by OCT No. P-8757
Free Patent No. (X-4) 2195 with an area of five (5) hectares covered
by Tax Declaration No. 13-021-5522;
2. Ordering respondent-spouses, their heirs, assigns, or
representatives, to RESTORE the heirs of petitioner Anastacio actual
and physical possession of the subject property;
3. Ordering respondent-spouses, their heirs, assigns, or
representatives, to RETURN AND DELIVER to the heirs of petitioner
Anastacio two documents: Original Certificate of Title No. P-8757 and
Tax Declaration No. 13-021-5522; and,
4. REMANDING the instant case to the Regional Trial Court, Branch
10, Malaybalay City, for a determination of the total amount to be
returned by petitioners to respondent-spouses consisting of the
purchase price and the interest due thereon, and if the fruits realized
by respondent-spouses from their long possession of the subject land
since 1977 would equitably compensate the interest on the price.

The subject contract of sale, being null and void from inception, did not pass any
rights over the property from petitioner Anastacio to respondent-
spouses.1âwphi1 Since petitioner Anastacio never lost ownership over the land
in question, there was no need for him or his heirs to repurchase the same from
respondent-spouses. With nothing to repurchase, laches could operate to bar
petitioner and his heirs from asserting their rights to the property.
This new judgment is without prejudice to any appropriate action the Government
may take against petitioners as heirs of Anastacio Tingalan pursuant to Section
124 of the Public Land Act, as amended.
No costs.

Following the declaration that the contract of sale over the subject property is void SO ORDERED.
for being in violation of Section 118 of the Public Land Act, as amended,
jurisprudence dictates that the subject land be returned to the heirs of petitioner
Anastacio. In the 1986 case of Arsenal v. Intermediate Appellate Court, 27 we
ruled, viz.:

x x x in cases where the homestead has been the subject of void conveyances,
the law still regards the original owner as the rightful owner subject to escheat
proceedings by the State. In the Menil and M[ajnzano cases earlier cited, this
Court awarded the land back to the original owner notwithstanding the fact that
he was equally guilty with the vendee in circumventing the law. This is so because
this Court has consistently held that ''the pari delicto doctrine may not be invoked
in a case of this kind since it would run counter to an avowed fundamental policy
of the State, that the forfeiture of a homestead is a matter between the State and
the grantee or his heirs, and that until the State had taken steps to annul the grant
and asserts title to the homestead the purchaser is, as against the vendor or his
heirs, no more entitled to keep the land than any intruder." x x x

The Court made the same ruling on the issue of ownership in the earlier cited
case of Manzano in 1961, including a disposition that the buyer therein is entitled
to a reimbursement of the purchase price plus interest, viz.:

x x x Being void from its inception, the approval thereof by the Undersecretary of
Agriculture and Natural Resources after the lapse of five years from Manzano 's
patent did not legalize the sale x x x. The result is that the homestead in question
must be returned to Manzano's heirs, petitioners herein, who are, in turn, bound
to restore to appellee Ocampo the sum of ₱3,000.00 received by Manzano as the
price thereof x x x. The fruits of the land should equitably compensate the interest
on the price.28

Prior to Manzano, we made a similar ruling in the case of De las Santos v. Roman
Catholic Church of Midsayap29that "[ u ]pon annulment of the sale, the purchaser's
claim is reduced to the purchase price and its interest."

We shall apply the same rule in the case at bar. However, since the trial court
ruled that petitioners were barred by laches in asserting any claim to the subject
property, it did not make a factual determination of the total purchase price paid
by respondent-spouses to petitioner Anastacio which must be returned to the
heirs of respondents, including interest on such amount. The trial court also did
not make a ruling on the amount of interest to be paid by petitioners to respondent-
spouses, and if the fruits realized by respondent-spouses from their long
possession of the subject land since 1977 would "equitably compensate the
interest on the price."30 This Court is not a trier of facts and we remand the instant
case for the trial court to make a factual determination of the aforesaid amounts.
 116

SECOND DIVISION with Filinvest did not push through because the properties were covered by the
CARL. Under its Section 27, the properties cannot be sold, transferred, or
G.R. No. 192629, November 25, 2015 conveyed within a period of ten (10) years. Thus, instead of a sale, she negotiated
a transfer of possession to Filinvest through the affidavits until such time that a
sale could be made.
FILINVEST LAND, INC., Petitioner, v. EDUARDO R. ADIA, LITO M. ADIGUE,
CANDIDO M. AMPARO, MARINO S. AMPARO, RODOLFO S. AMPARO, In its decision, the RTC found the respondents to be the lawful possessors. It then
FLORDELIZA L. ARIAS, BALBINO M. ATIENZA, PEDRO M. ATIENZA, ordered Filinvest to: (a) vacate the properties; (b) return all the TCTs to the
DALMACIO C. AVANILLA, PASTOR M. AVANILLA, VENACIO P. BAUTISTA, respondents; and (c) pay two hundred thousand pesos as attorney's fees.
RODOLFO S. BERGADO, ENRIQUE R. BRABANTE, EMMA D. BUBAN,
JUANITO A. CANDARE, ROMEO O. CANDARE, ANTONIO M. CATAPANG, The respondents challenged this ruling through a petition for review before the
EDUARDO A. CATAPANG, GRACIANO C. CATAPANG, HERMINIO V. CA.
CATAPANG, JUANA P. CATAPANG, REYNALDO P. CATAPANG, ROMEO A.
CATAPANG, RODOLFO A. CATAPANG, VICTORIANO A. CATAPANG, JUAN
D. CENTOS, FERNANDO B. CERNETCHEZ, EDUARDO C. CREENCIA, THE CA RULING
ARNEL N. M. CREMA, REYNALDO B. CRISTAL, MOISES CUBCUBIN, DELSO
POBLETO, SALVADOR M. DE LEON, MELQUIADES P. DESCALSO, The CA affirmed the RTC's decision. It ruled that the respondents undoubtedly
GREGORIO P. DINO, ROBERTO L. DOMINO, CELSO R. ESCALLAR, own the properties and are entitled to possession.
ARMAND P. ESCUADRO, ELISA C. FELICIANO, PASTOR C. FERRER,
ERLINDO M. FORMARAN, LEONARDO D. GARINO, RAFAEL R. GRANADO, First, the CA ruled that the respondents failed to prove the JVA's existence and
ALMARIO IBANEZ, CASIMIRO P. IBANEZ, CEFERINO P. IBANEZ, MIGUEL due execution. They failed to produce the original copy and any secondary
V. IBANEZ, MONTANO V. IBANEZ, CESAR N. JECIEL, ALFREDO B. evidence to prove that it exists. Thus, the CA had no basis to conclude that
LAURENTE, EFIGENIA B. LAURENTE, CELSO C. MEDINA, EDUARDO A. Filinvest did not perform its obligations under the alleged JVA.
PANGANIBAN, ROMEO C. PASCUA, DANILO L. PAULMINO, LAURO A.
PEGA, LEONARDO M. PEREZ, FELIPE V. PETATE, LEONARDO V. PETATE, Second, the CA ruled that the affidavits could not be valid sources of Fil invest's
ESTANISLAO PORTO, MAXIMO D. PORTO, GREGORIO L. REYES, JOSE L. right because their terms were contrary to law, specifically Section 27 of the
REYES, LEONARDO M. SALINGYAGA, DEMETRIO A. SALONGA, CARL. A plain reading of these affidavits showed that all rights, not just
MANOLITO G. SORILLA, HERMOGENES L. TORRES, JUANITO M. TORRES, possession, over the properties were transferred. Without expressly mentioning
MARIANO B. TAGLE, MARIO D. TAGLE, AND SANCHO V. transfer of ownership, the affidavits effectively gave Filinvest indefinite control
VILLA, Respondents. over the properties; thus, the affidavits were void.

Third, the CA ruled that, although both parties knew that the transfers were
DECISION prohibited, the respondents may still recover the properties based on Article 1416
of the Civil Code. This provision is an exception to the pari delicto doctrine. This
BRION, J.:** provision states that when an agreement is not illegal per se but is merely
prohibited, and the prohibition is designed to protect the plaintiff, he may recover
what he has delivered. Section 27 of the CARL was designed to protect the
We resolve the petition for review on certiorari challenging the April 15, 2010
landless farmers; thus, the respondents may still recover their properties.
decision1 and June 17, 2010 resolution of the Court of Appeals (CA) in CA G.R.
CV No. 87424. The CA decision affirmed the Regional Trial Court's (RTC) Lastly, the CA removed the award of attorney's fees because the RTC did not
decision2 directing the petitioner to vacate the properties and to return the transfer give any reason for granting it.
certificates of title (TCTs) to the respondents.
The CA denied Filinvest's motion for reconsideration; hence, this petition.
FACTUAL BACKGROUND
THE PETITION
The respondents were the registered owners of various parcels of land located in
Barangay Hugo Perez, Trece Martires, Cavite. These properties were awarded to
In its petition and supplemental petition, Filinvest insists
them pursuant to the Comprehensive Land Reform Law (CARL),3 and had a total that:chanRoblesvirtualLawlibrary
land area of about 709,910 square meters under seventy-five (75) TCTs.
First, the affidavits are valid. Section 27 of the CARL only prohibits the sale,
In 1995, Filinvest Land, Inc. (Filinvest) acquired possession of these properties. transfer, or conveyance of the properties. It does not prohibit the assignment of
Each of the respondents executed a Sinumpaang Salaysay entitled Pagbibitaw possessory rights. When the respondents executed the affidavits, they voluntarily
ng Karapatan(affidavits). Based on these affidavits, the respondents relinquished assigned their possessory rights over the properties in Filinvest's favor. Filinvest
all their rights over the properties for valuable consideration.
is, therefore, the lawful possessor of the properties.
The respondents alleged that they surrendered possession of their properties with Second, assuming arguendo that the affidavits are void, the respondents must
the understanding that Filinvest would develop these into a residential return the consideration they received. Otherwise, they will unjustly enrich
subdivision, pursuant to a joint venture agreement (JVA). They also entrusted themselves at Filinvest's expense.
their respective owner's duplicate original copies of the TCTs to Filinvest because
they were told that these would be used in preparing the development plans. The Third, both parties are in pari delicto for entering into the void transaction. Thus,
respondents added that they were even given money to find their own place while the Court should leave them as they are. Furthermore, the pari delicto exception
the development was taking place.
in Article 1416 of the Civil Code does not apply to void contracts.
The respondents repeatedly requested Filinvest to return their owner's TCT
copies and to give them a copy of the JVA. Since development had not yet begun, THE RESPONDENTS' CASE
they also sent a letter to Filinvest to allow them to temporarily return to their lands.
They received no response. Instead, Filinvest began to fence the area and On their part, the respondents argue that:chanRoblesvirtualLawlibrary
prohibited entry. To protect their rights, the respondents filed notices of adverse
claim. First, the affidavits are void because they effectively transferred ownership, not
just possession, over the properties. The affidavits' provisions require a perpetual
In 2010, the respondents filed a complaint for recovery of possession with surrender of the respondents' ownership rights. This transfer violates Section 27
damages against Filinvest. of the CARL.

In its answer, Filinvest argued that (a) the respondents had relinquished their
rights over the property, (b) no JVA was signed, and (c) all of the respondents
signed the affidavits under which possession was validly transferred to Filinvest.
At trial, the respondents' witnesses initially denied that they executed the affidavits
but changed their answers when they saw their signatures on them.
Filinvest presented two witnesses. Leilanie Faforga (Faforga), the custodian of
Filinvest's acquisition documents, testified that she did not possess any
documents on the properties other than the respondents' affidavits. To her
knowledge, no JVA had been signed.
Lina Ferrer-De Guzman (De Guzman) testified that she was the Head of the Land
Acquisition Department at the time of the transactions. She stated that the sale
In Maylem v. Ellano,4 this Court ruled that the waiver or surrender of possession
of properties awarded under CARL is a prohibited transfer. Thus, Filinvest's
contention that they validly acquired possession through the affidavits is baseless.
Since the transfer to Filinvest is prohibited, the respondents are the properties'
lawful possessors.
Second, all the requisites of Article 1416 of the Civil Code are present. Thus, the
courts may return the properties to the respondents' possession. Moreover, the
respondents will not be unjustly enriched if the properties are returned to them
because Filinvest has possessed their properties for more than fifteen years.
In sum, the CA did not commit any error in affirming the RTC's decision.
In a manifestation in 2006, the respondents informed this Court that while this
 117

case is pending, Filinvest was able to cancel the TCTs in respondents' names
and to obtain new ones in its name. 2. Na alang-alang sa nabanggit na tinanggap kong/naming kabayaran, kusang-
loob ko/naming pinawawalang bisa at kabuluhan ang anumang interes,
THE ISSUE karapatan at paghahabol bilang magsasaka at kaagad kong isasauli sa mga
nasabing may-ari, sa paglagda ko/naming nito, ang aking/aming
The core issue in an accion publiciana case is who between Filinvest and the pamumusisyon at lahat ng kaparatan sa nasabing lupain.
respondents are the properties' lawful possessors.
3. Na ako/kami at ang aking/aming pamilya ay nangangako na mula sa paglagda
ko/naming nito ay hindi na ako/kami magtatanim ng ano pa mang halaman sa
OUR RULING lahat ng mga nasabing lupain o di kaya'y makikialam pa sa anumang paraan sa
nasabing lupain.
The petition is unmeritorious.
4. Na aking/aming kinikilala ang karapatan ng mga may-aring nabanggit at ng
An accion publiciana or a case for recovery of possession determines who kanilang mga kahalili na bakuran ang lahat ng lupaing nabanggit matapos
between the parties has the better and legal right to possess the properties, kong/aming lagdaan ang salaysay na ito at, ako/kami ay wala nang ano pa mang
independently of title.5 karapatan na pumasok o kaya'y makialam sa kahi't (sic) anong paraan
maging sa nasabing parselang nasasakop ng Titulong nabanggit, maging
Filinvest's claim of rightful possession relies on the affidavits. Hence, we must may maani man kami o wala sa mga bunga, kung mayroon man, o ang ano pa
ascertain whether these affidavits validly transferred possession. mang mga nalalabing pananim na matatagpuan doon pagdating ng nasabing
takdang araw na iyon.
The affidavits are void for violating Section 27 of the CARL.
5. Na alang-alang sa mga nakasaad sa itaas, ako/kami at ang aming buong
Since the properties involved were awarded pursuant to CARL, its provisions pamilya ay wala nang paghahabol na ano pa man ukol sa nasabing
apply here. Section 27 of the CARL states: lupain laban sa nabanggit na may-ari at sa kanilang maaaring maging kahalili
"Section 27. Transferability of Awarded Lands. - Lands acquired by the pa sa pagmamay-ari nito, at aming pinagtitibay na ang nasabing may-ari at mga
beneficiaries under this Act may not be sold, transferred or conveyed except kahalili ay wala nang magiging ano pa mang pananagutan sa akin/amin sa ilalim
through hereditary succession, or to the government, or the LBP, or to other ng anumang nakaraang kasunduan namin sa kanila o sa kanilang mga magulang,
qualified beneficiaries for a period of ten (10) years. x x x." (Emphasis supplied) o sa ilalim ng batas.
This provision prohibits the sale, transfer, or conveyance of the properties within x x x"17 (emphases supplied)
ten years, subject to four exceptions6 which do not apply to this case.
The affidavits, as worded, totally waive or transfer the respondents' rights and
As early as 1990, the transfers of possessory rights over landholdings awarded interests over the properties. The CA correctly observed that the affidavits do not
under agrarian laws had been declared void in Torres v. Ventura.7 only assign possessory rights, but perpetually surrender the respondents'
ownership rights. Furthermore, De Guzman admitted that the affidavits were
In that case, Torres tilled the subject land when Presidential Decree No. 27 (PD deliberately designed to circumvent the proscription under RA6657.
27) was promulgated in 1972. In 1978, he transferred his rights of possession and
enjoyment over the land to Ventura for P5,000.00. Through an Affidavit of Waiver, Clearly, the transfers of the properties, through the affidavits, violate Section 27
Torres relinquished all his rights over the property in Ventura's favor. In 1985, he of the CARL. Under our established rulings, these affidavits or waivers are void.
offered to redeem the property but Ventura refused. Thus, he filed a complaint for
recovery of possession. Because the transfers made to Filinvest in 1995 are void, Filinvest cannot claim
rightful possession over the properties. The respondents are the awardees based
This Court resolved the question of who has better right of possession between on the CARL and should be recognized as the lawful possessors.
the tiller and the transferee of the land, ruling in Torres' favor based on the facts
and on the constitutional mandate to promote agrarian reform. We noted that the The pari delicto exception does not apply here.
fundamental policy of the law is to transfer ownership over the land to the farmers
who till them. To give effect to this policy, PD 27 prohibits the transfer of the land We now go to the issue of whether the principle of pari delicto applies to this case.
to third parties, subject to certain exceptions. In a 1979 memorandum We answer in the negative.
circular,8 the Minister of Agrarian Reform acknowledged the prevalence
of transactions transferring ownership, rights, or possession over awarded lands. Filinvest claims that if the affidavits are void, this Court should consider the parties
The Minister emphasized that these transactions violate PD 27 and are, thus, to be in pari delicto. Both parties came to court with unclean hands because they
void. voluntarily entered into the void transactions. Thus, the court should leave them
where they are Filinvest possessing the properties and the respondents keeping
The ruling in Torres was reiterated in Corpuz v. Grospe9 and in Lapanday v. the money they received.
Estita.10 In Lapanday, the Court stated that waivers of rights and interests over
landholdings awarded by the government are invalid for violating agrarian reform We see no merit in Filinvest's position.
laws. Thus, these waivers are void.
In Torres, we ruled that the pari delicto doctrine does not apply in an agrarian
The proscription in PD 27 against transferring land awards to third persons reform case.18 To hold otherwise would defeat the spirit and intent of the agrarian
was carried over to Section 27 of RA 6657.11 reform to free the tillers from the bondage of the soil.19 The policy of the law must
be upheld.
The pronouncements in Torres were ruled to be applicable to land awards under
RA 6657 in Maylem v. Ellano,12 in Lebrudo v. Loyola,13 and in Gua-an v. To elaborate, Article 1416 of the Civil Code provides an exception to the pari
Quirino.14 In these cases, the Court emphasized that any waiver and transfer of delicto doctrine. Under this article, the plaintiff may recover what he paid or
rights and interests within the 10-year prohibitory period under RA 6657 delivered pursuant to a void contract if the following requisites are met: (a) the
is void for violating agrarian reform law15 whose main purpose is to ensure that contract is not illegal per se but merely prohibited; (b) the prohibition is for the
the farmer-beneficiary shall continuously possess, cultivate, and enjoy the land plaintiffs protection; and (c) public policy will be enhanced by his
he tills.16 The affidavits and quitclaims signed by the farmers to surrender recovery.20 These requisites are present in this case.
possession were accordingly declared void.
On the first requisite, the affidavits here are merely prohibited. A contract is
In the present case, the parties do not dispute that the transfers occurred within illegal per se if, by universally recognized standards, it is inherently bad, improper,
the ten-year period. Filinvest contends, however, that only transfer of ownership immoral, or contrary to good conscience.21
is prohibited, not of possession.
Ordinarily, affidavits or contracts of sale are lawful. Only Section 27 of the CARL
We now examine the affidavits' contents. The affidavits signed by the respondents made them unlawful.
read, in part, thus:
"SINUMPAANG SALAYSAY On the second requisite, the prohibition under Section 27 of the CARL is meant
(PAGBIBITAW NG KARAPATAN) to protect the farmer-beneficiaries. Section 2 of the CARL explains that the
agrarian reform program is founded on the landless farmers' right to own
xxx land.22 Thus, their protection must be given utmost importance.

1. Na pinapatunayan ko/naming (sic) na tinanggap ko/naming nang lubos na On the third requisite, public policy will be promoted by allowing the respondents
kasiyahan ang halagang ____________ (P________) Salaping Pilipino, mula sa to recover their land. The CARL distributes agricultural land to landless farmers
FILINVEST LAND, INC. bilang kabuuang bayad pinsala (disturbance fee) sa mga to improve their quality of life.23 Returning the land to them will enhance this public
pananim ko/naming at ng aking/aming buong pamilya at sa lahat ng iba pa policy of agrarian reform.
ko/naming mga pag-aari sa lupaing nabanggit at bilang karapatang bayad sa
lahat kong/naming interes, karapatan at paghahabol sa nasabing lupain.
 118

Thus, the respondents may recover the subject properties.

No unjust enrichment

We find merit in the respondents' argument that no unjust enrichment took place.
We note that Filinvest had possessed the properties since 1995 or for about
twenty years. During this period, the respondents were deprived of the productive
use of their land. The amount they paid to the respondents may serve as
compensation for Filinvest's use of the properties for this long period.

In sum, we hold that the respondents are the lawful possessors of the disputed
properties. Their affidavits are void and did not transfer possessory rights.

In 2006, the respondents filed a manifestation that new TCTs had already been
issued in Filinvest's name. An accion publiciana, however, resolves only
possessory rights. The revocation of TCTs, on the other hand, requires a
conclusive determination of ownership. Thus, the respondents must file the
appropriate action to annul the TCTs issued in Filinvest's name.

So as not to frustrate our pronouncement in this case, we order the registration of

this Decision with the Register of Deeds of the place where the disputed
properties are situated, in accordance with Section 78 of Presidential Decree (PD)
No. 1529,24 which provides:
"SEC. 78 Judgment for Plaintiff. - Whenever in an action to recover possession
or ownership of real estate or any interest therein affecting registered land
judgment is entered for the plaintiff, such judgment shall be entitled to
registration on presentation of a certificate of the entry thereof from the
clerk of court where the action is pending to the Register of Deeds for the
province or city where the land lies, who shall enter a memorandum upon the
certificate of title of the land to which such judgment relates. If the judgment does
not apply to all the land described in the certificate of title, the certificate of the
clerk of court where the action is pending and the memorandum entered by the
Register of Deeds shall contain a description of the land affected by the
judgment." (Emphasis supplied)

WHEREFORE, we hereby DENY the petition for lack of merit. The April 15, 2010
decision and June 17, 2010 resolution of the Court of Appeals in CA G.R. SP No.
100262 are hereby AFFIRMED.

Upon finality of this Decision, the Office of the 2nd Division Clerk of Court is
directed to furnish certified copies of this Decision and its Entry of Judgment to
the appropriate Register of Deeds pursuant to Section 78 of PD No. 1529.

Costs against petitioner.

SO ORDERED.chanroblesvirtuallawlibrary

G.R. No. 190846
TOMAS P. TAN, JR., Petitioner,
vs.
JOSE G. HOSANA, Respondent.
DECISION
BRION, J.:
Before us is a petition for review on certiorari1 challenging the August 28, 2009
decision2 and November 17, 2009 resolution3 of the Court of Appeals (CA) in CA-
G.R. CV No. 88645.
The Facts
The respondent Jose G. Hosana (Jose) married Milagros C.
Hosana (Milagros) on January 14, 1979.4 During their marriage, Jose and
Milagros bought a house and lot located at Tinago, Naga City, which lot was
covered by Transfer Certificate of Title (TCT) No. 21229.5
On January 13, 1998, Milagros sold to the petitioner Tomas P. Tan, Jr. (Tomas)
the subject property, as evidenced by a deed of sale executed by Milagros herself
and as attorney-in-fact of Jose, by virtue of a Special Power of Attorney (SPA)
executed by Jose in her favor.6 The Deed of Sale stated that the purchase price
for the lot was P200,000.00.7 After the sale, TCT No. 21229 was cancelled and
TCT No. 32568 was issued in the name of Tomas.8
On October 19, 2001, Jose filed a Complaint for Annulment of Sale/Cancellation
of Title/Reconveyance and Damages against Milagros, Tomas, and the Register
of Deeds of Naga City.9 The complaint was filed before the Regional Trial Court
(RTC), Branch 62, Naga City. In the complaint, Jose averred that while he was
working in Japan, Milagros, without his consent and knowledge, conspired with
Tomas to execute the SPA by forging Jose’s signature making it appear that Jose
had authorized Milagros to sell the subject property to Tomas.10
In his Answer, Tomas maintained that he was a buyer in good faith and for
value.11 Before he paid the full consideration of the sale, Tomas claimed he
sought advice from his lawyer-friend who told him that the title of the subject lot
was authentic and in order.12 Furthermore, he alleged that the SPA authorizing
Milagros to sell the property was annotated at the back of the title.13
Tomas filed a cross-claim against Milagros and claimed compensatory and moral
damages, attorney’s fees, and expenses for litigation, in the event that judgment
be rendered in favor of Jose.14
The RTC declared Milagros in default for her failure to file her answer to Jose’s
complaint and Tomas’ cross-claim.15On the other hand, it dismissed Tomas’
complaint against the Register of Deeds since it was only a nominal party.16
After the pre-trial conference, trial on the merits ensued.17
Jose presented his brother, Bonifacio Hosana (Bonifacio), as sole witness.
Bonifacio testified that he learned of the sale of the subject property from Milagros’
son.18 When Bonifacio confronted Milagros that Jose would get angry because of
the sale, Milagros retorted that she sold the property because she needed the
money. Bonifacio immediately informed Jose, who was then in Japan, of the
sale.19
Jose was furious when he learned of the sale and went back to the Philippines.
Jose and Bonifacio verified with the Register of Deeds and discovered that the
title covering the disputed property had been transferred to Tomas.20
Bonifacio further testified that Jose’s signature in the SPA was forged.21 Bonifacio
presented documents containing the signature of Jose for comparison: Philippine
passport, complaint-affidavit, duplicate original of SPA dated 16 February 2002,
notice of lis pendens, community tax certificate, voter’s affidavit, specimen
signatures, and a handwritten letter.22
On the other hand, Tomas submitted his own account of events as corroborated
by Rosana Robles (Rosana), his goddaughter. Sometime in December 1997,
Tomas directed Rosana to go to the house of Milagros to confirm if Jose knew
about the sale transaction. Through a phone call by Milagros to Jose, Rosana
was able to talk to Jose who confirmed that he was aware of the sale and had
given his wife authority to proceed with the sale. Rosana informed Tomas of
Jose’s confirmation.23
119
With the assurance that all the documents were in order, Tomas made a partial
payment of P350,000.00 and another P350,000.00 upon the execution of
the Deed of Absolute Sale (Deed of Sale). Tomas noticed that the consideration
written by Milagros on the Deed of Sale was only P200,000.00; he inquired why
the written consideration was lower than the actual consideration paid. Milagros
explained that it was done to save on taxes. Tomas also learned from Milagros
that she needed money badly and had to sell the house because Jose had
stopped sending her money.24
The RTC Ruling
In its decision dated December 27, 2006,25 the RTC decided in favor of Jose and
nullified the sale of the subject property to Tomas. The RTC held that the SPA
dated June 10, 1996, wherein Jose supposedly appointed Milagros as his
attorney-in-fact, was actually null and void.
Tomas and Milagros were ordered to jointly and severally indemnify Jose the
amount of P20,000.00 as temperate damages.26
The CA Ruling
Tomas appealed the RTC’s ruling to the CA.
In a decision dated August 28, 2009,27 the CA affirmed the RTC ruling that the
deed of sale and the SPA were void. However, the CA modified the judgment of
the RTC: first, by deleting the award of temperate damages; and second, by
directing Jose and Milagros to reimburse Tomas the purchase price of
P200,000.00, with interest, under the principle of unjust enrichment. Despite
Tomas’ allegation that he paid P700,000.00 for the subject lot, the CA found that
there was no convincing evidence that established this claim.28
Tomas filed a motion for the reconsideration of the CA decision on the ground
that the amount of P200,000.00 as reimbursement for the purchase price of the
house and lot was insufficient and not supported by the evidence formally offered
before and admitted by the RTC. Tomas contended that the actual amount he
paid as consideration for the sale was P700,000.00, as supported by his
testimony before the RTC.29
The CA denied the motion for reconsideration for lack of merit" in a resolution
dated November 17, 2009.30
The Petition
Tomas filed the present petition for review on certiorari to challenge the CA ruling
which ordered the reimbursement of P200,000.00 only, instead of the actual
purchase price he paid in the amount of P700,000.00.31
Tomas argues that, first, all matters contained in the deed of sale, including the
consideration stated, cannot be used as evidence since it was declared null and
void; second, the deed of sale was not specifically offered to prove the actual
consideration of the sale;32 third, his testimony establishing the actual purchase
price of P700,000.00 paid was uncontroverted;33 and, fourth, Jose must return the
full amount actually paid under the principle of solutio indebiti.34
Jose, on the other hand, argues that first, Jose is estopped from questioning the
purchase price indicated in the deed of dale for failing to immediately raise this
question; and second, the terms of an agreement reduced into writing are deemed
to include all the terms agreed upon and no other evidence can be admitted other
than the terms of the agreement itself.35
The Issues
The core issues are (1) whether the deed of sale can be used as the basis for the
amount of consideration paid; and (2) whether the testimony of Tomas is sufficient
to establish the actual purchase price of the sale.
OUR RULING
We affirm the CA ruling and deny the petition.
Whether Tomas paid the purchase price of P700,000.00 is a question of fact not
proper in a petition for review on certiorari. Appreciation of evidence and inquiry
on the correctness of the appellate court's factual findings are not the functions of
this Court, as we are not a trier of facts.36

This Court does not address questions of fact which require us to rule on "the
truth or falsehood of alleged facts,"37except in the following cases:
(1) when the findings are grounded entirely on speculations, surmises, or
conjectures; (2) when the inference made is manifestly mistaken, absurd, or
impossible; (3) when there is a grave abuse of discretion; (4) when the judgment
is based on misappreciation of facts; (5) when the findings of fact are conflicting;
(6) when in making its findings, the same are contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those of the trial
court; (8) when the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as in
the petitioner’s main and reply briefs are not disputed by the respondent; and (10)
when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.38
The present case does not fall under any of these exceptions.
Whether Tomas sufficiently proved that he paid P700,000.00 for the subject
property is a factual question that the CA had already resolved in the
negative.39 The CA found Tomas’ claim of paying P700,000.00 for the subject
property to be unsubstantiated as he failed to tender any convincing evidence to
establish his claim.
We uphold the CA’s finding.
In civil cases, the basic rule is that the party making allegations has the burden of
proving them by a preponderance of evidence.40 Moreover, the parties must rely
on the strength of their own evidence, not upon the weakness of the defense
offered by their opponent.41
Preponderance of evidence is the weight, credit, and value of the aggregate
evidence on either side and is usually considered to be synonymous with the term
"greater weight of the evidence" or "greater weight of the credible
evidence."42 Preponderance of evidence is a phrase that, in the last analysis,
means probability of the truth. It is evidence that is more convincing to the court
as it is worthier of belief than that which is offered in opposition thereto. 43
We agree with the CA that Tomas’ bare allegation that he paid Milagros the sum
of P700,000.00 cannot be considered as proof of payment, without any other
convincing evidence to establish this claim. Tomas’ bare allegation, while
uncontroverted, does not automatically entitle it to be given weight and credence.
It is settled in jurisprudence that one who pleads payment has the burden of
proving it;44 the burden rests on the defendant to prove payment, rather than on
the plaintiff to prove non-payment.45 A mere allegation is not evidence,46and the
person who alleges has the burden of proving his or her allegation with the
requisite quantum of evidence, which in civil cases is preponderance of evidence.
The force and effect of a void contract is distinguished from its admissibility
as evidence.
The next question to be resolved is whether the CA correctly ordered the
reimbursement of P200,000.00, which is the consideration stated in the Deed of
Sale, based on the principle of unjust enrichment.
The petitioner argues that the CA erred in relying on the consideration stated in
the deed of sale as basis for the reimbursable amount because a null and void
document cannot be used as evidence.
We find no merit in the petitioner’s argument.
A void or inexistent contract has no force and effect from the very
beginning.47 This rule applies to contracts that are declared void by positive
provision of law, as in the case of a sale of conjugal property without the other
spouse’s written consent.48 A void contract is equivalent to nothing and is
absolutely wanting in civil effects.49 It cannot be validated either by ratification or
prescription.50 When, however, any of the terms of a void contract have been
performed, an action to declare its inexistence is necessary to allow restitution of
what has been given under it.51
It is basic that if a void contract has already "been performed, the restoration of
what has been given is in order."52This principle springs from Article 22 of the New
Civil Code which states that "every person who through an act of performance by
another, or any other means, acquires or comes into possession of something at
the expense of the latter without just or legal ground, shall return the same."
Hence, the restitution of what each party has given is a consequence of a void
and inexistent contract.
120
While the terms and provisions of a void contract cannot be enforced since it is
deemed inexistent, it does not preclude the admissibility of the contract as
evidence to prove matters that occurred in the course of executing the
contract, i.e., what each party has given in the execution of the contract.
Evidence is the means of ascertaining in a judicial proceeding the truth respecting
a matter of fact, sanctioned by the Rules of Court.53 The purpose of introducing
documentary evidence is to ascertain the truthfulness of a matter at issue, which
can be the entire content or a specific provision/term in the document.
The deed of sale as documentary evidence may be used as a means to ascertain
the truthfulness of the consideration stated and its actual payment. The purpose
of introducing the deed of sale as evidence is not to enforce the terms written in
the contract, which is an obligatory force and effect of a valid contract. The deed
of sale, rather, is used as a means to determine matters that occurred in the
execution of such contract, i.e., the determination of what each party has given
under the void contract to allow restitution and prevent unjust enrichment.
Evidence is admissible when it is relevant to the issue and is not excluded by the
law of these rules.54 There is no provision in the Rules of Evidence which excludes
the admissibility of a void document. The Rules only require that the evidence is
relevant and not excluded by the Rules for its admissibility.55
Hence, a void document is admissible as evidence because the purpose of
introducing it as evidence is to ascertain the truth respecting a matter of fact, not
to enforce the terms of the document itself.
It is also settled in jurisprudence that with respect to evidence which appears to
be of doubtful relevancy, incompetency, or admissibility, the safer policy is to be
liberal and not reject them on doubtful or technical grounds, but admit them unless
plainly irrelevant, immaterial, or incompetent; for the reason that their rejection
places them beyond the consideration of the court, if they are thereafter found
relevant or competent. On the other hand, their admission, if they turn out later to
be irrelevant or incompetent, can easily be remedied by completely discarding
them or ignoring them.56
In the present case, the deed of sale was declared null and void by positive
provision of the law prohibiting the sale of conjugal property without the spouse’s
consent.1âwphi1 It does not, however, preclude the possibility that Tomas paid
the consideration stated therein. The admission of the deed of sale as evidence
is consistent with the liberal policy of the court to admit the evidence which
appears to be relevant in resolving an issue before the courts.
An offer to prove the regular execution of the deed of sale is basis for the
court to determine the presence of the essential elements of the sale,
including the consideration paid.
Tomas argues that the Deed of Sale was not specifically offered to prove the
actual consideration of the sale and, hence, cannot be considered by the court.
Tomas is incorrect.
The deed of sale in the present case was formally offered by both parties as
evidence.57 Tomas, in fact, formally offered it for the purpose of proving its
execution and the regularity of the sale.58
The offer of the deed of sale to prove its regularity necessarily allowed the lower
courts to consider the terms written therein to determine whether all the essential
elements59 for a valid contract of sale are present, including the consideration of
the sale. The fact that the sale was declared null and void does not prevent the
court from relying on consideration stated in the deed of sale to determine the
actual amount paid by the petitioner for the purpose of preventing unjust
enrichment.
Hence, the specific offer of the Deed of Sale to prove the actual consideration of
the sale is not necessary since it is necessarily included in determining the regular
execution of the sale.
The consideration stated in the notarized Deed of Sale is prima
facie evidence of the amount paid by the petitioner.
The notarized deed of sale is a public document and is prima facie evidence of
the truth of the facts stated therein.60
Prima facie evidence is defined as evidence good and sufficient on its face. Such
evidence as, in the judgment of the law, is sufficient to establish a given fact, or
the group or chain of facts constituting the party’s claim or defense and which if
not rebutted or contradicted, will remain sufficient.61
 121

In the present case, the consideration stated in the deed of sale constitutes prima
facie evidence of the amount paid by Tomas for the transfer of the property to his
name. Tomas failed to adduce satisfactory evidence to rebut or contradict the
consideration stated as the actual consideration and amount paid to Milagros and
Jose.

The deed of sale was declared null and void by a positive provision of law
requiring the consent of both spouses for the sale of conjugal property. There is,
however, no question on the presence of the consideration of the sale, except
with respect to the actual amount paid. While the deed of sale has no force and
effect as a contract, it remains prima facie evidence of the actual consideration
paid.

As earlier discussed, Tomas failed to substantiate his claim that he paid to

Milagros the amount of P700,000.00, instead of the amount of P200,000.00 stated
in the deed of sale. No documentary or testimonial evidence to prove payment of
the higher amount was presented, apart from Tomas’ sole testimony. Tomas’ sole
testimony of payment is self-serving and insufficient to unequivocally prove that
Milagros received P700,000.00 for the subject property.

Hence, the consideration stated in the deed of sale remains sufficient evidence of
the actual amount the petitioner paid and the same amount which should be
returned under the principle of unjust enrichment.

Unjust enrichment exists "when a person unjustly retains a benefit at the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity, and good conscience."62 The prevention
of unjust enrichment is a recognized public policy of the State and is based on
Article 22 of the Civil Code. 63

The principle of unjust enrichment requires Jose to return what he or Milagros

received under the void contract which presumably benefitted their conjugal
partnership.

Accordingly, the CA correctly ordered Jose to return the amount of P,200,000.00

since this the consideration stated in the Deed of Sale and given credence by the
lower court. Indeed, even Jose expressly stated in his comment that Tomas is
entitled to recover the money paid by him in the amount of P200,000.00 as
appearing in the contract.

WHEREFORE, we hereby DENY the petition for review on certiorari. The

decision dated August 28, 2009 and the resolution dated November 17, 2009, of
the Court of Appeals in CA-G.R. CV No. 88645 is AFFIRMED. Costs against the
petitioner.

SO ORDERED.
 122

THIRD DIVISION through assignment and sale as evidenced by the following documents, viz:
chanRoblesvirtualLawlibrary
a. Deed of Transfer or Conveyance dated May 4, 2005 transferring 2,000 sq m of
G.R. No. 202223, March 02, 2016 Lots No. 394-PT and 393-A to Atty. Robiso;12

JOEY R. PEÑA, Petitioner, v. JESUS DELOS SANTOS AND THE HEIRS OF b. Deed of Absolute Sale dated May 4, 2005 over the 2,000 sq m of Lots No. 394-
ROSITA DELOS SANTOS FLORES., Respondents. PT and 393-A in favor of Atty. Robiso;13

RESOLUTION
REYES, J.:
This resolves the Motion for Reconsideration1 of petitioner Joey R. Perm (Peña)
of the Court's Resolution2dated September 9, 2013 which denied his Petition for
Review3 on the ground of lack of reversible error in the assailed Decision4 dated
February 20, 2012 of the Court of Appeals (CA) in CA-G.R. CEB SP No. 03886.
c. Confirmation of Sale and Transfer dated December 5, 2006 affirming the two
foregoing instruments executed by Jesus and Rosita in favor of Atty.
Robiso.14ChanRoblesVirtualawlibrary
Atty. Robiso later on sold Lots No. 393-A and 394-D to Peña on December 15,
2006 thru a Deed of Absolute Sale.15 The tax declarations over the said portions
were subsequently registered in Peña's name.16
The plaintiffs opposed Peña's motion claiming that the conveyance made by
Jesus and Rosita in favor of Atty. Robiso was null and void for being a prohibited
transaction because the latter was their counsel in the case.

The Facts
Jesus Delos Santos (Jesus) and Rosita Delos Santos Flores (Rosita) were the
judgment awardees of the two-thirds portion or 9,915 square meters of four
adjoining lots designated as Lots 393-A, 393-B, 394-D and 394-E, measuring
14,771 sq m, located in Boracay Island, Malay, Aldan.5 The award was embodied
in the Decision dated April 29, 1996 of the Regional Trial Court (RTC) of Kalibo,
Aklan in the herein Civil Case No. 3683, the fallo of which reads:
chanRoblesvirtualLawlibrary
WHEREFORE, in view of the foregoing considerations, judgment is hereby
rendered as follows:
(1.) Dismissing the complaint filed by the plaintiffs [Vicente Delos Santos, et al.]
as well [as] the complaint in intervention filed by the second set of intervenors
Casimeros, et al. for lack of merit;
(2.) Declaring the two deeds of sale (Exhibits 29 and 30) as null and void insofar
as they affect the two-thirds (2/3) share of intervenors Jesus and [Rosita];
(3.) Declaring intervenors Jesus and [Rosita] as the lawful owners of the
two-thirds portion of the land in question or 9,915 square meters on the
northwest portion, representing as their shares in the intestate estate of
Leonardo delos Santos;
(4.) Declaring defendant Fred Elizalde as the rightful owner of one-third of the
land in question or 4,957 square meters on the southeast portion, segregated by
a boundary line running from the seashore to the inland or from the southwest to
northeast;
(5.) Ordering the cancellation or revision of Tax Declaration No. 4422 in the name
of Fred Elizalde (Exhibit 26) and all tax declarations issued subsequent thereto to
conform to paragraphs 3 and 4 hereof as well as the issuance of a new tax
declaration to intervenors Jesus and [Rosita] covering their two-thirds (2/3) share;
(6.) Ordering the plaintiffs or any persons claiming interest therein to deliver
complete possession of the land to [Fred and Joan Elizalde] and Jesus and
[Rosita].
No pronouncement as to costs.
SO ORDERED.6 (Citation omitted and emphasis ours)
The losing parties in the case, Vicente Delos Santos, et al. (plaintiffs) and
Spouses Fred and Joan Elizalde (appellants), appealed the foregoing judgment
to the CA thru petitions separately docketed as CA-G.R. CV No. 54136 and CA-
G.R. SP No. 48475, respectively. Both appeals were dismissed and considered
withdrawn in the CA Resolution dated May 11, 1999 upon the appellants' motion
to withdraw appeal. In the subsequent CA Resolution dated January 31, 2000,
the motion for reconsideration and motion to reinstate appeal filed by the plaintiffs
were denied for being time-barred as it was filed nine days late.7
The plaintiffs sought recourse with the Court via a petition for review
on certiorari docketed as G.R. Nos. 141810 and 141812.8 In a Decision dated
February 2, 2007, the Court denied the petition on the ground that the plaintiffs
already lost their right of appeal to the CA when they failed to file an appellant's
brief during the more than 180-day extension.9 The Court reiterated its ruling in a
Resolution dated April 23, 2007, which denied reconsideration. An Entry of
Judgment in the case was forthwith issued.10
The case was then remanded to the RTC of Kalibo, Aklan for the execution
proceedings during which a Motion for Substitution with a Motion for a Writ of
Execution and Demolition11 dated March 14, 2008 was filed by Peña.
Peña averred that he is the transferee of Jesus and Rosita's adjudged allotments
over the subject lots. He claimed that he bought the same from Atty. Romeo
Robiso (Atty. Robiso) who in turn, acquired the properties from Jesus and Rosita
Apparently, Atty. Robiso was engaged by Jesus and Rosita to be their counsel in
Civil Case No. 3683 by virtue of an Attorney's Agreement and Undertaking dated
July 11, 1998.17 Under the agreement, Atty. Robiso bound himself to render his
legal services in connection with Jesus and Rosita's involvement as party-litigants
in Civil Case No. 3683 and to any proceedings that may arise in connection
therewith before the CA and this Court. Atty. Robiso undertook to advance his
own funds for all expenses and costs he may incur in relation to the case. In
consideration thereof, Jesus and Rosita obliged themselves to give or pay to him
as contingent professional fees, 2,000 sq m of any and all lands that the courts
will award to them in the case.
Ruling of the RTC
In an Order18 dated June 11, 2008, the RTC partially granted Peña's motion and
ruled that Jesus and Rosita lost their standing in the case upon the conveyance
of their adjudged 2,000 sq m portion in favor of Atty. Robiso whose ownership
rights were afterwards acquired by Peña.
The RTC upheld that the conveyance made by Jesus and Rosita in favor of Atty.
Robiso is valid since it was not made during the pendency of litigation but after
judgment has been rendered. The RTC disposed as follows:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant Motion for Substitution and
the Motion for a Writ of Execution and Demolition is partially granted.
Accordingly, it is hereby directed that:
1. Movant Joey Peña is joined with the original party in the First Set of Intervenors
(Jesus and Rosita) in accordance with Section 19, Rule 3 of the Rules of Court;
and
2. A Writ of Execution be issued to implement the Decision dated April 29, 1996.
SO ORDERED.19 (Emphasis in the original)
The writ of execution was issued on July 10, 2008.20 The RTC denied
reconsideration in an Order dated September 8, 2008.21
Ruling of the CA
Jesus, together with the heirs of Rosita, elevated the matter to the CA thru a
special civil action for certiorari docketed as CA-G.R. CEB SP No. 03886.
In its Decision22 dated February 20, 2012, the CA reversed the RTC and ruled
that the conveyance made by Jesus and Rosita in favor of Atty. Robiso was null
and void because it is a prohibited transaction under Article 1491(5) of the Civil
Code. When the two Deeds of Sale in favor of Atty. Robiso were executed on May
4, 2005 and December 5, 2005 and the Confirmation of Sale on December 15,
2006, the case was still pending with the Supreme Court, before which Jesus and
Rosita were still represented by Atty. Robiso. Accordingly, the CA decision
disposed as follows:
chanRoblesvirtualLawlibrary
WHEREFORE, the Order dated June 11, 2008, Order dated September 8, 2008,
and the Alias Writ of Execution dated July 10, 2008 in Civil Case No. 3683 are
hereby ANNULLED and SET ASIDE. The trial court is directed to cause the
execution of the final judgment in favor of [Jesus and the heirs of Rosita] in this
case with dispatch.
SO ORDERED.23ChanRoblesVirtualawlibrary
The CA reiterated the foregoing ruling when it denied Peña's motion for
reconsideration in a Resolution24dated May 24, 2012. Aggrieved, Peña filed a
petition for review on certiorari before the Court. In a Minute Resolution25 dated
September 9, 2013, the Court denied the petition for lack of reversible error in the
assailed CA judgment.
On December 23, 2013, Peña filed a Motion for Reconsideration26 insisting that
the deeds of conveyance between Atty. Robiso and Jesus and Rosita were
 123

executed long after the decision in Civil Case No. 3683 became final and Otherwise speaking, estoppel cannot supplant and contravene the provision of
executory. Even assuming arguendo that the deeds were void, a separate action law clearly applicable to a case.35 Conversely, it cannot give validity to an act that
for declaration of their inexistence is necessary because their terms have already is prohibited by law or one that is against public policy.36
been fulfilled.
The rationale advanced for the prohibition in Article 1491(5) is that public policy
Ruling of the Court disallows the transactions in view of the fiduciary relationship involved, i.e., the
relation of trust and confidence and the peculiar control exercised by these
The Court denies reconsideration. persons. It is founded on public policy because, by virtue of his office, an attorney
may easily take advantage of the credulity and ignorance of his client and unduly
The basis of Peña's motion for substitution is infirm because the lots were enrich himself at the expense of his client.37 The principle of estoppel runs counter
transferred to his predecessor-in-interest, Atty. Robiso, through a prohibited sale to this policy and to apply it in this case will be tantamount to sanctioning a
transaction. Article 1491(5) of the Civil Code expressly prohibits lawyers from prohibited and void transaction.
acquiring property or rights that may be the object of any litigation in which they
may take part by virtue of their profession, thus: The other issues raised by Peña are merely procedural in nature and are too
chanRoblesvirtualLawlibrary inconsequential to override the fundamental considerations of public policy
Art. 1491. The following persons cannot acquire by purchase, even at a public or underlying the prohibition set forth in Article 1491(5) of the Civil
judicial auction, either in person or through the mediation of another: Code.chanrobleslaw

x x x x WHEREFORE, foregoing considered, the Motion for Reconsideration is

hereby DENIED for lack of merit.
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts,
and other officers and employees connected with the administration of justice, the SO ORDERED.cralawlawlibrary
property and rights in litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession.

xxxx
A complementary prohibition is also provided in Rule 10 of the Canons of
Professional Ethics which states:
chanRoblesvirtualLawlibrary
10. Acquiring interest in litigation.

The lawyer should not purchase any interest in the subject matter of the litigation
which he is conducting.
A property is in litigation if there is a contest or litigation over it in court or when it
is subject of a judicial action.27 Records show that the judicial action over the
subject lots was still in the appellate proceedings stage when they were conveyed
to Jesus and Rosita's counsel, Atty. Robiso. The Deed of Transfer or Conveyance
and the Deed of Absolute Sale both dated May 4, 2005 as well as the Confirmation
of Sale and Transfer dated December 5, 2006 were all executed long before the
termination of the appellate proceedings before this Court in G.R. Nos. 141810
and 141812 on February 2, 2007.

Clearly then, since the property conveyed to Atty. Robiso by Jesus and Rosita
was still the object of litigation, the deeds of conveyance executed by the latter
are deemed inexistent. Under Article 1409 of the Code, contracts which are
expressly prohibited or declared void by law are considered inexistent and void
from the beginning.28 This being so, Atty. Robiso could not have transferred a
valid title in favor of Peña over the lots awarded to Jesus and Rosita in Civil Case
No. 3683. Consequently, Peña has no legal standing to be substituted in the stead
of or joined with Jesus and Rosita as the first set of intervenors and to move for
issuance of a writ of execution in Civil Case No. 3683.

There is no need to bring a separate action for the declaration of the subject deeds
of conveyance as void. A void or inexistent contract is one which has no force and
effect from the very beginning. Hence, it is as if it has never been entered into and
cannot be validated either by the passage of time or by ratification.29

The need to bring a separate action for declaration of nullity applies only if the
void contract is no longer fully executory. Contrary to Peña's stance, the deeds of
conveyance made in favor of Atty. Robiso in 2005 cannot be considered as
executory because at that time the judgment award ceding the subject lots to
Jesus and Rosita was not yet implemented. A writ of execution30 was issued only
on July 10, 2008. "If the void contract is still fully executory, no party need bring
an action to declare its nullity; but if any party should bring an action to enforce it,
the other party can simply set up the nullity as a defense."31

This is notwithstanding the fact that the sale to Atty. Robiso was made pursuant
to a contingency fee contract. It is true that contingent fee agreements are
recognized in this jurisdiction as a valid exception to the prohibitions under Article
1491(5) of the Civil Code.32 The Court cannot extend a similar recognition to the
present case, however, since the payment to Atty. Robiso of his contingency fees
was made during the pendency of litigation. "A contingent fee contract is an
agreement in writing where the fee, often a fixed percentage of what may be
recovered in the action, is made to depend upon the success of the litigation. The
payment of the contingent fee is not made during the pendency of the litigation
involving the client's property but only after the judgment has been rendered in
the case handled by the lawyer."33

Peña cannot rely on Article 143734 by claiming that Jesus and Rosita are already
estopped from questioning the validity of their deeds of conveyance with Atty.
Robiso. Estoppel is a principle in equity and pursuant to Article 1432 it is adopted
insofar as it is not in conflict with the provisions of the Civil Code and other laws.

G.R. No. 215014
REBECCA FULLIDO, Petitioner,
vs.
GINO GRILLI, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari seeking to reverse and set aside the May
31, 2013 Decision1 and the September 24, 20142 Resolution of the Court of
Appeals (CA) in CA-G.R. CEB-SP No. 06946, which affirmed the April 26, 2012
Decision3 of the Regional Trial Court, Branch 47, Tagbilaran City (RTC) in Civil
Case No. 7895, reversing the March 31, 2011 Decision4 of the Municipal Circuit
Trial Court, Dauis, Bohol (MCTC) in Civil Case No. 244, a case for unlawful
detainer filed by Gino Grilli (Grilli) against Rebecca Fullido (Fullido).
The Facts
Sometime in 1994, Grilli, an Italian national, met Fullido in Bohol and courted her.
In 1995, Grilli decided to build a residential house where he and Fullido would to
stay whenever he would be vacationing in the country. Grilli financially assisted
Fullido in procuring a lot located in Biking I, Dauis, Bohol, from her parents which
was registered in her name under Transfer Certificate of Title (TCT) No.
30626.5 On the said property, they constructed a house, which was funded by
Grilli. Upon completion, they maintained a common-law relationship and lived
there whenever Grilli was on vacation in the Philippines twice a year.
In 1998, Grilli and Fullido executed a contract of lease, 6 a memorandum of
agreement7 (MOA) and a special power of attorney8 (SPA), to define their
respective rights over the house and lot.
The lease contract stipulated, among others, that Grilli as the lessee, would rent
the lot, registered in the name of Fullido, for a period of fifty (50) years, to be
automatically renewed for another fifty (50) years upon its expiration in the amount
of P10,000.00 for the whole term of the lease contract; and that Fullido as the
lessor, was prohibited from selling, donating, or encumbering the said lot without
the written consent of Grilli. The pertinent provisions of the lease contract over the
house and lot are as follows:
That for and in consideration of the total amount of rental in the amount of TEN
THOUSAND (P10,000.00) PESOS, Philippine Currency, paid by the LESSEE to
the LESSOR, receipt of which is hereby acknowledged, the latter hereby leases
to the LESSEE a house and lot, and all the furnishings found therein, land situated
at Biking I, Dauis, Bohol, Philippines, absolutely owned and belonging to the
LESSOR and particularly described as follows, to wit:
xxxx
That the LESSOR and the LESSEE hereby agree as they have agreed to be
bound by the following terms and conditions, to wit:
1. That the term of the lease shall be FIFTY (50) YEARS from August 16, 1998 to
August 15, 2048, automatically renewed for the same term upon the expiration
thereof;
xxx
7. That the LESSOR is strictly prohibited to sell, donate, encumber, or in any
manner convey the property subject of this lease to any third person, without the
written consent of the LESSEE.9
The said lease contract was duly registered in the Register of Deeds of Bohol.
The MOA, on the other hand, stated, among others, that Grilli paid for the
purchase price of the house and lot; that ownership of the house and lot was to
reside with him; and that should the common-law relationship be terminated,
Fullido could only sell the house and lot to whomever Grilli so desired. Specifically,
the pertinent terms of the MOA read:
NOW WHEREFORE, FOR AND IN CONSIDERATION of the foregoing premises,
the parties hereto agree as they hereby covenant to agree that the FIRST
PARTY (Grilli) shall permanently reside on the property as above-mentioned,
subject to the following terms and conditions:
124
1. That ownership over the above-mentioned properties shall reside
absolutely with herein FIRST PARTY, and the SECOND
PARTY (Fullido) hereby acknowledges the same;
2. That the SECOND PARTY is expressly prohibited to sell the above-
stated property, except if said sale is with the conformity of the FIRST
PARTY;
3. That the SECOND PARTY hereby grants the FIRST PARTY, the
absolute and irrevocable right, to reside in the residential building so
constructed during his lifetime, or any time said FIRST PARTY may so
desire;
4. That in the event the common-law relationship terminates, or when
the SECOND PARTY marries another, or enters into another common-
law relationship with another, said SECOND PARTY shall be obliged
to execute a DEED OF ABSOLUTE SALE over the above-stated
parcel of land and residential building, in favor of whomsoever the
FIRST PARTY may so desire, and be further obliged to turn over the
entire consideration of the said sale to the FIRST PARTY , or if the law
shall allow, the FIRST PARTY shall retain ownership of the said land,
as provided for in paragraph 7 below;
xxx
7. That if the cases referred to in paragraph 4 shall occur and in the
event that a future law shall be passed allowing foreigners to own real
properties in the Philippines, the ownership of the above-described
real properties shall pertain to the FIRST PARTY, and the herein
undersigned SECOND PARTY undertakes to execute all the
necessary deeds, documents, and contracts to effect the transfer of
title in favor of the FIRST PARTY;
x x x .10
Lastly, the SPA allowed Grilli to administer, manage, and transfer the house and
lot on behalf of Fullido. Initially, their relationship was harmonious, but it turned
sour after 16 years of living together. Both charged each other with infidelity. They
could not agree who should leave the common property, and Grilli sent formal
letters to Fullido demanding that she vacate the property, but these were
unheeded. On September 8, 2010, Grilli filed a complaint for unlawful detainer
with prayer for issuance of preliminary injunction against Fullido before the MCTC,
docketed as Civil Case No. 244.
Grilli’s Position
The complaint stated that the common-law relationship between Grilli and Fullido
began smoothly, until Grilli discovered that Fullido was pregnant when he arrived
in the Philippines in 2002. At first, she told him that the child she was carrying was
his. After the delivery of the child, however, it became apparent that the child was
not his because of the discrepancy between the child’s date of birth and his
physical presence in the Philippines and the difference between the baby’s
physical features and those of Grilli. Later on, she admitted that the child was
indeed sired by another man.
Grilli further claimed that he was so devastated that he decided to end their
common-law relationship. Nevertheless, he allowed Fullido to live in his house out
of liberality and generosity, but this time, using another room. He did not demand
any rent from Fullido over the use of his property.
After a year, Fullido became more hostile and difficult to handle. Grilli had to make
repairs with his house every time he arrived in the Philippines because she was
not maintaining it in good condition. Fullido also let her two children, siblings and
parents stay in his house, which caused damage to the property. He even lost his
personal belongings inside his house on several occasions. Grilli verbally asked
Fullido to move out of his house because they were not getting along anymore,
but she refused. He could no longer tolerate the hostile attitude shown to him by
Fullido and her family, thus, he filed the instant complaint.
Fullido’s Position
Fullido countered that she met Grilli sometime in 1993 when she was still 17 years
old working as a cashier in Alturas Supermarket. Grilli was then a tourist in Bohol
who persistently courted her.
At first, Fullido was hesitant to the advances of Grilli because she could not yet
enter into a valid marriage. When he assured her and her parents that they would
eventually be married in three years, she eventually agreed to have a relationship

with him and to live as common-law spouses. Sometime in 1995, Grilli offered to
build a house for her on a parcel of land she exclusively owned which would
become their conjugal abode. Fullido claimed that their relationship as common-
law spouses lasted for more than 18 years until she discovered that Grilli had
found a new and younger woman in his life. Grilli began to threaten and physically
hurt her by knocking her head and choking her.
When Fullido refused to leave their house even after the unlawful detainer case
was filed, Grilli again harassed, intimidated and threatened to hurt her and her
children. Thus, she filed a petition for Temporary Protection Order (TPO) and
Permanent Protection Order (PPO) against Grilli under Republic Act (R.A.) No.
9262 before the Regional Trial Court, Branch 3, Bohol (RTC-Branch 3). In an
Order,11 dated February 23, 2011, the RTC-Branch 3 granted the TPO in favor of
Fullido and directed that Grilli must be excluded from their home.
Fullido finally asserted that, although it was Grilli who funded the construction of
the house, she exclusively owned the lot and she contributed to the value of the
house by supervising its construction and maintaining their household.
The MCTC Ruling
In its decision, dated March 31, 2011, the MCTC dismissed the case after finding
that Fullido could not be ejected from their house and lot. The MCTC opined that
she was a co-owner of the house as she contributed to it by supervising its
construction. Moreover, the MCTC respected the TPO issued by RTC-Branch 3
which directed that Grilli be removed from Fullido’s residence. The dispositive
portion of the MCTC decision reads:
WHEREFORE, judgment is hereby rendered:
1. Dismissing the instant case;
2. Ordering the Plaintiff to pay to Defendant the amount of
Fifty Thousand Pesos (P50,000.00) as moral damages, and
Twenty Thousand Pesos (P20,000.00) as exemplary
damages, and Twenty Thousand Pesos (P20,000.00) as
Attorney’s Fees; and
3. Denying the prayer for the issuance of Preliminary
Mandatory Injunction.
SO ORDERED.12
Not in conformity, Grilli elevated the matter before the RTC.
The RTC Ruling
In its decision, dated April 26, 2012, the RTC reversed and set aside the MCTC
decision. The RTC was of the view that Grilli had the exclusive right to use and
possess the house and lot by virtue of the contract of lease executed by the
parties. Since the period of lease had not yet expired, Fullido, as lessor, had the
obligation to respect the peaceful and adequate enjoyment of the leased premises
by Grilli as lessee. The RTC opined that absent a judicial declaration of nullity of
the contract of lease, its terms and conditions were valid and binding. As to the
TPO, the RTC held that the same had no bearing in the present case which merely
involved the possession of the leased property.
Aggrieved, Fullido instituted an appeal before the CA alleging that her land was
unlawfully transferred by Grilli to a certain Jacqueline Guibone (Guibone), his new
girlfriend, by virtue of the SPA earlier executed by Fullido.
The CA Ruling
In its assailed decision, dated May 31, 2013, the CA upheld the decision of the
RTC emphasizing that in an ejectment case, the only issue to be resolved would
be the physical possession of the property. The CA was also of the view that as
Fullido executed both the MOA and the contract of lease, which gave Grilli the
possession and use of the house and lot, the same constituted as a judicial
admission that it was Grilli who had the better right of physical possession. The
CA stressed that, if Fullido would insist that the said documents were voidable as
her consent was vitiated, then she must institute a separate action for annulment
of contracts. Lastly, the CA stated that the TPO issued by the RTC-Branch 3
under Section 21 of R.A. No. 9262 was without prejudice to any other action that
might be filed by the parties.
125
Fullido filed a motion for reconsideration,13 but she failed to attach the proofs of
service of her motion. For said reason, it was denied by the CA in its assailed
resolution, dated September 24, 2014.
Hence, this present petition raising the following:
ISSUES
I
THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND
DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE IN DENYING
THE PETITION FOR REVIEW AND IN AFFIRMING THE DECISION OF RTC
BOHOL BRANCH 47 EJECTING PETITIONER FROM THE SUBJECT
PROPERTIES, WHICH EJECTMENT ORDER IS ANCHORED ON PATENTLY
NULL AND VOID CONTRACTS.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND
DEPARTED FROM ESTABLISHED LAW IN AFFIRMING THE DECISION OF
THE RTC BOHOL BRANCH 47 EJECTING PETITIONER FROM THEIR
CONJUGAL ABODE WHERE RESPONDENT HAS BEEN EARLIER
ORDERED TO VACATE BY VIRTUE OF A PERMANENT PROTECTION
ORDER THUS EFFECTIVELY SETTING ASIDE, NEGATING AND/OR
VIOLATING AN ORDER ISSUED BY A COURT OF CO-EQUAL
JURISDICTION.
III
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED AND
DEPARTED FROM ESTABLISHED LAW AND JURISPRUDENCE IN DENYING
THE PETITIONER’S MOTION FOR RECONSIDERATION, AMONG OTHERS,
FOR NONCOMPLIANCE WITH SECTION 1 RULE 52 VIS-À-VIS SECTION 13,
RULE 13 OF THE 1997 RULES OF CIVIL PROCEDURE.14
Fullido argues that she could not be ejected from her own lot based on the
contract of lease and the MOA because those documents were null and void for
being contrary to the Constitution, the law, public policy, morals and customs; that
the MOA prevented her from disposing or selling her own land, while the contract
of lease favoring Grilli, a foreigner, was contrary to the Constitution as it was a for
a period of fifty (50) years, and, upon termination, was automatically renewable
for another fifty (50) years; that the TPO, which became a PPO by virtue of the
July 5, 2011 Decision15 of RTC-Branch 3, should not be defeated by the ejectment
suit; and that the CA should have liberally applied its procedural rules and allowed
her motion for reconsideration.
In his Comment,16 Grilli countered that he was the rightful owner of the house
because a foreigner was not prohibited from owning residential buildings; that the
lot was no longer registered in the name of Fullido as it was transferred to
Guibone, covered by TCT No. 101-2011000335; that if Fullido wanted to assail
the lease contract, she should have first filed a separate action for annulment of
the said contract, which she did in Civil Case No. 8094, pending before the
Regional Trial Court of Bohol; and that by signing the contracts, Fullido fully
agreed with their terms and must abide by the same.
In her Reply,17 Fullido insisted that the contract of lease and the MOA were null
and void, thus, these could not be the source of Grilli’s de facto possession.
The Court’s Ruling
The Court finds the petition meritorious.
Unlawful detainer is an action to recover possession of real property from one
who unlawfully withholds possession thereof after the expiration or termination of
his right to hold possession under any contract, express or implied. The
possession of the defendant in unlawful detainer is originally legal but became
illegal due to the expiration or termination of the right to possess. The only issue
to be resolved in an unlawful detainer case is the physical or material possession
of the property involved, independent of any claim of ownership by any of the
parties.18
In this case, Fullido chiefly asserts that Grilli had no right to institute the action for
unlawful detainer because the lease contract and the MOA, which allegedly gave
him the right of possession over the lot, were null and void for violating the
Constitution. Contrary to the findings of the CA, Fullido was not only asserting
that the said contracts were merely voidable, but she was consistently

invoking that the same were completely void.19Grilli, on the other hand,
contends that Fullido could not question the validity of the said contracts in the
present ejectment suit unless she instituted a separate action for annulment of
contracts. Thus, the Court is confronted with the issue of whether a contract could
be declared void in a summary action of unlawful detainer.
Under the circumstances of the case, the Court answers in the affirmative.
A void contract cannot be the
source of any right; it cannot
be utilized in an ejectment suit
A void or inexistent contract may be defined as one which lacks, absolutely either
in fact or in law, one or some of the elements which are essential for its validity.20 It
is one which has no force and effect from the very beginning, as if it had never
been entered into; it produces no effect whatsoever either against or in favor of
anyone.21 Quod nullum est nullum producit effectum. Article 1409 of the New Civil
Code explicitly states that void contracts also cannot be ratified; neither can the
right to set up the defense of illegality be waived.22 Accordingly, there is no need
for an action to set aside a void or inexistent contract.23
A review of the relevant jurisprudence reveals that the Court did not hesitate to
set aside a void contract even in an action for unlawful detainer. In Spouses
Alcantara v. Nido,24 which involves an action for unlawful detainer, the petitioners
therein raised a defense that the subject land was already sold to them by the
agent of the owner. The Court rejected their defense and held that the contract of
sale was void because the agent did not have the written authority of the owner
to sell the subject land.
Similarly, in Roberts v. Papio,25 a case of unlawful detainer, the Court declared
that the defense of ownership by the respondent therein was untenable. The
contract of sale invoked by the latter was void because the agent did not have the
written authority of the owner. A void contract produces no effect either against or
in favor of anyone.
In Ballesteros v. Abion,26 which also involves an action for unlawful detainer, the
Court disallowed the defense of ownership of the respondent therein because the
seller in their contract of sale was not the owner of the subject property. For
lacking an object, the said contract of sale was void ab initio.
Clearly, contracts may be declared void even in a summary action for unlawful
detainer because, precisely, void contracts do not produce legal effect and cannot
be the source of any rights. To emphasize, void contracts may not be invoked as
a valid action or defense in any court proceeding, including an ejectment suit. The
next issue that must be resolved by the Court is whether the assailed lease
contract and MOA are null and void.
<>The lease contract and the
MOA circumvent the
constitutional restraint against
foreign ownership of lands.
Under Section 1 of Article XIII of the 1935 Constitution, natural resources shall
not be alienated, except with respect to public agricultural lands and in such
cases, the alienation is limited to Filipino citizens. Concomitantly, Section 5
thereof states that, save in cases of hereditary succession, no private agricultural
land shall be transferred or assigned except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain in the
Philippines. The prohibition on the transfer of lands to aliens was adopted in the
present 1987 Constitution, under Sections 2, 3 and 7 of Article XII thereof.
Agricultural lands, whether public or private, include residential, commercial and
industrial lands. The purpose of prohibiting the transfer of lands to foreigners is to
uphold the conservation of our national patrimony and ensure that agricultural
resources remain in the hands of Filipino citizens.27
The prohibition, however, is not limited to the sale of lands to foreigners. It also
covers leases of lands amounting to the transfer of all or substantially all the rights
of dominion. In the landmark case of Philippine Banking Corporation v. Lui
She,28 the Court struck down a lease contract of a parcel of land in favor of a
foreigner for a period of ninety-nine (99) years with an option to buy the land for
fifty (50) years. Where a scheme to circumvent the Constitutional prohibition
against the transfer of lands to aliens is readily revealed as the purpose for the
contracts, then the illicit purpose becomes the illegal cause rendering the
contracts void. Thus, if an alien is given not only a lease of, but also an option
to buy, a piece of land by virtue of which the Filipino owner cannot sell or
otherwise dispose of his property, this to last for 50 years, then it becomes
clear that the arrangement is a virtual transfer of ownership whereby the
owner divests himself in stages not only of the right to enjoy the land but also of
the right to dispose of it — rights which constitute ownership. If this can be done,
126
then the Constitutional ban against alien landholding in the Philippines, is indeed
in grave peril.29
In Llantino v. Co Liong Chong,30 however, the Court clarified that a lease contract
in favor of aliens for a reasonable period was valid as long as it did not have any
scheme to circumvent the constitutional prohibition, such as depriving the lessors
of their right to dispose of the land. The Court explained that "[a]liens are not
completely excluded by the Constitution from use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and share our fortune and
misfortune, Filipino citizenship is not impossible to acquire." 31 The lessee-
foreigner therein eventually acquired Filipino citizenship.
Consequently, Presidential Decree (P.D.) No. 471 was enacted to regulate the
lease of lands to aliens.1avvphi1 It provides that the maximum period allowable
for the duration of leases of private lands to aliens or alien-owned corporations,
associations, or entities not qualified to acquire private lands in the Philippines
shall be twenty-five (25) years, renewable for another period of twenty-five (25)
years upon mutual agreement of both lessor and lessee.32 It also provides
that any contract or agreement made or executed in violation thereof shall
be null and void ab initio.33
Based on the above-cited constitutional, legal and jurisprudential limitations, the
Court finds that the lease contract and the MOA in the present case are null and
void for virtually transferring the reigns of the land to a foreigner.
As can be gleaned from the contract, the lease in favor of Grilli was for a period
of fifty (50) years, automatically extended for another fifty (50) years upon the
expiration of the original period. Moreover, it strictly prohibited Fullido from selling,
donating, or encumbering her land to anyone without the written consent of Grilli.
For a measly consideration of P10,000.00, Grilli would be able to absolutely
occupy the land of Fullido for 100 years, and she is powerless to dispose the
same. The terms of lease practically deprived Fullido of her property rights and
effectively transferred the same to Grilli.
Worse, the dominion of Grilli over the land had been firmly cemented by the terms
of the MOA as it reinforced Grilli’s property rights over the land because, first, it
brazenly dictated that ownership of the land and the residential building resided
with him. Second, Fullido was expressly prohibited from transferring the same
without Grilli’s conformity. Third, Grilli would permanently reside in the residential
building. Fourth, Grilli may capriciously dispose Fullido’s property once their
common-law relationship is terminated. This right was recently exercised when
the land was transferred to Guibone. Lastly, Fullido shall be compelled to transfer
the land to Grilli if a law would be passed allowing foreigners to own real properties
in the Philippines.
Evidently, the lease contract and the MOA operated hand-in-hand to strip Fullido
of any dignified right over her own property. The term of lease for 100 years was
obviously in excess of the allowable periods under P.D. No. 471. Even Grilli
admitted that "this is a case of an otherwise valid contract of lease that went
beyond the period of what is legally permissible."34 Grilli had been empowered
to deprive Fullido of her land’s possession, control, disposition and even its
ownership. The jus possidendi, jus utendi, jus fruendi, jus abutendi and, more
importantly, the jus disponendi – the sum of rights which composes ownership –
of the property were effectively transferred to Grilli who would safely enjoy the
same for over a century. The title of Fullido over the land became an empty and
useless vessel, visible only in paper, and was only meant as a dummy to fulfill a
foreigner’s desire to own land within our soils. It is disturbing how these
documents were methodically formulated to circumvent the constitutional
prohibition against land ownership by foreigners. The said contracts attempted to
guise themselves as a lease, but a closer scrutiny of the same revealed that they
were intended to transfer the dominion of a land to a foreigner in violation of
Section 7, Article XII of the 1987 Constitution. Even if Fullido voluntary executed
the same, no amount of consent from the parties could legalize an
unconstitutional agreement. The lease contract and the MOA do not deserve an
iota of validity and must be rightfully struck down as null and void for being
repugnant to the fundamental law. These void documents cannot be the source
of rights and must be treated as mere scraps of paper.
Grilli does not have a
cause of action for
unlawful detainer
Ultimately, the complaint filed by Grilli was an action for unlawful detainer. Section
1 of Rule 70 of the Rules of Court lays down the requirements for filing a complaint
for unlawful detainer, to wit:
Who may institute proceedings, and when. – Subject to the provision of the next
succeeding section, a person deprived of the possession of any land or building
by force, intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or
 127

other person against whom the possession of any land or building is

unlawfully withheld after the expiration or termination of the right to hold
possession, by virtue of any contract, express or implied, or the legal
representatives or assigns of any such lessor, vendor, vendee, or other person,
may, at any time within one (1) year after such unlawful deprivation or withholding
of possession, bring an action in the proper Municipal Trial Court against the
person or persons unlawfully withholding or depriving of possession, or any
person or persons claiming under them, for the restitution of such possession,
together with damages and costs.

[Emphasis Supplied]

A complaint sufficiently alleges a cause of action for unlawful detainer if it recites

the following: (1) initially, possession of property by the defendant was by contract
with or by tolerance of the plaintiff; (2) eventually, such possession became illegal
upon notice by plaintiff to defendant of the termination of the latter’s right of
possession; (3) thereafter, the defendant remained in possession of the property
and deprived the plaintiff of the enjoyment thereof; and (4) within one year from
the last demand on defendant to vacate the property, the plaintiff instituted the
complaint for ejectment.35

The Court rules that Grilli has no cause of action for unlawful detainer against
Fullido. As can be gleaned from the discussion above, the complainant must
either be a lessor, vendor, vendee, or other person against whom the possession
of any land or building is unlawfully withheld. In other words, the complainant in
an unlawful detainer case must have some right of possession over the property.

In the case at bench, the lease contract and the MOA, from which Grilli
purportedly drew his right of possession, were found to be null and void for being
unconstitutional. A contract that violates the Constitution and the law is null and
void ab initio and vests no rights and creates no obligations. It produces no legal
effect at all.36 Hence, as void contracts could not be the source of rights, Grilli had
no possessory right over the subject land. A person who does not have any right
over a property from the beginning cannot eject another person possessing the
same. Consequently, Grilli’s complaint for unlawful detainer must be dismissed
for failure to prove his cause of action.

In Pari Delicto Doctrine

is not applicable

On a final note, the Court deems it proper to discuss the doctrine of in pari
delicto. Latin for "in equal fault," in pari delicto connotes that two or more people
are at fault or are guilty of a crime. Neither courts of law nor equity will interpose
to grant relief to the parties, when an illegal agreement has been made, and both
parties stand in pari delicto.37

The application of the doctrine of in pari delicto is not always rigid. An accepted
exception arises when its application contravenes well-established public policy.
In this jurisdiction, public policy has been defined as that principle of the law which
holds that no subject or citizen can lawfully do that which has a tendency to be
injurious to the public or against the public good.38 Thus, whenever public policy
is advanced by either party, they may be allowed to sue for relief against the
transaction.39

In the present case, both Grilli and Fullido were undoubtedly parties to a void
contract. Fullido, however, was not barred from filing the present petition before
the Court because the matters at hand involved an issue of public policy,
specifically the Constitutional prohibition against land ownership by aliens. As
pronounced in Philippine Banking Corporation v. Lui She, the said constitutional
provision would be defeated and its continued violation sanctioned if the lands
continue to remain in the hands of a foreigner.40 Thus, the doctrine of in pari
delicto shall not be applicable in this case.

WHEREFORE, the petition is GRANTED. The May 31, 2013 Decision of the
Court of Appeals and its September 24, 2014 Resolution in CA-G.R. CEB-SP No.
06946 are hereby REVERSED and SET ASIDE. The complaint filed by Gino Grilli
before the Municipal Circuit Trial Court, Dauis-Panglao, Dauis, Bohol, docketed
as Civil Case No. 244, is DISMISSED for lack of cause of action.

SO ORDERED.

G.R. No. 201070
LUZ S. NICOLAS, Petitioner
vs.
LEONORA C. MARIANO, Respondent
DECISION
DEL CASTILLO, J.:
When both parties are in pari delicto or in equal fault, none of them may expect
positive relief from the courts in the interpretation of their agreement; instead, they
shall be left as they were at the time the case was filed. This Petition for Review
on Certiorari1 assails the Court of Appeals' (CA) June 21, 2011 Decision2 and
March 1, 2012 Resolution3denying herein petitioner's Motion for Partial
Reconsideration4 in CA-G.R. CV No. 93532.
Factual Antecedents
The CA's summation of the facts is hereby adopted, thus:
The subject of the instant controversy is the one-half portion of a 155-square
meter parcel of land known as Lot 13-A, Block 40 located at 109 Kapayapaan
Street, Bagong Barrio, Caloocan City and covered by Transfer Certificate of Title
No. (TCT) No. C-44249. The parcel of land is part of the National Housing
Authority’s (NHA) Bagong Barrio Project and built thereon is plaintiff-appellee
Leonora Mariano’s5 five-unit apartment which she leases out to tenants.
In 1972, Leonora Mariano filed with the NHA Application No. 99-02-0323 for a
land grant under the Bagong Barrio Project. In 1978, the NHA approved the
Application, thus, her institution as grantee of the foregoing parcel of land. The
grant, however, is subject to a mortgage inscribed as Entry No. 98464/C-
39393 on the dorsal side of TCT No. C-44249, viz[.]:
--- NATIONAL HOUSING AUTHORITY –
TO GUARANTEE A PRINCIPAL X X X (illegible) IN THE SUM OF ₱36,036.10
PAYABLE WITHIN TWENTY FIVE (25) YEARS WITH ANNUAL INTEREST OF
TWELVE (12%) PERCENT UNTIL FULLY PAID IN THREE HUNDRED (300)
EQUAL MONTHLY INSTALLMENTS.x x x
DATE OF INSTRUMENT – Feb. 12, 1981
DATE OF INSCRIPTION – May 8, 1981
and further subject to a proviso, proscribing any transfer or encumbrance of said
parcel of land, viz[.]:
"EXCEPT BY HEREDITARY SUCCESSION, THE HEREIN LOT OR ANY PART
THEREOF CANNOT BE x x x (illegible), TRANSFERRED, OR ENCUMBERED
WITHIN FIVE (5) YEARS FROM THE DATE OF RELEASE OF THE MORTGAGE
INSCRIBED AT THE BACK HEREOF WITHOUT PRIOR WRITTEN CONSENT
AND AUTHORITY FROM THE NATIONAL HOUSING AUTHORITY."
Accordingly, the NHA withheld conveyance of the original TCT No. C-44249 to
Leonora Mariano, furnishing her instead a photocopy thereof as the issuance of
the original TCT in her name is conditioned upon her full payment of the mortgage
loan. Leonora Mariano’s last payment was in February 1999. The NHA’s
Statement of Account indicates that as of September 30, 2004, Leonora Mariano’s
outstanding obligation amounted to ₱37,679.70. Said obligation remained unpaid.
On January 28, 1998, Leonora Mariano obtained a ₱100,000.00 loan from
defendant-appellant Luz Nicolas6 with a payment term of ten (10) months at the
monthly interest rate of 7%. To secure the loan, she executed a Mortgage
Contract over the subject property, comprising the one-half portion of the parcel
of land.
On February 22, 1999, Leonora Mariano, having defaulted in the payment of her
obligation, executed in favor of Luz Nicolas a second mortgage deed
denominated as Sanglaan ng Lupa at Bahay, this time mortgaging the subject
property and the improvements thereon for a consideration of P552,000.00
inclusive of the original loan of P100,000.00. The Sanglaan ng Lupa at Bahay
provides for a payment term of one (1) year and contains the following
stipulations:
128
xxx xxx xxx
1. Na kung sakali at mabayaran ng UNANG PANIG ang IKALAWANG PANIG o
ang kahalili nito ang nabanggit na pagkakautang na halagang Limang Daan
Limamput Dalawang Libong Piso (P552,000.00), salaping Pilipino, kasama ang
interes o tubo, sa loob ng taning na panahon, ay mawalan ng bisa at saysay ang
SANGLAANG ito;
2. Na kapag hindi nabayaran ng UNANG PANIG sa IKALAWANG PANIG ang
buong halagang pagkakautang na nabanggit sa itaas, ay ituturing ng
ma[g]kabilang panig na ang lupa at bahay na nakasangla ay nabili at
pagmamayari na ng IKALAWANG PANIG at sumasang-ayon ang UNANG
PANIG na magsagawa ng kaukulang Kasulatan ng Bilihan na wala nang
karagdagang bayad o halagang ibinibigay sa nagsangla.
xxx xxx xxx
On June 7, 2000, Leonora Mariano, similarly defaulting on the second obligation,
executed a deed of Absolute Sale of Real Property, conveying to Luz Nicolas the
ownership of the subject property and the improvements thereon for a purchase
price of ₱600,000.00. A document denominated Pagtanggap ng Kabuang
Halaga, executed before Punong Barangay Crispin C. Peña, Sr. attested to the
full payment of the ₱600,000.00 to Leonora Mariano. It appears that from June
1999, the tenants of Leonora Mariano’s five-unit apartment have been remitting
monthly rentals to Luz Nicolas in the amount of ₱2,000.00, or ₱10,000.00 in the
aggregate. From said period until June 2004, Luz Nicolas’ rental collection
amounted to ₱600,000.00.7 (Emphasis in the original)
Ruling of the Regional Trial Court
On July 8, 2004, Leonora C. Mariano (Mariano) sued Luz S. Nicolas (Nicolas)
before the Regional Trial Court of Caloocan City (RTC). In her Amended
Complaint8 for "Specific Performance with Damages and with Prayer for the
Issuance of a Temporary Restraining Order and thereafter a Permanent
Mandatory Injunction" before RTC Branch 121, Mariano sought to be released
from the second mortgage agreement and stop Nicolas from further collecting
upon her credit through the rentals from her apartments, claiming that she has
fully paid her debt. In addition, she prayed for other actual damages, moral
damages, attorney’s fees, and injunctive relief.
In her Answer,9 Nicolas denied that she collected rentals from Mariano’s
apartments; that Mariano’s debt remained unpaid; that the subject property and
the improvements thereon were later sold to her via a deed of absolute sale
executed by Mariano which, however, did not bear the written consent of the
latter’s husband; and that as a result of the sale, she obtained the right to collect
the rentals from the apartment tenants. Nicolas thus prayed that Mariano be
ordered to surrender the title to the subject property to her, and to pay her moral
and exemplary damages and costs.
After trial, the trial court issued its Decision10 in Civil Case No. C-20937 dated
August 26, 2009, decreeing as follows:
The Court is inclined to believe that what had been entered into by and between
the parties was a mere contract of mortgage of real property and not a sale of real
property.
The Court could not uphold the validity of the Deed of Absolute Sale of Real
Property dated June 7, 2000 because it is tainted with flaws and defects. There
is no evidence that the parties have given their consent thereto. A careful scrutiny
of the document will readily show that at the time of the execution thereof there
was no consideration for the sale of the property. The alleged vendor, plaintiff
herein, made it appear that she received the sum of Php600,000.00 in full and in
her complete satisfaction from the alleged vendee, herein defendant. The lack of
consideration was likewise bolstered by the defendant’s production of the
handwritten memorandum or note of the various amounts allegedly received by
the aforesaid defendant from the plaintiff on different occasions. It is important to
stress, however, that even admitting arguendo that several amounts were
received by the plaintiff from the defendant, there has not been any indication that
the same were intended as consideration for the sale of the property in question.
x x x It has been observed also that the alleged payments occurred long after the
execution of the Deed of Sale, or a span of four (4) months to be more exact. No
less than the barangay captain had categorically declared that he did not see that
the defendant even handed over the amount of Php600,000.00 to the plaintiff.
Moreover, a scrutiny of the aforesaid fictitious Deed of Absolute Sale of Real
Property will readily show that it did not even specifically described [sic] the
subject-matter of the alleged sale.
There are two sets of mortgage contracts executed by the parties herein. One in
the amount of Php100,000.00 with an interest of 7% payable in ten (10) month

period and the other one in a jacked up price of Php552,000.00 payable within a
period of one (1) year from its execution. The plaintiff’s contention that the unpaid
obligation in the amount of Php100,000.00 has already been consolidated to the
jacked up amount of Php552,000.00 is tenable. Anent the claim of the defendant
that the plaintiff never paid her, such alleged failure however could not be
attributed to the fault of the plaintiff considering that the latter had been tendering
her payments not only once but for several times and it was the defendant who
refused to accept the payments for various reasons. It is crystal clear that the
defendant’s refusal to accept the payments which were tendered by the plaintiff
was nothing but a malicious scheme devised by the defendant to make the
plaintiff’s obligation ballooned [sic] to Php552,000.00, which would make it more
difficult for the plaintiff to pay the increased amount of Php552,000.00 in lump
sum. The actuations displayed by the defendant is indeed a downright
manifestation of bad faith on her part in her desire to own the property belonging
to herein plaintiff, which is in brazen violation of Article 19 of the Civil Code, which
provides among others that ‘Every person must in the exercise of his right and in
the performance of his duties act with justice, give everyone his due and observe
honesty and good faith.’ Be that as it may, the plaintiff, despite her vigorous
protestation to the jacked up amount of Php552,000.00 had agreed to sign the
second mortgage denominated as ‘Sanglaan Ng Bahay At Lupa’ payable within
a period of one (1) year. Apparently, the defendant’s consuming aspiration to push
the plaintiff against the wall, had even accentuated when she demanded payment
of the aforestated sum from the herein plaintiff even before its maturity.
It is important to stress however, that in plaintiff’s sincere desire to settle her
obligation, upon request of the defendant, had even executed a Special Power of
Attorney in favor of the latter, authorizing the aforesaid defendant to collect the
rentals from the five-door apartment belonging to the plaintiff, which commenced
from June 1999 up to June 2004. Although the defendant assured the plaintiff that
the payments by way of rentals would be applied to the indebtedness of the
plaintiff, such verbal agreement was never reduced in writing in view of the trust
and confidence reposed by the plaintiff upon the defendant.
In sum, the defendant was able to collect the total amount of Php612,000.00 from
the tenants of the plaintiff, which evidently tremendously exceeded the amount of
the alleged indebtedness of the plaintiff to the defendant in the increased amount
of Php552,000.00.
xxx xxx xxx
There is no doubt that the plaintiff has suffered mental anguish and injury due to
the wrongful act done by the defendant against the plaintiff. Hence, the latter is
entitled to an award of moral damages inasmuch as the sufferings and injuries
suffered by the plaintiff are the proximate result of the defendant’s wrongful act or
omission (Art. 2217, Civil Code of the Philippines). However, the amount of moral
damages suffered by the plaintiff in the amount of Php400,000.00 is
unconscionable which must have to be reduced by the court.
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendant by:
1. Ordering the cancellation of the two (2) mortgages denominated as
Mortgage Contract and the Sanglaan Ng Lupa At Bahay, thus
releasing the plaintiff from her obligation relative thereto;
2. Ordering the defendant, to stop collecting further monthly rentals on
the five-door apartment belonging to the plaintiff from the tenants of
the latter; and,
3. To pay moral damages in the amount of Php100,000.00, and,
4. To pay the costs of suit.
SO ORDERED.11
Ruling of the Court of Appeals
Nicolas filed an appeal before the CA, docketed as CA-G.R. CV No. 93532. In its
assailed June 21, 2011 Decision, however, the CA ruled against Nicolas, stating
thus:
Aggrieved, Luz Nicolas interposed this appeal, raising the following assignment
of errors:
I collect rentals.
129
THE TRIAL COURT ERRED IN DECLARING THE DEED OF SALE AS NULL
AND VOID FOR LACK OF CONSIDERATION;
II
THE TRIAL COURT ERRED IN RELEASING THE APPELLEE FROM HER
OBLIGATION TO THE APPELLANT AND CANCELING THE TWO
MORTGAGES; [and]
III
THE TRIAL COURT ERRED IN AWARDING THE APPELLEE MORAL
DAMAGES AND COST OF SUIT.
The pivotal issue in this appeal is whether x x x the RTC committed reversible
error in (1) declaring the Absolute Sale of Real Property invalid, (2) cancelling the
Mortgage Contract and Sanglaan ng Lupa at Bahay, and (3) awarding moral
damages to Leonora Mariano.
xxxx
Luz Nicolas maintains that the Absolute Sale of Real Property is valid on the
grounds: (1) that the same is Leonora Mariano’s free and voluntary act in
settlement of her mortgage liability of ₱552,000.00; (2) it pertains to the subject
property for the valid consideration of ₱600,000.00, ₱552,000.00 of which
Leonora Mariano had already received by way of the mortgage debt; and (3) that
the Pagtanggap ng Kabuuang Halaga is conclusive evidence of Leonora
Mariano’s full receipt of the ₱600,000.00. She further avers that the RTC erred in
declaring Leonora Mariano’s release from liability on the basis of the purported
special power of attorney, contending that the special power was never formally
offered in evidence and that assuming arguendo it exists, the Absolute Sale of
Real Property superseded the same, making her rental collection one in the
concept of an owner. She finally theorizes that the Absolute Sale of Real Property
novated the mortgage contracts because it converted Leonora Mariano’s
mortgage obligation of ₱552,000.00 into partial consideration for the subject
property and that it is Leonora Mariano who is instead liable for moral damages,
having maliciously filed the fraudulent complaint against her who entered into the
foregoing contracts in good faith.
For her part, Leonora Mariano, reiterates the grounds raised in her Motion to
Dismiss Notice to Appeal by Expunging and further avers the appeal is
procedurally infirm for non-compliance with Sections 5 and 6, Rule 41 of the Rules
of Court. She maintains the propriety of the RTC’s Decision, stressing that being
the trial court’s factual conclusion, the same must be accorded great respect
x x x.
The appeal is partly meritorious.
xxxx
As regards the merits of this appeal, we are one with the RTC in declaring the
Absolute Sale of Real Property invalid, but we cannot uphold that the invalidity
thereof due to lack of the essential requisites of consent, object, and
consideration. Indeed, the Absolute Sale of Real Property contains all the
foregoing requisites and nothing in the records proves, or at least suggests, that
the same was executed through fraud or under duress. Hence, by no stretch of
the imagination can we sustain the RTC’s declaration of invalidity on said ground.
We declare the Absolute Sale of Real Property is invalid on the ground that
Leonora Mariano, the supposed vendor of the subject property, is not the owner
thereof. For a sale to be valid, it is imperative that the vendor is the owner of the
property sold. The records show that Leonora Mariano, to debunk Luz Nicolas’
claim of ownership of the subject property, openly admitted that she has not fully
paid the grant thereof to the NHA. Leonora Mariano, as mere grantee of the
subject property who failed to fulfil the conditions of the grant, never acquired
ownership thereof, hence, was without any right to dispose or alienate the same.
"Nemo dat quod non habet." One cannot give what he does not own. Hence, not
being the owner of the subject property, Leonora Mariano could have not
transferred the ownership thereof to Luz Nicolas.12
Furthermore, the Absolute Sale of Real Property is a clear violation of the express
proviso, prohibiting "any transfer or encumbrance of subject property within five
(5)-years from the release of the mortgage." Said violation rendered the Absolute
Sale void ab initio, thus, the Republic’s retention of ownership over the subject
property.13 A buyer acquires no better title to the property sold than the seller had.
Necessarily, Luz Nicolas cannot invoke the Absolute Sale as basis of her right to

Leonora Mariano, being not the owner of the subject property, we declare that
both the Mortgage Contract and the Sanglaan ng Lupa at Bahay she executed
are void ab initio. For a person to validly constitute a mortgage on real estate, he
must be the absolute owner of the property mortgaged as required by Article 2085
of the New Civil Code. Otherwise stated, the mortgagor must be the owner of the
property subject of the mortgage; otherwise, the mortgage is void.
Thus, having declared the Absolute Sale of Real Property and the two mortgages,
i.e. the Mortgage Contract and the Sanglaan ng Lupa at Bahay, void, all rights
and obligations created thereunder are effectively obliterated and rendered
ineffective. Luz Nicolas’ supposed ownership of the subject property and her right
to collect rentals on Leonora Mariano’s five-unit apartment, on the one hand, and
the latter’s mortgage debt of ₱552,000.00, on the other hand, are necessarily
void, hence, without force and effect. A void contract is equivalent to nothing; it
produces no civil effect. It does not create, modify, or extinguish a juridical
relation. Parties to a void agreement cannot expect the aid of the law. The courts
leave them as they are, because they are deemed in pari delicto or in equal fault.
It follows, therefore, that the award of moral damages must also be vacated. The
rule is no damages may be recovered on the basis of a void contract since being
inexistent, it produces no juridical tie between the parties involved.
WHEREFORE, the appeal is PARTLY GRANTED. The assailed Decision dated
August 26, 2009 of the RTC, Branch 121, Caloocan City, in Civil Case No. C-
20937 is AFFIRMED with MODIFICATION, deleting the award of moral damages
of P100,000.00 to Leonora Mariano.
SO ORDERED.14
Nicolas moved to reconsider, but in its assailed March 1, 2012 Resolution, the CA
held its ground. Hence, the present Petition.
On May 8, 2012, Mariano filed a Motion for Execution Pending Appeal.15 In a
November 13, 2013 Resolution,16 this Court resolved to give due course to the
instant Petition.
On November 5, 2014, Mariano filed a Motion for Urgent Execution Pendente
Lite, 17 which the Court noted in a February 2, 2015 Resolution.18
Issues
Nicolas submits that –
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN APPLYING
THE RULINGS IN HEIRS OF SALVADOR HERMOSILLA VS. REMOQUILLO
(513 SCRA 409-410) AND MAGOYAG VS. MARUHOM (626 SCRA 247, 257
[2010]) WHICH ARE INAPPLICABLE TO THE CASE AT BAR SINCE
RESPONDENT LEONORA C. MARIANO ALIENATED THE SAID PROPERTY
WHEN SHE WAS THE ABSOLUTE OWNER OF THE PROPERTY.
a) THE TRANSFER CERTIFICATE OF TITLE ISSUED IN FAVOR OF
RESPONDENT MARIANO IS AN EVIDENCE OF HER OWNERSHIP
OVER THE SUBJECT PROPERTY.
b) ARTICLE 1477 OF THE NEW CIVIL CODE BOLSTERS
RESPONDENT’S OWNERSHIP OVER THE SUBJECT PROPERTY
WHICH NECESSARILY CAPACITATES HER TO ALIENATE THE
SAID PROPERTY IN FAVOR OF PETITIONER.
II.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN HOLDING
THAT RESPONDENT WAS NOT THE ABSOLUTE OWNER AT THE TIME THE
DEED OF ABSOLUTE SALE WAS EXECUTED.
III.
THE PROVISO IN THE TRANSFER CERTIFICATE OF TITLE THAT PROHIBITS
APPELLEE LEONORA C. MARIANO TO TRANSFER OR ENCUMBER THE
SUBJECT PROPERTY IS A STIPULATION CONTRARY TO LAW SINCE THE
SAID PROVISO YIELDS TO R.A. 6552 (AN ACT TO PROVIDE PROTECTION
TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS [MACEDA
LAW]).
IV.
130
THE DEED OF SALE OVER THE SUBJECT PROPERTY BETWEEN THE
PARTIES IS VALID AND BINDING.19
Arguments of Nicolas
Praying that the assailed CA dispositions be reversed and set aside, Nicolas
argues in her Petition that the CA seriously erred in affirming the cancellation of
the mortgage contracts and invalidating the parties’ deed of sale, since, as the
registered owner of the subject property under Transfer Certificate of Title (TCT)
No. C-44249, Mariano had every right to mortgage and sell the same to her; that
while the National Housing Authority (NHA) withheld the original copy of TCT No.
C-44249 and merely gave a photocopy thereof to Mariano pending full payment
of the installments, this does not detract from the fact that Mariano is the owner
of the subject property; that while there is a proviso in TCT No. C-44249 to the
effect that Mariano may not transfer or encumber the subject property within five
years from the date of release of the mortgage without the NHA’s prior written
consent and authority, this condition is null and void as it unduly restricts
Mariano’s rights as owner of the subject property; that Republic Act No. 6552
should instead apply in Mariano’s case, which involves an installment sale of real
property; and that consequently, the mortgages and deed of sale executed by and
between the parties should be upheld for being in accordance with law, supported
by adequate consideration, and in furtherance of the intentions of the parties
thereto.
Arguments of Mariano
In her Comments and Opposition to the Petition for Review, 20 Mariano fully
agrees with the pronouncements of the CA, except that she believes that she
must be awarded moral damages as prayed for and proved during trial. She
admits that even if TCT No. C-44249 was issued in her name, she is not the owner
of the subject property since she has not fully paid the installments to the NHA;
this being so, she concedes that she had no right to mortgage and sell the same
to Nicolas. She adds that TCT No. C-44249 constitutes mere evidence of title,
and does not vest title itself, to the subject property. Thus, she prays for
affirmance with modification, in that she be awarded the amounts of ₱960,000.00
as reimbursement for Nicolas’s excess rental collections; ₱500,000.00 additional
actual damages; ₱1,000,000.00 moral damages; ₱400,000.00 attorney’s fees;
and costs of suit.
Our Ruling
The Petition must be denied.
While title to TCT No. C-44249 is in the name of Mariano, she has not completed
her installment payments to NHA; this fact is not disputed, and as a matter of fact,
Mariano admits it. Indeed, Mariano even goes so far as to concede, in her
Comments and Opposition to the Petition, that she is not the owner of the subject
property.21 Thus, if she never became the owner of the subject property, then she
could not validly mortgage and sell the same to Nicolas. The principle nemo dat
quod non habet certainly applies.
x x x By title, the law refers to ownership which is represented by that document.
Petitioner apparently confuses certificate with title. Placing a parcel of land
under the mantle of the Torrens system does not mean that ownership thereof
can no longer be disputed. Ownership is different from a certificate of title.
The TCT is only the best proof of ownership of a piece of land. Besides, the
certificate cannot always be considered as conclusive evidence of ownership. x x
x22 (Emphasis supplied)
Indeed, the Torrens system of land registration "merely confirms ownership and
does not create it. It cannot be used to divest lawful owners of their title for the
purpose of transferring it to another one who has not acquired it by any of the
modes allowed or recognized by law."23
Nicolas is charged with knowledge of the circumstances surrounding the subject
property. The original owner’s copy of TCT No. C-44249 is not in Mariano’s
possession, and the latter could only present a photocopy thereof to her. Before
one could part with his money as mortgagee or buyer of real property, it is only
natural to demand to be presented with the original owner’s copy of the certificate
of title covering the same. Secondly, Entry No. 98464/C-39393 on the dorsal side
of TCT No. C-44249 constitutes sufficient warning as to the subject property’s
condition at the time. In other words, TCT No. C-44249 was not a clean title, and
if Nicolas exercised diligence, she would have discovered that Mariano was
delinquent in her installment payments to the NHA, which in turn would have
generated the necessary conclusion that the property belonged to the said
government agency.
For her part, Mariano cannot recover damages on account of her claimed losses
arising from her entering into contract with Nicolas.1âwphi1 Realizing that she is
 131

not the owner of the subject property and knowing that she has not fully paid the
price therefor, she is as guilty as Nicolas for knowingly mortgaging and thereafter
selling what is not hers. As correctly held by the CA, both parties herein are not
in good faith; they are deemed in pari delicto or in equal fault, and for this,
"[n]either one may expect positive relief from courts of justice in the interpretation
of their contract. The courts will leave them as they were at the time the case was
filed."24 Besides, if Mariano’s prayer for damages were to be considered at all,
she should have directly assailed the CA’s pronouncement by filing her own
petition before this Court, which she failed to do

With the foregoing pronouncement, the Court finds no need to tackle the other
issues raised by the parties. They have become irrelevant in light of the view taken
of the case. Consequently, Mariano’s Motion for Execution Pending Appeal and
Motion for Urgent Execution Pendente Lite require no further resolution.

WHEREFORE, the Petition is DENIED. The June 21, 2011 Decision and March
1, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 93532
are AFFIRMED.

SO ORDERED.
 132

SECOND DIVISION It appears that when Taina's then common-law husband, Michael (Mike) Stone,
visited Bohol sometime in December 1985, he fell in love with the place and
decided to buy a portion of the beach lot in Doljo, Panglao, Bohol. They met with
G.R. No. 195975, September 05, 2016 Col. Tecson, and the latter agreed to sell them a portion of the beach lot for
US$8,805.00. Mike and Taina made an initial downpayment of US$1,750.00 (or
TAINA MANIGQUE-STONE, Petitioner, v. CATTLEYA LAND, INC., AND equivalent P35,000.00 at that time) for a portion of a beach lot, but did not ask for
SPOUSES TROADIO B. TECSON AND ASUNCION ORTALIZ- a receipt for this initial downpayment. On June 1, 1987, a Deed of Absolute Sale
TECSON, Respondents. covering the subject portion was executed by Col. Tecson in Taina's favor.
Subsequent payments were made by Mike totalling P40,000.00, as of August 29,
1986, although another payment of P5,000.00 was made sometime in August
DECISION 1987. The last payment in the amount of P32,000.00, was made in September
1987.10 In 1990, Troadio Tecson, Jr., the son of Col. Tecson and Taina's brother-
in-law, delivered to Taina the owner's copy of TCT No. 17655.11
DEL CASTILLO, J.:

In the meantime, in October 1986, Taina and Mike got married.

The sale of Philippine land to an alien or foreigner, even if titled in the name of his
Filipino spouse, violates the Constitution and is thus, void.
On April 25, 1994, Taina filed a Notice of Adverse Claim covering the subject
portion, after she learned that Col. Tecson and his lawyer had filed a petition for
Assailed in this Petition for Review on Certiorari1
are the August 16, 2010
the issuance of a second owner's copy over TCT No. 17655.12
Decision2 of the Court of Appeals (CA) which dismissed the appeal by Taina
Manigque-Stone (Taina) in CA-G.R. CV No. 02352, and its February 22, 2011
Resolution,3 which denied Taina's motion for reconsideration4 thereon. On February 8, 1995, Taina sought to have her Deed of Absolute Sale registered
with the Office of the Register of Deeds of Bohol, and on that occasion presented
the owner's copy of TCT No. 17655. Taina also caused a Memorandum of
Factual Antecedents
Encumbrance to be annotated on this certificate of title. The result was that on
February 10, 1995, a new certificate of title, TCT No. 21771, was issued in the
Sometime in July 1992, Cattleya Land, Inc. (Cattleya) sent its legal counsel, Atty. name of Taina, in lieu of TCT No. 17655, in the name of the Tecson
Federico C. Cabilao, Jr. (Atty. Cabilao, Jr.), to Tagbilaran City to investigate at the spouses.13 The subject property is described in TCT No. 21771 as follows:
Office of the Register of Deeds in that city the status of the properties of spouses
Col. Troadio B. Tecson (Col. Tecson) and Asuncion Tecson (collectively, Tecson
A parcel of Land (Lot 5 of the consolidation-subdivision plan Pcs-07-000907,
spouses), which Cattleya wanted to purchase. One of these properties, an 8,805-
being a portion of lots I-A and I-B, Psd-07-02-12550, LRC. Rec. No. ___), situated
square meter parcel of land located at Doljo, Panglao, Bohol, is registered in the
in the Barrio of Doljo, Municipality of Panglao, Province of Bohol, Island of Bohol.
name of the Tecson spouses, and covered by Transfer Certificate of Title (TCT)
Bounded on the North, along lines 15-16-1 by Bohol Strait; on the East and
No. 17655 (henceforth, the subject property). Atty. Cabilao, Jr. found that no
Southeast, along line 1-2 by Lot 4 of the consolidation-subdividion plan; along line
encumbrances or liens on the subject property had been annotated on the TCT
3-4 by Primitivo Hora; and along line 4-5 by Lot 6 of the consolidation-subdivision
thereof, except for an attachment issued in connection with Civil Case No. 3399
plan; on the South and Southwest, along line 5-6-7-8 by Andres Guimalan; along
entitled "Tantrade Corporation vs. Bohol Resort Hotel, Inc., et al."5
line 8-9 by [Bienvenido] Biosino; along lines 9-10-11-12-13-14 by Angel Hora; and
on the West, along lines 14-15 by Lot 7 of the consolidation-subdivision plan.
On November 6, 1992, Cattleya entered into a Contract of Conditional Sale with Beginning at a point marked "1" on plan, being S. 83 deg. 08'E., 1045.79 m. from
the Tecson spouses covering nine parcels of land, including the subject property. triangulation point TIP, USCGS, 1908, Doljo, Panglao, Bohol; containing an area
In this transaction the Tecson spouses were represented by Atty. Salvador S. of EIGHT THOUSAND EIGHT HUNDRED AND FIVE (8,805) SQUARE
Pizarras (Atty. Pizarras). The Contract of Conditional Sale was entered in the METERS, more or less.14
Primary Book of the Office of the Register of Deeds of Bohol that same day, per
Entry No. 83422. On August 30, 1993, the parties executed a Deed of Absolute
Whereupon, Cattleya instituted against Taina a civil action for quieting of title
Sale covering the subject property. This Deed of Absolute Sale was also entered
and/or recovery of ownership and cancellation of title with damages.15 Docketed
in the Primary Book on October 4, 1993, per Entry No. 87549. However, neither
as Civil Case No. 5782 of the Regional Trial Court (RTC) of Bohol at Tagbilaran
the Contract of Conditional Sale nor the Deed of Absolute Sale could be
City, Cattleya therein initially impleaded Atty. De la Serna as party defendant; but
annotated on the certificate of title covering the subject property because the then
as the latter had already retired as Register of Deeds of Bohol, both parties
Register of Deeds of Bohol, Atty. Narciso S. De la Serna (Atty. De la Serna)
agreed to drop his name from the case.16
refused to annotate both deeds. According to Atty. De la Serna it was improper to
do so because of the writ of attachment that was annotated on the certificate of
title of the subject property, in connection with the said Civil Case No. 3399.6 Taina likewise filed a motion for leave to admit a third-party complaint against the
Tecson spouses; this motion was granted by the RTC.17
On December 1, 1993, Atty. Cabilao, Jr. and Atty. Pizarras, in representation of
their respective clients, again requested Atty. De la Serna to annotate the Deed After due proceedings, the RTC of Bohol gave judgment18 for Cattleya, thus:
of Absolute Sale and all other pertinent documents on the original certificate of
title covering the subject property. But Atty. De la Serna refused anew – this time
saying that he would accede to the request only if he was presented with a court WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor
order to that effect. Atty. De la Serna still refused the request to annotate, even of the plaintiff and against the defendant in the main case as follows:
after Atty. Cabilao, Jr. had told him that all that he (Atty. Cabilao, Jr.) was asking
was for the Deed of Absolute Sale to be annotated on the original certificate of 1. Quieting the title or ownership of the plaintiff in Lot 5 by declaring the sale in its
title, and not for Atty. De la Serna to issue a new transfer of title to the subject favor as valid and enforceable by virtue of a prior registration of the sale in
property.7 accordance with the provisions of Presidential Decree No. 1529 otherwise known
as the Property Registration Decree;
The writ of attachment on the certificate of title to the subject property was,
however, lifted, after the parties in Civil Case No. 3399 reached an amicable 2. Ordering the cancellation of Transfer Certificate of Title No. 21771 in the name
settlement or compromise agreement. Even then, however, Cattleya did not still of defendant TAINA MANIGQUE-STONE and the issuance of a new title in favor
succeed in having the aforementioned Deed of Absolute Sale registered, and in of the plaintiff after payment of the required fees; and
having title to the subject property transferred to its name, because it could not
surrender the owner's copy of TCT No. 17655, which was in possession of the
Tecson spouses. According to Cattleya, the Tecson spouses could not deliver 3. Ordering the defendant to desist from claiming ownership and possession
TCT No. 17655 to it, because according to the Tecson spouses this certificate of thereof. Without pronouncement as to costs.
title had been destroyed in a fire which broke out in Sierra Bullones, Bohol.8
As to defendant's third[-]party complaint against spouses x x x Tecson[,] x x x
This claim by the Tecson spouses turned out to be false, however, because Atty. judgment is hereby rendered as follows:
Cabilao, Jr. came to know, while following up the registration of the August 30,
1993 Deed of Absolute Sale at the Office of the Register of Deeds of Bohol, that
the owner's copy of TCT No. 17655 had in fact been presented by Taina at the 1. Ordering the return of the total amount of Seventy-seven Thousand
Office of the Register of Deeds of Bohol, along with the Deed of Sale that was (P77,000.00) Pesos to the third[-]party plaintiff with legal rate of interest from the
executed by the Tecson spouses, in favor of Taina covering the subject property.9 time of the filing of the third[-]party complaint on June 28, 2004 until the time the
same shall have been fully satisfied; and
 133

2. Ordering the payment of P50,000.00 by way of moral and exemplary damages
and x x x of attorney's fees in the amount of P30,000.00 and to pay the costs.
SO ORDERED.19
2. Ordering third-party defendants-appellees, spouses TROADIO B. TECSON
and ASUNCION ORTALIZ TECSON [to pay] P50,000.00 to the defendant-
appellant, TAINA MANIGQUE-STONE by way of moral and exemplary damages
and [to pay] attorney's fees in the amount of P30,000.00 x x x.

In finding for Cattleya, the RTC held that the sale entered by the Tecson spouses
with Cattleya and with Taina involving one and the same property was a double
sale, and that Cattleya had a superior right to the lot covered thereby, because
Cattleya was the first to register the sale in its favor in good faith; that although at
the time of the sale the TCT covering the subject property could not yet be issued,
and the deed of sale could not be annotated thereon due to a pending case
between the vendors-spouses (Tecson spouses) and Tantrade, Inc., the evidence
convincingly showed nonetheless that it was Cattleya that was the first to register
the sale in its favor with the Office of the Provincial Registry of Deeds of Bohol on
October 4, [1993] as shown in Entry No. 87549.20 Furthermore, the RTC found
that Cattleya had no notice, nor was it aware, of Taina's claim to the subject
property, and that the only impediment it (Cattleya) was aware of was the pending
case (Civil Case No. 3399) between Tantrade Corporation and Bohol Resort
Hotel, Inc.21
No pronouncement as to cost.
SO ORDERED.26
In support of its Decision, the CA ratiocinated —
Article 1498 of the Civil Code provides that, as a rule, the execution of a notarized
deed of sale is equivalent to the delivery of a thing sold. In this case, the
notarization of the deed of sale of TAINA is defective. TAINA testified that the
deed of sale was executed and signed by Col. Troadio Tecson in Bohol but was
notarized in Manila without the vendors appearing personally before the notary
public.

On the other hand, the RTC found Taina's position untenable because: First, the
June 1, 1987 sale between Col. Tecson and Mike, Taina's then common-law
husband, was a patent nullity, an absolutely null and void sale, because under
the Philippine Constitution a foreigner or alien cannot acquire real property in the
Philippines. Second, at the time of the sale, Taina was only Mike's dummy, and
their subsequent marriage did not validate or legitimize the constitutionally
proscribed sale earlier made in Mike's favor. And third, no less than Taina herself
admitted that at the time she caused the sale to be registered and title thereto
issued to her, she knew or was otherwise aware that the very same lot had already
been sold to Cattleya, or at least claimed by the latter – and this is a state of affairs
constitutive of bad faith on her part.22
The RTC likewise held that neither parties in the main case was entitled to
damages, because they failed to substantiate their respective claims thereto.23
As regards Taina's third-party complaint against the Tecson spouses, the RTC
ordered the return or restitution to her of the sum of P77,000.00, plus legal
interest. Likewise awarded by the RTC in Taina's favor were moral and exemplary
damages in the amount of P50,000.00 and attorney's fees in the amount of
P30,000.00 plus costs.24
Additionally, Article 1477 of the Civil Code provides that the ownership of the thing
sold is transferred upon the actual or constructive delivery thereof; however, the
delivery of the owner's copy of TCT 17655 to TAINA is dubious. It was not the
owner, Col. Troadio Tecson, himself who delivered the same but his son who also
happens to be TAINA's brother-in-law. Hence, the foregoing circumstances
negate the fact that there was indeed an absolute delivery or transfer of
ownership.
Anent the issue on validity of the sale to Taina Manigque-Stone, the fundamental
law is perspicuous in its prohibition against aliens from holding title or acquiring
private lands, except only by way of legal succession or if the acquisition was
made by a former natural-born citizen.
A scrutiny of the records would show that the trial court aptly held that the
defendant-appellant was only a dummy for Mike Stone who is a foreigner. Even
if the Deed of Absolute Sale is in the name of Taina Manigque-Stone that does
not change the fact that the real buyer was Mike Stone, a foreigner. The appellant
herself had admitted in court that the buyer was Mike Stone and at the time of the
negotiation she was not yet legally married to Mike Stone. They cannot do
indirectly what is prohibited directly by the law.

To further militate against her stand, the appellant herself testified during the cross
Dissatisfied with this judgment, Taina appealed to the CA. examination:

Ruling of the Court of Appeals

Q: Now, the Deed of Sale states that the buyer is Taina Manigque-Stone?
On August 16, 2010, the CA handed down the assailed
A:
Decision,25cralawred which contained the following Yes.
decretal portion:

WHEREFORE, the challenged Decision of the Regional Trial Court dated [August
10, 2007] is hereby AFFIRMED with MODIFICATIONS; to wit:
Q: And not Mike Stone who according to you was the one who paid the entire consideration and was the one who negotiated with
tell the Court how come it was your name who placed [sic] in the Deed of Sale?
1. Quieting the title of ownership of the plaintiff-appellee, CATTLEYA LAND, INC.
in the above-described property by declaring the sale in its favor as valid and
A: Because an American, foreign national cannot buy land here.
enforceable;

2. Ordering the cancellation of Transfer Certificate of Title No. 21771 in the name
of defendant-appellant TAINA MANIGQUE-STONE; Q: Yes because an American national, foreigner cannot own land here.

3. Ordering the registration of the Deed of Absolute

A: Sale involving the subject
Yes.
property executed in favor of CATTLEYA LAND, INC. and the issuance x x x of a
new title in favor of the plaintiff-appellee CATTLEYA LAND, INC. ate payment of
the required fees; and
Q: And so the Deed of Sale was placed in your name, correct?
4. Ordering the defendant-appellant, TAINA MANIGQUE-STONE to desist from
claiming ownership and possession thereof. Without
A: pronouncement as to cost.
Yes.

As to the third-party defendants-appellees, the spouses Troadio B. Tecson and

Asuncion Ortaliz Tecson, judgment is hereby rendered as follows:
1. Ordering third-party defendants-appellees, spouses TROADIO B. TECSON
and ASUNCION ORTALIZ TECSON, [to] return x x x the total amount of Seventy-
seven Thousand (P77,000.00) Pesos to the defendant-appellant, TAINA
MANIGQUE-STONE, with legal rate of interest from the time of filing of the third[-
]party complaint on June 28, 2004 until the time the same shall have been fully
satisfied; and
The above testimony is a clear admission against interest. An admission against
interest is the best evidence which affords the greatest certainty of the facts in
dispute. The rationale for the rule is based on the presumption that no man would
declare anything against himself unless such declaration is true. Accordingly, it is
rational to presume that the testimony corresponds with the truth, and she bears
the burden if it does not.
Moreover, TAINA asserts in the brief that 'ownership of the lot covered by TCT
21771 is held by her, a Filipino. As long as the lot is registered in the name of a

Filipino, the trial court is barred from inquiring [into] its legality.' Such assertion is
bereft of merit.
The Honorable Supreme Court, in identifying the true ownership of a property
registered in the name of a Filipina who was married to a foreign national,
pronounced in Borromeo vs. Descallar that:
'It is settled that registration is not a mode of acquiring ownership. It is only a
means of confirming the fact of its existence with notice to the world at large.
Certificates of title are not a source of right. The mere possession of a title does
not make one the true owner of the property. Thus, the mere fact that respondent
has the titles of the disputed properties in her name does not necessarily,
conclusively and absolutely make her the owner [thereof]. The rule on
indefeasibility of title likewise does not apply to respondent. A certificate of title
implies that the title is quiet, and that it is perfect, absolute and indefeasible.
However, there are well-defined exceptions to this rule, as when the transferee is
not a holder in good faith and did not acquire the subject properties for a valuable
consideration. This is the situation in the instant case. Respondent did not
contribute a single centavo in the acquisition of the properties. She had no income
of her own at that time, nor did she have any savings. x x x'27
Taina moved for reconsideration28 of the CA's Decision, but the CA thumbed
down this motion in its February 22, 2011 Resolution.29 Hence, the present
Petition.
Issues
Before this Court, petitioner puts forward the following questions of law for
resolution:
1. Whether the assailed Decision is legally correct in holding that petitioner is a
mere dummy of Mike.
2. Whether the assailed Decision is legally correct in considering that the verbal
contract of sale between spouses Tecson and Mike transferred ownership to a
foreigner, which falls within the constitutional ban on sales of land to foreigners.
3. Whether the assailed Decision is legally correct in not considering that,
assuming that the sale of land to Mike violated the Constitution, the same has
been cured by the subsequent marriage of petitioner to Mike and by the
registration of the land in the name of petitioner, a Filipino citizen.
4. Whether the assailed Decision is legally correct in not applying the rules on
double sale, which clearly favor petitioner Taina.30
In amplification thereof, petitioner advances these arguments:
I
The trial court and the Court of Appeals departed from the clear provisions of the
law and established jurisprudence when it failed to consider that the Filipino wife
of Mike Stone, petitioner Taina Manigque-Stone[,] has the legal capacity and the
conjugal partnership interests to enter into a contract of deed of absolute sale with
respondent Sps. Troadio B. Tecson and Asuncion Ortaliz Tecson.
II
The trial court and the Court of Appeals departed from the provisions of the law
and established jurisprudence when it failed to consider that the verbal contract
of sale of land to Mike Stone was unenforceable and did not transfer ownership
to him, to fall within the constitutional ban on foreigners owning lands in the
Philippines.
III
The trial court and the Court of Appeals departed from established jurisprudence,
when it failed to consider that, assuming arguendo that the sale of land to Mike
Stone violated the Constitutional ban on foreign ownership of lands, the same has
been cured by the subsequent marriage of petitioner and Mike Stone, and [the
subsequent issuance of title] in the name of petitioner.
IV
134
The Court of Appeals gravely erred and departed from established rules of
evidence when it ruled that the delivery of the owner's copy of TCT 17655 to
petitioner Taina is dubious.
V
The trial court and the Court of Appeals gravely erred when it departed from
provisions of the law and established jurisprudence when it did not apply the rules
on double sale which clearly favor petitioner Taina.31
The fundamental issue for resolution in the case at bench is whether the sale of
land by the Tecson spouses to Michael Stone a.k.a. Mike, a foreigner or alien,
although ostensibly made in Taina's name, was valid, despite the constitutional
prohibition against the sale of lands in the Philippines to foreigners or aliens. A
collateral or secondary issue is whether Article 1544 of the Civil Code, the article
which governs double sales, controls this case.
Petitioner's Arguments
In praying that the CA Decision be overturned Taina posits that while Mike's legal
capacity (to own or acquire real property in the Philippines) was not entirely
unassailable, there was nevertheless no actual violation of the constitutional
prohibition against the acquisition or purchase by aliens or foreigners of lands in
the Philippines, because in this case no real transfer of ownership had been
effected in favor of Mike, from Col. Tecson;32 that all payments made by Mike to
Col. Tecson must be presumed to have come from the community property he
had with Taina, because Mike had been her (Taina's) common-law-husband from
1982 up to the day they were married, in 1986; hence, in this context, she (Taina)
was not exactly Mike's dummy at all, but his active partner; 33 that it is of no
consequence that she (Taina) had knowledge that Cattleya had likewise
purchased or acquired the subject lot because the deed of sale in favor of Cattleya
was executed subsequent to the deed of sale that she and Mike had entered into
with the Tecson spouses, thus, she was the first to acquire ownership of the
subject lot in good faith;34 that assuming for argument's sake that neither she nor
Cattleya was a purchaser in good faith, still she was the first one to acquire
constructive possession of the subject lot pursuant to Article 1544 3rd paragraph
of the Civil Code, and for this reason she had acquired lawful title thereto.35
Respondent Cattleya Land's arguments
Cattleya counters that there could not have been a double sale in the instant case
because the earlier sale between Col. Tecson and Mike was absolutely null and
void, as this was a flagrant violation of the constitutional provision barring or
prohibiting aliens or foreigners from acquiring or purchasing land in the
Philippines; hence, there was only one valid sale in this case, and that was the
sale between Col. Tecson and Cattleya.36
Court's Resolution with respect to Respondents-Spouses Tecson
This Court's Resolution dated June 20, 2012 noted, amongst others, the
Manifestation filed by Cattleya, which inter alia stated: (1) that Col. Tecson died
on December 7, 2004; (2) that Taina instituted a third-party complaint against the
Tecson spouses; (3) that in this third-party complaint the Tecson spouses were
declared in default by the trial court; (4) that this default order was not appealed
by the Tecson spouses; (5) that the present appeal by Taina from the CA Decision
will in no way affect or prejudice the Tecson spouses, given the fact that these
spouses did not appeal from the default order, and (6) that the instant Petition be
submitted for resolution without the Comment of the Tecson spouses. 37 In the
Resolution of February 26, 2014, this Court noted that since Asuncion Tecson
had failed to submit to this Court the name of the legal representative of her
deceased husband Col. Tecson within the period which expired on October 3,
2013, this Court was dispensing with the Comment of the Tecson spouses in the
instant Petition.38
Our Ruling
This Petition is bereft of merit.
Section 7, Article XII of the 1987 Constitution states that:
Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire
or hold lands of the public domain.
Given the plain and explicit language of this constitutional mandate, it has been
held that "[a]liens, whether individuals or corporations, are disqualified from
acquiring lands of the public domain. Hence, they are also disqualified from

acquiring private lands. The primary purpose of the constitutional provision
is the conservation of the national patrimony."39
In the case at bench, Taina herself admitted that it was really Mike who paid with
his own funds the subject lot; hence, Mike was its real purchaser or buyer. More
than that, it bears stressing that if the deed of sale at all proclaimed that she
(Taina) was the purchaser or buyer of the subject property and this subject
property was placed under her name, it was simply because she and Mike wanted
to skirt or circumvent the constitutional prohibition barring or outlawing foreigners
or aliens from acquiring or purchasing lands in the Philippines. Indeed, both the
CA and the RTC exposed and laid bare Taina's posturing and pretense for what
these really are: that in the transaction in question, she was a mere dummy, a
spurious stand-in, for her erstwhile common-law husband, who was not a Filipino
then, and never attempted to become a naturalized Filipino citizen thereafter. The
CA put things in correct perspective, thus —
A scrutiny of the records would show that the trial court aptly held that the
defendant-appellant was only a dummy for Mike Stone who is a foreigner. Even
if the Deed of Absolute Sale is in the name of Taina Manigque-Stone that
does not change the fact that the real buyer was Mike Stone, a foreigner. The
appellant herself had admitted in court that the buyer was Mike Stone and at the
time of the negotiation she was not yet legally married to Mike Stone. They
cannot do indirectly what is prohibited directly by the law.40 (Emphasis
supplied)
Citing the RTC's proceedings of December 7, 2004, the CA adverted to the
following testimony by the petitioner during her cross-examination thus –
tes that the buyer is Taina Manigque-Stone?
ccording to you was the one who paid the entire consideration and was the one who negotiated with Colonel Tecson. Will you kindly
was your name who placed [sic] in the Deed of Sale? However, on a Petition for Review on Certiorari, this Court reversed the CA and
reinstated the RTC's ruling. In sustaining the RTC, this Court once again stressed
reign national cannot buy land here. the absolute character of the constitutional prohibition against ownership of lands
in this country by foreigners or aliens:
national, foreigner cannot own land here.
was placed in your name, correct?
d)
It is axiomatic, of course, that this Court is not a trier of facts. Subject to well-
known exceptions, none of which obtains in the instant case, this Court is bound
by the factual findings of the CA, especially where such factual findings, as in this
case, accorded in the main with the RTC's own findings.42
Given the fact that the sale by the Tecson spouses to Taina as Mike's dummy
was totally abhorrent and repugnant to the Philippine Constitution, and is thus,
void ab initio, it stands to reason that there can be no double sale to speak of
here. In the case of Fudot v. Cattleya Land, Inc.,43 which fortuitously also involved
the Tecson spouses and Cattleya, we held thus —
The petition is bereft of merit.
Petitioner's arguments, which rest on the assumption that there was a double
sale, must fail.
In the first place, there is no double sale to speak of. Art. 1544 of the Civil Code,
which provides the rule on double sale, applies only to a situation where the same
property is validly sold to different vendees. In this case, there is only one sale to
advert to, that between the spouses Tecson and respondent.
135
In Remalante v. Tibe, this Court ruled that the Civil Law provision on double sale
is not applicable where there is only one valid sale, the previous sale having been
found to be fraudulent. Likewise, in Espiritu and Apostol v. Valerio, where the
same parcel of land was purportedly sold to two different parties, the Court held
that despite the fact that one deed of sale was registered ahead of the other, Art.
1544 of the Civil Code will not apply where said deed is found to be a forgery,
the result of this being that the right of the other vendee should prevail.
The trial court declared that the sale between the spouses Tecson and petitioner
is invalid, as it bears the forged signature of Asuncion. x x x44 (Citations
omitted; Emphasis supplied)
In view of the fact that the sale in the case at bench is worse off (because it
is constitutionally infirm) than the sale in the Fudot case, which merely involves
a violation of the pertinent provisions of the Civil Code, this Court must affirm, as
it hereby affirms the CA's ruling that, "there is only one sale to reckon with, that
is, the sale to Cattleya.45
Again, our holding in Muller v. Muller,46 which is almost on all fours with the case
at bench, can only strengthen and reinforce our present stance. In Muller, it
appears that German national Helmut Muller (Helmut), alien or foreigner husband
of the Filipina Elena Buenaventura Muller (Elena), bought with his capital funds a
parcel of land in Antipolo City and also paid for the construction of a house
thereon. This Antipolo property was registered under the name of Elena under
TCT No. 219438. Subsequently, Helmut instituted a petition for separation of
properties with the RTC of Quezon City. After due proceedings, the RTC of
Quezon City rendered judgment terminating the regime of absolute community of
property between Helmut and Elena. The RTC also decreed the separation of
properties between the spouses. With respect to the Antipolo property, the RTC
held that although it was acquired with the use of Helmut's capital funds,
nevertheless the latter could not recover his investment because the property was
purchased in violation of Section 7, Article XII of the Constitution. Dissatisfied with
the RTC's judgment, Helmut appealed to the CA which upheld his appeal. The
CA ruled that: (1) Helmut merely prayed for reimbursement of the purchase price
of the Antipolo property, and not that he be declared the owner thereof; (2) Elena's
ownership over this property was considered as ownership-in-trust for Helmut; (3)
there is nothing in the Constitution which prohibits Helmut from acquiring
ownership of the house.
The Court of Appeals erred in holding that an implied trust was created and
resulted by operation of law in view of petitioner's marriage to respondent. Save
for the exception provided in cases of hereditary succession, respondent's
disqualification from owning lands in the Philippines is absolute. Not even an
ownership in trust is allowed. Besides, where the purchase is made in violation of
an existing statute and in evasion of its express provision, no trust can result in
favor of the party who is guilty of the fraud. To hold otherwise would allow
circumvention of the constitutional prohibition.47 (Citation omitted; Emphasis
supplied)
The same absolute constitutional proscription was reiterated anew in the
comparatively recent case of Matthews v. Taylor,48 erroneously invoked by Taina.
Taina claims that this case supports her position in the case at bench allegedly
because, like her case, the alien or foreigner husband in the Matthews case
(Benjamin A. Taylor, a British subject) likewise provided the funds for the
purchase of real property by his Filipino wife (Joselyn C. Taylor) and this Court
allegedly sustained said wife's ownership over the property.49 That Taina's claim
is a clear misapprehension of the thrust and purport of the ruling enunciated in
the Matthews case is put to rest by what this Court said there —
In light of the foregoing jurisprudence, we find and so hold that Benjamin has no
right to nullify the Agreement of Lease between Joselyn and petitioner. Benjamin,
being an alien, is absolutely prohibited from acquiring private and public
lands in the Philippines. Considering that Joselyn appeared to be the
designated 'vendee' in the Deed of Sale of said property, she
acquired sole ownership there[of]. This is true even if we sustain Benjamin's
claim that he provided the funds for such acquisition. By entering into such
contract knowing that it was illegal, no implied trust was created in his
favor; no reimbursement for his expenses can be allowed; and no
declaration can be made that the subject property was part of the
conjugal/community property of the spouses. In any event, he had and has
no capacity or personality to question the subsequent lease of the Boracay
property by his wife on the theory that in so doing, he was merely exercising the
prerogative of a husband in respect [to] conjugal property. To sustain such a
theory would countenance indirect controversion of the constitutional
prohibition. If the property were to be declared conjugal, this would accord
the alien husband a substantial interest and right over the land, as he would
then have a decisive vote as to its transfer or disposition. This is a right that
 136

the Constitution does not permit him to have.(Citation omitted; emphasis and
underscoring supplied)50

The other points raised by petitioner in the present Petition for Review are
collateral or side issues and need not detain this Court any further. Suffice it to
say that the chief or main constitutional issue that has been addressed and
resolved in the present Petition has effectively subsumed or relegated to
inconsequence the other collateral or side issues raised herein.

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals

dated August 16, 2010 and its Resolution dated February 22, 2011 in CA-G.R.
CV No. 02352 being in conformity with the law and with this Court's jurisprudential
teachings, are hereby AFFIRMED in toto.

SO ORDERED.

G.R. No. 136031 January 4, 2002
JEFFERSON LIM, petitioner,
vs.
QUEENSLAND TOKYO COMMODITIES, INC., respondent.
QUISUMBING, J.:
Before us is a petition for review assailing the June 25, 1998, decision 1 of the
Court of Appeals in CA-G.R. CV No. 46495 which reversed and set aside the
decision of the Regional Trial Court of Cebu, Branch 24, dismissing the complaint
by respondent for a sum of money as well as petitioner’s counterclaim.
Private respondent Queensland Tokyo Commodities, Incorporated (Queensland,
for brevity) is a duly licensed broker engaged in the trading of commodities futures
with full membership and with a floor trading right at the Manila Futures Exchange,
Inc..2
Sometime in 1992, Benjamin Shia, a market analyst and trader of Queensland,
was introduced to petitioner Jefferson Lim by Marissa Bontia,3 one of his
employees. Marissa’s father was a former employee of Lim’s father.4
Shia suggested that Lim invest in the Foreign Exchange Market, trading U.S.
dollar against the Japanese yen, British pound, Deutsche Mark and Swiss Franc.
Before investing, Lim requested Shia for proof that the foreign exchange was
really lucrative. They conducted mock tradings without money involved. As the
mock trading showed profitability, Lim decided to invest with a marginal deposit
of US$5,000 in manager’s check. The marginal deposit represented the advance
capital for his future tradings. It was made to apply to any authorized future
transactions, and answered for any trading account against which the deposit was
made, for any loss of whatever nature, and for all obligations, which the investor
would incur with the broker.5
Because respondent Queensland dealt in pesos only, it had to convert US$5,000
in manager’s check to pesos, amounting to ₱125,000 since the exchange rate at
that time was ₱25 to US$1.00. To accommodate petitioner’s request to trade right
away, it advanced the ₱125,000 from its own funds while waiting for the
manager’s check to clear. Thereafter, a deposit notice in the amount of ₱125,000
was issued to Queensland, marked as Exhibit "E". This was sent to Lim who
received it as indicated by his signature marked as Exhibit "E-1". Then, Lim signed
the Customer’s Agreement, marked as Exhibit "F," which provides as follows:
25. Upon signing of this Agreement, I shall deposit an initial margin
either by personal check, manager’s check or cash. In the case of the
first, I shall not be permitted to trade until the check has been cleared
by my bank and credited to your account. In respect of margin calls or
additional deposits required, I shall likewise pay them either by
personal check, manager’s check or cash. In the event my personal
check is dishonored, the company has the right without call or notice
to settle/close my trading account against which the deposit was made.
In such event, any loss of whatever nature shall be borne by me and I
shall settle such loss upon demand together with interest and
reasonable cost of collection. However, in the event such liquidation
gives rise to a profit then such amount shall be credited to the
Company. The above notwithstanding, I am not relieved of any legal
responsibility as a result of my check being dishonored by my bank.6
Petitioner Lim was then allowed to trade with respondent company which was
coursed through Shia by virtue of the blank order forms, marked as Exhibits "G",
"G-1" to "G-13",7 all signed by Lim. Respondent furnished Lim with the daily
market report and statements of transactions as evidenced by the receiving forms,
marked as Exhibits "J", "J-1" to "J-4",8 some of which were received by Lim.
During the first day of trading or on October 22, 1992, Lim made a net profit of
₱6,845.57.9 Shia went to the office of Lim and informed him about it. He was
elated. He agreed to continue trading. During the second day of trading or on
October 23, 1992, they lost P44,465.10
Meanwhile, on October 22, 1992, respondent learned that it would take seventeen
(17) days to clear the manager’s check given by petitioner. Hence, on October
23, 1992, at about 11:00 A.M., upon management’s request, Shia returned the
check to petitioner who informed Shia that petitioner would rather replace the
manager’s check with a traveler’s check.11 Considering that it was 12:00 noon
already, petitioner requested Shia to come back at 2:00 P.M.. Shia went with
petitioner to the bank to purchase a traveler’s check at the PCI Bank, Juan Luna
Branch at 2:00 P.M.. Shia noticed that the traveler’s check was not indorsed but
Lim told Shia that Queensland could sign the indorsee portion. 12 Because Shia
trusted the latter’s good credit rating, and out of ignorance, he brought the check
137
back to the office unsigned.13 Inasmuch as that was a busy Friday, the check was
kept in the drawer of respondent’s consultant. Later, the traveler’s check was
deposited with Citibank.14
On October 26, 1992, Shia informed petitioner that they incurred a floating loss of
₱44,69515 on October 23, 1992. He told petitioner that they could still recover their
losses. He could unlock the floating loss on Friday. By unlocking the floating loss,
the loss on a particular day is minimized.
On October 27, 1992, Citibank informed respondent that the traveler’s check
could not be cleared unless it was duly signed by Lim, the original purchaser of
the traveler’s check. A Miss Arajo, from the accounting staff of Queensland,
returned the check to Lim for his signature, but the latter, aware of his ₱44,465
loss, demanded for a liquidation of his account and said he would get back what
was left of his investment.16 Meanwhile, Lim signed only one portion of the
traveler’s check, leaving the other half blank. He then kept it.17 Arajo went back to
the office without it. 1âwphi1.nêt
Respondent asked Shia to talk to petitioner for a settlement of his account but
petitioner refused to talk with Shia. Shia made follow-ups for more than a week
beginning October 27, 1992. Because petitioner disregarded this request,
respondent was compelled to engage the services of a lawyer, who sent a
demand letter18 to petitioner. This letter went unheeded. Thus, respondent filed a
complaint19 against petitioner, docketed as Civil Case No. CEB-13737, for
collection of a sum of money.
On April 22, 1994, the trial court rendered its decision, thus:
WHEREFORE, in view of all the foregoing, the complaint is dismissed
without pronouncement as to costs. The defendant’s counterclaim is
likewise dismissed.
SO ORDERED.20
On appeal by Queensland, the Court of Appeals reversed and set aside the trial
court’s decision, with the following fallo:
WHEREFORE, the decision appealed from is hereby REVERSED
AND SET ASIDE, and another one is entered ordering appellee
[Jefferson Lim] to pay appellant the sum of P125,000.00, with interest
at the legal rate until the whole amount is fully paid, P10,000.00 as
attorney’s fees, and costs.21
Petitioner herein filed a motion for reconsideration before the Court of Appeals,
which was denied in a resolution dated October 6, 1998.22
Dissatisfied, petitioner filed the instant recourse alleging that the appellate court
committed errors:
I - … IN REVERSING THE DECISION OF THE RTC WHICH
DISMISSED RESPONDENT’S COMPLAINT;
II -… IN HOLDING THAT THE PETITIONER IS ESTOPPED IN
QUESTIONING THE VALIDITY OF THE CUSTOMER’S
AGREEMENT AND FROM DENYING THE EFFECTS OF HIS
CONDUCT;
III -… IN NOT TAKING JUDICIAL NOTICE OF THE LETTER OF
RESPONDENT THAT THE SEC HAS ISSUED A CEASE AND
DESIST ORDER AGAINST THE MANILA INTERNATIONAL
FUTURES EXCHANGE COMMISSION AND ALL COMMODITY
TRADERS INCLUDING THE RESPONDENT.
Despite the petitioner’s formulation of alleged errors, we find that the main issue
is whether or not the appellate court erred in holding that petitioner is estopped
from questioning the validity of the Customer’s Agreement that he signed.
The essential elements of estoppel are: (1) conduct of a party amounting to false
representation or concealment of material facts or at least calculated to convey
the impression that the facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; (2) intent, or at least expectation,
that this conduct shall be acted upon by, or at least influence, the other party; and
(3) knowledge, actual or constructive, of the real facts.23
Here, it is uncontested that petitioner had in fact signed the Customer’s
Agreement in the morning of October 22, 1992,24 knowing fully well the nature of
 138

the contract he was entering into. The Customer’s Agreement was duly notarized
and as a public document it is evidence of the fact, which gave rise to its execution
and of the date of the latter.25 Next, petitioner paid his investment deposit to
respondent in the form of a manager’s check in the amount of US$5,000 as
evidenced by PCI Bank Manager’s Check No. 69007, dated October 22,
1992.26 All these are indiciathat petitioner treated the Customer’s Agreement as a
valid and binding contract.
Moreover, we agree that, on petitioner’s part, there was misrepresentation of
facts. He replaced the manager’s check with an unendorsed traveler’s check,
instead of cash, while assuring Shia that respondent Queensland could sign the
indorsee portion thereof.27 As it turned out, Citibank informed respondent that only
the original purchaser (i.e. the petitioner) could sign said check. When the check
was returned to petitioner for his signature, he refused to sign. Then, as petitioner
himself admitted in his Memorandum,28 he used the traveler’s check for his travel
expenses.29
A Margin Receipt issued by the Company shall only be for the purpose
of acknowledging receipt of an amount as margin deposit for
Spot/Futures Currency Trading. All checks received for the purpose of
margin deposits have to be cleared through such bank account as may
be opened by the Company before any order can be accepted.38
But as stated earlier, respondent advanced petitioner’s marginal deposit of
₱125,000 out of its own funds while waiting for the US$5,000 manager’s check to
clear, relying on the good credit standing of petitioner. Contrary to petitioner’s
averment now, respondent had advanced his margin deposit with his approval.
Nowhere in the "Guidelines" adverted to by petitioner was such an arrangement
prohibited. Note that the advance was made with petitioner’s consent, as
indicated by his signature, Exhibit "E-1",39 affixed in the deposit notice, Exhibit
"E",40 sent to him by respondent. By his failure to seasonably object to this
arrangement and by affixing his signature to the notice of deposit, petitioner is
barred from questioning said arrangement now. 1âwphi1.nêt

More significantly, petitioner already availed himself of the benefits of the
Customer’s Agreement whose validity he now impugns. As found by the CA, even
before petitioner’s initial marginal deposit (in the form of the PCI manager’s check
dated October 22, 1992)30 was converted into cash, he already started trading on
October 22, 1992, thereby making a net profit of ₱6,845.57. On October 23, he
continued availing of said agreement, although this time he incurred a "floating
loss" of ₱44,645.31 While he claimed he had not authorized respondent to trade
on those dates, this claim is belied by his signature affixed in the order forms,
marked as Exhibits "G", "G-1" to "G-13".32
Clearly, by his own acts, petitioner is estopped from impugning the validity of the
Customer’s Agreement. For a party to a contract cannot deny the validity thereof
after enjoying its benefits without outrage to one’s sense of justice and fairness.
It appears that petitioner’s reason to back out of the agreement is that he began
sustaining losses from the trade. However, this alone is insufficient to nullify the
contract or disregard its legal effects. By its very nature it is already a perfected,
if not a consummated, contract. Courts have no power to relieve parties from
obligations voluntarily assumed, simply because their contracts turned out to be
disastrous or unwise investments.33 Notably, in the Customer’s Agreement,
petitioner has been forewarned of the high risk involved in the foreign currency
investment as stated in the "Risk Disclosure Statement,"34 located in the same
box where petitioner signed.
Anent the last assigned error, petitioner faults the appellate court for not taking
judicial notice of the cease and desist order against the Manila International
Futures Exchange Commission and all commodity traders including respondent.
However, we find that this issue was first raised only in petitioner’s motion for
reconsideration of the Court of Appeals’ decision. It was never raised in the
Memorandum41 filed by petitioner before the trial court. Hence, this Court cannot
now, for the first time on appeal, pass upon this issue. For an issue cannot be
raised for the first time on appeal. It must be raised seasonably in the proceedings
before the lower court. Questions raised on appeal must be within the issues
framed by the parties and, consequently, issues not raised in the trial court cannot
be raised for the first time on appeal.42
WHEREFORE, the instant petition is DENIED for lack of merit. The decision of
the Court of Appeals dated June 25, 1998, in CA-G.R. CV No. 46495
is AFFIRMED. Costs against petitioner.
SO ORDERED.

Further, petitioner contends that the Customer’s Agreement was rendered

nugatory because: (1) the marginal deposit he gave was in dollars and (2)
respondent allowed him to trade even before the US$5,000 manager’s checkwas
cleared. This contention is disingenuous to say the least, but hardly meritorious.

Petitioner himself was responsible for the issuance of the US$5,000 manager’s
check. It was he who failed to replace the manager’s check with cash. He
authorized Shia to start trading even before the US$5,000 check had cleared. He
could not, in fairness to the other party concerned, now invoke his own misdeeds
to exculpate himself, conformably with the basic principle in law that he who
comes to court must come with clean hands.

Contrary to petitioner’s contention, we also find that respondent did not violate
paragraph 14 of the Guidelines for Spot/Futures Currency Trading, which
provides:

14. DEPOSITS & PAYMENTS

All deposits, payments and repayments, etc. will be in Philippine

Currency. When a deposit with the Company is not in cash or bank
draft, such deposit will not take effect in the account concerned until it
has been confirmed NEGOTIABLE for payment by authorized
management personnel.35

Respondent claims it informed petitioner of its policy not to accept dollar

investment. For this reason, it converted the petitioner’s US$5,000 manager’s
check to pesos (₱125,000) out of respondent’s own funds to accommodate
petitioner’s request to trade right away.36 On record, it appears that petitioner
agreed to the conversion of his dollar deposit to pesos.37

Neither is there merit in petitioner’s contention that respondent violated the

Customer’s Agreement by allowing him to trade even if his manager’s check was
not yet cleared, as he had no margin deposit as required by the Customer’s
Agreement, viz:

5. Margin Receipt

G.R. No. 167320 January 30, 2007
HEIRS OF SALVADOR HERMOSILLA, namely: ADELAIDA H. DOLLETON,
RUBEN HERMOSILLA, LOLITA H. DE LA VEGA, ERLINDA H. INOVIO, CELIA
H. VIVIT, ZENAIDA H. ACHOY, PRECILLA H. LIMPIAHOY, and EDGARDO
HERMOSILLA, Petitioners,
vs.
Spouses JAIME REMOQUILLO and LUZ REMOQUILLO, Respondents.
DECISION
CARPIO MORALES, J.:
Petitioners Heirs of Salvador Hermosilla, namely: Adelaida H. Dolleton, Ruben
Hermosilla, Lolita H. de la Vega, Erlinda H. Inovio,1 Celia2 H. Vivit, Zenaida H.
Achoy, Precilla3 H. Limpiahoy, and Edgardo Hermosilla, assail the Court of
Appeals’ Decision4 dated September 29, 2004 which reversed the trial court’s
decision in their favor and accordingly dismissed their complaint.
Subject of the controversy is a 65-square meter portion of a lot located in
Poblacion, San Pedro, Laguna.
On August 31, 1931, the Republic of the Philippines acquired through purchase
the San Pedro Tunasan Homesite.
Apolinario Hermosilla (Apolinario), who was occupying a lot in San Pedro
Tunasan Homesite until his death in 1964, caused the subdivision of the lot into
two, Lot 12 with an area of 341 square meters, and Lot 19 with an area of 341
square meters of which the 65 square meters subject of this controversy form
part.
On April 30, 1962, Apolinario executed a Deed of Assignment transferring
possession of Lot 19 in favor of his grandson, herein respondent Jaime
Remoquillo (Jaime). As the Land Tenure Administration (LTA) later found that Lot
19 was still available for disposition to qualified applicants, Jaime, being its actual
occupant, applied for its acquisition before the LTA on May 10, 1963.
On July 8, 1963, Apolinario conveyed Lot 12 to his son Salvador Hermosilla
(Salvador), Jaime’s uncle.
Salvador later filed an application to purchase Lot 12 which was awarded to him
by the defunct Land Authority on December 16, 1971.
On February 10, 1972, Jaime and his uncle Salvador forged a "Kasunduan ng
Paglipat Ng Karapatan sa Isang Lagay na Lupang Solar" (Kasunduan) whereby
Jaime transferred ownership of the 65 square meters (the questioned property) in
favor of Salvador.
After Apolinario died, his daughter Angela Hermosilla filed a protest before the
Land Authority, which became the National Housing Authority (NHA),5 contending
that as an heir of the deceased, she is also entitled to Lots 12 and 19. By
Resolution of June 10, 1981, the NHA dismissed the protest.
The NHA later awarded on March 16, 1986 Lot 19 to Jaime for which he and his
wife were issued a title, Transfer Certificate of Title No. T-156296, on September
15, 1987.6
On May 25, 1992, petitioners filed an action for Annulment of Title on the ground
of fraud with damages against Jaime and his spouse, together with the Register
of Deeds, before the Regional Trial Court (RTC) of Biñan, Laguna, alleging that
by virtue of the Kasunduan executed in 1972, Jaime had conveyed to his uncle
Salvador the questioned property–part of Lot 19 covered by TCT No. T-156296
which was issued in 1987.
By Decision7 of May 11, 1999, the RTC of Biñan, Laguna, Branch 25, found
the Kasunduan a perfected contract of sale, there being a meeting of the minds
upon an identified object and upon a specific price, and that ownership over the
questioned property had already been transferred and delivered to Salvador.
On the alleged failure of consideration of the Kasunduan, the trial court held that
the same did not render the contract void, but merely allowed an action for specific
performance. The dispositive portion of the trial court’s Decision reads:
WHEREFORE, judgment is hereby rendered declaring plaintiffs as co-owners of
the 65 square meters of the 341square meters covered by TCT T-156296,
registered in the name of defendants. The Court hereby directs the Register of
139
Deeds of Laguna, Calamba Branch, to cancel said Transfer Certificate of Title,
and in lieu thereof, to issue another [to] plaintiffs [as] co-owners of the above
portion.
No pronouncement as to costs.
SO ORDERED.8 (Underscoring supplied)
The Court of Appeals, reversing the decision of the trial court, held that
the Kasunduan was void because at the time of its execution in 1972, the
Republic of the Philippines was still the owner of Lot 19, hence, no right thereover
was transmitted by Jaime who was awarded the Lot in 1986, and consequently
no right was transmitted by Salvador through succession to petitioners. And it
found no evidence of fraud in Jaime’s act of having Lot 19, including the
questioned property, registered in his and his wife’s name in 1987.
At all events, the appellate court held that the action had prescribed, it having
been filed in 1992, more than four years from the issuance to Jaime and his wife
of the Transfer Certificate of Title.
Hence, the present petition for review on certiorari.
Petitioners argue that the application of the law on prescription would perpetrate
fraud and spawn injustice, they citing Cometa v. Court of Appeals;9 and that at
any rate, prescription does not lie against a co-owner. Cometa involves a different
factual milieu concerning the right of redemption, however. And petitioners’
contention that prescription does not lie against a co-owner fails because only the
title covering the questioned property, which petitioners claim to solely own, is
being assailed.
While this Court finds that the action is, contrary to the appellate court’s ruling,
not barred by the statute of limitations, it is still dismissible as discussed below.
Albeit captioned as one for Annulment of Title, the Complaint ultimately seeks the
reconveyance of the property.
From the allegations of the Complaint, petitioners seek the reconveyance of the
property based on implied trust. The prescriptive period for the reconveyance of
fraudulently registered real property is 10 years, reckoned from the date of the
issuance of the certificate of title,10 if the plaintiff is not in possession, but
imprescriptible if he is in possessionof the property.
An action for reconveyance based on an implied trust prescribes in ten years. The
ten-year prescriptive periodapplies only if there is an actual need to reconvey
the property as when the plaintiff is not in possession of the
property. However, if the plaintiff, as the real owner of the property also remains
in possession of the property, the prescriptive period to recover the title and
possession of the property does not run against him. In such a case, an action for
reconveyance, if nonetheless filed, would be in the nature of a suit for quieting of
title, an action that is imprescriptible.11 (Emphasis and underscoring supplied)
It is undisputed that petitioners’ houses occupy the questioned property and that
respondents have not been in possession thereof.12 Since there was no actual
need to reconvey the property as petitioners remained in possession thereof, the
action took the nature of a suit for quieting of title, it having been filed to enforce
an alleged implied trust after Jaime refused to segregate title over Lot 19. One
who is in actual possession of a piece of land claiming to be the owner thereof
may wait until his possession is disturbed or his title is attacked before taking
steps to vindicate his right.13 From the body of the complaint, this type of action
denotes imprescriptibility.
As priorly stated, however, when the Kasunduan was executed in 1972 by Jaime
in favor of Salvador – petitioners’ predecessor-in-interest – Lot 19, of which the
questioned property forms part, was still owned by the Republic. Nemo dat quod
non habet.14 Nobody can give what he does not possess. Jaime could not thus
have transferred anything to Salvador via the Kasunduan.
Claiming exception to the rule, petitioners posit that at the time the Kasunduan
was executed by Jaime in 1972, his application which was filed in 1963 for the
award to him of Lot 19 was still pending, hence, the Kasunduan transferred to
Salvador Jaime’s vested right to purchase the same, in support of which they cite
a law on estoppel, Art. 1434 of the Civil Code, which provides that "[w]hen a
person who is not the owner of a thing sells or alienates and delivers it and later,
the seller or grantor acquires title thereto, such title passes by operation of law to
the buyer or grantee."15
 140

Petitioners’ reliance on Article 1434 of the Civil Code does not lie. The principles
of estoppel apply insofar as they are not in conflict with the provisions of the Civil
Code, the Code of Commerce, the Rules of Court and speciallaws.161avvphi1.net

Land Authority Administrative Order No. 4 (1967), "Rules and Regulations

governing Disposition of the Laguna Settlement Project in San Pedro, Laguna,"
proscribes the conveyance of the privilege or preference to purchase a land from
the San Pedro Tunasan project before it is awarded to a tenant or bona fide
occupant, thus:

SEC. 6. Privilege of Preference to Purchase Intransferable; Waiver or Forfeiture

Thereof. – From the date of acquisition of the estate by the Government
and before issuance of the Order of Award, no tenant or bona fideoccupant in
whose favor the land may be sold shall transfer or encumber the privilege or
preference to purchase the land, and any transfer or encumbrance made in
violation hereof shall be null and void: Provided, however, That such privilege
or preference may be waived or forfeited only in favor of the Land Authority . .
.17 (Italics in the original, emphasis and underscoring supplied)

Petitioners’ insistence on any right to the property under the Kasunduan thus fails.

[T]he transfer "became one in violation of law (the rules of the PHHC being
promulgated in pursuance of law have the force of law) and therefore void ab
initio." Hence, appellant acquired no right over the lot from a contract void ab initio,
no rights are created. Estoppel, as postulated by petitioner, will not apply for it
cannot be predicated on an illegal act. It is generally considered that as between
the parties to a contract, validity cannot be given to it by estoppel if it is prohibited
by law or is against public policy.18 (Emphasis and underscoring supplied)

Petitioners go on to postulate that if the Kasunduan is void, it follows that the 1962
Deed of Assignment executed by Apolinario in favor of Jaime is likewise void to
thus deprive the latter of any legal basis for his occupation and acquisition of Lot
19.

Petitioners’ position fails. Petitioners lose sight of the fact that, as reflected above,
Jaime acquired Lot 19 in his own right, independently of the Deed of Assignment.

In another vein, since the property was previously a public land, petitioners have
no personality to impute fraud or misrepresentation against the State or violation
of the law.19 If the title was in fact fraudulently obtained, it is the State which should
file the suit to recover the property through the Office of the Solicitor General. The
title originated from a grant by the government, hence, its cancellation is a matter
between the grantor and the grantee.20

At all events, for an action for reconveyance based on fraud to prosper, the
plaintiff must prove by clear and convincing evidence not only his title to the
property but also the fact of fraud. Fraud is never presumed. Intentional acts to
deceive and deprive another of his right, or in some manner injure him must be
specifically alleged and proved by the plaintiff by clear and convincing
evidence.21 Petitioners failed to discharge this burden, however.

WHEREFORE, the petition is, in light of the foregoing ratiocination, DENIED.

SO ORDERED.

G.R. No. 168985 July 23, 2008
ACCESSORIES SPECIALIST INC., a.k.a. ARTS 21 CORPORATION, and
TADAHIKO HASHIMOTO, Petitioners,
vs.
ERLINDA B. ALABANZA, for and in behalf of her deceased husband, JONES
B. ALABANZA, Respondent.
DECISION
NACHURA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the Decision1dated April 15, 2005 and the Resolution2 dated
July 12, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 84206.
The Facts
The facts of the case, as narrated in the Decision of the CA:
On September 27, 2002, private respondent Erlinda B. Alabanza (Erlinda, for
brevity), for and in behalf of her husband Jones B. Alabanza (Jones, for brevity)
filed a complaint against petitioners Accessories Specialists, Inc. (ASI, for brevity)
also known as ARTS 21 Corporation, and Tadahiko Hashimoto for non-payment
of salaries, separation pay, and 13th month pay.
In her position paper, respondent Erlinda alleged, among others, that her husband
Jones was the Vice-President, Manager and Director of ASI. Jones rendered
outstanding services for the petitioners from 1975 to October 1997. On October
17, 1997, Jones was compelled by the owner of ASI, herein petitioner Tadahiko
Hashimoto, to file his involuntary resignation on the ground that ASI allegedly
suffered losses due to lack of market and incurred several debts caused by a slam
in the market. At the time of his resignation, Jones had unpaid salaries for
eighteen (18) months from May 1995 to October 1997 equivalent to ₱396,000.00
and US$38,880.00. He was likewise not paid his separation pay commensurate
to his 21 years of service in the amount of ₱462,000.00 and US$45,360.00 and
13th month pay amounting to ₱33,000.00. Jones demanded payment of his
money claims upon resignation but ASI informed him that it would just settle first
the money claims of the rank- and-file employees, and his claims will be paid
thereafter. Knowing the predicament of the company, Jones patiently waited for
his turn to be paid. Several demands were made by Jones but ASI just kept on
assuring him that he will be paid his monetary claims. Jones died on August 5,
2002 and failed to receive the same.
On the other hand, the petitioners contend that Jones voluntarily resigned on
October 31, 1997. Thus, Erlinda’s cause of action has already prescribed and is
forever barred on the ground that under Article 291 of the Labor Code, all money
claims arising from an employer-employee relationship shall be filed within three
(3) years from the time the cause of action accrues. Since the complaint was filed
only on September 27, 2002, or almost five (5) years from the date of the alleged
illegal dismissal of her husband Jones, Erlinda’s complaint is now barred.
On September 14, 2003, Labor Arbiter Reynaldo V. Abdon rendered a decision
ordering the petitioners to pay Erlinda the amount of ₱693,000.00 and
US$74,040.00 or its equivalent in peso or amounting to a total of ₱4,765,200.00
representing her husband’s unpaid salaries, 13th month pay, and separation pay,
and five [percent] (5%) on the said total award as attorney’s fees.
On October 10, 2003, the petitioners filed a notice of appeal with motion to reduce
bond and attached thereto photocopies of the receipts for the cash bond in the
amount of ₱290,000.00, and appeal fee in the amount of ₱170.00.
On January 15, 2004, public respondent NLRC issued an order denying the
petitioner’s motion to reduce bond and directing the latter to post an additional
bond, and in case the petitioners opted to post a surety bond, the latter were
required to submit a joint declaration, indemnity agreement and collateral security
within ten (10) days from receipt of the said order, otherwise their appeal shall be
dismissed. The pertinent portion of such order reads:
After a review however of respondents-appellants['] instant motion, We find that
the same does not proffer any valid or justifiable reason that would warrant a
reduction of the appeal bond. Hence, the same must be denied.
WHEREFORE, respondents-appellants are hereby ordered to post a cash or
surety bond in the amount equivalent to the monetary award of Four Million Seven
Hundred Sixty-Five Thousand and Two Hundred Pesos (₱4,765,200.00) granted
in the appealed Decision (less the Two Hundred and Ninety Thousand Pesos
[₱290,000.00] cash bond already posted), and joint declaration, indemnity
141
agreement and collateral security in case respondents-appellants opted to post a
surety bond, as required by Art. 223 of the Labor Code as amended and Section
6, Rule VI of the NLRC New Rules of Procedure as amended within an
unextendible period of ten (10) calendar days from receipt of this Order;
otherwise, the appeal shall be dismissed for non-perfection thereof.
SO ORDERED.
On February 19, 2004, the petitioners moved for a reconsideration of the said
order. However, the public respondent in its resolution dated March 18, 2004
denied the same and dismissed the appeal of the petitioners, thus:
The reduction of appeal bond is not a matter of right but rests upon our sound
discretion. Thus, after We denied respondents-appellants['] Motion to Reduce
[B]ond, they should have immediately complied with our 15 January 2004 Order
directing them to post an additional cash or surety bond in the amount equivalent
to the judgment award less the cash bond already posted within the extended
period of ten (10) days. In all, respondents had twenty (20) days, including the ten
(10)-day period, prescribed under Article 223 of the Labor Code and under
Section 6, Rule VI of the NLRC New Rules of Procedure, within which to post a
cash or surety bond. To seek a reconsideration of our 15 January 2004 order is
tantamount to seeking another extension of the period within which to perfect an
appeal, which is however, not allowed under Section 7, Rule VI of the NLRC Rule.
xxx
xxxx
WHEREFORE, premises considered, the Motion for Reconsideration filed by
respondents-appellants is hereby DENIED and the instant appeal DISMISSED
for non-perfection thereof.
SO ORDERED.
On April 22, 2004, the aforesaid resolution became final and executory. Thus,
herein private respondent Erlinda filed a motion for execution.
On May 31, 2004, the petitioners filed an opposition to the said motion for
execution. On June 11, 2004, Labor Arbiter Reynaldo Abdon issued an order
directing the issuance of a writ of execution.3
On May 28, 2004, petitioners filed a petition for certiorari under Rule 65 of the
Rules of Court before the CA and prayed for the issuance of a temporary
restraining order (TRO) and a writ of preliminary injunction. On June 30, 2004, the
CA issued a TRO directing the respondents, their agents, assigns, and all persons
acting on their behalf to refrain and/or cease and desist from executing the
Decision dated September 14, 2003 and Resolution dated March 18, 2004 of the
Labor Arbiter (LA).
On April 15, 2005, the CA issued the assailed Decision dismissing the petition.
Petitioner filed a motion for reconsideration. On July 12, 2005, the CA issued the
assailed Resolution denying the motion for reconsideration for lack of merit.
On September 8, 2005, petitioners posted the instant petition presenting the
following grounds in support of their arguments: 1) the cause of action of
respondent has already prescribed; 2) the National Labor Relations Commission
(NLRC) gravely abused its discretion when it dismissed the appeal of petitioners
for failure to post the complete amount of the appeal bond; and 3) the monetary
claim was resolved by the LA with uncertainty.
The Issues
The following are the issues that should be resolved in order to come up with a
just determination of the case:
I. Whether the cause of action of respondents has already prescribed;
II. Whether the posting of the complete amount of the bond in an
appeal from the decision of the LA to the NLRC is an indispensable
requirement for the perfection of the appeal despite the filing of a
motion to reduce the amount of the appeal bond; and
III. Whether there were sufficient bases for the grant of the monetary
award of the LA to the respondent.
The Ruling of the Court
 142

We resolve to deny the petition.
I requirement is intended to assure the workers that if they prevail in the case, they
Petitioners aver that the action of the respondents for the recovery of unpaid
wages, separation pay and 13th month pay has already prescribed since the
action was filed almost five years from the time Jones severed his employment
from ASI. Jones filed his resignation on October 31, 1997, while the complaint
before the LA was instituted on September 29, 2002. Petitioners contend that the
three-year prescriptive period under Article 2914 of the Labor Code had already
set-in, thereby barring all of respondent’s money claims arising from their
employer-employee relations.
Based on the findings of facts of the LA, it was ASI which was responsible for the
delay in the institution of the complaint. When Jones filed his resignation, he
immediately asked for the payment of his money claims. However, the
management of ASI promised him that he would be paid immediately after the
claims of the rank-and-file employees had been paid. Jones relied on this
representation. Unfortunately, the promise was never fulfilled even until the time
of Jones’ death.
In light of these circumstances, we can apply the principle of promissory estoppel,
which is a recognized exception to the three-year prescriptive period enunciated
in Article 291 of the Labor Code.
Promissory estoppel may arise from the making of a promise, even though without
consideration, if it was intended that the promise should be relied upon, as in fact
it was relied upon, and if a refusal to enforce it would virtually sanction the
perpetration of fraud or would result in other injustice.5 Promissory estoppel
presupposes the existence of a promise on the part of one against whom estoppel
is claimed.1avvphi1 The promise must be plain and unambiguous and sufficiently
specific so that the court can understand the obligation assumed and enforce the
promise according to its terms.6
The filing of the bond is not only mandatory but also a jurisdictional requirement
that must be complied with in order to confer jurisdiction upon the NLRC.13 Non-
compliance therewith renders the decision of the LA final and executory.14 This
will receive the money judgment in their favor upon the dismissal of the employer's
appeal. It is intended to discourage
employers from using an appeal to delay or evade their obligation to satisfy their
employees' just and lawful claims.15
In the instant case, the failure of petitioners to comply with the requirement of
posting a bond equivalent in amount to the monetary award is fatal to their appeal.
Section 6 of the New Rules of Procedure of the NLRC mandates, among others,
that no motion to reduce bond shall be entertained except on meritorious grounds
and upon the posting of a bond in a reasonable amount in relation to the monetary
award. The NLRC has the full discretion to grant or deny their motion to reduce
the amount of the appeal bond. The finding of the NLRC that petitioners did not
present sufficient justification for the reduction thereof is generally conclusive
upon this Court absent a showing that the denial was tainted with bad faith.
Furthermore, we would like to reiterate that appeal is not a constitutional right, but
a mere statutory privilege. Thus, parties who seek to avail themselves of it must
comply with the statutes or rules allowing it. Perfection of an appeal in the manner
and within the period permitted by law is mandatory and jurisdictional. The
requirements for perfecting an appeal must, as a rule, be strictly followed. Such
requirements are considered indispensable interdictions against needless delays
and are necessary for the orderly discharge of the judicial business. Failure to
perfect the appeal renders the judgment of the court final and executory. Just as
a losing party has the privilege to file an appeal within the prescribed period, so
does the winner also have the correlative right to enjoy the finality of the
decision.16
III

In order to make out a claim of promissory estoppel, a party bears the burden of
establishing the following elements: (1) a promise was reasonably expected to
induce action or forbearance; (2) such promise did, in fact, induce such action or
forbearance; and (3) the party suffered detriment as a result.7
All the requisites of promissory estoppel are present in this case. Jones relied on
the promise of ASI that he would be paid as soon as the claims of all the rank-
and-file employees had been paid. If not for this promise that he had held on to
until the time of his death, we see no reason why he would delay filing the
complaint before the LA. Thus, we find ample justification not to follow the
prescriptive period imposed under Article 291 of the Labor Code. Great injustice
will be committed if we will brush aside the employee’s claims on a mere
technicality, especially when it was petitioner’s own action that prevented
respondent from interposing the claims within the required period.8
The propriety of the monetary award of the LA is already binding upon this Court.
As we have repeatedly pointed out, petitioners’ failure to perfect their appeal in
the manner and period required by the rules makes the award final and executory.
Petitioners’ stance that there was no sufficient basis for the award of the payment
of withheld wages, separation pay and 13th month pay must fail. Such matters
are questions of facts requiring the presentation of evidence. Findings of facts of
administrative and quasi-judicial bodies, which have acquired expertise on
specific matters, are accorded weight and respect by the Court. They are deemed
final and conclusive, unless compelling reasons are presented for us to digress
therefrom.
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit.
The Decision dated April 15, 2005 and the Resolution dated July 12, 2005 of the
Court of Appeals in CA-G.R. SP No. 84206 are hereby AFFIRMED.

SO ORDERED.
II

Petitioners argue that the NLRC committed grave abuse of discretion in

dismissing their appeal for failure to post the complete amount of the bond. They
assert that they cannot post an appeal bond equivalent to the monetary award
rendered by the LA due to financial incapacity. They say that strict enforcement
of the NLRC Rules of Procedure9that the appeal bond shall be equivalent to the
monetary award is oppressive and would have the effect of depriving petitioners
of their right to appeal.10

Article 223 of the Labor Code mandates that in case of a judgment of the LA
involving a monetary award, an appeal by the employer to the NLRC may be
perfected only upon the posting of a cash or surety bond issued by a reputable
bonding company duly accredited by the Commission, in the amount equivalent
to the monetary award in the judgment appealed from.

The posting of a bond is indispensable to the perfection of an appeal in cases

involving monetary awards from the decision of the LA. 11 The intention of the
lawmakers to make the bond a mandatory requisite for the perfection of an appeal
by the employer is clearly limned in the provision that an appeal by the employer
may be perfected "only upon the posting of a cash or surety bond." The word
"only" makes it perfectly plain that the lawmakers intended the posting of a cash
or surety bond by the employer to be the essential and exclusive means by which
an employer's appeal may be perfected. The word "may" refers to the perfection
of an appeal as optional on the part of the defeated party, but not to the
compulsory posting of an appeal bond, if he desires to appeal. The meaning and
the intention of the legislature in enacting a statute must be determined from the
language employed; and where there is no ambiguity in the words used, then
there is no room for construction.12
 143

G.R. Nos. 159017-18 March 9, 2011 On 3 September 1993, Visitacion wrote a reply letter to Mayor Comendador
saying that: (1) the lease contract was still existing and legally binding; (2) she
was willing to vacate the store as long as same place and area would be given to
PAULINO S. ASILO, JR., Petitioner, her in the new public market; and (3) in case her proposals are not acceptable to
vs. Mayor Comendador, for the latter to just file an unlawful detainer case against her
THE PEOPLE OF THE PHILIPPINES and Spouses VISITACION AND CESAR pursuant to Sangguniang Bayan Resolution No. 156. Pertinent portions of the
C. BOMBASI, Respondents. letter read:

x - - - - - - - - - - - - - - - - - - - - - - -x x x x With all due respect to the resolution of the Municipal Council and the opinion
rendered by the Laguna Asst. Provincial Prosecutor, it is my considered view,
G.R. No. 159059 however, arrived at after consultation with my legal counsel, that our existing
lease contract is still legally binding and in full force and effect. Lest I appear to
be defiant, let me reiterate to you and the council that we are willing to vacate the
VICTORIA BUETA VDA. DE COMENDADOR, IN REPRESENTATION OF said building provided that a new contract is executed granting to us the same
DEMETRIO T. COMENDADOR,Petitioner, space or lot and the same area. I believe that our proposal is most reasonable
vs. and fair under the circumstance. If you are not amenable to the said proposal, I
VISITACION C. BOMBASI AND CESAR C. BOMBASI, Respondents. concur with the position taken by the Council for you to file the appropriate action
in court for unlawful detainer to enable our court to finally thresh out our
differences.141avvphi1
DECISION

On 15 September 1993, Asst. Provincial Prosecutor Florencio Buyser sent a letter

PEREZ, J.:
to Visitacion ordering her to vacate the portion of the public market she was
occupying within 15 days from her receipt of the letter; else, a court action will be
At bench are appeals by certiorari1 from the Decision2 of the Fourth Division of filed against her.
the Sandiganbayan; (1) finding Demetrio T. Comendador3 (Mayor Comendador)
and Paulino S. Asilo, Jr.4 guilty beyond reasonable doubt of violation of Sec. 3(e)
On 11 October 1993, the Sangguniang Bayan of Nagcarlan, Laguna issued
of Republic Act No. 3019; (2) dismissing the cases against accused Alberto S.
Resolution No. 183 authorizing Mayor Comendador to demolish the store being
Angeles;5 (3) ordering the defendants Municipality of Nagcarlan, Laguna,
occupied by Visitacion using legal means. The significant portion of the Resolution
Demetrio T. Comendador and Paulino S. Asilo, Jr. to pay the plaintiffs now
reads:
respondents Visitacion C. Bombasi (Visitacion) and Cesar C. Bombasi damages;
and (4) dismissing the cases against the spouses Alida and Teddy Coroza6 and
Benita and Isagani Coronado.7 Kung kaya ang Sangguniang Bayan ay buong pagkakaisang IPINASIYA: Ang
pagbibigay kapangyarihan kay Kgg. Demetrio T. Comendador na ipagiba ang
anumang istrakturang nagiging sagabal sa mabilis at maayos na pagbabangon
The factual antecedents of the case are:
ng pamilihang bayan.15

On 15 March 1978, Private Respondent Visitacion’s late mother Marciana Vda.

On 14 October 1993, Municipal Administrator Paulino S. Asilo, Jr. (Asilo) also sent
De Coronado (Vda. De Coronado) and the Municipality of Nagcarlan, Laguna
a letter16 to Visitacion informing her of the impending demolition of her store the
(represented by the then Municipal Mayor Crisostomo P. Manalang) entered into
next day. Within the same day, Visitacion wrote a reply letter17 to Asilo, alleging
a lease contract whereby the Municipality allowed the use and enjoyment of
that there is no legal right to demolish the store in the absence of a court order
property comprising of a lot and a store located at the corner of Coronado and E.
and that the Resolutions did not sanction the demolition of her store but only the
Fernandez Sts. at Poblacion, Nagcarlan, Laguna, in favor of the respondent’s
filing of an appropriate unlawful detainer case against her. She further replied that
mother for a period of twenty (20) years beginning on 15 March 1978 until 15
if the demolition will take place, appropriate administrative, criminal and civil
March 1998, extendible for another 20 years.8
actions will be filed against Mayor Comendador, Asilo and all persons who will
take part in the demolition.
The lease contract provided that the late Vda. De Coronado could build a firewall
on her rented property which must be at least as high as the store; and in case of
On 15 October 1993, Mayor Comendador relying on the strength of Sangguniang
modification of the public market, she or her heir/s would be given preferential
Bayan Resolution Nos. 183 and 156 authorized the demolition of the store with
rights.
Asilo and Angeles supervising the work.

Visitacion took over the store when her mother died sometime in 1984. 9 From
Engineer Winston Cabrega (Engineer Cabrega), a licensed civil engineer,
then on up to January 1993, Visitacion secured the yearly Mayor’s permits.10
estimated the cost of the demolished property as amounting to ₱437,900.0018

Sometime in 1986, a fire razed the public market of Nagcarlan. Upon Visitacion’s
On 19 August 1994, Visitacion, together with her husband Cesar Bombasi
request for inspection on 15 May 1986, District Engineer Marcelino B. Gorospe
(Spouses Bombasi) filed with the Regional Trial Court of San Pablo City, Laguna
(Engineer Gorospe) of the then Ministry of Public Works and
a Civil Case19 for damages with preliminary injunction against the Municipality of
Highways,11 Regional Office No. IV-A, found that the store of Visitacion remained
Nagcarlan, Laguna, Mayor Demetrio T. Comendador, Paulino S. Asilo, Jr., and
intact and stood strong. This finding of Engineer Gorospe was contested by the
Alberto S. Angeles. The complaint was soon after amended to include the
Municipality of Nagcarlan.
Spouses Benita and Isagani Coronado and Spouses Alida and Teddy Coroza as
formal defendants because they were then the occupants of the contested area.
The store of Visitacion continued to operate after the fire until 15 October 1993.
The spouses prayed for the following disposition:
On 1 September 1993, Visitacion received a letter12 from Mayor Comendador
directing her to demolish her store within five (5) days from notice. Attached to the
1. RESTRAINING or ENJOINING defendant Municipality and
letter were copies of Sangguniang Bayan Resolution No. 15613dated 30 August
defendant Municipal Mayor from leasing the premises subject of lease
1993 and a Memorandum issued by Asst. Provincial Prosecutor Marianito
Annex "A" hereof, part of which is now occupied by PNP Outpost and
Sasondoncillo of Laguna.
by the Municipal Collectors’ Office, and the equivalent adjacent area
thereof, and to cause the removal of said stalls;
The relevant provisos of the Resolution No. 156 states that:
2. UPHOLDING the right of plaintiffs to occupy the equivalent corner
NOW THEREFORE, be it RESOLVED, as it hereby resolved to authorize Hon. area of the leased areas being now assigned to other persons by
Demetrio T. Comendador to enforce and order the Coronado’s to demolish the defendants Municipality and/or by defendant Municipal Mayor, and to
building constructed on the space previously rented to them in order to give way allow plaintiffs to construct their stalls thereon;
for the construction of a new municipal market building.
3. MAKING the injunction permanent, after trial;
RESOLVED FURTHER, to authorize Demetrio T. Comendador, Honorable Mayor
of Nagcarlan to file an Unlawful Detainer Case with damages for the expenses
4. ORDERING defendants to pay plaintiffs, jointly and severally, the
incurred due to the delay in the completion of the project if the Coronado’s
following –
continuously resists the order.

(a) ₱437,900.00 for loss of building/store and other items
therein;
(b) ₱200,000.00 for exemplary damages;
(c) ₱200,000.00 for moral damages;
(d) ₱30,.00 for attorney’s fees and ₱700.00 for every
attendance of counsel in court.
5. GRANTING further reliefs upon plaintiffs as justice and equity may
warrant in the premises.20
Spouses Bombasi, thereafter, filed a criminal complaint 21 against Mayor
Comendador, Asilo and Angeles for violation of Sec. 3(e) of Republic Act No.
3019 otherwise known as the "Anti-Graft and Corrupt Practices Act" before the
Office of the Ombudsman. On 22 February 1996, an Information22 against Mayor
Comendador, Asilo and Angeles was filed, which reads:
That on or about October 15, 1993, at Nagcarlan, Laguna, Philippines, and within
the jurisdiction of this Honorable Court, the above-named accused, all public
officers, accused Demetrio T. Comendador, being then the Municipal Mayor,
accused Paulino S. Asilo, Jr. being then the Municipal Administrator and accused
Alberto S. Angeles being then the Municipal Planning and Development
Coordinator, all of the Municipality of Nagcarlan, Laguna, committing the crime
herein charged in relation to, while in the performance and taking advantage of
their official functions, conspiring and confederating with each other, and with
evident bad faith, manifest partiality or through gross inexcusable negligence, did
then and there willfully, unlawfully, criminally cause the demolition of a public
market stall leased by the municipal government in favor of one Visitacion
Coronado-Bombasi without legal or justifiable ground therefor, thus, causing
undue injury to the latter in the amount of PESOS: FOUR HUNDRED THIRTY
SEVEN THOUSAND AND NINE HUNDRED ONLY (₱437,900.00).
Upon their arraignments, all the accused entered their separate pleas of "Not
Guilty."
On 4 March 1997, the Sandiganbayan promulgated a Resolution ordering the
consolidation of Civil Case No. SP-4064 (94)23 with Criminal Case No. 23267
pending before the Third Division pursuant to Section 4, Presidential Decree No.
1606, which pertinently reads:
Any provision of law or Rules of Court to the contrary notwithstanding, the criminal
action and the corresponding civil action for the recovery of civil liability arising
from the offense charged shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the Sandiganbayan or the
appropriate courts, the filing of the criminal action being deemed to necessarily
carry with it the filing of the civil action, and no right to reserve the filing of such
civil action separately from the criminal action shall be recognized; Provided,
however, that where the civil action had heretofore been filed separately but
judgment therein has not yet been rendered, and the criminal case is hereafter
filed with the Sandiganbayan or the appropriate court, said civil action shall be
transferred to the Sandiganbayan or the appropriate court as the case may be,
for consolidation and joint determination with the criminal action, otherwise the
separate civil action shall be deemed abandoned.24
During the pendency of the case, Alberto S. Angeles died on 16 November 1997.
Accordingly, the counsel of Angeles filed a motion to drop accused Angeles. On
22 September 1999, the Third Division of Sandiganbayan issued an
Order25 DISMISSING the case against Angeles. The germane portion of the
Order reads:
In view of the submission of the death certificate of accused/defendant Alberto S.
Angeles, and there being no objection on the part of the Public Prosecutor, cases
against deceased accused/defendant Angeles only, are hereby DISMISSED.
The death of Mayor Comendador followed on 17 September 2002. As a result,
the counsel of the late Mayor filed on 3 March 2003 a Manifestation before the
Sandiganbayan informing the court of the fact of Mayor Comendador’s death.
On 28 April 2003, the Sandiganbayan rendered a decision, the dispositive portion
of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
In Criminal Case No. 23267, the court finds accused Demetrio T. Comendador
and Paulino S. Asilo, Jr. guilty beyond reasonable doubt of violation of Sec. 3(e)
144
of Republic Act. No. 3019 as amended, and in the absence of aggravating and
mitigating circumstances, applying the Indeterminate Sentence Law, said
accused are sentenced to suffer the indeterminate penalty of 6 years and 2
months imprisonment as minimum to 10 years and 1 day as maximum.
The order of the court dated September 22, 1999 dismissing the cases against
the accused Alberto S. Angeles, who died on November 16, 1997 is hereby
reiterated.
In Civil Case No. 4064, defendants Municipality of Nagcarlan, Laguna, Demetrio
T. Comendador and Paulino S. Asilo, Jr. are hereby ordered jointly and severally
to pay plaintiff P437,900.00 as actual damages for the destruction of the store;
P100,000.00 as moral damages; P30,000.00 as attorney’s fees, and to pay the
cost of the suit. The prayer for exemplary damages is denied as the court found
no aggravating circumstances in the commission of the crime.
In view of this court’s finding that the defendant spouses Alida and Teddy Coroza
are lawful occupants of the subject market stalls from which they cannot be validly
ejected without just cause, the complaint against them is dismissed. The
complaint against defendant spouses Benita and Isagani Coronado is likewise
dismissed, it appearing that they are similarly situated as the spouses Coroza.
Meanwhile, plaintiff Visitacion Bombasi is given the option to accept market space
being given to her by the municipality, subject to her payment of the appropriate
rental and permit fees.
The prayer for injunctive relief is denied, the same having become moot and
academic.
The compulsory counterclaim of defendant Comendador is likewise denied for
lack of merit.26
Within the same day, Asilo, through his counsel, filed a Motion for
Reconsideration27 of the Decision alleging that there was only an error of
judgment when he complied with and implemented the order of his superior,
Mayor Comendador. He likewise alleged that there is no liability when a public
officer commits in good faith an error of judgment. The Sandiganbayan, on its
Resolution28 dated 21 July 2003 denied the Motion for Reconsideration on the
ground that good faith cannot be argued to support his cause in the face of the
court’s finding that bad faith attended the commission of the offense charged. The
Court further explained that the invocation of compliance with an order of a
superior is of no moment for the "demolition [order] cannot be described as having
the semblance of legality inasmuch as it was issued without the authority and
therefore the same was patently illegal."29
The counsel for the late Mayor also filed its Motion for Reconsideration30 on 12
May 2003 alleging that the death of the late Mayor had totally extinguished both
his criminal and civil liability. The Sandiganbayan on its Resolution31granted the
Motion insofar as the extinction of the criminal liability is concerned and denied
the extinction of the civil liability holding that the civil action is an independent civil
action.
Hence, these Petitions for Review on Certiorari.32
Petitioner Asilo argues that in order to sustain conviction under Sec. 3(e) of
Republic Act No. 3019 or "The Anti-Graft and Corrupt Practices Act," the public
officer must have acted with manifest partiality, evident bad faith or gross
negligence. He also contended that he and his co-accused acted in good faith in
the demolition of the market and, thereby, no liability was incurred.
On the other hand, Petitioner Victoria argues that the death of Mayor Comendador
prior to the promulgation of the decision extinguished NOT ONLY Mayor
Comendador’s criminal liability but also his civil liability. She also asserted good
faith on the part of the accused public officials when they performed the demolition
of the market stall. Lastly, she contended that assuming arguendo that there was
indeed liability on the part of the accused public officials, the actual amount of
damages being claimed by the Spouses Bombasi has no basis and was not duly
substantiated.
Liability of the accused public officials
under Republic Act No. 3019
Section 3(e) of Republic Act No. 3019 provides:
In addition to acts or omissions of public officers already penalized by existing
law, the following shall constitute corrupt practices of any public officer and are
hereby declared to be unlawful:
xxxx

(e) Causing any undue injury to any party, including the Government, or giving
any private party any unwarranted benefits, advantage or preference in the
discharge of his official, administrative or judicial functions through manifest
partiality, evident bad faith or gross inexcusable negligence. This provision shall
apply to officers and employees of offices or government corporations charged
with the grant of licenses or permits or other concessions.
The elements of the offense are as follows: (1) that the accused are public officers
or private persons charged in conspiracy with them; (2) that said public officers
commit the prohibited acts during the performance of their official duties or in
relation to their public positions; (3) that they caused undue injury to any party,
whether the Government or a private party; (4) OR that such injury is caused by
giving unwarranted benefits, advantage or preference to the other party; and (5)
that the public officers have acted with manifest partiality, evident bad
faith or gross inexcusable negligence.33
We sustain the Sandiganbayan in its finding of criminal and civil liabilities against
petitioner Asilo and petitioner Mayor Comendador as here represented by his
widow Victoria Bueta.
We agree with the Sandiganbayan that it is undisputable that the first two
requisites of the criminal offense were present at the time of the commission of
the complained acts and that, as to the remaining elements, there is sufficient
amount of evidence to establish that there was an undue injury suffered on the
part of the Spouses Bombasi and that the public officials concerned acted with
evident bad faith when they performed the demolition of the market stall.
Causing undue injury to any party, including the government, could only mean
actual injury or damage which must be established by evidence.34
In jurisprudence, "undue injury" is consistently interpreted as "actual." Undue has
been defined as "more than necessary, not proper, [or] illegal;" and injury as "any
wrong or damage done to another, either in his person, rights, reputation or
property [that is, the] invasion of any legally protected interest of another." Actual
damage, in the context of these definitions, is akin to that in civil law.35
It is evident from the records, as correctly observed by the Sandiganbayan, that
Asilo and Mayor Comendador as accused below did not deny that there was
indeed damage caused the Spouses Bombasi on account of the demolition. We
affirm the finding that:
xxx. Clearly, the demolition of plaintiff’s store was carried out without a court order,
and notwithstanding a restraining order which the plaintiff was able to obtain. The
demolition was done in the exercise of official duties which apparently was
attended by evident bad faith, manifest partiality or gross inexcusable negligence
as there is nothing in the two (2) resolutions which gave the herein accused the
authority to demolish plaintiff’s store.
"Evident bad faith" connotes not only bad judgment but also palpably and patently
fraudulent and dishonest purpose to do moral obliquity or conscious wrongdoing
for some perverse motive or ill will.36 [It] contemplates a state of mind affirmatively
operating with furtive design or with some motive or self-interest or ill will or for
ulterior purposes.37
It is quite evident in the case at bar that the accused public officials committed
bad faith in performing the demolition.
First, there can be no merit in the contention that respondents’ structure is a public
nuisance. The abatement of a nuisance without judicial proceedings is possible if
it is nuisance per se.38 Nuisance per se is that which is nuisance at all times and
under any circumstance, regardless of location and surroundings.39 In this case,
the market stall cannot be considered as a nuisance per se because as found out
by the Court, the buildings had not been affected by the 1986 fire. This finding
was certified to by Supervising Civil Engineer Wilfredo A. Sambrano of the Laguna
District Engineer Office.40 To quote:
An inspection has been made on the building (a commercial establishment) cited
above and found out the following:
1. It is a two-storey building, sketch of which is attached.
2. It is located within the market site.
3. The building has not been affected by the recent fire.
4. The concrete wall[s] does not even show signs of being exposed to
fire.41
145
Second, the Sangguniang Bayan resolutions are not enough to justify demolition.
Unlike its predecessor law,42 the present Local Government Code43 does not
expressly provide for the abatement of nuisance.44 And even assuming that the
power to abate nuisance is provided for by the present code, the accused public
officials were under the facts of this case, still devoid of any power to demolish
the store. A closer look at the contested resolutions reveals that Mayor
Comendador was only authorized to file an unlawful detainer case in case of
resistance to obey the order or to demolish the building using legal means.
Clearly, the act of demolition without legal order in this case was not among those
provided by the resolutions, as indeed, it is a legally impossible provision.
Furthermore, the Municipality of Nagcarlan, Laguna, as represented by the then
Mayor Comendador, was placed in estoppel after it granted yearly business
permits45 in favor of the Spouses Bombasi. Art. 1431 of the New Civil Code
provides that, through estoppel, an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon. The representation made by the municipality
that the Spouses Bombasi had the right to continuously operate its store binds
the municipality. It is utterly unjust for the Municipality to receive the benefits of
the store operation and later on claim the illegality of the business.
The bad faith of the petitioners completes the elements of the criminal offense of
violation of Sec. 3(e) of Republic Act No. 3019. The same bad faith serves as the
source of the civil liability of Asilo, Angeles, and Mayor Comendador.
It must be noted that when Angeles died on 16 November 1997, a motion to drop
him as an accused was filed by his counsel with no objection on the part of the
prosecution. The Sandiganbayan acted favorably on the motion and issued an
Order dismissing all the cases filed against Angeles. On the other hand, when
Mayor Comendador died and an adverse decision was rendered against him
which resulted in the filing of a motion for reconsideration by Mayor Comendador’s
counsel, the prosecution opposed the Motion specifying the ground that the civil
liability did not arise from delict, hence, survived the death of the accused. The
Sandiganbayan upheld the opposition of the prosecution which disposition was
not appealed.
We note, first off, that the death of Angeles and of Mayor Comendador during the
pendency of the case extinguished their criminal liabilities.
We now hold, as did the Sandiganbayan that the civil liability of Mayor
Comendador survived his death; and that of Angeles could have likewise survived
had it not been for the fact that the resolution of the Sandiganbayan that his death
extinguished the civil liability was not questioned and lapsed into finality.
We laid down the following guidelines in People v. Bayotas:46
Death of the accused pending appeal of his conviction extinguishes his criminal
liability as well as the civil liability based solely thereon. As opined by Justice
Regalado, in this regard, "the death of the accused prior to final judgment
terminates his criminal liability and only the civil liability directly arising from and
based solely on the offense committed, i.e., civil liability ex delicto in senso
strictiore."
Corollarily, the claim for civil liability survives notwithstanding the death of (the)
accused, if the same may also be predicated on a source of obligation other than
delict. Article 1157 of the Civil Code enumerates these other sources of obligation
from which the civil liability may arise as a result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) Acts or omissions punished by law; and
e) Quasi-delicts. (Emphasis ours)
Where the civil liability survives, as explained [above], an action for recovery
therefore may be pursued but only by way of filing a separate civil action47 and
subject to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure as
amended. This separate civil action may be enforced either against the
executor/administrator or the estate of the accused, depending on the source of
obligation upon which the same is based as explained above.
Finally, the private offended party need not fear a forfeiture of his right to file this
separate civil action by prescription, in cases where during the prosecution of the

criminal action and prior to its extinction, the private-offended party instituted
together therewith the civil action. In such case, the statute of limitations on the
civil liability is deemed interrupted during the pendency of the criminal case,
conformably with provisions of Article 1155 of the New Civil Code, which should
thereby avoid any apprehension on a possible privation of right by prescription.
Upon death of the accused pending appeal of his conviction, the criminal action
is extinguished inasmuch as there is no longer a defendant to stand as the
accused; the civil action instituted therein for recovery of civil liability ex delicto is
ipso facto extinguished, grounded as it is on the criminal.48
The New Civil Code provisions under the Chapter, Human Relations, were cited
by the prosecution to substantiate its argument that the civil action based therein
is an independent one, thus, will stand despite the death of the accused during
the pendency of the case.
On the other hand, the defense invoked Section 4 of Presidential Decree No.
1606, as amended by Republic Act No. 8249, in support of its argument that the
civil action was dependent upon the criminal action, thus, was extinguished upon
the death of the accused. The law provides that:
Any provision of law or the Rules of Court to the contrary notwithstanding, the
criminal action and the corresponding civil action for the recovery of civil liability
arising from the offense charged shall at all times be simultaneously instituted
with, and jointly determined in the same proceeding by, the Sandiganbayan, the
filing of the criminal action being deemed to necessarily carry with it the filing of
the civil action, and no right to reserve the filing of such action shall be recognized.
(Emphasis ours)
We agree with the prosecution.
Death of Mayor Comendador during the pendency of the case could have
extinguished the civil liability if the same arose directly from the crime committed.
However, in this case, the civil liability is based on another source of obligation,
the law on human relations.49 The pertinent articles follow:
Art. 31 of the Civil Code states:
When the civil action is based on an obligation not arising from the act or omission
complained of as a felony, such civil action may proceed independently of the
criminal proceedings and regardless of the result of the latter.
And, Art. 32(6) states:
Any public officer or employee, or any private individual, who directly or indirectly
obstructs, defeats, violates or in any manner impedes or impairs any of the
following rights and liberties of another person shall be liable to the latter for
damages:
(6) The right against deprivation of property without due process of law;
xxxx
In any of the cases referred to in this article, whether or not the defendant's act or
omission constitutes a criminal offense, the aggrieved party has a right to
commence an entirely separate and distinct civil action for damages, and for other
relief. Such civil action shall proceed independently of any criminal prosecution (if
the latter be instituted), and may be proved by a preponderance of evidence.
As held in Aberca v. Ver:
It is obvious that the purpose of the above codal provision [Art. 32 of the New Civil
Code] is to provide a sanction to the deeply cherished rights and freedoms
enshrined in the Constitution. Its message is clear; no man may seek to violate
those sacred rights with impunity. x x x.50
Indeed, the basic facts of this case point squarely to the applicability of the law on
human relations. First, the complaint for civil liability was filed way AHEAD of the
information on the Anti-Graft Law. And, the complaint for damages specifically
invoked defendant Mayor Comendador’s violation of plaintiff’s right to due
process. Thus:
xxxx
146
In causing or doing the forcible demolition of the store in question, the individual
natural defendants did not only act with grave abuse of authority but usurped a
power which belongs to our courts of justice; such actuations were done with
malice or in bad faith and constitute an invasion of the property rights of plaintiff(s)
without due process of law.
xxxx
The Court is in one with the prosecution that there was a violation of the right to
private property of the Spouses Bombasi. The accused public officials should
have accorded the spouses the due process of law guaranteed by the Constitution
and New Civil Code. The Sangguniang Bayan Resolutions as asserted by the
defense will not, as already shown, justify demolition of the store without court
order. This Court in a number of decisions51 held that even if there is already a
writ of execution, there must still be a need for a special order for the purpose of
demolition issued by the court before the officer in charge can destroy, demolish
or remove improvements over the contested property.52 The pertinent provisions
are the following:
Before the removal of an improvement must take place, there must be a special
order, hearing and reasonable notice to remove. Section 10(d), Rule 39 of the
Rules of Court provides:
(d) Removal of improvements on property subject of execution. – When the
property subject of execution contains improvements constructed or planted by
the judgment obligor or his agent, the officer shall not destroy, demolish or remove
said improvements except upon special order of the court, issued upon motion of
the judgment obligee after due hearing and after the former has failed to remove
the same within a reasonable time fixed by the court.
The above-stated rule is clear and needs no interpretation. If demolition is
necessary, there must be a hearing on the motion filed and with due notices to
the parties for the issuance of a special order of demolition.53
This special need for a court order even if an ejectment case has successfully
been litigated, underscores the independent basis for civil liability, in this case,
where no case was even filed by the municipality.
The requirement of a special order of demolition is based on the rudiments of
justice and fair play. It frowns upon arbitrariness and oppressive conduct in the
execution of an otherwise legitimate act. It is an amplification of the provision of
the Civil Code that every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.54
Notably, the fact that a separate civil action precisely based on due process
violations was filed even ahead of the criminal case, is complemented by the fact
that the deceased plaintiff Comendador was substituted by his widow, herein
petitioner Victoria who specified in her petition that she has "substituted him as
petitioner in the above captioned case." Section 1, Rule III of the 1985 Rules in
Criminal Procedure mentioned in Bayotas is, therefore, not applicable. Truly, the
Sandiganbayan was correct when it maintained the separate docketing of the civil
and criminal cases before it although their consolidation was erroneously based
on Section 4 of Presidential Decree No. 1606 which deals with civil liability "arising
from the offense charged."
We must, however, correct the amount of damages awarded to the Spouses
Bombasi.
To seek recovery of actual damages, it is necessary to prove the actual amount
of loss with a reasonable degree of certainty, premised upon competent proof and
on the best evidence obtainable.55 In this case, the Court finds that the only
evidence presented to prove the actual damages incurred was the itemized list of
damaged and lost items56 prepared by Engineer Cabrega, an engineer
commissioned by the Spouses Bombasi to estimate the costs.
As held by this Court in Marikina Auto Line Transport Corporation v. People of the
Philippines,57
x x x [W]e agree with the contention of petitioners that respondents failed to prove
that the damages to the terrace caused by the incident amounted to ₱100,000.00.
The only evidence adduced by respondents to prove actual damages claimed by
private respondent were the summary computation of damage made by Engr.
Jesus R. Regal, Jr. amounting to ₱171,088.46 and the receipt issued by the BB
Construction and Steel Fabricator to private respondent for ₱35,000.00
representing cost for carpentry works, masonry, welding, and electrical works.
Respondents failed to present Regal to testify on his estimation. In its five-page
decision, the trial court awarded ₱150,000.00 as actual damages to private
respondent but failed to state the factual basis for such award. Indeed, the trial
 147

court merely declared in the decretal portion of its decision that the "sum of
₱150,000.00 as reasonable compensation sustained by plaintiff for her damaged
apartment." The appellate court, for its part, failed to explain how it arrived at the
amount of ₱100,000.00 in its three-page decision. Thus, the appellate court
merely declared:

With respect to the civil liability of the appellants, they contend that there was no
urgent necessity to completely demolish the apartment in question considering
the nature of the damages sustained as a result of the accident. Consequently,
appellants continue, the award of ₱150,000.00 as compensation sustained by the
plaintiff-appellee for her damaged apartment is an unconscionable amount.

Further, in one case,58 this Court held that the amount claimed by the respondent-
claimant’s witness as to the actual amount of damages "should be admitted with
extreme caution considering that, because it was a bare assertion, it should be
supported by independent evidence." The Court further said that whatever claim
the respondent witness would allege must be appreciated in consideration of his
particular self-interest.59 There must still be a need for the examination of the
documentary evidence presented by the claimants to support its claim with regard
to the actual amount of damages.

The price quotation made by Engineer Cabrega presented as an

exhibit60 partakes of the nature of hearsay evidence considering that the person
who issued them was not presented as a witness. 61 Any evidence, whether oral
or documentary, is hearsay if its probative value is not based on the personal
knowledge of the witness but on the knowledge of another person who is not on
the witness stand. Hearsay evidence, whether objected to or not, has no probative
value unless the proponent can show that the evidence falls within the exceptions
to the hearsay evidence rule.62 Further, exhibits do not fall under any of the
exceptions provided under Sections 37 to 47 of Rule 130 of the Rules of Court.

Though there is no sufficient evidence to award the actual damages claimed, this
Court grants temperate damages for ₱200,000.00 in view of the loss suffered by
the Spouses Bombasi. Temperate damages are awarded in accordance with Art.
2224 of the New Civil Code when the court finds that some pecuniary loss has
been suffered but its amount cannot, from the nature of the case, be proven with
certainty. The amount of temperate or moderated damages is usually left to the
discretion of the courts but the same should be reasonable, bearing in mind that
the temperate damages should be more than nominal but less than
compensatory.63 Without a doubt, the Spouses Bombasi suffered some form of
pecuniary loss in the impairment of their store. Based on the record of the
case,64the demolished store was housed on a two-story building located at the
market’s commercial area and its concrete walls remained strong and not affected
by the fire. However, due to the failure of the Spouses Bombasi to prove the exact
amount of damage in accordance with the Rules of Evidence, 65 this court finds
that ₱200,000.00 is the amount just and reasonable under the circumstances.

WHEREFORE, the instant appeal is DENIED. Accordingly, the Decision of the

Sandiganbayan dated 28 April 2003 is hereby AFFIRMED WITH
MODIFICATION. The Court affirms the decision finding the accused Paulino S.
Asilo, Jr. and Demetrio T. Comendador guilty of violating Section 3(e) of Republic
Act No. 3019. We declare the finality of the dismissal of both the criminal and civil
cases against Alberto S. Angeles as the same was not appealed. In view of the
death of Demetrio T. Comendador pending trial, his criminal liability is
extinguished; but his civil liability survives. The Municipality of Nagcarlan, Paulino
Asilo and Demetrio T. Comendador, as substituted by Victoria Bueta Vda. De
Comendador, are hereby declared solidarily liable to the Spouses Bombasi for
temperate damages in the amount of ₱200,000.00 and moral damages in the
amount of ₱100,000.00.

Costs against the petitioners-appellants.

SO ORDERED.
 148

G.R. No. 160545 March 9, 2010 From September 8, 1994 to January 4, 1997, the petitioners paid the following
amounts to the respondent:
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and ROGELIO
S. PANTALEON, Petitioners,
vs. September 8, 1994 ……………… ₱320,000.00
ARTHUR F. MENCHAVEZ, Respondent.
October 8, 1995…………………. ₱600,000.00

DECISION November 8, 1995……………. ₱158,772.00

January 4, 1997 …………………. ₱30,000.0011

BRION, J.:

We resolve in this Decision the petition for review on certiorari1 filed by petitioners
Prisma Construction & Development Corporation (PRISMA) and Rogelio S.
Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set
aside the Decision2 dated May 5, 2003 and the Resolution3 dated October 22,
2003 of the Former Ninth Division of the Court of Appeals (CA) in CA-G.R. CV
No. 69627. The assailed CA Decision affirmed the Decision of the Regional Trial
Court (RTC), Branch 73, Antipolo City in Civil Case No. 97-4552 that held the
petitioners liable for payment of ₱3,526,117.00 to respondent Arthur F.
Menchavez (respondent), but modified the interest rate from 4% per month to
12% per annum, computed from the filing of the complaint to full payment. The
assailed CA Resolution denied the petitioners’ Motion for Reconsideration.
FACTUAL BACKGROUND
As of January 4, 1997, the petitioners had already paid a total of ₱1,108,772.00.
However, the respondent found that the petitioners still had an outstanding
balance of ₱1,364,151.00 as of January 4, 1997, to which it applied a 4% monthly
interest.12 Thus, on August 28, 1997, the respondent filed a complaint for sum of
money with the RTC to enforce the unpaid balance, plus 4% monthly interest,
₱30,000.00 in attorney’s fees, ₱1,000.00 per court appearance and costs of
suit.13
In their Answer dated October 6, 1998, the petitioners admitted the loan of
₱1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that
the interest was not provided in the promissory note. Pantaleon also denied that
he made himself personally liable and that he made representations that the loan
would be repaid within six (6) months.14

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

On December 8, 1993, Pantaleon, the President and Chairman of the Board of The RTC rendered a Decision on October 27, 2000 finding that the respondent
PRISMA, obtained a ₱1,000,000.004loan from the respondent, with a monthly issued a check for ₱1,000,000.00 in favor of the petitioners for a loan that would
interest of ₱40,000.00 payable for six months, or a total obligation of earn an interest of 4% or ₱40,000.00 per month, or a total of ₱240,000.00 for a
₱1,240,000.00 to be paid within six (6) months,5 under the following schedule of 6-month period. It noted that the petitioners made several payments amounting
payments: to ₱1,228,772.00, but they were still indebted to the respondent for ₱3,526,117.00
as of February 11,15 1999 after considering the 4% monthly interest. The RTC
observed that PRISMA was a one-man corporation of Pantaleon and used this
January 8, 1994 …………………. ₱40,000.00 circumstance to justify the piercing of the veil of corporate fiction. Thus, the RTC
ordered the petitioners to jointly and severally pay the respondent the amount of
February 8, 1994 ………………... ₱40,000.00 ₱3,526,117.00 plus 4% per month interest from February 11, 1999 until fully
paid.16
March 8, 1994 …………………... ₱40,000.00
The petitioners elevated the case to the CA via an ordinary appeal under Rule 41
April 8, 1994 ……………………. ₱40,000.00 of the Rules of Court, insisting that there was no express stipulation on the 4%
monthly interest.
May 8, 1994 …………………….. ₱40,000.00

June 8, 1994 ………………… ₱1,040,000.006 THE CA RULING

Total ₱1,240,000.00
The CA decided the appeal on May 5, 2003. The CA found that the parties agreed
to a 4% monthly interest principally based on the board resolution that authorized
Pantaleon to transact a loan with an approved interest of not more than 4% per
To secure the payment of the loan, Pantaleon issued a promissory note7 that month. The appellate court, however, noted that the interest of 4% per month, or
states: 48% per annum, was unreasonable and should be reduced to 12% per annum.
The CA affirmed the RTC’s finding that PRISMA was a mere instrumentality of
I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE MILLION TWO Pantaleon that justified the piercing of the veil of corporate fiction. Thus, the CA
HUNDRED FORTY THOUSAND PESOS (P1,240,000), Philippine Currency, modified the RTC Decision by imposing a 12% per annum interest, computed
from Mr. Arthur F. Menchavez, representing a six-month loan payable according from the filing of the complaint until finality of judgment, and thereafter, 12% from
to the following schedule: finality until fully paid.17

After the CA's denial18 of their motion for reconsideration,19 the petitioners filed
January 8, 1994 …………………. ₱40,000.00 the present petition for review on certiorari under Rule 45 of the Rules of Court.

February 8, 1994 ………………... ₱40,000.00

THE PETITION
March 8, 1994 …………………... ₱40,000.00
The petitioners submit that the CA mistakenly relied on their board resolution to
April 8, 1994 ……………………. ₱40,000.00 conclude that the parties agreed to a 4% monthly interest because the board
resolution was not an evidence of a loan or forbearance of money, but merely an
May 8, 1994 …………………….. ₱40,000.00 authorization for Pantaleon to perform certain acts, including the power to enter
into a contract of loan. The expressed mandate of Article 1956 of the Civil Code
June 8, 1994 ………………… ₱1,040,000.00 is that interest due should be stipulated in writing, and no such stipulation exists.
Even assuming that the loan is subject to 4% monthly interest, the interest covers
the six (6)-month period only and cannot be interpreted to apply beyond it. The
The checks corresponding to the above amounts are hereby acknowledged.8 petitioners also point out the glaring inconsistency in the CA Decision, which
reduced the interest from 4% per month or 48% per annum to 12% per annum,
but failed to consider that the amount of ₱3,526,117.00 that the RTC ordered
and six (6) postdated checks corresponding to the schedule of payments. them to pay includes the compounded 4% monthly interest.
Pantaleon signed the promissory note in his personal capacity, 9 and as duly
authorized by the Board of Directors of PRISMA.10 The petitioners failed to
completely pay the loan within the stipulated six (6)-month period. THE CASE FOR THE RESPONDENT

The respondent counters that the CA correctly ruled that the loan is subject to a
4% monthly interest because the board resolution is attached to, and an integral
part of, the promissory note based on which the petitioners obtained the loan. The
respondent further contends that the petitioners are estopped from assailing the
4% monthly interest, since they agreed to pay the 4% monthly interest on the
principal amount under the promissory note and the board resolution.
THE ISSUE
The core issue boils down to whether the parties agreed to the 4% monthly
interest on the loan. If so, does the rate of interest apply to the 6-month payment
period only or until full payment of the loan?
OUR RULING
We find the petition meritorious.
Interest due should be stipulated in writing; otherwise, 12% per annum
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.20 When the terms of a contract
are clear and leave no doubt as to the intention of the contracting parties, the
literal meaning of its stipulations governs.21 In such cases, courts have no
authority to alter the contract by construction or to make a new contract for the
parties; a court's duty is confined to the interpretation of the contract the parties
made for themselves without regard to its wisdom or folly, as the court cannot
supply material stipulations or read into the contract words the contract does not
contain.22 It is only when the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to determine the parties’ intent.
In the present case, the respondent issued a check for ₱1,000,000.00.23 In turn,
Pantaleon, in his personal capacity and as authorized by the Board, executed the
promissory note quoted above. Thus, the ₱1,000,000.00 loan shall be payable
within six (6) months, or from January 8, 1994 up to June 8, 1994. During this
period, the loan shall earn an interest of ₱40,000.00 per month, for a total
obligation of ₱1,240,000.00 for the six-month period. We note that this agreed
sum can be computed at 4% interest per month, but no such rate of interest
was stipulated in the promissory note; rather a fixed sum equivalent to this
rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that "no interest shall be due
unless it has been expressly stipulated in writing." Under this provision, the
payment of interest in loans or forbearance of money is allowed only if: (1) there
was an express stipulation for the payment of interest; and (2) the agreement for
the payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of interest at a stipulated rate. Thus, we
held in Tan v. Valdehueza24 and Ching v. Nicdao25 that collection of interest
without any stipulation in writing is prohibited by law.1avvphi1
Applying this provision, we find that the interest of ₱40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January 8, 1994
to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter,
the interest on the loan should be at the legal interest rate of 12% per annum,
consistent with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals:26
When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code." (Emphasis supplied)
We reiterated this ruling in Security Bank and Trust Co. v. RTC-Makati, Br.
61,27 Sulit v. Court of Appeals,28Crismina Garments, Inc. v. Court of
Appeals, 29 Eastern Assurance and Surety Corporation v. Court of
Appeals, 30Sps. Catungal v. Hao, 31 Yong v. Tiu,32 and Sps. Barrera v. Sps.
Lorenzo.33 Thus, the RTC and the CA misappreciated the facts of the case; they
erred in finding that the parties agreed to a 4% interest, compounded by the
application of this interest beyond the promissory note’s six (6)-month period. The
facts show that the parties agreed to the payment of a specific sum of money of
₱40,000.00 per month for six months, not to a 4% rate of interest payable within
a six (6)-month period.
Medel v. Court of Appeals not applicable
The CA misapplied Medel v. Court of Appeals34 in finding that a 4% interest per
month was unconscionable.
149
In Medel, the debtors in a ₱500,000.00 loan were required to pay an interest of
5.5% per month, a service charge of 2% per annum, and a penalty charge of 1%
per month, plus attorney’s fee equivalent to 25% of the amount due, until the loan
is fully paid. Taken in conjunction with the stipulated service charge and penalty,
we found the interest rate of 5.5% to be excessive, iniquitous, unconscionable,
exorbitant and hence, contrary to morals, thereby rendering the stipulation null
and void.
Applying Medel, we invalidated and reduced the stipulated interest in Spouses
Solangon v. Salazar35 of 6% per month or 72% per annum interest on a
₱60,000.00 loan; in Ruiz v. Court of Appeals,36 of 3% per month or 36% per
annum interest on a ₱3,000,000.00 loan; in Imperial v. Jaucian, 37 of 16% per
month or 192% per annum interest on a ₱320,000.00 loan; in Arrofo v. Quiño,38 of
7% interest per month or 84% per annum interest on a ₱15,000.00 loan; in Bulos,
Jr. v. Yasuma,39 of 4% per month or 48% per annum interest on a ₱2,500,000.00
loan; and in Chua v. Timan,40 of 7% and 5% per month for loans totalling
₱964,000.00. We note that in all these cases, the terms of the loans were open-
ended; the stipulated interest rates were applied for an indefinite period.
Medel finds no application in the present case where no other stipulation exists
for the payment of any extra amount except a specific sum of ₱40,000.00 per
month on the principal of a loan payable within six months. Additionally, no issue
on the excessiveness of the stipulated amount of ₱40,000.00 per month was ever
put in issue by the petitioners;41 they only assailed the application of a 4% interest
rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties are bound by
the stipulations, clauses, terms and conditions they have agreed to, which is the
law between them, the only limitation being that these stipulations, clauses, terms
and conditions are not contrary to law, morals, public order or public policy.42 The
payment of the specific sum of money of ₱40,000.00 per month was voluntarily
agreed upon by the petitioners and the respondent. There is nothing from the
records and, in fact, there is no allegation showing that petitioners were victims of
fraud when they entered into the agreement with the respondent.
Therefore, as agreed by the parties, the loan of ₱1,000,000.00 shall earn
₱40,000.00 per month for a period of six (6) months, or from December 8, 1993
to June 8, 1994, for a total principal and interest amount of ₱1,240,000.00.
Thereafter, interest at the rate of 12% per annum shall apply. The amounts
already paid by the petitioners during the pendency of the suit, amounting to
₱1,228,772.00 as of February 12, 1999,43 should be deducted from the total
amount due, computed as indicated above. We remand the case to the trial court
for the actual computation of the total amount due.
Doctrine of Estoppel not applicable
The respondent submits that the petitioners are estopped from disputing the 4%
monthly interest beyond the six-month stipulated period, since they agreed to pay
this interest on the principal amount under the promissory note and the board
resolution.
We disagree with the respondent’s contention.
We cannot apply the doctrine of estoppel in the present case since the facts and
circumstances, as established by the record, negate its application. Under the
promissory note,44 what the petitioners agreed to was the payment of a specific
sum of ₱40,000.00 per month for six months – not a 4% rate of interest per
month for six (6) months – on a loan whose principal is ₱1,000,000.00, for
the total amount of ₱1,240,000.00. Thus, no reason exists to place the
petitioners in estoppel, barring them from raising their present defenses against
a 4% per month interest after the six-month period of the agreement. The board
resolution,45 on the other hand, simply authorizes Pantaleon to contract for a loan
with a monthly interest of not more than 4%. This resolution merely embodies the
extent of Pantaleon’s authority to contract and does not create any right or
obligation except as between Pantaleon and the board. Again, no cause exists to
place the petitioners in estoppel.
Piercing the corporate veil unfounded
We find it unfounded and unwarranted for the lower courts to pierce the corporate
veil of PRISMA.
The doctrine of piercing the corporate veil applies only in three (3) basic instances,
namely: a) when the separate and distinct corporate personality defeats public
convenience, as when the corporate fiction is used as a vehicle for the evasion of
an existing obligation; b) in fraud cases, or when the corporate entity is used to
justify a wrong, protect a fraud, or defend a crime; or c) is used in alter ego cases,
i.e., where a corporation is essentially a farce, since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized and
 150

controlled and its affairs so conducted as to make it merely an instrumentality,

agency, conduit or adjunct of another corporation.46 In the absence of malice, bad
faith, or a specific provision of law making a corporate officer liable, such
corporate officer cannot be made personally liable for corporate liabilities.47

In the present case, we see no competent and convincing evidence of any

wrongful, fraudulent or unlawful act on the part of PRISMA to justify piercing its
corporate veil. While Pantaleon denied personal liability in his Answer, he made
himself accountable in the promissory note "in his personal capacity and as
authorized by the Board Resolution" of PRISMA.48 With this statement of personal
liability and in the absence of any representation on the part of PRISMA that the
obligation is all its own because of its separate corporate identity, we see no
occasion to consider piercing the corporate veil as material to the case.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET

ASIDE the Decision dated May 5, 2003 of the Court of Appeals in CA-G.R. CV
No. 69627. The petitioners’ loan of ₱1,000,000.00 shall bear interest of
₱40,000.00 per month for six (6) months from December 8, 1993 as indicated in
the promissory note. Any portion of this loan, unpaid as of the end of the six-month
payment period, shall thereafter bear interest at 12% per annum. The total amount
due and unpaid, including accrued interests, shall bear interest at 12% per annum
from the finality of this Decision. Let this case be REMANDED to the Regional
Trial Court, Branch 73, Antipolo City for the proper computation of the amount
due as herein directed, with due regard to the payments the petitioners have
already remitted. Costs against the respondent.

SO ORDERED.

G.R. No. 165938 November 25, 2009
ROGELIO DIZON, Petitioner,
vs.
PHILIPPINE VETERANS BANK, Respondent.
DECISION
PERALTA, J.:
Assailed in the present petition for review on certiorari under Rule 45 of the Rules
of Court is the Resolution1 of the Court of Appeals (CA) in CA-G.R. CV No. 72856,
dated August 25, 2003, which dismissed herein petitioner's appeal, and its
Resolution2 dated November 2, 2004 denying petitioner's motion for
reconsideration.
The undisputed facts are as follows:
Herein petitioner Rogelio Dizon and his wife Corazon were the owners of three
parcels of land located in Angeles City, Pampanga covered by Transfer Certificate
of Title (TCT) Nos. T-12567, T-35788 and T-29117-R (3793). On September 26,
1979, the Spouses Dizon mortgaged these lots to herein respondent Philippine
Veterans Bank (PVB) as security for a credit accommodation which they obtained
from PVB. The Spouses Dizon failed to pay their obligation. As a consequence,
PVB extrajudicially foreclosed the mortgage and was able to acquire the subject
properties at public auction conducted on December 8, 1983. Subsequently, a
Certificate of Sale was issued in favor of PVB which was registered with the
Register of Deeds of Angeles City on November 22, 1984.
Sometime in June 1986, PVB filed with the Regional Trial Court (RTC) of Angeles
City a Petition for the Issuance of Owner's Duplicate Certificate of Title covering
the subject lots. The case was docketed as L.R.C. CAD. CASE NO. A-124-91.
Apparently, for failure of PVB to prosecute the case for an unreasonable length
of time, the petition was dismissed without prejudice.
On July 26, 1999, PVB filed anew with the RTC of Angeles City a Petition for
Issuance of Owner's Duplicate Copy of Transfer Certificate of Title over the same
parcels of land. The case was docketed as L.R.C. Case No. A-124-1024. Herein
petitioner opposed the petition.
On November 16, 1999, PVB filed with the RTC of Angeles City an ex-
parte petition for the issuance of a writ of possession. The case was docketed as
Cad. Case No. A-124-1057. On February 19, 2002, the RTC rendered judgment
in favor of PVB. On appeal, however, the CA reversed the decision of the RTC
and dismissed PVB's petition for the issuance of a writ of possession. The CA
Decision became final and executory on January 14, 2004.
Meanwhile, after due proceedings in L.R.C. Case No. A-124-1024, the RTC
rendered judgment granting the petition of PVB. The dispositive portion of the
RTC Decision, dated August 6, 2001, reads as follows:
WHEREFORE, the Register of Deeds of Angeles City is directed to issue another
owner's duplicate copies of T.C.T. Nos. T-12567, 29117 (3793) and 35788 in
favor of petitioner Philippine Veterans Bank, which shall contain a memorandum
of the fact that they be issued in place of the lost ones but shall, in all respect, be
entitled to like faith and credit as the original duplicates and shall thereafter be
regarded as such for all purposes of Pres. Decree No. 1529, after the petitioner
shall have complied with all the mandatory requirements of the law on the matter.
SO ORDERED.3
Feeling aggrieved, Rogelio filed an appeal with the CA. On August 25, 2003, the
CA issued the presently assailed Resolution dismissing Rogelio's appeal for his
failure to file his appellant's brief.
Rogelio filed a motion for reconsideration, but the same was denied by the CA in
a subsequent Resolution dated November 2, 2004.
Hence, the present petition based on the following grounds:
I. Whether or not the questioned second Petition for Issuance of
Owner's Duplicate copy of Transfer Certificate of Title Nos. T-12567,
2917 (3793), 5788 in lieu of lost owner's copy filed by the Petitioner-
Appellee on July 26, 1999, after more than sixteen (16) years after the
Foreclosure Sale sometime in December 8, 1983 is barred
by prescription;
151
II. Whether or not the three (3) defective, fictitious and/or fake Owner's
duplicate certificates of title attached in the dismissed original petition
filed on June 1986 when it was the Respondent Bank (petitioner
therein) itself which placed the remarks on the upper right corner of the
titles the phrase: ALLEGEDLY FAKE in our possession presented as
collaterals are similar to the three (3) certified true copies of the
original certificates of title on file at the Register of Deeds of Angeles
City attached in the second Petition and marked as Annexes "A", "B"
and "C" thereof respectively;
III. Whether or not Atty. Ma. Rosario A. Sabalburo, Head of Assets
Recovery Department of the PVB, has committed the crime of perjury
in her Sworn Affidavit of Loss that she executed on July 23, 1999, by
presenting as pieces of evidence the copies of the original certificates
of title secured from the Register of Deeds of Angeles City and not the
machine copies of the owner's duplicate certificates of title that were
found in their file as claimed or true xerox copies from RTC BR. 62;
IV. Whether or not the documentary bases (the three certified copies
of title issued by the Register of Deeds of Angeles City only last
November 16, 1999 which were duly verified by Mr. Ronnie Vergara
and Mr. Herminio Manalang, the records officer and Vault Keeper,
respectively of the said Office, used in the Respondent Bank's second
Petition are the very same copies of the said collaterals having the
same annotations and encumbrances making them as the true and
faithful reproductions of the titles used in the Bank's first Petition filed
by the Petitioner on June 19, 1986. (Emphasis supplied.)4
The petition lacks merit.
With respect to the first issue, petitioner contends that the petition filed by
respondent bank has prescribed, citing Article 1142 of the Civil Code which states
that "[a] mortgage action prescribes in ten years."
It is true that, under Article 1142 of the Civil Code, an action to enforce a right
arising from a mortgage should be enforced within ten (10) years from the time
the right of action accrues; otherwise, it will be barred by prescription and the
mortgage creditor will lose his rights under the mortgage.5 It is clear that the
actions referred to under Article 1142 of the Civil Code are those that necessarily
arise from a mortgage. In the present case, however, PVB's petition for the
issuance of an owner's duplicate certificate of title already arises from its right as
the owner of the subject properties and no longer as a mortgagee. The mortgage
contract respondent entered into with petitioner had already been foreclosed, the
properties sold and the sale in favor of PVB registered with the Register of Deeds
of the Province of Cagayan. Hence, since the petition filed by PVB is not a
mortgage action, the provisions of Article 1142 of the Civil Code do not apply.
In any case, Presidential Decree (PD) No. 1529, otherwise known as the Property
Registration Decree, the law that specifically governs petitions for the
replacement of lost duplicate certificates of title, does not provide for any limitation
or period for filing the said petition. The silence of the law on this matter can only
be interpreted to mean that there is no intention to provide a prescriptive period
for filing this petition.
As to the second issue, petitioner anchors his opposition to the petition filed by
PVB on the contention that the titles, which he presented to the bank as evidence
that the subject properties were used as security for the loan he and his wife
incurred with the said bank, were genuine but were later on altered by the bank's
officials and employees with whom he allegedly entered a deal in order to have
his loan approved. Petitioner claims that this altered and spurious titles were the
ones presented by PVB in its first petition filed with the RTC in June 1986.
However, these allegations remain unsubstantiated. They are self-serving
statements which are not supported by any evidence whatsoever. It is settled that
one who alleges a fact has the burden of proving it and mere allegation is not
evidence.6 The established fact remains that petitioner and his wife were the ones
who submitted to PVB the authentic owner's copy of the titles over the subject
properties and that these copies were lost.1avvphi1
The Court cannot follow the logic in petitioner's arguments considering that, in the
first place, he and his wife were the ones who submitted the titles to PVB. Now
that PVB seeks to obtain a duplicate copy of the titles covering the subject
properties which it legally acquired, petitioner has made a complete turnaround
and now assails the authenticity of these titles which he and his wife used to obtain
their loan. Nonetheless, petitioner is estopped from doing so.
Settled is the rule that a person, who by his deed or conduct has induced another
to act in a particular manner, is barred from adopting an inconsistent position,
attitude or course of conduct that thereby causes loss or injury to the latter.7 The
doctrine of estoppel is based upon the grounds of public policy, fair dealing, good
faith and justice, and its purpose is to forbid one to speak against his own act,

representations, or commitments to the injury of one to whom they were directed
and who reasonably relied thereon.8
Article 1431 of the Civil Code states that "[t]hrough estoppel an admission or
representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon."
The essential elements of estoppel are: (1) conduct of a party amounting to false
representation or concealment of material facts or at least calculated to convey
the impression that the facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; (2) intent, or at least expectation,
that this conduct shall be acted upon by, or at least influence, the other party; and
(3) knowledge, actual or constructive, of the real facts.9
In the present case, petitioner may not renege on his own acts and
representations to the prejudice of respondent bank, which has relied on them.
Since petitioner entered into a binding contract on his own volition using the titles
which he now assails, he is therefore estopped from questioning the authenticity
of these documents which paved the way for the consummation of the contract
from which he derived benefit.
Other than to harass the respondent, the Court is at a loss as to what petitioner
really desires to achieve in opposing the respondent bank's petition. The Court
agrees with respondent's observation that petitioner's actuations are
demonstrative of his desperate attempt to cling on to the subject properties
despite the fact that he has lost them by reason of foreclosure due to his failure
to pay his obligations and his subsequent inability to redeem them during the
period allowed by law.
Coming to the third and fourth issues, petitioner calls on the Court to resolve
issues of fact. Settled is the rule that a petition for review on certiorari filed with
this Court under Rule 45 of the Revised Rules of Court shall raise only questions
of law.10 This Court is not a trier of facts. It is not its function to analyze or weigh
evidence. The jurisdiction of this Court over cases brought to it is limited to the
review and rectification of errors allegedly committed by the lower courts.11 While
there are exceptions to this rule,12 the Court finds that the present case does not
fall under any of them.
In any case, what petitioner is trying to impress upon the Court in the third and
fourth issues is that PVB is concealing the fact that the alleged spurious copies of
the subject TCTs were not actually lost. However, the Court gives full faith and
credence to the finding of the RTC that the owner's duplicate copies in the
possession of PVB were, in fact, lost. This is consistent with the settled rule that
appellate courts should not, unless for strong and cogent reasons, reverse the
findings of fact of trial courts.13 This is so because trial judges are in a better
position to examine real evidence and at a vantage point to observe the actuation
and the demeanor of the witnesses.14 In the instant case, the Court finds no
sufficient reason to depart from the above findings of the RTC.
Petitioner further questions PVB's submission of the certified true copies of the
TCTs covering the subject properties, which were taken from the files of the
Register of Deeds of Angeles City. However, PVB has sufficiently explained that
it is only submitting evidence to prove that it complied with the jurisdictional
requirement under Section 10915 of PD No. 1529, which directs a person applying
for the issuance of another duplicate certificate of title to file a sworn statement
with the concerned Register of Deeds of the fact of loss or destruction of the
original owner's duplicate copy of the subject TCT.
It bears to emphasize that in a petition for the issuance of a second owner's
duplicate copy of a certificate of title in replacement of a lost one, the only
questions to be resolved are: whether or not the original owner's duplicate copy
has indeed been lost and whether the petitioner seeking the issuance of a new
owner’s duplicate title is the registered owner or other person in interest.16
The first question is factual and, in the present case, the RTC had already made
a finding that the original owner's duplicate copy of the subject TCTs had indeed
been lost. In this respect, the Court finds no cogent reason to depart from the
findings of the RTC as discussed earlier.
As to the second question, there is no dispute that PVB has an interest over the
subject properties having acquired the same at public auction.
In sum, there is no doubt as to the identity of the subject properties. There is
neither any dispute with respect to the fact that petitioner and his wife mortgaged
these properties to PVB and that they subsequently failed to pay their obligations
to the latter. Nor is there any issue as to the validity of the foreclosure proceedings
as well as the auction sale conducted and PVB's subsequent acquisition of the
subject properties.
152
Hence, on the basis of the foregoing, the Court finds that the RTC committed no
error in granting PVB's petition for the issuance of an owner's duplicate copy of
certificates of title covering the subject properties.
WHEREFORE, the petition is DENIED. The Resolutions dated August 25, 2003
and November 2, 2004, respectively, of the Court of Appeals in CA-G.R. CV No.
72856, are AFFIRMED.
G.R. No. 193453 June 5, 2013
SPOUSES RUBIN AND PORTIA HOJAS, Petitioners,
vs.
PHILIPPINE AMANAH BANK AND RAMON KUE, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari assailing the July 28, 2010 Decision1 of
the Court of Appeals (CA), in CA-G.R. CV No. 55722, which affirmed the May 27,
1996 Decision of the Regional Trial Court, Branch 13, Zamboanga City (RTC),
dismissing Civil Case No. 1028 (3952), an action for "Determination of True
Balance of Mortgage, Debt, Annulment/Setting
Aside of Extrajudicial Foreclosure of Mortgage and Damages, with Prayer for
Preliminary Injunction."
The petitioners, Spouses Rubin and Portia Hojas (petitioners), alleged that on
April 11, 1980, they secured a loan from respondent Philippine Amanah Bank
(PAB) in the amount of ₱450,000.00; that this loan was secured by a mortgage,
covering both personal and real properties; that from May 14, 1981 to June 27,
1986, they made various payments amounting to ₱486,162.13; that PAB,
however, did not properly credit their payments; that based on the summary of
payments furnished by PAB to them on February 24, 1989, only 13 payments
were credited, erroneously amounting to ₱317,048.83; that PAB did not credit the
payment they made totaling ₱165,623.24; and that, in the statement of their
account as of October 17, 1984, PAB listed their total payment as ₱412,211.54
on the principal, and ₱138,472.09 as 30% interest, all amounting to ₱550,683.63,
despite the fact that at that time, petitioners had already paid the total sum of
₱486,162.13.2
Petitioners further averred that for failure to pay the loan, PAB applied for the
extrajudicial foreclosure of the mortgaged real properties of petitioners with the
Ex-Officio Sheriff; that consequently, a Notice of Extrajudicial Foreclosure was
issued on January 12, 1987 setting the foreclosure sale on April 21, 1987 and,
stating therein the mortgage debt in the sum of ₱450,000.00; and that, in the
public auction conducted, PAB acquired said real property.3
It was further alleged that on March 9, 1988, through the intervention of then
Senator Aquilino Pimentel, Farouk A. Carpizo (Carpizo), the OICPresident of
PAB, wrote Roberto Hojas (Roberto), petitioners’ son, informing him that although
the one-year redemption period would expire on April 21, 1988, by virtue of the
bank’s incentive scheme, the redemption period was extended until December
31, 1988; that despite said letter from the OIC-President, the OIC of the Project
Development Department of PAB wrote Rubin Hojas that the real properties
acquired by PAB would be sold in a public bidding before the end of August, 1988;
that on November 4, 1988, a public bidding was conducted; that in the said
bidding, the mortgaged properties were awarded to respondent Ramon Kue
(Kue); that subsequently, they received a letter from the OIC of the Project
Development Department, dated January 3, 1989, informing them that they had
fifteen (15) days from receipt within which to vacate the premises; that Kue then
sent another letter, dated January 31, 1989, informing them that he had already
acquired the said property and that they were requested to vacate the premises
within fifteen (15) days from receipt thereof;4 and that because of this
development, on May 7, 1991, petitioners filed an action for "Determination of
True Balance of Mortgage Debt, Annulment/Setting Aside of Extrajudicial
Foreclosure of Mortgage and Damages, with Prayer for Preliminary Injunction"
against PAB.5
On May 27, 1996, the RTC dismissed petitioners’ complaint. It ruled, among
others, that: 1) PAB was not guilty of bad faith in conducting the extrajudicial
foreclosure as it, at one time, even suspended the conduct of the foreclosure upon
the request of petitioners, who, nevertheless, failed to exert effort to settle their
accounts; 2) because petitioners failed to redeem their properties within the period
allowed, PAB became its absolute owner and, as such, it had the right to sell the
same to Kue, who acquired the property for value and in good faith; and 3) the
subsequent foreclosure and auction sale having been conducted above board
and in accordance with the requisite legal procedure, collusion between PAB and
Kue was certainly alien to the issue.6

Aggrieved, petitioners filed an appeal assailing the May 27, 1996 RTC Decision.
They asserted that the March 9, 1988 Letter of Carpizo to Roberto Hojas extended
the redemption period from April 21 to December 31, 1988. Considering that they
had relied on Carpizo’s representation, PAB violated the principle of estoppel
when it conducted the public sale on November 4, 1988.7 Their basis was the
portion of said letter which stated:
xxxx
As the Bank has adopted an incentive scheme whereby payments are liberalized
to give chances to former owners to repossess their properties, we suggest that
you advise your parents to drop by at our Zamboanga Office so they can avail of
this rare privilege which shall be good only up to December 31, 1988. (Emphasis
supplied)8
The CA was not sympathetic with petitioners’ position. It held that the period of
redemption was never extended. The date "December 31, 1988" was not an
extension of the redemption period. It was merely the last day for the availment
of the liberalized payment for the repossession of foreclosed assets under PAB’s
incentive scheme. PAB, through said letter, did not make an unqualified
representation to petitioners that it had extended the redemption period. As such,
PAB could not be said to have violated the principle of estoppel when it conducted
a public sale on November 4, 1988.9 Thus, the dispositive portion of the CA
decision reads:
ACCORDINGLY, the instant appeal is DENIED. The Decision dated May 27,
1996, of the Regional Trial Court, 9th Judicial Region, Branch No. 13 of
Zamboanga City, in Civil Case No. 1028 (3952), is AFFIRMED.
SO ORDERED.10
Undaunted, petitioners filed the present petition for review. It postulated the sole
issue:
WHETHER OR NOT THE CA ERRED IN NOT HOLDING PAB TO HAVE
VIOLATED THE PRINCIPLE OF ESTOPPEL WHEN THE LATTER
CONDUCTED THE NOVEMBER 4, 1988 PUBLIC SALE.
Petitioners reiterated their argument that the November 4, 1988 public sale by
PAB was violative of the principle of estoppel because said bank made it appear
that the one-year redemption period was extended. As such, when PAB sold the
property before said date, they suffered damages and were greatly
prejudiced.11 They also argued that since they manifested their interest in availing
of the said "incentive scheme," PAB should have, at the very least, waited until
December 31, 1988, before it sold the subject foreclosed property in a public
auction.12
On the other hand, PAB explains that the purpose of the "incentive scheme" was
to give previous owners the chance to redeem their properties on easy payment
term basis, through condonation of some charges and penalties and allowing
payment by installment based on their proposals which may be acceptable to
PAB. Therefore, the March 9, 1988 Letter of Carpizo was an invitation for
petitioners to submit a proposal to PAB.13 It was not meant to extend the one-year
redemption period.
As early as August 11, 1988, PAB wrote petitioners informing them of the
scheduled public bidding. After receipt of the letter, petitioners went to PAB to
signify their willingness to avail of the said incentive scheme. They, however,
failed to submit a proposal. In fact, PAB did not hear from petitioners again. As
such, the respondent sold the subject property in a public sale on November 4,
198814 PAB cited the RTC’s finding that although the petitioners manifested their
intention to avail of the incentive scheme desire alone was not sufficient.
Redemption is not a matter of intent but involved making the proper payment or
tender of the price of the land within the specified period.15
The petition is bereft of merit.
Through estoppel, an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against the person
relying on it.16 This doctrine is based on the grounds of public policy, fair dealing,
good faith, and justice and its purpose is to forbid one to speak against his own
act, representations or commitments to the injury of one to whom they were
directed and who reasonably relied on it.17 Thus, in order for this doctrine to
operate, a representation must have been made to the detriment of another who
relied on it. In other words, estoppel would not lie against one who, in the first
place, did not make any representation.
153
In this case, a perusal of the letter, on which petitioners based their position that
the redemption period had been extended, shows otherwise. Pertinent portions
of the said letter read:
xxxx
Our records show that the above account has already been foreclosed by the
bank. However, the borrowers concerned can still exercise the one (1) year right
of redemption over the foreclosed properties until April 21, 1988.
As the Bank has adopted an incentive scheme whereby payments are liberalized
to give chances to former owners to repossess their properties, we suggest that
you advise your parents to drop by at our Zamboanga Office so they can avail of
this rare privilege which shall be good only up to December 31, 1988. [Emphases
and Underscoring Supplied]18
As correctly held by the RTC and upheld by the CA, the date "December 31, 1988"
refers to the last day when owners of foreclosed properties, like petitioners, could
submit their payment proposals to the bank. The letter was very clear. It was about
the availment of the liberalized payment scheme of the bank. On the last day for
redemption, the letter was also clear. It was April 21, 1988. It was never extended.
The opportunity given to the petitioners was to avail of the liberalized payment
scheme which program would expire on December 31, 1988. As explained by
Abraham Iribani (Iribani), the OIC of the Project Development Department of PAB,
it was to give a chance to previous owners to repossess their properties on easy
term basis, possibly by condonation of charges and penalties and payment on
instalment. The letter of Carpizo was an invitation to the petitioners to come to the
bank with their proposal. It appears that the petitioners could not come up with a
proposal acceptable to the bank.
For said reason, the mortgaged property was included in the list of mortgaged
properties that would be sold through a scheduled public bidding. Thus, on August
11, 1988, Iribani wrote the petitioners about the scheduled bidding. In response,
the petitioners told Iribani that they would go Manila to explain their case. They
did not, however, return even after the public bidding. In this regard, the CA was
correct when it wrote:
Here, there is no estoppel to speak of. The letter does not show that the Bank had
unqualifiedly represented to the Hojases that it had extended the redemption
period to December 31, 1988. Thus, the Hojases have no basis in positing that
the public sale conducted on November 4, 1988 was null and void for having been
prematurely conducted.19
Moreover, petitioners’ allegation that they had signified their intention to avail of
the incentive scheme (which they have equated to their intention to redeem the
property), did not amount to an exercise of redemption precluding the bank from
making the public sale.20 In the case of China Banking Corporation v. Martir,21 this
Court expounded on what constitutes a proper exercise of the right of redemption,
to wit:
The general rule in redemption is that it is not sufficient that a person offering to
redeem manifests his desire to do so. The statement of intention must be
accompanied by an actual and simultaneous tender of payment. This constitutes
the exercise of the right to repurchase.
In several cases decided by the Court where the right to repurchase was held to
have been properly exercised, there was an unequivocal tender of payment for
the full amount of the repurchase price. Otherwise, the offer to redeem is
ineffectual. Bona fide redemption necessarily implies a reasonable and valid
tender of the entire repurchase price, otherwise the rule on the redemption period
fixed by law can easily be circumvented.
Moreover, jurisprudence also characterizes a valid tender of payment as one
where the full redemption price is tendered. Consequently, in this case, the offer
by respondents on July 24, 1986 to redeem the foreclosed properties for
₱1,872,935 and the subsequent consignation in court of ₱1,500,000 on August
27, 1986, while made within the period of redemption, was ineffective since the
amount offered and actually consigned not only did not include the interest but
was in fact also way below the ₱2,782,554.66 paid by the highest
bidder/purchaser of the properties during the auction sale.
In Bodiongan vs. Court of Appeals, we held:
In order to effect a redemption, the judgment debtor must pay the purchaser the
redemption price composed of the following: (1) the price which the purchaser
paid for the property; (2) interest of 1% per month on the purchase price; (3) the
amount of any assessments or taxes which the purchaser may have paid on the
 154

property after the purchase; and (4) interest of 1% per month on such
assessments and taxes x x x.

Furthermore, Article 1616 of the Civil Code of the Philippines provides:

The vendor cannot avail himself of the right to repurchase without returning to the
vendee the price of the sale x x x.

It is not difficult to understand why the redemption price should either be fully
offered in legal tender or else validly consigned in court. Only by such means can
the auction winner be assured that the offer to redeem is being made in good
faith.1âwphi1

Respondents' repeated requests for information as regards the amount of loan

availed from the credit line and the amount of redemption, and petitioner's failure
to accede to said requests do not invalidate the foreclosure. Respondents can
find other ways to know the redemption price. For one, they can examine the
Certificate of Sale registered with the Register of Deeds to verify the purchase
price, or upon the filing of their complaint, they could have moved for a
computation of the redemption price and consigned the same to the court. At any
rate, whether or not respondents '"were diligent in asserting their willingness to
pay is irrelevant. Redemption within the period allowed by law is not a matter of
intent but a question of payment or valid tender of the full redemption price within
said period.

Even the complaint instituted by respondents cannot aid their plight because the
institution of an action to annul a foreclosure sale does not suspend the running
of the redemption period. (Underscoring supplied)22

In the case at bench, the record is bereft of concrete evidence that would show
that, aside from the fact that petitioners manifested their intention to avail of the
scheme, they were also ready to pay the redemption price. Hence, as they failed
to exercise their right of redemption and failed to take advantage of the liberalized
incentive scheme, PAB was well within its right to sell its property in a public sale.

WHEREFORE, the petition is DENIED.

SO ORDERED.

G.R. No. 202262
JOSE C. GO, GOTESCO PROPERTIES, INC., GO TONG ELECTRICAL
SUPPLY, INC., EVER EMPORIUM, INC., EVER GOTESCO RESOURCES AND
HOLDINGS, INC., GOTESCO TY AN MING DEVELOPMENT, INC.,
EVERCREST CEBU GOLF CLUB, NASUGBU RESORTS, INC., GMCC
UNITED DEVELOPMENT CORPORATION, AND GULOD RESORT,
INC., Petitioners,
vs.
BANGKO SENTRAL NG PILIPINAS, and REGISTER OF DEEDS OF
NASUGBU, BATANGAS, Respondent.
DECISION
BERSAMIN, J.:
By this appeal, the petitioners - businessman Jose C. Go and eight corporations
connected with him, namely: Gotesco Properties, Inc., Go Tong Electrical Supply,
Inc., Ever Emporium, Inc., Ever Gotesco Resources and Holdings, Inc., Gotesco
Tyan Ming Development, Inc., Evercrest Cebu Golf Club, Nasugbu Resorts, Inc.,
GMCC United Development Corporation and Gulod Resort, Inc. - challenge the
decision promulgated on December 20, 2011,1 whereby the Court of Appeals
(CA) dismissed their petition for certiorari for being moot and academic, and
upheld the orders issued on June 4, 20092 and August 6, 20093 by the Regional
Trial Court, Branch 39, in Manila (RTC) allowing respondent Bangko Sentral ng
Pilipinas (Bangko Sentral) to levy on execution the properties indicated in the
parties’ court approved compromise agreement.
Antecedents
The genesis of this case is traced to the decision of the Court promulgated on
June 29, 2011 in G.R. No. 148483 entitled Bangko Sentral ng Pilipinas v. Orient
Commercial Banking Corporation, et. al.4 The facts relevant to our adjudication
are reported therein, as follows:
On February 13, 1998, herein respondent Orient Commercial Banking
Corporation (OCBC) declared a bank holiday on account of its inability to pay all
its obligations to depositors, creditors and petitioner Bangko Sentral ng Pilipinas
(BSP).
On March 17, 1998, OCBC filed a petition for rehabilitation with the Monetary
Board. The bank was placed under receivership and the Philippine Deposit
Insurance Corporation (PDIC) was designated as Receiver. Pursuant to the
Monetary Board’s Resolution No. 1427, PDIC took over all the assets, properties,
obligations and operations of OCBC. Respondent Jose C. Go, the principal and
biggest stockholder of OCBC, with his affiliates companies (respondent
corporations), challenged the said action of the PDIC before the RTC of Manila,
Branch 44 (Civil Case No. 98-91265). Said case was dismissed and the dismissal
was appealed to the CA.
During the pendency of Civil Case No. 98-91265, the Monetary Board adopted
Resolution No. 602 dated May 7, 1999 directing the Receiver to proceed with the
liquidation of OCBC. In June, 1999, the PDIC instituted Special Proceeding No.
99-94328 before the RTC of Manila, Branch 51 entitled "In Re: Petition for
Assistance ion of Orient Commercial Banking Corporation, Philippine Deposit
Insurance Corporation, Petitioner."
On December 17, 1999, petitioner filed in the RTC of Manila (Branch 12) a
complaint for sum of money with preliminary attachment (Civil Case No. 99-
95993) against the respondents seeking to recover deficiency obligation owed by
OCBC which then stood at P1,273,959,042.97 with interest at 8.894% per annum,
overdraft obligation at P1,028,000,000.00, attorney’s fees and cost of suit.
On January 14, 2000, the RTC of Manila, Branch 12 issued an Order in Civil Case
No. 99-95993 granting petitioner’s motion for preliminary attachment. On January
19, 2000, following the posting of P50 million attachment bond issued by the
Government Service Insurance System (GSIS), the corresponding writ was
issued ordering the Deputy Sheriffs to attach the real and personal properties of
respondents to the value of petitioner’s demand in the amount of
P2,301,951,042.97, exclusive of interest and costs, as security for the said
claim.5 (citations omitted)
Eventually, the controversy reached the Court and during the pendency of the
appeal, the parties entered into a compromise agreement, the pertinent
provisions of which were as follows:
I. AMOUNT TO BE SETTLED
155
In consideration of this Compromise Agreement and subject to faithful compliance
by the defendants of the terms hereof, the parties herein have agreed that the
total amount of Deficiency Claim and Overdraft payable by defendants to plaintiff
shall be equivalent to PESOS: TWO BILLION NINE HUNDRED SEVENTY-FOUR
MILLION NINE HUNDRED THREE THOUSAND (PhP2,974,903.00) (sic) which
amount shall be paid by the defendants in the following manner:
A. A down payment shall be made by the defendants through the DACION of
certain real estate properties more particularly described in Annex "B" hereof.
a ii) The parties shall execute separate DEEDS OF DACION over the
real estate properties described in Annex "B" upon the execution of the
Agreement;
a ii) All Capital Gains Tax on the properties for DACION shall be
payable by the defendants but Documentary Stamp Tax, Transfer Tax
and all registration fees on the DACION shall for the account of plaintiff.
B. The balance remaining after the DACION of the real estate properties shall be
paid by the defendants within a period of ten (10) years but extendible for another
five (5) years provided that the defendants shall religiously comply with the
amortization schedule (Annex "C" hereof) for a continuous period of two (2) years
from date of first amortization.
b i) The foregoing outstanding balance shall be charged interest at 91-
day T-Bill rate upon execution of this Compromise Agreement repriced
every three (3) months for a period of 10 years and payable monthly
in arrears.
C. Additional Properties for Execution
c i) To ensure payment of the monthly amortizations due under this
Compromise Agreement, defendants Ever Crest Golf Clob Resort,
Inc., and Mega Heights, Inc., have agreed to have its real
properties with improvements covered by TCT Nos. T-68963, T-
6890, T-68966 and TD ARPN-AA- 1702 00582 and AA-17023-005
shall be subject of existing writ of attachment to secure the
faithful payment of the outstanding obligation herein mentioned,
until such obligation shall have been fully paid by defendants to
plaintiff.
c ii) That all the corporate approvals for the execution of this
Compromise agreement by Ever Crest Golf Club Resort, Inc., and
Mega Heights, Inc., consisting of stockholders resolution and
Board of Directors approval have already been obtained at the
time of the execution of this Agreement.
c iii) Failure on the part of the defendants to fully settle their outstanding
obligations and to comply with any of the terms of this Compromise
Agreement shall entitle the plaintiff to immediately ask for a Writ
of Execution against all assets of the Ever Crest Golf Club Resort,
Inc., and Mega Heights, Inc., now or hereafter arising upon the
signing of this Compromise Agreement.
I. DISMISSAL OF ALL PENDING CASES
xxxx
II. FUNDS UNDER GARNISHMENT
xxxx
III. REPRESENTATION AND WARRANTIES
The signatories to this Compromise Agreement represent and pursuant to
Bangko Sentral as follows:
a. x x x
b. It has obtained the respective Board of Directors approval and other
corporate authorizations for its execution, signing and delivery of this
Compromise Agreement and its attachments.
c. The execution and delivery of this Compromise agreement and all
other documents and deeds related thereto and the performance and

observance by the parties of the resp and conditions thereof, shall not
contravene or violate any provision of term of any contract or
agreement entered into by the parties with any third party, nor
contravene any provision or term of its Articles of Incorporation and
By-Laws.
d. It shall defend the title and peaceful possession by Bangko Sentral
of the Properties against all claims of third persons, and shall indemnify
and hold Bangko Sentral any and all losses, claims, damages,
liabilities and expenses which it might suffer or incur as a result of this
Compromise Agreement or any document or agreement entered into
in connection therewith.
e. It shall not execute or enter into any agreement or contract with any
third party involving the properties which in any way, diminish, impair,
prejudice or affect the rights, title and interest of Bangko Sentral over
the properties acquired by or vested in Bangko Sentral pursuant to
Compromise Agreement and all other documents executed between
the parties in connection therewith.
f. x x x6(Emphasis Supplied)
The RTC eventually approved the compromise agreement on December 29,
2003,7 and the approval resulted in the denial of the petition in G.R. No. 148483.
But the controversy was not laid to rest by the execution of the compromise
agreement because Go did not comply with its provisions. This prompted Bangko
Sentral to move for the execution of the compromise agreement 8 against the
properties of Ever Crest Golf Club Resort, Inc. (Ever Crest) and Mega Heights,
Inc. (Mega Heights) which were levied upon by the sheriff. Initially, the RTC
denied Bangko Sentral’s motion to execute on December 12, 2008, 9 but on
Bangko Sentral’s motion for reconsideration, the RTC relented and granted the
motion. The writ of execution was issued on July 6, 2009.
The petitioners and Ever Crest then brought a petition for certiorari in the CA,
imputing grave abuse of discretion amounting to lack or excess of jurisdiction to
the RTC for issuing the writ of execution against Ever Crest despite its not having
been a party to the compromise agreement, and for ruling that Go had violated
the terms of the compromise agreement (C.A.- G.R. No. SP 109927).10 They
further challenged the following issuances of the sheriff, namely: (a) the notice of
levy upon realty pursuant to the writ of execution dated July 6, 2009; and (b) the
notice of sale on execution of real property dated July 15, 2009.
The CA issued a 60-day temporary restraining order (TRO) in C.A.- G.R. No. SP
109927, but did not ultimately issue a writ of preliminary injunction. Upon the lapse
of the period of 60 days, however, the publicauction pushed through, and the
properties of Ever Crest were sold to Bangko Sentral as the highest bidder. The
transfer certificates of title (TCTs) in the name of Ever Crest were cancelled, and
new TCTs were then issued to Bangko Sentral as the new owner.
Eventually, the CA dismissed C.A.-G.R. No. SP 109927 through the assailed
judgment promulgated on December 20, 2011,11 disposing thusly:
WHEREFORE, premises considered, the instant petition is DISMISSED for being
moot and academic.
No pronouncement as to costs.
SO ORDERED.12
The CA later denied the petitioners’ motion for reconsideration filed on January 6,
201213 through the resolution promulgated on June 14, 2012.14
Issue
Hence, this appeal by the petitioners,15 in which they pose the sole issue of
whether or not the CA correctly dismissed the petition for certiorari for being moot
and academic.
Ruling of the Court
The appeal lacks merit.
The petitioners argue that the issuance of the order of execution was tainted with
grave abuse of discretion because the execution was directed against the
156
properties of Ever Crest despite Ever Crest being neither a defendant in the cases
between Bangko Sentral and Go, nor a signatory to the compromise agreement.
The argument is bereft of substance.
First of all, the petitioners and Ever Crest themselves firmly committed in the
compromise agreement, supra, to have their properties with their improvements
be made subject to the writ of attachment in order "to secure the faithful payment
of the outstanding obligation herein mentioned, until such obligation shall have
been fully paid by defendants to plaintiff," and expressly assured Bangko Sentral
in the same compromise agreement that "all the corporate approvals for the
execution of this Compromise agreement by Ever Crest Golf Club Resort, Inc.,
and Mega Heights, Inc., consisting of stockholders resolution and Board of
Directors approval have already been obtained at the time of the execution of this
Agreement." They warranted in the compromise agreement that: "Failure on the
part of the defendants to fully settle their outstanding obligations and to comply
with any of the terms of this Compromise Agreement shall entitle the plaintiff to
immediately ask for a Writ of Execution against all assets of the Ever Crest Golf
Club Resort, Inc., and Mega Heights, Inc., now or hereafter arising upon the
signing of this Compromise Agreement."16 By such express commitments, the
petitioners and Ever Crest were estopped from claiming that the properties of Ever
Crest and Mega Heights could not be the subject of levy pursuant to the writ of
execution issued by the RTC. In other words, they could not anymore assail the
RTC for authorizing the enforcement of the judgment on the compromise
agreement against the assets of Ever Crest.
There are three kinds of estoppels, to wit: (1) estoppel in pais; (2) estoppel by
deed; and (3) estoppel by laches.1âwphi1Under the first kind, a person is
considered in estoppel if by his conduct, representations, admissions or silence
when he ought to speak out, whether intentionally or through culpable negligence,
"causes another to believe certain facts to exist and such other rightfully relies
and acts on such belief, as a consequence of which he would be prejudiced if the
former is permitted to deny the existence of such facts." Under estoppel by deed,
a party to a deed and his privies are precluded from denying any material fact
stated in the deed as against the other party and his privies. Under estoppel by
laches, an equitable estoppel, a person who has failed or neglected to assert a
right for an unreasonable and unexplained length of time is presumed to have
abandoned or otherwise declined to assert such right and cannot later on seek to
enforce the same, to the prejudice of the other party, who has no notice or
knowledge that the former would assert such rights and whose condition has so
changed that the latter cannot, without injury or prejudice, be restored to his
former state.17
Here, the petitioners are estopped by deed by virtue of the execution of the
compromise agreement. They were the ones who had offered the properties of
Ever Crest to Bangko Sentral, and who had also assured that all the legalities and
formalities for that purpose had been obtained. They should not now be allowed
to escape or to evade their responsibilities under the compromise agreement just
to prevent the levy on execution of Ever Crest’s properties.
And, secondly, the petitioners as well as Ever Crest and Mega Heights were
contractually prohibited from challenging the levy on the assets of Ever Crest.
Through the compromise agreement, the petitioners warranted that they would
defend Bangko Sentral's title and peaceful possession of such levied properties
against all claims of third persons. Their warranty was expressly made applicable
to the properties subject of the dacion as well as to the properties of Ever Crest
and Mega Heights subject of the preliminary attachment. Considering that the
petitioners asserted that Ever Crest was a third party or stranger to the
compromise agreement, they were contractually mandated to resist the adverse
claim of Ever Crest and to defend the validity and efficacy of the levy on execution.
As such, they could not validly raise any issue that would defeat the rights of
Bangko Sentral in such properties.
The term grave abuse of discretion connoted whimsical and capricious exercise
of judgment as was equivalent to excess, or lack of jurisdiction.18 The abuse must
be so patent and gross as to amount to an evasion of a positive duty or to a virtual
refusal to perform a duty enjoined by law, or to act at all in contemplation of law,
as where the power was exercised in an arbitrary and despotic manner by reason
of passion or hostility.19 In light of this understanding of the term grave abuse of
discretion, the CA did not err in dismissing the petition for certiorari because the
petitioners did not show how the RTC could have been guilty of gravely abusing
its discretion amounting to lack or excess of jurisdiction for allowing the execution
of the properties designated as security for an obligation contracted since 1998.
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS
the decision promulgated on December 20, 2011 in CA-G.R. No. SP I 09927 by
the Court of Appeals; and DIRECTS the petitioners to pay the costs of suit.
SO ORDERED.
 157

G.R. No. 215640, November 28, 2016 Finding no cogent reason to deviate from its previous ruling, the CA denied the
Motion for Reconsideration filed by Cabrera.
NESTOR CABRERA, Petitioner, v. ARNEL CLARIN AND WIFE; MILAGROS Hence, the instant petition raising the following
BARRIOS AND HUSBAND; AURORA SERAFIN AND HUSBAND; AND issues:chanRoblesvirtualLawlibrary
BONIFACIO MORENO AND WIFE, Respondents.

A. The Honorable Court of Appeals committed a reversible

DECISION
PERALTA, J.:
For resolution of this Court is a petition for review on certiorari under Rule 45 of
the Rules of Court filed by petitioner Nestor Cabrera (Cabrera) assailing the
Decision1 dated July 25, 2014 and Resolution2 dated November 21, 2014 of the
Court of Appeals (CA) in CA-G.R. CV No. 100950, which reversed and set aside
the Decision3 of the Regional Trial Court (RTC) of Malolos, Bulacan, Branch 10,
in Civil Case No. 752-M-2006.
The facts are as follows:cralawlawlibrary
The instant petition originated from a Complaint4 for accion publiciana with
damages filed before the RTC by Cabrera5 against respondents Arnel Clarin
(Clarin) and wife, Milagros Barrios (Barrios) and husband, Aurora Serafin
(Serafin) and husband, and Bonifacio Moreno (Moreno) and wife.6 Cabrera
alleged that he is the lawful and registered owner of a parcel of agricultural land
located at Barangay Maysulao, Calumpit, Bulacan, with a total area of 60,000
square meters (sq. m.) covered by Transfer Certificate of Title (TCT) No. T-4439.
He was in actual and physical possession of the land until he discovered the
encroachment of respondents sometime in December 2005. By means of fraud,
strategy and stealth, respondents usurped and occupied portions of the said
property, viz.: Clarin with 63 sq. m. thereof, Barrios with 41 sq. m. thereof, Serafin
with 30 sq. m. thereof, and Moreno with 11 sq. m. thereof. He made numerous
oral and written demands to vacate the premises but the respondents refused to
heed. They also tailed to settle amicably when the case was brought before the
barangay for conciliation.
In their Motion to Dismiss,7 respondents claimed that the complaint failed to state
the assessed value of the property which is needed in determining the correct
amount of docket fees to be paid. Also, Cabrera did not fulfill an essential
condition prior to the filing of the complaint which was submission of a government
approved technical survey plan to prove the alleged encroachment. Cabrera
anchors his claim of ownership in the certificate of title registered in his and his
father Ciriaco Cabrera's name. Cabrera did not aver that it was his portion of
property that respondents have intruded as there was no proof of partition of the
property since his father who was an American citizen died in the United States
of America.8
In an Order dated June 19, 2007, the RTC denied respondents' motion, and
directed them to file their Answer.9 The RTC cited the case of Aguilon v. Bohol10 in
ruling that based on the allegations in the complaint, the case is the plenary action
of accion publiciana which clearly falls within its jurisdiction. The trial court, in an
Order11 dated October 19, 2007, declared respondents in default upon tailing to
file their Answer, and allowed Cabrera to present his evidence ex parte. On
February 5, 2009, respondents filed an Omnibus Motion12 to set aside the order
of default, to admit Answer, and to set the hearing for the presentation of their
evidence.
In a Decision dated May 30, 2012, the RTC ruled in favor of Cabrera. The
dispositive portion reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor
of the [petitioner]:cralawlawlibrary
1. ORDERING the [respondents] and all other persons claiming rights under them
to vacate the subject portions of [the] land and surrender possession thereof to
the plaintiff;ChanRoblesVirtualawlibrary
2. ORDERING the [respondents] to pay attorney's fees in the amount of Fifty
Thousand Pesos ([P]50,000.00) and Ten Thousand Pesos ([P]10,000.00)
litigation expenses.
SO ORDERED.13
Aggrieved, respondents elevated the case before the CA which then reversed
and set aside the decision of the RTC in a Decision dated July 25, 2014.
The fallo of the decision reads:chanRoblesvirtualLawlibrary
WHEREFORE, the appeal is hereby GRANTED. The Decision dated May 30,
2012 of the Regional Trial Court, Branch 10, Malolos, Bulacan is REVERSED and
SET ASIDE. In lieu thereof, the complaint for accion publiciana with
damages filed by [petitioner] Nestor Cabrera is DISMISSED without prejudice for
lack of jurisdiction.
SO ORDERED.14
error when it held that "since [petitioner] failed to allege the
assessed value of the subject property, the court a quo has
not acquired jurisdiction over the action and all proceedings
thereat are null and void," as such conclusion is
contradictory to the doctrine of estoppel.
B. The Honorable Court of Appeals committed a reversible
error when it failed to take into consideration the tax
declaration annexed to the Appellee's Brief which provided
the assessed value of the property subject matter of the
case.
The instant petition lacks merit.
In essence, the issue presented before this Court is whether or not estoppel bars
respondents from raising the issue of lack of jurisdiction.
Batas Pambansa Bilang 129, (the Judiciary Reorganization Act of 1980), as
amended by Republic Act (R.A.) No. 7691 provides:chanRoblesvirtualLawlibrary
x x x x
Section 19. Jurisdiction in civil cases. - Regional Trial Courts shall exercise
exclusive original jurisdiction.
(2) In all civil actions which involve the title to, or possession of, real
property, or any interest therein, where the assessed value of the property
involved exceeds Twenty thousand pesos (P20,000,00) or, for civil actions
in Metro Manila, where such value exceeds Fifty thousand pesos
(P50,000.00) except actions for forcible entry into and unlawful detainer of lands
or buildings, original jurisdiction over which is conferred upon the Metropolitan
Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial
Courts;ChanRoblesVirtualawlibrary
x x x x
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts in Civil Cases. - Metropolitan Trial Courts, Municipal
Trial Courts, and Municipal Circuit Trial Courts shall exercise:cralawlawlibrary
(3) Exclusive original jurisdiction in all civil actions which involve title to, or
possession of, real property, or any interest therein where
the assessed value of the property or interest therein docs not exceed
Twenty thousand pesos (P20,000.00) or, in civil actions in Metro Manila, where
such assessed value does not exceed Fifty thousand pesos (P50,000.00)
exclusive of interest, damages of whatever kind, attorney's fees, litigation
expenses and costs: Provided, That in cases of land not declared for taxation
purposes, the value of such property shall be determined by the assessed value
of the adjacent lots.
x x x15
Before the amendments, the plenary action of accion publiciana was to be
brought before the RTC regardless of the value of the property. With the
modifications introduced by R.A. No. 7691 in 1994, the jurisdiction of the first level
courts has been expanded to include jurisdiction over other real actions where the
assessed value does not exceed P20,000.00, P50,000.00 where the action is filed
in Metro Manila. Accordingly, the jurisdictional element is the assessed value
of the property.16
A perusal of the complaint readily shows that Cabrera failed to state the assessed
value of the disputed land, thus:chanRoblesvirtualLawlibrary
x x x x
[T]he plaintiffs are the lawful and the registered owner of a parcel of agricultural
land and more particularly described under Transfer Certificate of Title No. T-
4439, a copy of which is hereto attached and marked as Annex "A" and made an
integral part hereof;ChanRoblesVirtualawlibrary
[T]he defendants had illegally encroached the property of the plaintiff by means
of fraud and stealth and with force and intimidation. Defendant Arnel Clarin had
encroached an approximate area of SIXTY THREE (63) SQUARE METERS,
while defendant Milagros Barrios had encroached an approximate area of
FORTY-ONE (41) SQUARE METERS, defendant Aurora Serafin had encroached
an approximate area of THIRTY (30) SQUARE METERS while defendant
Bonifacio Moreno had encroached an approximate area of ELEVEN (11)
SQUARE METERS, copy of the relocation plan is hereto attached and marked as
Annex "B" and made an integral part of this
complaint;ChanRoblesVirtualawlibrary

The plaintiffs had already informed the defendants of the illegal encroachment but
the defendants refused to heed the call of the plaintiffs to vacate the land in
question and threaten plaintiff with bodily harm;ChanRoblesVirtualawlibrary
That prior to the discovery of the encroachment on or about December 2005,
plaintiff was in actual and physical possession of the premises.
That this matter was referred to the attention of the Office of the Barangay
Chairman of Barangay Maysulao, Calumpit, Bulacan and a Lupong
Tagapamayapa was constituted but no conciliation was reached and the Lupon
issued a Certificate to File Action, copy of the Certificate to File Action is hereto
attached and marked as Annex "C" and made an integral part
hereof;ChanRoblesVirtualawlibrary
That notwithstanding numerous and persistent demands, both oral and written,
extended upon the defendants to vacate the subject parcel of land, they failed
and refused and still fail and refuse to vacate and surrender possession of the
subject parcel of land to the lawful owner who is plaintiff in this case. Copy of the
last formal demand dated January 18, 2006 is hereto attached and marked as
Annex " " and the registry receipt as well as the registry return card as "D"
Annexes "D-1," and "D-2," respectively;ChanRoblesVirtualawlibrary
That because of this unjustifiable refusal of the defendants to vacate the premises
in question which they now unlawfully occupy, plaintiffs [were] constrained to
engage the services of counsel in an agreed amount of FIFTY THOUSAND
PESOS ([P]50,000.00) Philippine Currency, as acceptance fee and THREE
THOUSAND PESOS ([P]3,000.00) Philippine Currency, per day of Court
appearance, which amount the defendants should jointly and solidarity pay the
plaintiffs, copy of the retaining contract is hereto attached and marked as Annex
"E" and made an integral part of this complaint;ChanRoblesVirtualawlibrary
That in order to protect the rights and interest of the plaintiffs, litigation expenses
will be incurred in an amount no less than TEN THOUSAND PESOS
([P]10,000.00), which amount the defendants should jointly and solidarily pay the
plaintiffs;ChanRoblesVirtualawlibrary
That the amount of THREE THOUSAND PESOS ([P]3,000.00) per month should
be adjudicated in favor of the plaintiff as against the defendants by way of
beneficial use, to be counted from the day the last formal demand until they fully
vacate and surrender possession of the premises in question to the plaintiffs. x x
x.17
In dismissing the case, the CA noted such fact, to wit:chanRoblesvirtualLawlibrary
In the case at bench, the complaint for accion publiciana filed by [Cabrera] failed
to allege the assessed value of the real property subject of the complaint or the
interest therein. Not even a tax declaration was presented before the court a
quo that would show the valuation of the subject property. As such, there is no
way to determine which court has jurisdiction over the action or whether the
court a quo has exclusive jurisdiction over the same. Verily, the court a quo erred
in denying the motion to dismiss filed by [respondents] and in taking cognizance
of the instant case.18
Indeed, nowhere in the complaint was the assessed value of the subject property
ever mentioned. On its face, there is no showing that the RTC has jurisdiction
exclusive of the MTC. Absent any allegation in the complaint of the assessed
value of the property, it cannot readily be determined which court had original and
exclusive jurisdiction over the case at bar. The courts cannot take judicial notice
of the assessed or market value of the land.19
We note that Cabrera, in his Comment/Opposition to the Motion to
Dismiss,20 maintained that the accion publiciana is an action incapable of
pecuniary interest under the exclusive jurisdiction of the RTC. 21Thereafter, he
admitted in his Brief before the CA that the assessed value of the subject property
now determines which court has jurisdiction over accion publiciana cases. In
asse1iing the trial court's jurisdiction, petitioner averred that his failure to allege
the assessed value of the property in his Complaint was merely innocuous and
did not affect the jurisdiction of the RTC to decide the case.
Cabrera alleges that the CA erred in concluding that the RTC has not acquired
jurisdiction over the action in the instant case being contrary to the doctrine of
estoppel as elucidated in Honorio Bernardo v. Heirs of Villegas.22 Estoppel sets
in when respondents participated in all stages of the case and voluntarily
submitting to its jurisdiction seeking affirmative reliefs in addition to their motion
to dismiss due to lack of jurisdiction.
We are not persuaded. It is axiomatic that the nature of an action and the
jurisdiction of a tribunal are determined by the material allegations of the
complaint and the law at the time the action was commenced. 23 A court's
jurisdiction may be raised at any stage of the proceedings, even on appeal for the
same is conferred by law, and lack of it affects the very authority of the court to
take cognizance of and to render judgment on the action. 24 It applies even if the
issue on jurisdiction was raised for the first time on appeal or even after final
judgment.
The exception to the basic rule mentioned operates on the principle of estoppel
by laches whereby a party may be barred by laches from invoking the lack of
158
jurisdiction at a late hour for the purpose of annulling everything done in the case
with the active participation of said party invoking the plea. In the oft-cited case
of Tijam v. Sibonghanoy,25 the party-surety invoked the jurisdictions of both the
trial and appellate courts in order to obtain affirmative relief, and even submitted
the case for final adjudication on the merits. It was only after the CA had rendered
an adverse decision that the party-surety raised the question of jurisdiction for the
first time in a motion to dismiss almost fifteen (15) years later. Hence, the Court
adjudicated a party estopped from assailing the court's jurisdiction, to
wit:chanRoblesvirtualLawlibrary
x x x x
[a] party cannot invoke the jurisdiction of a court to secure affirmative
reliefagainst his opponent and, after obtaining or failing to obtain such relief,
repudiate or question that same jurisdiction. . . ., it was further said that the
question whether the court had jurisdiction either of the subject matter of the
action or of the parties was not important in such cases because the party is
barred from such conduct not because the judgment or order of the court is valid
and conclusive as an adjudication, but for the reason that such practice cannot
be tolerated - obviously for reasons of public policy.
x x x26
However, it was explicated in Calimlim v. Ramirez27 that Tijam is an exceptional
case because of the presence of laches. Thus:chanRoblesvirtualLawlibrary
The lack of jurisdiction of a court may be raised at any stage of the proceedings,
even on appeal. This doctrine has been qualified by recent pronouncements
which stemmed principally from the ruling in the cited case of Sibonghanoy. It is
to be regretted, however, that the holding in said case had been applied to
situations which were obviously not contemplated therein. The exceptional
circumstance involved in Sibonghanoy which justified the departure from the
accepted concept of non-waivability of objection to jurisdiction has been ignored
and, instead a blanket doctrine had been repeatedly upheld that rendered the
supposed ruling in Sibonghanoy not as the exception, but rather the general rule,
virtually overthrowing altogether the time-honored principle that the issue of
jurisdiction is not lost by waiver or by estoppel.
In Sibonghanoy, the defense of lack of jurisdiction of the court that rendered the
questioned ruling was held to be barred by estoppel by laches. It was ruled that
the lack of judsdictiou having been raised for the first time in a motion to
dismiss filed almost fifteen (15) years after the questioned ruling had been
rendered, such a plea may no longer be raised for being barred by laches. As
defined in said case, laches is failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence,
could or should have been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting a presumption that the
party entitled to assert has abandoned it or declined to assert it.28
In the case of La Naval Drug Corporation v. Court of Appeals,29 We illustrated the
rule as to when jurisdiction by estoppel applies and when it does not, as
follows:chanRoblesvirtualLawlibrary
x x x x
Lack of jurisdiction over the subject matter of the suit is yet another matter.
Whenever it appears that the court has no jurisdiction over the subject matter, the
action shall be dismissed (Section 2, Rule 9, Rules of Court). This defense may
be interposed at any time, during appeal (Roxas vs. Rafferty, 37 Phil. 957) or
even after final judgment(Cruzcosa vs. Judge Concepcion, et al., 101 Phil. 146).
Such is understandable, as this kind of jurisdiction is conferred by law and not
within the courts, let alone the parties, to themselves determine or conveniently
set aside. In People vs. Casiano (111 Phil. 73, 93-94), this Court, on the issue or
estoppel, held:chanRoblesvirtualLawlibrary
The operation of the principle of estoppel on the question of jurisdiction seemingly
depends upon whether the lower court actually had jurisdiction or not. If it had no
jurisdiction, but the case was tried and decided upon the theory that it had
jurisdiction, the parties are not barred, on appeal, from assailing such
jurisdiction, for the same 'must exist as a matter of law, and may not be
conferred by consent of the parties or by estoppel' (5 C.J.S., 861-863).
However, if the lower court had jurisdiction, and the case was heard and
decided upon a given theory, such, for instance, as that the court had no
jurisdiction, the party who induced it to adopt such theory will not be
permitted, on appeal, to assume an inconsistent position - that the lower
court had jurisdiction. Here, the principle of estoppel applies. The rule that
jurisdiction is conferred by law, and does not depend upon the will of the parties,
has no bearing thereon. x x x.30
Guided by the abovementioned jurisprudence, this Court rules that respondents
are not estopped from assailing the jurisdiction of the RTC over the subject civil
case. Records reveal that even before filing their Answer, respondents assailed
the jurisdiction of the RTC through a motion to dismiss as there was no mention
of the assessed value of the property in the complaint. We note that the RTC
anchored its denial of respondents' motion to dismiss on the doctrine enunciated
in a 1977 case - that all cases of recovery of possession or accion publiciana lie
with the RTC regardless of the value - which no longer holds true. Thereafter, the
respondents filed their Answer through an omnibus motion to set aside order of
default and to admit Answer.
 159

The circumstances of the present case are different from the Heirs of is hereby DENIED. The assailed Decision dated July 25, 2014 and Resolution
Villegas31 case. First, petitioner Bernardo in the Heirs of Villegas case actively dated November 21, 2014 of the Court of Appeals in CA-G.R. CV No. 100950 are
participated during the trial by adducing evidence and filing numerous pleadings, hereby AFFIRMED.
none of which mentioned any defect in the jurisdiction of the RTC, while in this
case, respondents already raised the issue of lack of jurisdiction in their Motion to SO ORDERED.ChanRoblesVirtualawlibrary
Dismiss filed before their Answer. Second, it was only on appeal before the CA,
after he obtained an adverse judgment in the trial court, that Bernardo, for the first
time, came up with the argument that the decision is void because there was no
allegation in the complaint about the value of the property; on the other hand,
herein respondents raised the issue before there was judgment on the merits in
the trial court. Respondents never assumed inconsistent position in their appeal
before the CA.

Furthermore, the unfairness and inequity that the application of estoppel seeks to
avoid espoused in the Tijam case, which the Heirs of Villegas adheres to, are not
present. The instant case does not involve a situation where a party who, after
obtaining affirmative relief from the court, later on turned around to assail
the jurisdiction of the same court that granted such relief by reason of an
unfavorable judgment. Respondents did not obtain affirmative relief from the
trial court whose jurisdiction they are assailing, as their motion to dismiss was
denied and they eventually lost their case in the proceedings below.

Anent the issue of the CA's failure to consider the tax declaration annexed in the
Appellee's Brief, Cabrera insists that its attachment in his Brief without objection
from the other party sealed the issue of the RTC's jurisdiction, and cured the
defect of failure to allege the assessed value of the property in the complaint as
provided in Section 5,32 Rule 10 of the Rules of Court.

Such averments lack merit. The Rules of Court provides that the court shall
consider no evidence which has not been formally offered.33 A formal offer is
necessary because judges are mandated to rest their findings of facts and their
judgment only and strictly upon the evidence offered by the parties at the trial. Its
function is to enable the trial judge to know the purpose or purposes for which the
proponent is presenting the evidence. Conversely, this allows opposing parties to
examine the evidence and object to its admissibility. Moreover, it facilitates
review as the appellate court will not be required to review documents not
previously scrutinized by the trial court.34 We relaxed the foregoing rule and
allowed evidence not formally offered to be admitted and considered by the trial
court provided the following requirements are present, viz.: first, the same must
have been duly identified by testimony duly recorded and, second, the same must
have been incorporated in the records of the case. 35

Based on the petitioner's admission, he presented the Tax Declaration 2006-

07016-0039436 dated November 13, 2006 purporting to prove the assessed value
of the property for the first time on appeal before the CA in his Brief.37 There was
no proof or allegation that he presented the same during the trial or that the court
examined such document.38 Since the tax declaration was never duly identified
by testimony during the trial albeit incorporated in the Appellee's Brief, the CA will
not be required to review such document that was not previously scrutinized by
the RTC. As the assessed value is a jurisdictional requirement, the belated
presentation of document proving such value before the appellate court will not
cure the glaring defect in the complaint. Thus, jurisdiction was not acquired.

We find Cabrera's application of Section 5, Rule 10 of the Rules of Court to

support his claim that failure of the respondents to object to his presentation of
the tax declaration before the CA constitutes an implied consent which then
treated the issue of assessed value as if it had been raised in the pleadings
specious. Such rule contemplates an amendment to conform to or authorize
presentation of evidence before the trial court during the trial on the merits of the
case. As held in Bernardo, Sr. v. Court of Appeals,39 this Court
expounded:chanRoblesvirtualLawlibrary
It is settled that even if the complaint he defective, but the parties go to
trialthereon, and the plaintiff, without objection, introduces sufficient
evidence to constitute the particular cause of action which it intended to
allege in the original complaint, and the defendant voluntarily produces
witnesses to meet the cause of action thus established, an issue is joined as
fully and as effectively as if it had been previously joined by the most perfect
pleadings. Likewise, when issues not raised by the pleadings are tried by express
or implied consent of the parties, they shall be treated in all respects as if they
had been raised in the pleadings.40 (Emphases supplied)
It bears emphasis that the ruling in Tijam establishes an exception which is to be
applied only under extraordinary circumstances or to those cases similar to its
factual situation.41 The general rule is that the lack of a court's jurisdiction is a
non-waivable defense that a party can raise at any stage of the proceedings in a
case, even on appeal; the doctrine of estoppel, being the exception to such non-
waivable defense, must be applied with great care and the equity must be strong
in its favor.42

All told, We find no error on the part of the CA in dismissing the Complaint for lack
of jurisdiction and for not reviewing the document belatedly filed. Consequently,
all proceedings in the RTC are null and void. Indeed, a void judgment for want of
jurisdiction is no judgment at all, and cannot be the source of any right nor the
creator of any obligation. All acts performed pursuant to it and all claims
emanating from it have no legal effect.43

WHEREFORE, petition for review on certiorari filed by petitioner Nestor Cabrera