G.R. No.

L-56451 June 19, 1985

JUAN LAO and CANDELARIA C. LAO, petitioners,

vs.
HON. MELECIO A. GENATO, as Presiding Judge, Court of First Instance, Branch
1, Misamis Occidental, SOTERO A. DIONISIO, JR., as Administrator of the
Intestate Estate of ROSENDA ABUTON, SOTERO B. DIONISIO III, WILLIAM L. GO,
ERLINDA DIAZ, represented by RESTITUTO N. ABUTON Attorney-In-Fact, ESTER
AIDA D. BAS, Heirs of ROSALINDA D. BELLEZA, represented by FELICENDA D,
BELLEZA, Attorney- In-Fact, LUZMINDA D. DAJAO ADELAIDA D. NUEZA,
represented by Atty. MAURICIO O. BAS SR., Attorney-In-Fact, and FLORIDA A.
NUQUI, respondents.

Felipe G. Tac-an for petitioners.

Alaric P. Acosta for private respondent as Administrator.

Eligio O. Dajao for respondent Ester Aida D. Bas.

Ramon C. Berenquel for respondent William L. Go.

CUVEAS J.:

Petition for certiorari with prayer for the declaration of nullity of the Order 1 1 dated
February 18, 1981 of the then Court of First Instance of Misamis Occidental-Branch I
which confirmed and approved the two Deeds of Sale, both dated August 15, 1980,
involving a commercial property belonging to the estate of the deceased Rosenda
Abuton.

Petitioner spouses were promisees in a Mutual Agreement of Promise to Sell executed

between them and private respondent Sotero B. Dionisio III, son of respondent Sotero
A. Dionisio, Jr., heir and administrator of the intestate estate of the deceased, whereby
the promisor bound himself to sell the subject property to petitioners, Private
respondents, except Sotero Dionisio III and William Go, are the children and only
compulsory heirs of the deceased.

On June 25, 1980, respondent administrator Sotero Dionisio, Jr., with due notice to all
his co-heirs, filed with the Probate Court in Special Proceedings No. 842 a Motion for
Authority to Sell certain properties of the deceased to settle the outstanding obligations
of the estate.

On July 8, 1980, after hearing, there being no opposition, the lower court issued an
Order 2 2 authorizing the administrator to sell the therein described properties of the
estate and such other properties under his administration at the best price obtainable,
and directing him to submit to the court for approval the transaction made by him

On August 15, 1980, respondent-administrator pursuant to said authorization, sold to

his son, Sotero Dionisio III, the subject property for P75,000.00 per deed of sale 3 3
acknowledged before Notary Public Triumfo R. Velez. On the same date, Sotero
Dionisio III executed a deed of sale 4 of the same property in favor of respondent
William Go for a consideration of P80.000.00. On August 18, 1980, title was transferred
to respondent Go.

On August 27, 1980, respondent-heir Florida Nuqui, filed a Motion for

Annulment/Revocation of the Deeds of Absolute Sale for the reasons that the sale and
subsequent transfer of title of the property were made in violation of the court's order of
July 8, 1980 and that the consideration of the two sales were grossly inadequate as in
fact many are willing to buy the pr property for P400,000.00 since it is located along the
corner of two main streets in the commercial center of Oroquieta City.

The respondent-administrator filed an opposition to said motion of co-heir Nuqui

alleging that the actual consideration f the sale made by him is P200,000.00 and that it
is the agreement of the heirs that if any of the heirs or close relatives is interested in
buying the property, preference will be given to him or her in order to keep the property
within the family of the deceased.

On September 9, 1980, respondent Nuqui filed a Reply to said Opposition, stating that
the two sales were but a single transaction simultaneously hatched and consummated
in one occasion as shown by the Notary Public's document Nos. 56 & 57 and with the
same witnesses; that the sales were in reality a single deal between the administrator
and William Go, because Sotero Dionisio III is without means or income and so has no
capacity to buy the property; and that the transaction is an evidence of the
administrator's intent to defraud the estate and his co-heirs, for had it not been for the
Motion for Annulment, he would not have disclosed the true and actual consideration of
the sale.

On September 10, 1980, all the co-heirs of respondent-administrator filed a

Manifestation to Adopt the Motion for Annulment/Revocation of Deeds of Absolute Sale.
They likewise filed a Manifestation on February 5, 1981 alleging that the Court order
merely authorized the sale of the subject property but did not approve the same, Thus,
their prayer for the cancellation of the registration of sale transaction between
respondent- administrator and his son, and that between the latter and respondent
William Go.

Respondent Go filed a Motion for Leave to Intervene to protect his rights, manifesting
that he paid Sotero Dionisio III the actual consideration of P225,000.00 and being a
purchaser in good faith and for value, his title to the property is indefeasible pursuant to
law.
On February 6, 1981, petitioner spouses filed a "Manifestation In Intervention of Interest
to Purchase Property Authorized by the Court to be Sold", wherein they alleged that
respondent-administrator, without revealing that the property had already been sold to
William Go, entered into a Mutual Agreement of Promise to Sell 5 5 to herein
petitioners, for the amount of P270,000 which was reduced to P220,000.00; that
immediately upon the execution of the agreement, petitioners paid the earnest money in
the amount of P70,000.00 by IBAA Check No. OQT-40063026 drawn out in favor of
Sotero Dionisio III, as requested by respondent-administrator; that it was agreed upon
that the balance of P150,000.00 shall immediately be paid upon the production of the
Transfer Certificate of Title and the execution of the final Deed of Sale; that although the
agreement was executed in the name of Sotero Dionisio III the 'latter, was merely a
nominal party, for technically according to the administrator, he executed a Deed of
Absolute Sale in favor of his son, but the negotiation and transactions were directly and
personally entered into between the administrator and petitioners; that the contract of
sale has been perfected considering that the earnest money was already paid; that
despite repeated demands the administrator refused to execute a final Deed of Sale in
favor of petitioners, who later found out that the subject property was sold to William
GO; that both contracts of sale were made to defraud the estate and the other heirs;
that assuming the consideration of P200,000.00 supplied by William Go to Sotero
Dionisio III who was not gainfully employed, then the contract of sale to Go would be
without consideration, hence, it would become fictitious and simulated and there is no
other recourse left to the court but to declare the sale null and void. Petitioners also
manifested that in the event that the court should finally declare the sale null and void,
they ares till interested to purchase the property for the same amount of P200,000.00 as
previously agreed.

At th hearing of the said incident involving the questioned sales petitioners submitted a
copy of the Contract of mortgage 66 dated July 18, 1980 executed by respondent-
administrator in favor of Juan Lao, one of the petitioners, whereby the former mortgaged
"all his undivided interest in the estate of his deceased mother, Rosenda Abuton Vda.
de Nuqui, subject matter of this intestate Estate No. 842, now pending before the Court
of First Instance of Oroquieta City, Branch I."

Respondent heir Florida A. Nuqui filed an Opposition to William Go's Motion to

Intervene averring therein that the deed of sale executed by Sotero Dionisio, Jr. in favor
of Sotero Dionisio III created no legal force and effect, since the validity of the sale
absolutely depended on its approval by the court; that it therefore follows that the
succeeding sale to Go and consequent issuance of the title to him are also null and void
from their inception and that the admission by William Go of the actual and true
consideration of the sale at his stage, hardly bespeaks of "innocence" or "good faith".

After several ,days of hearing, respondent Judge allowed all the interested parties to bid
for the property at the highest obtainable price pursuant to his Order of July 8, 1980.

On February 16, 1981, in open court, respondent Go offered to buy the property in the
amount of P280,000.00. Petitioners counter-offered at P282,000.00, spot cash. On that
same day, all the heirs, except the administrator, filed a Motion Ex Parte 77 stating
among other things, that the offer of William Go appears the highest obtainable price
and that the offer of petitioners is not well taken as the same has not been made within
a reasonable period of five (5) days from February 11, 1981.

On February 17, 1981, all the parties, with the exception. of the Lao spouses and
Sotero Dionisio III, submitted for approval an Amicable Settlement 88 stating:

xxx xxx xxx

That after the administrator, Sotero A. Dionisio, Jr., had accounted for the
actual price received by him out of the transaction between him and
Sotero B. Dionisio III in the amount of Two Hundred thousand
(P200,000.00) Pesos and that in the interest of a peaceful settlement
William L. Go has offered and is ready, able and to pay to the heirs an
additional amount of Eighty Thousand (P80,000.00 ) Pesos an
arrangement which is most advantageous to the heirs and which they
willingly accept to their satisfaction. the heirs of Rosenda Abuton hereby
declare that they have no objection to the confirmation and approval of the
sales/transactions executed by Sotero A. Dionisio, Jr., in favor of Sotero
B. Dionisio III and that executed by Sotero B. Dionisio III in favor of the
intervenor, William L. Go, and they likewise have no more objection to the
lifting and cancellation of the notice of lis pendens from TCT No. 8807.

WHEREFORE, it is most respectfully prayed that an order issued by this

Hon. Court confirming and approving the transaction executed by Sotero
A. Dionisio, Jr., in favor of Sotero B. Dionisio III and that between the latter
and William L. Go, and to direct the Register of Deeds of the Province of
Misamis Occidental at Oroquieta City, for the cancellation of the notice of
lis pendens annotated on Transfer Certificate of Title No. 8807, and to
finally consider the matter treated in the Motion of Florida A. Nuqui dated
August 27, 1980 and adopted by all the other heirs forever closed and
terminated.

Oroquieta City, February 17, 1981.

xxx xxx xxx

On February 18, 1981, petitioners filed an opposition to the approval of the Amicable
Settlement on the following grounds:

(a) They have an interest in the property as vendees in a promise to sell and as
Mortgagee, of an undivided share of one of the heirs but they were not signatories to
the amicable settlement, hence it is contrary to Article 2028 of the Civil Code providing
that "A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already commenced";
(b) The Amicable Settlement seeks the confirmation and approval of the questioned
transactions but as borne out by the pleadings and oral arguments, the Deed of
Absolute Sale executed by the administrator in favor of his son is without consideration,
therefore, it is fictitious and simulated hence it cannot be confirmed or ratified pursuant
to Article 1409 of the New Civil Code;

(c) The Amicable Settlement is a device to defraud the Government of Capital Gains
Tax, charges and other fees because the Deeds of Sales do not reflect the true
consideration; and

(d) The Deeds of Sale sought to be confirmed included the undivided share of Sotero A.
Dionisio, Jr. which is presently mortgaged to herein' spouses, which was executed prior
to the sale, thus, if approved, the Court would abet the commission of the crime of
estafa as the mortgage has not yet been paid and released.

Petitioners likewise pointed out in their opposition that respondent Judge had intimated
in open court that somebody offered to buy the property for the price of P300,000.00 but
since there was no formal offer in writing, they (petitioners) are ready and willing to buy
the property at that amount, which definitely is the best price obtainable in the market
and most beneficial to all the heirs.

Despite said opposition, respondent Judge issued an Order 99 on February 18, 1981
approving the Amicable Settlement, confirming and ratifying the two questioned Deeds
of Sale. Petitioners' motion for reconsideration having been denied, they now come
before Us through the instant petition raising the issue of whether or not respondent
Judge is guilty of grave abuse of discretion in 1) approving the amicable settlement and
confirming the two (2) Deeds of Sale in question; and 2) in not accepting the offer of the
petitioners in the amount of P300,000.00 for the purchase of the lot in question.

Sotero Dionisio, Jr. is the Administrator of the estate of his deceased mother Rosenda
Abuton. As such Administrator, he occupies a position of the highest trust and
confidence, He is required to exercise reasonable diligence and act in entire good faith
in the performance of that trust, Although he is not a guarantor or insurer of the safety of
the estate nor is he expected to be infallible yet the same degree of prudence, care and
judgment which a person of a fair average capacity and ability exercises in similar
transactions of his own, serves as the standard by which his conduct is to be judged.

In the discharge of his functions, the administrator should act with utmost
circumspection in order to preserve the estate and guard against its dissipation so as
not to prejudice its editors and the heirs of the decedents who are entitled to the net
residue thereof. In the case at bar, the sale was made necessary "in order to settle
other existing obligations of the estate. This purpose is clearly manifested in the Motion
for to Sell 1010 filed by Dionisio, Jr. The subsisting obligation referred to, although not
specified, must be those due and owing to the creditors of the estate and also the taxes
due the government. In order to guarantee faithful compliance with the authority granted
1111 respondent Judge, through the aforesaid Order made it an emphatic duty on the
part of the administrator Dionisio." . . . to submit to this Court for approval the
transactions made by him."

The sale was made. But of all people, to his very son Sotero Dionisio III and for the
grossly low price of only P75,000,00, That sale was indubitably shown to be fictitious, it
clearly appearing that Dionisio III has no income whatsoever. In fact, he is still a
dependent of his father, administrator Dionisio, Jr. On top of that, not a single centavo,
of the P75,000.00 stated consideration was ever accounted for nor reported by Dionisio,
Jr. to the probate court. Neither did he submit said transaction as mandated by the
order authorizing him to sell, to the probate court for its approval and just so its validity
and fairness may be passed upon and resolved. It was only upon the filing by one of the
heirs, Florida A. Nuqui, of the "Motion for Annulment/Revocation of Deeds of Absolute
Sale" 12 12 questioning the genuineness aid validity of the transactions, that Dionisio,
Jr. was compelled to admit that the actual consideration for the sale made by him was
P200,000.00. 13 13 This sale is one of the illegal and irregular transactions that was
confirmed and legalized by His HONOR's approval of the assailed Amicable Settlement.
No doubt, respondent Judge's questioned approval violates Article 1409 of the New
Civil Code and cannot work to confirm nor serve to ratify a fictitious contract which is
non-existent and void from the very beginning. The fact that practically all the heirs are
parties-signatories to the said Compromise Agreement is of no moment. Their assent to
such an illegal scheme does not legalize the same nor does it impose any obligation
upon respondent Judge to approve the same to the prejudice not only of the creditors of
the estate, and the government by the non-payment of the correct amount of taxes
legally due from the estate.

The offer by the petitioner of P300,000.00 for the purchase of the property in question
does not appear seriously disputed on record. As against the price stated in the
assailed Compromise Agreement the former amount is decidedly more beneficial and
advantageous not only to the estate, the heirs of the descendants, but more importantly
to its creditors, for whose account and benefit the sale was made. No satisfactory and
convincing reason appeared given for the rejection and/or non-acceptance of said offer
thus giving rise to a well-grounded suspicion that a collusion of some sort exists
between the administrator and the heirs to defraud the creditors and the government.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the assailed Order dated

February 18, 1981 of the respondent Judge approving the questioned Amicable
Settlement is declared NULL and VOID and hereby SET ASIDE. Consequently, the sale
in favor of Sotero Dionisio III and by the latter to William Go is likewise declared NULL
and VOID, The Transfer Certificate of Title issued to the latter is hereby CANCELLED.

The proper Regional trial Court of Misamis Occidental to whom this case is now
assigned is hereby ordered to conduct new proceedings for the sale of the property
involved in this case.

No pronouncement as to costs.
G.R. No. 72306 October 6, 1988

DAVID P. FORNILDA, JUAN P. FORNILDA, EMILIA P. FORNILDA OLILI, LEOCADIA

P. FORNILDA LABAYEN and ANGELA P. FORNILDA GUTIERREZ, petitioners,
vs.
THE BRANCH 164, REGIONAL TRIAL COURT IVTH JUDICIAL REGION, PASIG,
JOAQUIN C. ANTONIO Deputy Sheriff, RTC, 4JR Tanay, Rizal and ATTY. SERGIO
I. AMONOY respondents.

Irene C. Ishiwata for petitioner A. Gutierrez.

Sergio L Amonoy for and in his own behalf.

MELENCIO-HERRERA, J.:

The Petition entitled "Petisiyung Makapagpasuri Taglay ang Pagpapapigil ng Utos",

translated as one for certiorari with Preliminary Injunction, was filed on 27 September
1985 by three (3) petitioners, namely David P. Fornilda, Emilia P. Fornilda-Olili and
Angela P. Fornilda-Gutierrez. They seek the reversal of the Order of respondent Trial
Court, dated 25 July 1985, granting a Writ of Possession, as well as its Orders, dated
25 April 1986 and 16 May 1986 (p. 241, Rollo), directing and authorizing respondent
Sheriff to demolish the houses of petitioners Angela and Leocadia Fornilda (who is
listed as a petitioner but who did not sign the Petition). Neither is Juan P. Fornilda a
signatory.

The facts disclose that the deceased, Julio M. Catolos formerly owned six (6) parcels of
land located in Tanay, Rizal, which are the controverted properties in the present
litigation. His estate was the subject of settlement in Special Proceedings No. 3103 of
the then Court of First Instance of Rizal, at Pasig, Branch 1. Francesca Catolos Agnes
Catolos Alfonso I. ForniIda and Asuncion M. Pasamba were some of the legal heirs and
were represented in the case by Atty. Sergio Amonoy (hereinafter referred to as
Respondent Amonoy). A Project of Partition was filed in the Intestate Court whereby the
Controverted Parcels were adjudicated to Alfonso I. Fornilda and Asuncion M.
Pasamba.

On 12 January 1965, the Court approved the Project of Partition. It was not until 6
August 1969, however, that the estate was declared closed and terminated after estate
and inheritance taxes had been paid, the claims against the estate settled and all
properties adjudicated.

Eight (8) days thereafter, or on 20 January 1965, Alfonso 1. Fornilda and Asuncion M.
Pasamba executed a Contract of Mortgage wherein they mortgaged the Controverted
Parcels to Respondent Amonoy as security for the payment of his attorney's fees for
services rendered in the aforementioned intestate proceedings, in the amount of
P27,600.00 (Annex "A", Comment).

Asuncion M. Pasamba died on 24 February 1969 while Alfonso 1. Fornilda passed

away on 2 July 1969. Petitioners are some of the heirs of Alfonso I. Fornilda.

Since the mortgage indebtedness was not paid, on 21 January 1970, Respondent
Amonoy instituted foreclosure proceedings before the Court of First Instance of Rizal, at
Pasig, Branch VIII entitled "Sergio I. Amonoy vs. Heirs of Asuncion M. Pasamba and
Heirs of Alfonso 1. Fornilda" [Civil Case No. 12726] (Annex "B", Ibid.). Petitioners, as
defendants therein, alleged that the amount agreed upon as attorney's fees was only
Pll,695.92 and that the sum of P27,600.00 was unconscionable and unreasonable.
Appearing as signatory counsel for Respondent Amonoy was Atty. Jose S. Balajadia.

On 28 September 1972, the Trial Court 1 rendered judgement in the Foreclosure Case
ordering the Pasamba and Fornilda heirs to pay Respondent Amonoy, within ninety
(90).days from receipt of the decision, the sums of P27,600.00 representing the
attorney's fees secured by the mortgage; Pl l,880.00 as the value of the harvest from
two (2) parcels of land; and 25% of the total of the two amounts, or P9,645.00, as
attorney's fees, failing which the Controverted Parcels would be sold at public auction
(Annex "C", Ibid.).

On 6 February 1973, the Controverted Parcels were foreclosed and on 23 March 1973,
an auction sale was held with Respondent Amonoy as the sole bidder for P23,760.00
(Annex "D", Ibid.). Said sale was confirmed by the Trial Court on 2 May 1973 (Annex
"E", Ibid.). To satisfy the deficiency, another execution sale was conducted with
Respondent Amonoy as the sole bidder for P12,137.50. On the basis of an Affidavit of
Consolidation of Ownership by Respondent Amonoy, the corresponding tax
declarations covering the Controverted Parcels were consolidated in his name.

On 19 December 1973, or a year after the judgment in the Foreclosure Case, an action
for Annulment of Judgment entitled "Maria Penano et al. vs. Sergio Amonoy, et al."
(Civil Case No. 18731) was filed before the then Court of First Instance of Rizal, at
Pasig the Annulment Case (Annex "F", Ibid.) Petitioners were also included as plaintiffs.
Appearing for the plaintiffs in that case was Atty. Jose F. Tiburcio. Squarely put in issue
were the propriety of the mortgage, the validity of the judgment in the Foreclosure Case,
and the tenability of the acquisitions by Respondent Amonoy at the Sheriffs sale. Of
particular relevance to the instant Petition is the contention that the mortgage and the
Sheriffs sales were null and void as contrary to the positive statutory injunction in Article
1491 (5) of the Civil Code, which prohibits attorneys from purchasing, even at a public
or judicial auction, properties and rights in litigation, and that the Trial Court, in the
Foreclosure Case, had never acquired jurisdiction over the subject matter of the action,
i.e., the Controverted Parcels.
On 7 November 1977, the Trial Court 2 dismissed the Annulment Case holding that the
particular disqualification in Article 1491 of the Civil Code is not of general application
nor of universal effect but must be reconciled with the rule that permits judgment
creditors to be bidders at sheriffs sales, so that Respondent Amonoy was "clearly not
prohibited from bidding his judgment and his acquisitions therefore are sanctioned by
law" (Annex "G", Ibid.).

On 22 July 1981, the Court of Appeals (in CA-G.R. No. 63214-R) (the Appealed Case) 3
affirmed the aforesaid judgment predicated on three principal grounds: (1) that no legal
impediment exists to bar an heir from encumbering his share of the estate after a
project of partition has been approved, that act being a valid exercise of his right of
ownership; (2) res judicata, since petitioners never questioned the capacity of
Respondent Amonoy to acquire the property in the Foreclosure Case; and (3) the
complaint in the Annulment Case did not allege extrinsic fraud nor collusion in obtaining
the judgment so that the action must fail.

Upon remand of the Foreclusure Case to respondent Regional Trial Court, Branch 164,
at Pasig, Respondent Sheriff, on 26 August 1985, notified petitioners to vacate the
premises (p. 17, Rollo), subject of the Writ of Possession issued on 25 July 1985 (p. 18,
Rollo).

On 27 September 1985, petitioners came to this Court in a pleading entitled "Petisiyung

Makapagpasuri Taglay ang Pagpapapigil ng Utos". On 11 November 1985, we
dismissed the petition for non-payment of docket and other fees. However, upon
payment thereof, the Order of dismissal was set aside and respondents were directed to
submit their Comment. In his Comment, Respondent Amonoy denies that he had
acquired the Controverted Parcels through immoral and illegal means contending that
"the question of attorney's fees, the mortgage to secure the same, the sale of the
mortgaged properties at public auction, which was confirmed by the Court, and
ultimately, the ownership and possession over them, have all been judicially adjudicated
(p. 146, Rollo)

We gave due course to the petition and required the filing of the parties' respective
memoranda.

Meanwhile, on motion of Respondent Amonoy, dated 24 April 1986, respondent Trial

Court, in the Foreclosure Case, issued Orders dated 25 April and 16 May 1986
authorizing the demolition of the houses and other structures of petitioners Leocadia
and Angela Fornilda (p. 241, Rollo).

On 1 June 1986 the house of Angela Fornilda was totally demolished while that of
Leocadia was spared due to the latter's assurance that she would seek postponement.
On 1 June 1986, in a pleading entitled "Mahigpit na Musiyung Para Papanagutin
Kaugnay ng Paglalapastangan", followed by a Musiyung Makahingi ng Utos sa
Pagpapapigil ng Pagpapagiba at Papanagutin sa Paglalapastangan' petitioners applied
for a Restraining Order, which we granted on 2 June 1986, enjoining respondents and
the Sheriff of Rizal from demolishing petitioners' houses (p. 221, Rollo). In a pleading
entitled 'Mahigpit na Musiyung para Papanagutin Kaugnay ng Paglapastangan' and
'Masasamang Gawain (Mal-Practices)' and 'Paninindigan (Memorandum)' both filed on
16 June 1988, petitioners likewise charged Respondent Amonoy with malpractice and
prayed for his disbarment (pp. 224; 226, Rollo).

In Respondent Amonoy's "Comment and Manifestations" filed on 30 June 1986, he

indicated that the Restraining Order received by the Deputy Sheriff of Rizal only on 6
June 1986 had already become moot and academic as Angela Fornilda's house had
been demolished on 2 June 1986 while Leocadia offered to buy the small area of the
land where her house is built and he had relented.

In the interim, Respondent Amonoy was appointed as Assistant Provincial Fiscal of

Rizal, and subsequently as a Regional Trial Court Judge in Pasay City.

The threshold issue is whether or not the mortgage constituted on the Controverted
Parcels in favor of Respondent Amonoy comes within the scope of the prohibition in
Article 1491 of the Civil Code.

The pertinent portions of the said Articles read:

Art. 1491. The following persons cannot acquire by purchase even at a

public or judicial or auction, either in person or through the mediation of
another:

xxx xxx xxx

(5) Justices, judges, prosecuting attorneys, ... the property and rights in
litigation or levied upon on execution before the court within whose
junction or territory they exercise their respective functions; this prohibition
includes the act of acquitting 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.
(Emphasis supplied)

Under the aforequoted provision, a lawyer is prohibited from acquiring either by

purchase or assignment the property or rights involved which are the object of the
litigation in which they intervene by virtue of their profession ( Padilla Vol. H Civil Law,
1974 Ed., p. 230 citing Hernandez vs. Villanueva, 40 Phil. 773 and Rubias vs. Batiller
51 SCRA 130). The prohibition on purchase is all embracing to include not only sales to
private individuals but also public or judicial sales (ibid., p. 221).

The rationale advanced for the prohibition is that public policy 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 persons (Paras, Civil Code, Vol. V, 1973., p. 70).
In the instant case, it is undisputed that the Controverted Parcels were part of the estate
of the late Julio M. Catolos subject of intestate estate proceedings, wherein Respondent
Amonoy acted as counsel for some of the heirs from 1959 until 1968 by his own
admission (Comment, p. 145, Rollo); that these properties were adjudicated to Alfonso
Fornilda and Asuncion M. Pasamba in the Project of Partition approved by the Court on
12 January 1965; that on 20 January 1965, or only eight (8) days thereafter, and while
he was still intervening in the case as counsel, these properties were mortgaged by
petitioners' predecessor-in-interest to Respondent Amonoy to secure payment of the
latter's attorney's fees in the amount of P27,600.00; that since the mortgage
indebtedness was not paid, Respondent Amonoy instituted an action for judicial
foreclosure of mortgage on 21 January 1970; that the mortgage was subsequently
ordered foreclosed and auction sale followed where Respondent Amonoy was the sole
bidder for P23,600.00; and that being short of the mortgage indebtedness, he applied
for and further obtained a deficiency judgment.

Telling, therefore, is the fact that the transaction involved falls squarely within the
prohibition against any acquisition by a lawyer of properties belonging to parties they
represent which are still in suit. For, while the Project of Partition was approved on 12
January 1965, it was not until 6 August 1969 that the estate was declared closed and
terminated (Record on Appeal, Civil Case No. 3103, p. 44). At the time the mortgage
was executed, therefore, the relationship of lawyer and client still existed, the very
relation of trust and confidence sought to be protected by the prohibition, when a lawyer
occupies a vantage position to press upon or dictate terms to an harassed client. What
is more, the mortgage was executed only eight (8) days after approval of the Project of
Partition thereby evincing a clear intention on Respondent Amonoy's part to protect his
own interests and ride roughshod over that of his clients. From the time of the execution
of the mortgage in his favor, Respondent Amonoy had already asserted a title adverse
to his clients' interests at a time when the relationship of lawyer and client had not yet
been severed.

The fact that the properties were first mortgaged and only subsequently acquired in an
auction sale long after the termination of the intestate proceedings will not remove it
from the scope of the prohibition. To rule otherwise would be to countenance indirectly
what cannot be done directly.

There is no gainsaying that petitioners' predecessor-in-interest, as an heir, could

encumber the property adjudicated to him; that the Complaint in the Annulment Case
did not contain any specific allegation of fraud or collusion in obtaining the judgment
appealed from as opined by the Court of appeals in the Appealed Case; and that the
auction sale of the properties to Respondent Amonoy was judicially confirmed and
ownership and possession of the Controverted Parcels ultimately transferred to him.

Nonetheless, considering that the mortgage contract, entered into in contravention of

Article 1491 of the Civil Code, supra, is expressly prohibited by law, the same must be
held inexistent and void ab initio (Director of Lands vs. Abagat, 53 Phil. 147).
 Art. 1409. The following contracts are inexistent and void from the
beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;

xxx xxx xxx

(7) Those expressly prohibited or declared void by law. These contracts

cannot be ratified. Neither can the right to set up the defense of illegality
be waived. (Civil Code)

Being a void contract, the action or defense for the declaration of its inesistence is
imprescriptible (Article 1410, Civil Code). The defect of a void or inexistence contract is
permanent. Mere lapse of time cannot give it efficacy. Neither can the right to set up the
defense of illegality be waived (Article 1409, Civil Code).

The Controverted Parcels could not have been the object of any mortgage contract in
favor of Respondent Amonoy and consequently neither of a foreclosure sale. By
analogy, the illegality must be held to extend to whatsover results directly from the
illegal source (Article 1422, Civil Code). Such being the case, the Trial Court did not
acquire any jurisdiction over the subject matter of the Foreclosure Case and the
judgment rendered therein could not have attained any finality and could be attacked at
any time. Neither could it have been a bar to the action brought by petitioners for its
annulment by reason of res judicata. (Municipality of Antipolo vs. Zapanta, No. L-65334,
December 26, 1984, 133 SCRA 820). Two of the requisites of the rule of prior judgment
as a bar to a subsequent case, namely, (1) a final judgment and (2) that it must have
been rendered by a Court having jurisdiction over the subject matter, are conspicuously
absent.

And since the nullity of the transaction herein involved proceeds from the illegality of the
cause or object of the contract, and the act does not constitute a criminal offense, the
return to petitioners of the Controverted Parcels is in order.

Art. 1412. If the act in which the unlawful or forbidden cause consists does
not constitute a criminal offense, the following rules shall be observed:

xxx xxx xxx

(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. (Civil Code).
WHEREFORE, certiorari is granted; the Order of respondent Trial Court, dated 25 July
1985, granting a Writ of Possession, as well as its Orders, dated 25 April 1986 and 16
May 1986, directing and authorizing respondent Sheriff to demolish the houses of
petitioners Angela and Leocadia Fornilda are hereby set aside, and the Temporary
Restraining Order heretofore issued, is made permanent. The six (6) parcels of land
herein controverted are hereby ordered returned to petitioners unless some of them
have been conveyed to innocent third persons.

With respect to petitioners' prayer for disbarment by reason of malpractice of

Respondent Amonoy embodied in their pleading entitled 'Mahigpit na Musiyung para
Papanagutin Kaugnay ng Paglalapastangan' and 'Masasamang Gawain (Mal-Pracrices)
and "Paninindigan (Memorandum)" both filed on Sergio I. Amonoy is hereby required,
within fifteen (15) days from notice hereof, to submit an Answer thereto. After receipt of
the same, a new docket number will be assigned to the case.

Costs against respondent, Sergio I. Amonoy.

SO ORDERED.

G.R. No. L-33048 April 16, 1982

EPIFANIA SARSOSA VDA. DE BARSOBIA and PACITA W. VALLAR, petitioners,

vs.
VICTORIANO T. CUENCO, respondent.

MELENCIO-HERRERA, J.:

Sought to be reviewed herein is the judgment dated August 18, 1970, of the Court of
Appeals, 1 rendered in CA-G.R. No. 41318-R, entitled "Victoriano T. Cuenco, Plaintiff-
appellant, vs. Epifania Sarsosa Vda. de Barsobia and Pacita W. Vallar, Defendants-
appellees, " declaring Victoriano T. Cuenco (now the respondent) as the absolute owner
of the coconut land in question.

The lot in controversy is a one-half portion (on the northern side) of two adjoining
parcels of coconut land located at Barrio Mancapagao, Sagay, Camiguin, Misamis
2
Oriental (now Camiguin province), with an area of 29,150 square meters, more or less.

The entire land was owned previously by a certain Leocadia Balisado, who had sold it to
the spouses Patricio Barsobia (now deceased) and Epifania Sarsosa, one of the
petitioners herein. They are Filipino citizens.

On September 5, 1936, Epifania Sarsosa then a widow, sold the land in controversy to
a Chinese, Ong King Po, for the sum of P1,050.00 (Exhibit "B"). Ong King Po took
actual possession and enjoyed the fruits thereof.
On August 5, 1961, Ong King Po sold the litigated property to Victoriano T. Cuenco
(respondent herein), a naturalized Filipino, for the sum of P5,000.00 (Exhibit "A").
Respondent immediately took actual possession and harvested the fruits therefrom.

On March 6, 1962, Epifania "usurped" the controverted property, and on July 26, 1962,
Epifania (through her only daughter and child, Emeteria Barsobia), sold a one-half (1/2)
portion of the land in question to Pacita W. Vallar, the other petitioner herein (Exhibit
"2"). Epifania claimed that it was not her intention to sell the land to Ong King Po and
that she signed the document of sale merely to evidence her indebtedness to the latter
in the amount of P1,050.00. Epifania has been in possession ever since except for the
portion sold to the other petitioner Pacita.

On September 19, 1962, respondent filed a Forcible Entry case against Epifania before
the Municipal Court of Sagay, Camiguin. The case was dismissed for lack of jurisdiction
since, as the laws then stood, the question of possession could not be properly
determined without first settling that of ownership.

On December 27, 1966, respondent instituted before the Court of First Instance of
Misamis Oriental a Complaint for recovery of possession and ownership of the litigated
land, against Epifania and Pacita Vallar (hereinafter referred to simply as petitioners).

In their Answer below, petitioners insisted that they were the owners and possessors of
the litigated land; that its sale to Ong King Po, a Chinese, was inexistent and/or void ab
initio; and that the deed of sale between them was only an evidence of Epifania's
indebtedness to Ong King Po.

The trial Court rendered judgment:

1. Dismissing the complaint with costs against plaintiff (respondent

herein).

2. Declaring the two Deeds of Sale, Exhibits A and B, respectively,

inexistent and void from the beginning; and

3. Declaring defendant Pacita W. Vallar as the lawful owner and

possessor of the portion of land she bought from Emeteria Barsobia (pp.
57, 67, Record.) 3

On appeal, the Court of Appeals reversed the aforementioned Decision and decreed
instead that respondent was the owner of the litigated property, thus:

xxx xxx xxx

In view of all the foregoing considerations, the judgment appealed from is

hereby reversed. In lieu thereof, we render judgment:
 (a) Declaring the plaintiff-appellant Victoriano T. Cuenco the absolute
owner of the land in question, with the right of possession thereof;

(b) Ordering the defendants-appellees to restore the possession of said

land to the plaintiff;

(c) Dismissing the defendants' counterclaim;

(d) Condemning the defendants to pay to the plaintiff the sum of

P10,000.00 representing the latter's share from the sale of copra which he
failed to receive since March, 1962 when he was deprived of his
possession over the land, and which defendants illegally appropriated it to
their own use and benefit, plus legal interest from the filing of the
complaint until fully paid; plus P2,000.00 representing expenses and
attorney's fees;

(e) Sentencing the defendants to pay the costs.

SO ORDERED. 4

Following the denial of their Motion for Reconsideration, petitioners filed the instant
Petition for Review on certiorari with this Court on January 21, 1971. Petitioners claim
that the Court of Appeals erred:

I. ... when it reversed the judgment of the trial court declaring petitioner
Pacita W. Vallar as the lawful possessor and owner of the portion of land
she purchased from Emeteria Barsobia, not a party to this case, there
being no evidence against her.

II ... when it included petitioner Pacita W. Vallar to pay P10,000.00, with

legal interest from the filing of the complaint, representing respondent's
share in the harvest and to pay the costs, there being no evidence against
her.

III. ... when it condemned petitioners to pay P2,000.00 representing

expenses and attorney's fees, there being no factual, legal and equitable
justification.

IV. ... in not applying the rule on pari delicto to the facts of the case or the
doctrine enunciated ... in the case of Philippine Banking Corporation vs.
Lui She, L-17587, September 12, 1967, to ... Petitioner Epifania Sarsosa
Vda. de Barsobia.

V. ... in denying, for lack of sufficient merits, petitioners' motion for

rehearing or reconsideration of its decision. 5
As the facts stand, a parcel of coconut land was sold by its Filipino owner, petitioner
Epifania, to a Chinese, Ong King Po, and by the latter to a naturalized Filipino,
respondent herein. In the meantime, the Filipino owner had unilaterally repudiated the
sale she had made to the Chinese and had resold the property to another Filipino. The
basic issue is: Who is the rightful owner of the property?

There should be no question that the sale of the land in question in 1936 by Epifania to
Ong King Po was inexistent and void from the beginning (Art. 1409 [7], Civil Code) 6
because it was a contract executed against the mandatory provision of the 1935
Constitution, which is an expression of public policy to conserve lands for the Filipinos.
Said provision reads:

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. 7

Had this been a suit between Epifania and Ong King Po, she could have been declared
entitled to the litigated land on the basis, as claimed, of the ruling in Philippine Banking
Corporation vs. Lui She, 8 reading:

... For another thing, and this is not only cogent but also important. Article
1416 of the Civil Code provides as an exception to the rule on pari delicto
that when the agreement is not illegal per se but is merely prohibited, and
the prohibition by the law is designed for the protection of the plaintiff, he
may, if public policy is thereby enhanced, recover what he has sold or
delivered. ...

But the factual set-up has changed. The litigated property is now in the hands of a
naturalized Filipino. It is no longer owned by a disqualified vendee. Respondent, as a
naturalized citizen, was constitutionally qualified to own the subject property. There
would be no more public policy to be served in allowing petitioner Epifania to recover
the land as it is already in the hands of a qualified person. Applying by analogy the
ruling of this Court in Vasquez vs. Giap and Li Seng Giap & Sons: 9

... if the ban on aliens from acquiring not only agricultural but also urban
lands, as construed by this Court in the Krivenko case, is to preserve the
nation's lands for future generations of Filipinos, that aim or purpose would
not be thwarted but achieved by making lawful the acquisition of real
estate by aliens who became Filipino citizens by naturalization.

While, strictly speaking, Ong King Po, private respondent's vendor, had no rights of
ownership to transmit, it is likewise inescapable that petitioner Epifania had slept on her
rights for 26 years from 1936 to 1962. By her long inaction or inexcusable neglect, she
should be held barred from asserting her claim to the litigated property (Sotto vs. Teves,
86 SCRA 157 [1978]).
 Laches has been defined as the 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 it either has abandoned it or
declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-21450,
April 15, 1968, 23 SCRA 29, 35). (cited in Sotto vs. Teves, 86 SCRA 154
[1978]).

Respondent, therefore, must be declared to be the rightful owner of the property.

The award of actual damages in respondent's favor of P10,000.00, as well as of

attorney's fees and expenses of litigation of P2,000.00, is justified. Respondent was
deprived of the possession of his land and the enjoyment of its fruits from March, 1962.
The Court of Appeals fixed respondent's share of the sale of copra at P10,000.00 for
eight years at four (4) harvests a year. The accuracy of this finding has not been
disputed.

However, we find merit in the assigned error that petitioner, Pacita Vallar, should not be
held also liable for actual damages to respondent. In the absence of contrary proof, she,
too, must be considered as a vendee in good faith of petitioner Epifania.

The award of attorney's fees and litigation expenses in the sum of P2,000.00 in
respondent's favor is in order considering that both petitioners compelled respondent to
litigate for the protection of his interests. Moreover, the amount is reasonable. 10

WHEREFORE, except for that portion holding petitioner, Pacita W. Vallar, also liable for
damages of P10,000.00, the appealed judgment is hereby affirmed.

Costs against petitioners.

SO ORDERED.

G.R. No. L-17043 January 31, 1961

NATIVIDAD HERRERA, assisted by her husband EMIGDIO SALAZAR, plaintiffs-

appellants,
vs.
LUY KIM GUAN and LINO BANGAYAN, defendants-appellees.

T. de los Santos for plaintiffs-appellants.

Rafael C. Climaco and Abelardo S. Fernandez for defendants-appellees.

BARRERA, J.:
This is an appeal from the decision of the Court of First Instance of Zamboanga City (a)
dismissing plaintiff-appellant's complaint for the recovery of three (3) parcels of land and
their produce in the sum of P320,000.00; and (b) instead, sentencing plaintiff to pay
P2,000.00 for attorney's fees and P1,000.00 for expenses of litigation, to defendant Lino
Bangayan, and P2,000.00 as attorney's fees and P500.00 as expenses of litigation, to
the other defendant Luy Kim Guan.

The pertinent facts as found by the trial court and upon which its decision was
predicated are set forth in the following portion of the decision appealed from:

The Plaintiff Natividad Herrera is the legitimate daughter of Luis Herrera, now
deceased and who died in China sometime after he went to that country in the
last part of 1931 or early part of 1932. The said Luis Herrera in his lifetime was
the owner of three (3) parcels of land and their improvements, known as Lots
1740, 4465 and 4467 of Expediente No. 5, G.L.R.O. Record 477 and the area,
nature, improvements and bound of each and every of these three (3) lots are
sufficiently described in the complaint filed by the plaintiffs.

Before leaving for China, however, Luis Herrera executed on December 1, 1931,
a deed of General Power of Attorney, Exhibit 'B', which authorized and
empowered the defendant Kim Guan, among others to administer and sell the
properties of said Luis Herrera.

Lot 1740 was originally covered by Original Certificate Title 8601 registered in the
name of Luis Herrera, married to GO Bang. This lot was sold by the defendant
Luy Kim in his capacity as attorney-in-fact of the deceased Luis Her to Luy Chay
on September 11, 1939, as shown in Exhibit "2", corresponding deed of sale.
Transfer Certificate of Title 3162, Exhibit "3", was issued to Luy Chay by virtue of
deed of sale. On August 28, 1941, to secure a loan of P2,00 a deed of mortgage
to the Zamboanga Mutual Building and Association was executed by Luy Chay,
Exhibit "4". On January 31, 1947, the said Luy Chay executed a deed of sale,
Exhibit "E", in favor of Lino Bangayan. By virtue of this Transfer Certificate of
Title T-2567 was issued to Lino Bangayan on June 24, 1949, Exhibit "1":

Lots 4465 and 4467 were originally registered in the of Luis Herrera, married to
Go Bang, under Original Certificate of Title No. 0-14360, Exhibit "5". On
December 1, 1931, Luis Herrera sold one-half (½) undivided share and to
Herrera and Go Bang, the other half (½), as shown by Exhibit "12" and Exhibit
"12-A", the latter an annotation made the Register of Deeds of the City of
Zamboanga, in which stated as follows:

Cancelado el presente Certificado en virtud de una escritura de traspaso y en su

lugar se ha expedido el Certificado de T No. 494-(T-13045) del Tomo 2 del Libro
de Certificado de Transferencias.
 (Fdo) R. D. MACROHON
Registrador de Titulos
Ciudad de Zamboanga

On July 23, 1937, Luis Herrera thru his attorney-in-fact Luy Kim Guan, one of the
defendants, sold to Nicomedes Salazar his one half (½) participation in these two
(2) lots, as shown in Exhibit "C", the corresponding deed of sale for P3,000.00
Transfer Certificate of Title No. T-494-(T-13045) was is to Nicomedes Salazar
and to the defendant Luy Kim Guan, Exhibit '7'. On August 4, 1937, the
defendant Luy Kim Guan Nicomedes Salazar executed a deed of mortgage in
favor of Bank of the Philippine Islands to secure a loan of P3,500.00, Exhibit '6'.
On August 17, 1937, the defendant Luy Kim Guan and Nicomedes Salazar sold
Lot 4465 to Carlos Eijansantos for the sum of P100.00 as shown in Exhibit "9",
the corresponding deed of sale, and Transfer Certificate of Title No. T-2653 was
issued on September 7, 1939 to Carlos Eijansantos, Exhibit "10". Nicomedes
Salazar sold his one half (½) interest on Lot 4467 to the defendant Lino
Bangayan for P3,000.00 on February 22, 1949, Exhibit 'B', and the
corresponding Transfer Certificate of Title T-2654 was issued to Lino Bangayan
and to Luy Kim Guan, both are co-owners in equal shares, Exhibit "8". Opinion of
the City Attorney, Exhibit "p", and an affidavit of Atty. Jose T. Atilano, Exhibit "O",
state that Lino Bangayan is a Filipino citizen.

As admitted by both parties (plaintiffs and defendants), Luis Herrera is now

deceased, but as to the specific and precise date of his death the evidence of
both parties failed to show.

It is the contention of plaintiff-appellant that all the transactions mentioned in the

preceding quoted portion of the decision were fraudulent and were executed after the
death of Luis Herrera and, consequently, when the power of attorney was no longer
operative. It is also claimed that the defendants Lino Bangayan and Luy Kim Guan who
now claim to be the owners of Lots Nos. 1740 and 4467 are Chinese by nationality and,
therefore, are disqualified to acquire real properties. Plaintiff-appellant, in addition,
questions the supposed deed of sale allegedly executed by Luis Herrera on December
1, 1931 in favor of defendant Luy Kim Guan, conveying one-half interest on the two lots,
Nos. 4465 and 4467, asserting that what was actually executed on that date, jointly with
the general power of attorney, was a lease contract over the same properties for a
period of 20 years for which Luy Kim Guan paid the sum of P2,000.00.

We find all the contentions of plaintiff-appellant untenable. Starting with her claim that
the second deed executed on December 1, 1931 by Luis Herrera was a lease contract
instead of a deed of sale as asserted by defendant Luy Kim Guan, we find that the only
evidence in support of her contention is her own testimony and that of her husband to
the effect that the deceased Luis Herrera showed the said document to them, and they
remembered the same to be a lease contract on the three properties for a period of 20
years in consideration of P2,000.00. Their testimony was sought to be corroborated by
the declaration of the clerk of Atty. Enrique A. Fernandez, who allegedly notarized the
document. Outside of this oral testimony, given more than 23 years after the supposed
instrument was read by them, no other evidence was adduced. On the other hand,
defendant Luy Kim Gua produced in evidence a certification1 signed by the Register of
Deeds of Dipolog, Zamboanga (Exh. 11) to the effect that a deed of sale, dated
December 1, 1931, was execute by Luis Herrera in favor of Luy Kim Guan and entered
in the Primary Book No. 4 as duly registered on September 30, 1936 under Original
Certificate of Title No. 14360. It is to be noted that the deed of sale was registered
shortly after the issuance in the name of Luis Herrera of Origin Certificate of Title No.
14360 pursuant to Decree No. 59093, covering the two lots, Nos. 4465 and 4467 (Exh.
5) dated April 7, 1936. In virtue of said deed of sale of December 1, 1931, Original
Certificate of Title No. 1436 was cancelled and Transfer Certificate of Title No. 1304
(Exh. 12) in the names of the conjugal partnership of the spouses Luis Herrera and Go
Bang, one-half share, an Luy Kim Guan, single, one-half share, was issued on
September 30, 1936. Later, or on July 23, 1937, Luy Kim Guan, in his capacity as
attorney-in-fact of Luis Herrera, sold the half interest of the latter in the two parcels o
land, in favor of Nicomedes Salazar, whereupon TCT No. 13045 was cancelled and
TCT No. RT-657 (494-T-13045 (Exh. 7) was issued in the names of Luy Kim Guan an
Nicomedes Salazar in undivided equal shares. On August 4, 1937, both Luy Kim Guan
and Nicomedes Salazar mortgaged the two parcels in favor of the Bank of the Philippine
Islands for the sum of P3,500.00 (Exh. 6). On August 17, 1937, Nicomedes Salazar and
Luy Kim Gua sold their respective shares in Lot No. 4465 to Carlo Eijansantos (Exh. 9),
subject to the mortgage, resulting in the issuance of TCT No. 2653 (Exh. 10) covering
the entire lot No. 4465 in the name of said Carlos Eijansantos. On February 23, 1949,
Nicomedes Salazar sold his shall share in Lot No. 4467 to Lino Bangayan, as a
consequence of which, TCT No. 2654 (Exh. B) was issued covering said Lot No. 4467
in the names of Luy Kim Guan and Lino Bangayan in undivided equal shares.

With respect to Lot No. 1740, the same was sold by Luy Kim Guan, in his capacity as
attorney-in-fact of Luis Herrera, on September 11, 1939 to Luy Chay (See Exh. 2) who,
in August, 1941, mortgaged the same (Exh. 4) to the Zamboanga Mutual Loan and
Building Association (See TCT No. 3162 [Exh. 3] issued in the name of Luy Chay).
Later on, Luy Chay sold the entire lot to defendant Lino Bangayan by virtue of the deed
of sale dated January 31, 1947 (Exh. E), and as a consequence thereof, TCT No. 2567
was issued in the name of said vendee. (See Exh. 1). As a result of these various
transactions, duly recorded in the corresponding office of the Register of Deeds, and
covered by appropriate transfer certificates of title, the properties are now registered in
the following manner: Lot No. 1740, in the name of Lino Bangayan; Lot No. 4465, in the
name of Carlos Eijansantos; and Lot No. 4467, in the names of Lino Bangayan and Luy
Kim Guan in undivided equal shares.

In the face of these documentary evidence presented by the defendants, the trial court
correctly upheld the contention of the defendants as against that of plaintiff-appellant
who claims that the second deed executed by Luis Herrera in 1931 was a lease
contract. It is pertinent to note what the lower court stated in this regard, that is, if the
second deed executed by Luis Herrera was a lease contract covering, the 3 lots in
question for a period of twenty (20) years, there would have been no purpose for him to
constitute Luy Kim Guan as. his attorney-in-fact to administer and take charge of the
same properties already covered by the lease contract.

Coming now to the contention that these transactions are null and void and of no effect
because they were executed by the attorney-in-fact after the death of his Principal,
suffice it to say that as found by the lower court, the date of death of Luis Herrera has
not been satisfactorily proven. The only evidence presented by the Plaintiff-appellant in
this respect is a supposed letter received from a certain "Candi", dated at Amoy in
November, 1936, purporting to give information that Luis Herrera (without mentioning
his name) had died in August of that year. This piece of evidence was properly rejected
by the lower court for lack of identification. the other hand, we have the testimony of the
witness Chung Lian to the effect that when he was in Amoy the year 1940, Luis Herrera
visited him and had a conversation with him, showing that the latter was still alive at the
time. Since the documents had been executed the attorney-in-fact one in 1937 and the
other in 1939, it is evident, if we are to believe this testimony, that the documents were
executed during the lifetime of the principal. Be that as it may, even granting arguendo
that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication
in the record, that the age Luy Kim Guan was aware of the death of his prince at the
time he sold the property. The death of the principal does not render the act of an agent
unenforceable, where the latter had no knowledge of such extinguishment the agency. 2

Appellants also raise the question of the legality of the titles acquired by Luy Chay and
Lino Bangayan, on ground that they are disqualified to acquire real properties in the
Philippines. This point is similarly without me because there is no evidence to support
the claim. In fact, in the deed of sale as well as in TCT No. 3162 issued to Luy Chay,
the latter was referred to as a citizen of the Philippines. Nevertheless, the lower court
acknowledged the probability that Luy Chay could have been actually a Chinese
citizens.3 At any rate, the property was subsequently purchased by Lino Bangayan, as a
result which TCT No. 3162 in the name of Luy Chay was cancelled and another
certificate (TCT No. T-2567) was issued in favor of said vendee.

As to Bangayan's qualification, the lower court held that said defendant had sufficiently
established his Philippine citizenship through Exhibit P, concurred in by the Secretary of
Justice. We find no reason to disturb such ruling.

With respect to Luy Kim Guan, while it is true that he is a Chinese citizen, nevertheless,
inasmuch as he acquired his one-half share in Lot No. 4467 in 1931, long before the
Constitution was adopted, his ownership can not be attacked on account of his
citizenship.

Appellants, in this appeal, contest the judgment of the court a quo awarding defendants
Lino Bangayan and Luy Kim Guan attorney's fees in the sum of P2,000.00 each, and
expenses of litigation in the amounts of P1,000.00 and P500.00, respectively. We agree
with the appellant in this regard.
This Court has laid down the rule that in the absence of stipulation, a winning party may
be awarded attorney's fees only in case plaintiff's action or defendant's stand is so
untenable as to amount to gross and evident bad faith. 4 The same thing however, can
not be said of the case at bar. As a matter of fact, the trial court itself declared that the
complaint was filed in good faith. Attorney's fees, therefore, can not be awarded to
defendants simply because the judgment was favorable to them and adverse to plaintiff,
for it may amount to imposing a premium on the right to redress grievances in court.
And so with expenses of litigation. A winning party may be entitled to expenses of
litigation only where he, by reason of plaintiff's clearly unjustifiable claims or defendant's
unreasonable refusal to his demands, was compelled to incur said expenditures.
Evidently, the facts of this case do not warrant the granting of such litigation expenses
to defendants. In the absence of proof that the action was intended for reasons other
than honest, we may agree with the trial court that the same must have been instituted
by plaintiffs in their belief that they have a valid cause against the defendants.

WHEREFORE, and with the above modification, the decision appealed from is hereby
affirmed in all other respects without prejudice to appellants' right to demand from the
agent (Luy Kim Guan) an accounting of proceeds of the agency, if such right is still
available. No costs. So ordered.

G.R. No. L-36731 January 27, 1983

VICENTE GODINEZ, ET AL., plaintiffs-appellants,

vs.
FONG PAK LUEN ET AL., defendants, TRINIDAD S. NAVATA, defendant-appellee.

Dominador Sobrevinas for plaintiffs-appellants.

Muss S. Inquerto for defendant-appellee

GUTIERREZ, JR., J.:

The plaintiffs filed this case to recover a parcel of land sold by their father, now
deceased, to Fong Pak Luen, an alien, on the ground that the sale was null and void ab
initio since it violates applicable provisions of the Constitution and the Civil Code.

The order of the Court of First Instance of Sulu dismissing the complaint was appealed
to the Court of Appeals but the latter court certified the appeal to us since only pure
questions of law were raised by the appellants.

The facts of the case were summarized by the Court of Appeals as follows:

On September 30, 1966, the plaintiffs filed a complaint in the Court of First
Instance of Sulu alleging among others that they are the heirs of Jose
Godinez who was married to Martina Alvarez Godinez sometime in 1910;
that during the marriage of their parents the said parents acquired a parcel
of land lot No. 94 of Jolo townsite with an area of 3,665 square meters as
evidenced by Original Certificate of Title No. 179 (D -155) in the name of
Jose Godinez; that their mother died sometime in 1938 leaving the
plaintiffs as their sole surviving heirs; that on November 27, 1941, without
the knowledge of the plaintiffs, the said Jose Godinez, for valuable
consideration, sold the aforesaid parcel of land to the defendant Fong Pak
Luen, a Chinese citizen, which transaction is contrary to law and in
violation of the Civil Code because the latter being an alien who is
inhibited by law to purchase real property; that Transfer Certificate Title
No. 884 was then issued by the Register of Deeds to the said defendant,
which is null and void ab initio since the transaction constituted a non-
existent contract; that on January 11, 1963, said defendant Fong Pak
Luen executed a power of attorney in favor of his co-defendant Kwan Pun
Ming, also an alien, who conveyed and sold the above described parcel of
land to co-defendant Trinidad S. Navata, who is aware of and with full
knowledge that Fong Pak Luen is a Chinese citizen as well as Kwan Pun
Ming, who under the law are prohibited and disqualified to acquire real
property in this jurisdiction; that defendant Fong Pak Luen has not
acquired any title or interest in said parcel of land as the purported
contract of sale executed by Jose Godinez alone was contrary to law and
considered non- existent, so much so that the alleged attorney-in-fact,
defendant Kwan Pun Ming had not conveyed any title or interest over said
property and defendant Navata had not acquired anything from said
grantor and as a consequence Transfer Certificate of Title No. 1322,
which was issued by the Register of Deeds in favor of the latter is null and
void ab initio,- that since one-half of the said property is conjugal property
inherited by the plaintiffs from their mother, Jose Godinez could -not have
legally conveyed the entire property; that notwithstanding repeated
demands on said defendant to surrender to plaintiffs the said property she
refused and still refuses to do so to the great damage and prejudice of the
plaintiffs; and that they were constrained to engage the services of
counsel in the sum of P2,000.00.1äwphï1.ñët The plaintiffs thus pray that
they be adjudged as the owners of the parcel of land in question and that
Transfer Certificate of Title RT-90 (T-884) issued in the name of defendant
Fong Pak Luen be declared null and void ab initio; and that the power of
attorney issued in the name of Kwan Pun Ming, as well as Transfer
Certificate of Title No. 'L322 issued in the name of defendant Navata be
likewise declared null and void, with costs against defendants.

On August 18, 1966, the defendant Register of Deeds filed an answer

claiming that he was not yet the register of deeds then; that it was only the
ministerial duty of his office to issue the title in favor of the defendant
Navata once he was determined the registerability of the documents
presented to his office.
On October 20, 1966, the defendant Navata filed her answer with the
affirmative defenses and counterclaim alleging among others that the
complaint does not state a cause of action since it appears from the
allegation that the property is registered in the name of Jose Godinez so
that as his sole property he may dispose of the same; that the cause of
action has been barred by the statute of limitations as the alleged
document of sale executed by Jose Godinez on November 27, 1941,
conveyed the property to defendant Fong Pak Luen as a result of which a
title was issued to said defendant; that under Article 1144 (1) of the Civil
Code, an action based upon a written contract must be brought within 10
years from the time the right of action accrues; that the right of action
accrued on November 27, 1941 but the complaint was filed only on
September 30, 1966, beyond the 10 year period provided for by law; that
the torrens title in the name of defendant Navata is indefeasible who
acquired the property from defendant Fong Pak Luen who had been in
possession of the property since 1941 and thereafter defendant Navata
had possessed the same for the last 25 years including the possession of
Fong Pak Luen; that the complaint is intended to harass the defendant as
a civic leader and respectable member of the community as a result of
which she suffered moral damages of P100,000.00, P2,500.00 for
attorney's fees and P500.00 expenses of litigation, hence, said defendant
prays that the complaint be dismissed and that her counterclaim be
granted, with costs against the plaintiffs. On November 24, 1967, the
plaintiffs filed an answer to the affirmative defenses and counter-claim. As
the defendants Fong Pak Luen and Kwan Pun Ming are residing outside
the Philippines, the trial court upon motion issued an order of April 17,
1967, for the service of summons on said defendants by publication. No
answer has been filed by said defendants.

On December 2, 196 7, the court issued an order as follows:

Both parties having agreed to the suggestion of the Court

that they submit their supplemental pleadings to support
both motion and opposition and after submittal of the same
the said motion to dismiss which is an affirmative defense
alleged in the complaint is deemed submitted. Failure of both
parties or either party to submit their supplemental pleadings
on or about December 9, the Court will resolve the case.

On November 29, 1968, the trial court issued an order missing the
complaint without pronouncement as to costs. (Record on Appeal, pp. 31-
37). A motion for reconsideration of this order was filed by the plaintiffs on
December 12, 196F, which was denied by the trial court in an order of July
11, 1969, (Rec. on Appeal, pp. 38, 43, 45, 47). The plaintiffs now
interpose this appeal with the following assignments of errors:
 I. The trial court erred in dismissing plaintiffs-appellants'
complaint on the ground of prescription of action, applying
Art. 1144 (1) New Civil Code on the basis of defendant
Trinidad S. Navata's affirmative defense of prescription in
her answer treated as a motion to dismiss.

II. The trial court erred in denying plaintiffs-appellants' motion

for reconsideration of the order of dismissal.

III. The trial court erred in not ordering this case to be tried
on the merits."

The appellants contend that the lower court erred in dismissing the complaint on the
ground that their cause of action has prescribed. While the issue raised appears to be
only the applicability of the law governing prescription, the real question before us is
whether or not the heirs of a person who sold a parcel of land to an alien in violation of a
constitutional prohibition may recover the property if it had, in the meantime, been
conveyed to a Filipino citizen qualified to own and possess it.

The question is not a novel one. Judicial precedents indicate fairly clearly how the
question should be resolved.

There can be no dispute that the sale in 1941 by Jose Godinez of his residential lot
acquired from the Bureau of Lands as part of the Jolo townsite to Fong Pak Luen, a
Chinese citizen residing in Hongkong, was violative of Section 5, Article XIII of the 1935
Constitution which provided:

Sec. 5. Save in cases of hereditary succession, no private agricultural land

will be transferred or assigned except to individuals, corporations, or
associations qualified to acquire or hold lands of the public domain in the
Philippines.

The meaning of the above provision was fully discussed in Krivenko v. Register of
Deeds of Manila (79 Phil. 461) which also detailed the evolution of the provision in the
public land laws, Act No. 2874 and Commonwealth Act No. 141. The Krivenko ruling
that "under the Constitution aliens may not acquire private or agricultural lands,
including residential lands" is a declaration of an imperative constitutional policy.
Consequently, prescription may never be invoked to defend that which the Constitution
prohibits. However, we see no necessity from the facts of this case to pass upon the
nature of the contract of sale executed by Jose Godinez and Fong Pak Luen whether
void ab initio, illegal per se or merely pro-exhibited.** It is enough to stress that insofar
as the vendee is concerned, prescription is unavailing. But neither can the vendor or his
heirs rely on an argument based on imprescriptibility because the land sold in 1941 is
now in the hands of a Filipino citizen against whom the constitutional prescription was
never intended to apply. The lower court erred in treating the case as one involving
simply the application of the statute of limitations.
From the fact that prescription may not be used to defend a contract which the
Constitution prohibits, it does not necessarily follow that the appellants may be allowed
to recover the property sold to an alien. As earlier mentioned, Fong Pak Luen, the
disqualified alien vendee later sold the same property to Trinidad S. Navata, a Filipino
citizen qualified to acquire real property.

In Vasquez v. Li Seng Giap and Li Seng Giap & Sons (96 Phil. 447), where the alien
vendee later sold the property to a Filipino corporation, this Court, in affirming a
judgment dismissing the complaint to rescind the sale of real property to the defendant
Li Seng Giap on January 22, 1940, on the ground that the vendee was an alien and
under the Constitution incapable to own and hold title to lands, held:

In Caoile vs. Yu Chiao 49 Qff Gaz., 4321; Talento vs. Makiki 49 Off. Gaz.,
4331; Bautista vs. Uy 49 Off. Gaz., 4336; Rellosa vs. Gaw Chee 49 Off.
Gaz., 4345 and Mercado vs. Go Bio, 49 Off. Gaz., 5360, the majority of
this Court has ruled that in sales of real estate to aliens incapable of
holding title thereto by virtue of the provisions of the Constitution (Section
5, Article XIII Krivenko vs. Register of Deeds, 44 Off. Gaz., 471) both the
vendor and the vendee are deemed to have committed the constitutional
violation and being thus in pari delicto the courts will not afford protection
to either party. (Article 1305, old Civil Code; Article 1411, new Civil Code)
From this ruling three Justices dissented. (Mr. Justice Pablo, Mr. Justice
Alex. Reyes and the writer. See Caoile vs. Yu Chiao Talento vs. Makiki
Bautista us. Uy, Rellosa vs. Gaw Chee and Mercado vs. Go Bio). supra.

The action is not of rescission because it is not postulated upon any of the
grounds provided for in Article 1291 of the old Civil Code and because the
action of rescission involves lesion or damage and seeks to repair it. It is
an action for annulment under Chapter VI, Title II, Book 11, on nullity of
contracts, based on a defect in the contract which invalidates it
independently of such lesion or damages. (Manresa, Commentarios al
Codigo Civil Espanol Vol. VIII, p. 698, 4th ed.) It is very likely that the
majority of this Court proceeded upon that theory when it applied the in
pari delicto rule referred to above.

In the United States the rule is that in a sale of real estate to an alien
disqualified to hold title thereto the vendor divests himself of the title to
such real estate and has no recourse against the vendee despite the
latter's disability on account of alienage to hold title to such real estate and
the vendee may hold it against the whole world except as against the
State. It is only the State that is entitled by proceedings in the nature of
office found to have a forfeiture or escheat declared against the vendee
who is incapable of holding title to the real estate sold and conveyed to
him. Abrams vs. State, 88 Pac. 327; Craig vs. Leslie et al., 4 Law, Ed.
460; 3 Wheat, 563, 589590; Cross vs. Del Valle, 1 Wall, [U.S.] 513; 17
 Law. Ed., 515; Governeur vs. Robertson, 11 Wheat, 332, 6 Law. Ed.,
488.)

However, if the State does not commence such proceedings and in the
meantime the alien becomes naturalized citizen, the State is deemed to
have waived its right to escheat the real property and the title of the alien
thereto becomes lawful and valid as of the date of its conveyance or
transfer to him. (Osterman vs. Baldwin, 6 Wall, 116, 18 Law. ed. 730;
Manuel vs. Wulff, 152 U.S. 505, 38 Law. ed. 532; Pembroke vs. Houston,
79, SW 470; Fioerella vs. Jones, 259 SW 782. The rule in the United
States that in a sale of real estate to an alien disqualified to hold title
thereto, the vendor divests himself of the title to such real estate and is not
permitted to sue for the annulment Of his Contract, is also the rule under
the Civil Code. ... Article 1302 of the old Civil Code provides: ... Persons
sui juris cannot, however, avail themselves of the incapacity of those with
whom they contracted; ...

xxx xxx xxx

. . . (I)f the ban on aliens from acquiring not only agricultural but, also
urban lands, as construed by this Court in the Krivenko case, is to
preserve the nation's land for future generations of Filipinos, that aim or
purpose would not be thwarted but achieved by making lawful the
acquisition of real estate by aliens who became Filipino citizens by
naturalization. The title to the parcel of land of the vendee, a naturalized
Filipino citizen, being valid that of the domestic corporation to which the
parcel of land has been transferred, must also be valid, 96.67 per cent of
its capital stock being owned by Filipinos.

Herrera v. Luy Kim Guan (SCRA 406) reiterated the above ruling by declaring that
where land is sold to a Chinese citizen, who later sold it to a Filipino, the sale to the
latter cannot be impugned.

The appellants cannot find solace from Philippine Banking Corporation v. Lui She (21
SCRA 52) which relaxed the pari delicto doctrine to allow the heirs or successors-in-
interest, in appropriate cases, to recover that which their predecessors sold to aliens.

Only recently, in Sarsosa vda. de Barsobia v. Cuenco (113 SCRA 547) we had
occasion to pass upon a factual situation substantially similar to the one in the instant
case. We ruled:

But the factual set-up has changed. The litigated property is now in the
hands of a naturalized Filipino. It is no longer owned by a disqualified
vendee. Respondent, as a naturalized citizen, was constitutionally
qualified to own the subject property. There would be no more public
policy to be served in allowing petitioner Epifania to recover the land as it
 is already in the hands of a qualified person. Applying by analogy the
ruling of this Court in Vasquez vs. Giap & Sons: (.96 Phil. 447 [1955])

... if the ban on aliens from acquiring not only agricultural but also urban
lands, as construed by this Court in the Krivenko case, is to preserve the
nation's lands for future generations of Filipinos, that aim or purpose would
not be thwarted but achieved by making lawful the acquisition of real
estate by aliens who became Filipino citizens by naturalization.

While, strictly speaking, Ong King Po, private respondent's vendor, had no
rights of ownership to transmit, it is likewise in escapable that petitioner
Epifania had slept on her rights for 26 years from 1936 to 1962. By her
long inaction or inexcusable neglect, she should be held barred from
asserting her claim to the litigated property (Sotto vs. Teves, 86 SCRA
157 [1978])

Laches has been defined as the 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
ommission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or
declined to assert it. (Tijam, et al. vs. Sibonghanoy, et al., No. L-21450,
April 15, 1968, 23 SCRA 29, 35).' (Cited in Sotto vs. Teves, 86 SCRA 154
[1978]).

Respondent, therefore, must be declared to be the rightful owner of the

property.

In the light of the above considerations, we find the second and third assignments of
errors without merit. Respondent Navata, the titled owner of the property is declared the
rightful owner.

WHEREFORE, the instant appeal is hereby denied. The orders dismissing the
complaint and denying the motion for reconsideration are affirmed.

SO ORDERED.

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

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 Report 12 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 Sale 15 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 Decision 20 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. 1411-1412, 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.45 The 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.

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 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.

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

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.

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.

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.

G.R. No. 171373 June 18, 2008

LLOYD’S ENTERPRISES and CREDIT CORPORATION, petitioner,
vs.
SPS. FERDINAND and PERSEVERANDA DOLLETON, respondents.

DECISION

TINGA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, assailing the Decision1 and Resolution2 of the Court of Appeals in CA-G.R.
CV No. 82017. The Court of Appeals’ decision affirmed with modification the decision of
the Regional Trial Court (RTC) of Muntinlupa City, Branch 276 in Civil Case No. 98-086
which, among others, nullified the property sale between herein respondents and
defendant Blesilda Gagan (Gagan) and the subsequent mortgage to petitioner and
foreclosure of the subject property.

Respondents, spouses Ferdinand and Perseveranda Dolleton, were the registered

owners of a parcel of land situated in Barangay Putatan, Muntinlupa City and covered
by Transfer Certificate of Title (TCT) No. 153554. Erected on the 166-sq m property is a
four-door apartment building being leased by respondents to various tenants. On 9
August 1990, respondents mortgaged the property to a certain Joseph Patrick Santos
(Santos) to secure a loan in the amount of P100,000.00. Upon payment of the loan on
15 August 1994, Santos executed a release and cancellation of the mortgage. The
same was annotated on the TCT.

On 15 September 1994, TCT No. 153554 in the name of respondents was cancelled
and a new TCT No. 197220 was issued in the name of Gagan on the basis of a Deed of
Absolute Sale dated 5 August 1994 whereby respondents purportedly sold to Gagan the
subject property for the sum of P120,000.00.

On 19 September 1994, petitioner Lloyd’s Enterprises and Credit Corporation lent to

Gagan and her live-in partner, a certain Feliciano Fajardo Guevarra (Guevarra) the sum
of P391,512.00. The loan was secured by a real estate mortgage on the subject
property, which was duly annotated on TCT No. 197220 on 27 September 1994. After
payment of the loan, petitioner executed a Cancellation of Mortgage, which was
annotated on the same TCT on 14 September 1995. On even date, petitioner granted
another loan to Gagan and Guevarra for a bigger sum of P542,928.00, as evidenced by
a promissory note dated August 1995. A new real estate mortgage was constituted over
the property. This undated mortgage deed appears to have been notarized in 1995. The
second real estate mortgage was likewise annotated on the TCT on 14 September
1995.

Gagan and Guevarra failed to pay the second loan upon its maturity. Thus, petitioner
instituted extrajudicial foreclosure proceedings on the subject property. At the auction
sale conducted by Sheriff-in-charge Melvin T. Bagabaldo, petitioner’s bid of
P645,000.00 was declared the highest.3 The property was not redeemed within the one-
year period, hence, ownership was consolidated in favor of petitioner. On 29 September
1997, TCT No. 197220 in the name of Gagan was cancelled and TCT No. 210363 was
issued in the name of petitioner.

Petitioner sent notices to the apartment tenants informing them about the transfer of the
property to petitioner and allowing them the option either to vacate the apartment or to
pay a monthly rental of P2,000.00. Thus, the apartment tenants did not remit the rentals
to respondents anymore, prompting the latter to cause the annotation of an adverse
claim on TCT No. 210363 on 15 December 1997.

On 7 May 1998, respondents filed a complaint, praying among others for the nullification
of the Deed of Absolute Sale, the two real estate mortgage contracts and the
extrajudicial foreclosure proceedings; the cancellation of TCT Nos. 197220 and 210363;
and the restoration of TCT No. 153554 in the name of respondents. 4 Named defendants
were Gagan, Guevarra, herein petitioner, the Sheriff-in-charge of the RTC of Muntinlupa
and the Office of the Register of Deeds for Makati.

In the said complaint,5 respondents denied having executed the Deed of Absolute Sale
and alleged that they had merely offered to sell to defendant Gagan the subject property
for P900,000.00 on installment basis so that they could pay their loan obligation to
Santos. They averred that after defendant Gagan had initially paid P200,000.00, they
entrusted the owner’s copy of TCT No. 153554 to defendant Gagan who however
undertoon to effect the cancellation of the mortgage in favor of Santos and to prepare
the contract of sale on installment basis. Respondents further alleged that except for the
additional amount of P185,000.00, defendant Gagan was unable to pay the balance of
the purchase price. They also accused Gagan of having caused the fraudulent
cancellation of TCT No. 153554 and the issuance of TCT No. 197220 in her name, and
of eventually using TCT No. 197220 to secure the loans obtained from petitioner.
Respondents also faulted petitioner for failing to make adequate inquiries on the true
ownership of the property considering the suspicious circumstances surrounding
Gagan’s and Guevarra’s request for loan immediately after the issuance of the new
certificate of title.

The summons on defendants Gagan and Guevarra were returned unserved as their
whereabouts were unknown. Upon motion by respondents, the RTC directed the
issuance and service of alias summons by publication.6 Subsequently, defendants
Gagan and Guevarra were declared in default for failure to file their responsive pleading
to the complaint that was published in a newspaper of general circulation.7

In its answer with counterclaim,8 petitioner raised the defense of lack of cause of action,
asserting that it exercised due diligence in verifying the status of the subject property
and that it would not have accepted the same as security for the loan if the title were not
clean. It also claimed that respondents were guilty of estoppel by laches as they failed
to take the necessary measures to protect their rights and interest. Petitioner also filed
an amended answer with counterclaim, which included a cross-claim against
defendants Gagan and Guevarra for the amount of the purchase price at the foreclosure
sale and for the litigation expenses. Petitioner’s cross-claim pleaded that in the event
that its certificate of title over the subject property be cancelled, defendants Gagan and
Guevara should be held solidarily liable for P645,000.00, which is the amount petitioner
paid at the foreclosure sale, plus additional expenses incurred in transferring the subject
property and in defending its rights and interest as a consequence of the filing of the
case.

After trial, the RTC rendered judgment declaring the Deed of Absolute Sale dated 5
August 1994 as spurious. The dispositive portion of the 8 November 2003 RTC
Decision reads:

PREMISES CONSIDERED, this Court is not convinced that defendant Lloyd

Enterprises and Credit Corporation is a mortgagee in good faith, the mortgage in
their favor being illegal and fraudulently obtained with the use of a title issued
thru misrepresentations and [a] forged document, did not confer ownership on
the forger. The mortgage over this property, is not a valid encumbrance, which
did not give a right to the said defendant, to foreclose and take ownership. The
loan not obtained by the true owners of the property, equity and fairness
demands that they should not suffer from that unfaithful conveyance, much more,
forfeit ownership of their parcel of land and the improvements thereon.
Defendants had the unconscionable and unscrupulous intentions to get the land
with improvement, hence neglected to check its ownership, are not mortgagees
in good faith.

Defendants are therefore directed to reconvey the property to the true and
genuine owners, the spouses Ferdinand and Perseveranda Dolleton, not being
mortgagees in good faith, while the mortgage itself over a parcel not owned by
the mortgagors, did not confer a valid mortgage. It cannot be a basis of a valid
foreclosure. It is not even legally recorded, hence no date to reckon the maturity
of their loan.

Defendants are further directed to remit payment of rental of the property to the
plaintiffs from December 1998 to the present on the rental sum equal to the
totality of the monthly rental from the said date to the present, at the amount
being paid and received by the Defendant from the tenants of the apartments, or
in the total sum of P525,600.00.

Plaintiffs are also entitled to moral damages in the amount of P300,000.00 with
exemplary damages in the amount of P300,000.00.

Since plaintiffs were forced to prosecute this claim, Plaintiffs incurred actual
expenses of P50,000.00 which should be refunded to them by defendant.

Plaintiffs were also forced to litigate to defend and enforce their rights of
ownership over this parcel of land subject of this litigation, attorney’s fees of
 P100,000.00 is also adjudged against defendant, as well as the cost of this
litigation.

IT IS SO ORDERED.9

On 20 December 2005, the Court of Appeals rendered the assailed decision, modifying
the award of moral and exemplary damages from P300,000.00 for both respondents to
P200,000.00 for each of the respondents. The appellate court rejected the RTC’s
factual finding that the two loans were granted simultaneously to defendants Gagan and
Guevarra. Just the same, it upheld the finding that the Deed of Absolute Sale was a
forgery and that petitioner was grossly negligent in accepting the mortgage as security
for the loan. In a Resolution10 dated 6 February 2006, the Court of Appeals denied
petitioner’s Motion for Reconsideration11 for lack of merit.

Petitioner filed a Petition for Review on Certiorari,12 which the Court initially denied in a
Resolution dated 5 June 2006 on the ground that the issues raised are factual and that
the petition failed to sufficiently show that the appellate court committed any reversible
error. Petitioner filed a motion for reconsideration, which was granted in a Resolution
dated 28 August 2006. The said resolution also directed the reinstatement of the
petition and the filing of a comment thereon.

The instant petition raises the following arguments:

I. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

A REVERSIBLE ERROR IN LAW WHEN IT FAILED TO DECLARE
PETITIONER AS MORTGAGEE IN GOOD FAITH AS THE LATTER TOOK THE
NECESSARY STEPS WHICH AN ORDINARY AND PRUDENT MAN WOULD
HAVE TAKEN BEFORE BUYING THE PROPERTY IN QUESTION;

II.WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT RULED

THAT THE PETITIONER IS LIABLE FOR DAMAGES WHEN THE
RESPONDENT IS NOT ENTIRELY WITHOUT FAULT;

III. WHETHER OR NOT THE COURT OF APPEALS ERRED WHEN IT FAILED

TO RULE ON THE LIABILITY OF THE GAGANS IN THIS CASE;

IV. WHETHER OR NOT THE AMOUNT OF DAMAGES AWARDED BY THE

HONORABLE COURT OF APPEALS IS CONSISTENT WITH THE EXISTING
JURISPRUDENCE AND NORMS OF MORALITY.13

First, petitioner insists that it is a mortgagee in good faith because it is not privy to the
transaction between respondents and defendant Gagan or to the source of the invalid
title.

Whether petitioner is a mortgagee-purchaser in good faith and for value is a factual

issue. In a petition for review, only questions of law may be raised. Even though there
are exceptions, petitioner did not show that this case is one of them. 14 Moreover, the
RTC and the Court of Appeals concur that petitioner did not exercise due diligence in
ascertaining the true ownership of the subject property, notwithstanding the existence of
circumstances which should have impelled it to investigate further. Well-settled is the
rule that factual findings of the RTC, when affirmed by the Court of Appeals, are
accorded great weight and respect by this Court.

We quote with approval the following observations of the Court of Appeals:

In this case, appellant LECC merely submitted in evidence forms for credit
investigation haphazardly accomplished by its supposed credit investigators who
were not presented as witnesses in court. While their report on the credit check
for the September 1994 and August 1995 loans indicated that they verified on the
borrower’s capacity to pay, there is no showing that they actually inspected the
property offered as collateral. As correctly noted by the trial court, had this
precautionary measure been taken, the lending company’s representatives would
have easily discovered that the four (4)-door apartment in the premises being
mortgaged is rented by tenants and they could have been provided with
information that plaintiffs-appellees are still the present lessors/owners thereof.

xxx

Hence, such gross negligence in failing to verify the actual condition of the
property, particularly as to who is in actual possession and if the premises are
leased to third persons, who is receiving the rental payments therefore, hardly
makes the appellant LECC a mortgagee in good faith. x x x 15

Moreover, the circumstance that the certificate of title covering the property offered as
security was newly issued should have put petitioner on guard and prompted it to
conduct an investigation surrounding the transfer of the property to defendant Gagan.
Had it inquired further, petitioner would have discovered that the property was sold for
an unconscionably low consideration of only P120,000.00 when it could have fetched as
high as P900,000.00.16 A purchaser cannot close his eyes to facts which should put a
reasonable man on his guard and claim that he acted in good faith under the belief that
there was no defect in the title of the vendor. His mere refusal to believe that such
defect exists or the willful 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. 17

We cannot sustain petitioner’s claim that it should not be required to look beyond the
certificate of title for flaws in the ownership of the property in view of the presumption
that a Torrens title is regularly issued and that the burden is on respondents to rebut the
presumption of good faith.
Petitioner is engaged in the business of extending credit to the public and is, thus,
expected to exercise due diligence in dealing with properties offered as security. In
Expresscredit Financing Corporation v. Spouses Velasco,18 the Court held that entities
engaged in the business of offering real estate loans must exercise a higher degree of
caution in accepting properties as security, thus:

x x x To fulfill the requirement of good faith, it is imperative for a mortgagee of the

land, in the possession of persons not the mortgagor, to inquire and investigate
into the rights or title of those in possession. It is true that a person dealing with
the owner of registered land is not bound to go beyond the certificate of title. He
may rely on the notices of the encumbrances on the property annotated on the
certificate of title or absence of any annotation. However, we note that the Garcia
spouses are unlike other mortgagors. They are in the business of constructing
and selling townhouses and are past masters in real estate transactions. Further,
petitioner is in the business of extending credit to the public, including real estate
loans. In both these businesses, it devolves upon both, greater charge than
ordinary buyers or encumbrancers for value, who are not in such venture. It is
standard in their business, as a matter of due diligence required of banks and
financing companies, to ascertain whether the property being offered as security
for the debt has already been sold to another to prevent injury to prior innocent
buyers. They also have the resources to ascertain any encumbrances over the
properties they are dealing with.19

In Agag v. Alpha Financing Corp.,20 the Court explicitly declared that when the
purchaser or mortgagee is a financing institution, the general rule that a purchaser or
mortgagee of land is not required to look further than what appears on the face of the
title does not apply. The Court explained, thus:

So also, in Cruz v. Bancom Finance Corporation, a case for reconveyance of

property against a purchaser in a foreclosure sale, it was stressed that the due
diligence required of banks extended even to persons regularly engaged in the
business of lending money secured by real estate mortgages. Their expertise or
experience in dealing with encumbrances on lands, not to mention the public
interest affecting their business, require them to exercise more care and
prudence in dealing even with registered lands.

Respondent, being a financial institution, cannot claim good faith considering that
neither it nor the alleged mortgagee bank was in possession of the lots prior and
after the foreclosure sale. Had respondent conducted an ocular inspection of the
premises, this being the standard practice in the real estate industry, it would
have discovered that the land is occupied by petitioner. The failure of respondent
to take such precautionary steps is considered negligence on its part and would
thereby preclude the defense of good faith. 21

Petitioner also contends that respondents are not without fault in carelessly allowing
defendant Gagan to obtain the certificate of title and cause the fraudulent transfer of the
property. It asserts that when one of two innocent persons must suffer by the wrongful
act of a third person, the loss falls on him who had put it into the power of that third
person to perpetrate the wrong.

In Adriano v. Pangilinan,22 petitioner therein also entrusted the certificate of title of his
property to a third person who fraudulently caused the annotation of a real estate
mortgage on the title in favor respondent. The Court held that respondent, who was
engaged in the real estate business but failed to verify the essential facts, should bear
the loss because his negligence was the primary, immediate and overriding reason that
put him in his predicament.23

Applying the principle in Adriano, petitioner must bear the loss of the property because
of its failure to ascertain the true ownership of the subject property, notwithstanding the
fact that it is engaged in the business of offering real estate loans to the public and is,
therefore, required to exercise a higher degree of diligence in investigating the status
and condition of the properties offered as securities.

Petitioner, however, is not without relief even at this juncture. It correctly filed a cross-
claim against defendants Gagan and Guevarra for the purchase price of the foreclosed
property in the amount of P645,000.00 plus other expenses of transfer and litigation, the
actual damages it incurred at the foreclosure sale, and all other expenses for which
petitioner may be held liable. Although the RTC and the Court of Appeals failed to
resolve the cross-claim, to avoid further delay, this Court can very well adjudicate upon
the liabilities of defendants Gagan and Guevara to petitioner. Petitioner submitted in
evidence a copy of the sheriff’s certificate of sale, evincing that petitioner paid the
amount of P645,000.00 at the foreclosure sale of the subject property. 24 However, as to
other alleged actual expenses incurred by petitioner as a result of the filing of the case,
no evidence was offered to prove the same. Defendants Gagan and Guevara should
ultimately bear the damages incurred by petitioner at the foreclosure sale, considering
that no evidence was presented to prove petitioner’s complicity in the forgery of the
Deed of Absolute Sale and that the instant controversy arose because of the acts of
defendants Gagan and Guevara.

One last point. Petitioner asks the Court to reduce its liability for moral and exemplary
damages in accordance with Cavite Development Bank v. Lim25 where petitioner-bank
was also found negligent in failing to ascertain the mortgagor’s title to the property
offered as security. The Court however found excessive the RTC’s award of moral and
exemplary damages and accordingly reduced the amounts involved to P50,000.00 and
P30,000.00, respectively. In the instant case, the Court of Appeals modified the award
by ordering the payment of moral damages of P200,000.00 and exemplary damages of
P200,000.00 both to each respondents, or a total of P800,000.00. The Court finds the
increase in the award of damages unjustified under the circumstances and, thus,
reinstates the award of the RTC.
Except for the modified award of moral and exemplary damages due the respondents,
the Court of Appeals decision affirmed, albeit impliedly, the RTC decision in all other
respects including the award of actual litigation expenses and attorney’s fees.

WHEREFORE, the instant petition for review on certiorari is partially granted and the
Decision of the Court of Appeals in CA-G.R. CV No. 82017 is AFFIRMED IN ALL
RESPECTS with the following MODIFICATIONS: (1) the other monetary awards
granted by the Regional Trial Court, Branch 276, Muntinlupa City are RESTORED and
petitioner is accordingly ORDERED to pay respondents moral damages of
P300,000.00, exemplary damages of P300,000.00, actual litigation expenses of
P50,000.00 and attorney’s fees of P100,000.00; and (2) defendants Blesilda Gagan and
Feliciano Fajardo Guevarra are ORDERED to pay jointly and severally petitioner Lloyd’s
Enterprises and Credit Corporation on its cross-claim the amount of P645,000.00, plus
legal interest of 6% per annum from the date of the RTC Decision. Costs against
petitioner.

SO ORDERED.

G.R. No. 158646 June 23, 2005

HEIRS OF JESUS M. MASCUÑANA, represented by JOSE MA. R. MASCUÑANA,

petitioners,
vs.
COURT OF APPEALS, AQUILINO BARTE, and SPOUSES RODOLFO and
CORAZON LAYUMAS, respondents.

DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in
CA-G.R. CV No. 53117 affirming the Decision2 of the Regional Trial Court (RTC) of San
Carlos City, Negros Occidental, which ordered the dismissal of the petitioners’
complaint for recovery of possession and damages.

The Antecedents

Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land
identified as Lot No. 124 of the San Carlos City, Negros Occidental Cadastre, with an
area of 1,729 square meters and covered by Transfer Certificate of Title (TCT) No.
1453-R (T-29937)-38.3 Over time, Gertrudis and two other co-owners sold each of their
one-seventh (1/7) shares, or a total area of 741 square meters, to Jesus Mascuñana.
The latter then sold a portion of his 140-square-meter undivided share of the property to
Diosdado Sumilhig. Mascuñana later sold an additional 160-square-meter portion to
Sumilhig on April 7, 1961. However, the parties agreed to revoke the said deed of sale
and, in lieu thereof, executed a Deed of Absolute Sale on August 12, 1961. In the said
deed, Mascuñana, as vendor, sold an undivided 469-square-meter portion of the
property for ₱4,690.00, with ₱3,690.00 as down payment, and under the following terms
of payment:

That the balance of ONE THOUSAND PESOS (₱1,000.00) shall be paid by the
VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been
surveyed in the name of the VENDEE and all papers pertinent and necessary to the
issuance of a separate Certificate of Title in the name of the VENDEE shall have been
prepared.4

On December 31, 1961, Mascuñana and Jose G. Estabillo executed a Deed of

Exchange and Absolute Sale of Real Estate,5 in which Estabillo deeded to Mascuñana
a portion of his property abutting that of Sumilhig on the southeast.

In the meantime, a survey was conducted for the co-owners of Lot No. 124 on July 9,
1962. The subdivision plan of the said lot was approved by the Director of Lands on
August 2, 1962. The portion of the property deeded to Sumilhig was identified in the
said plan as Lot No. 124-B.6

Meanwhile, Mascuñana died intestate on April 20, 1965 and was survived by his heirs,
Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opeña, Marilou Dy and Jose Ma. R.
Mascuñana.

On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property7 on a portion of
Lot No. 124-B with an area of 469 square meters and the improvements thereon, in
favor of Corazon Layumas, the wife of Judge Rodolfo Layumas, for the price of
₱11,000.00. The spouses Layumas then had the property subdivided into two lots: Lot
No. 124-B-2 with an area of 71 square meters under the name of Jesus Mascuñana,
and Lot No. 124-B-1, with an area of 469 square meters under their names. 8 The
spouses Layumas took possession of the property and caused the cutting of tall
grasses thereon. Upon the plea of a religious organization, they allowed a chapel to be
constructed on a portion of the property.9 In January 1985, the spouses Layumas
allowed Aquilino Barte to stay on a portion of the property to ward off squatters. 10 Barte
and his kin, Rostom Barte, then had their houses constructed on the property.

On October 1, 1985, the spouses Layumas received a Letter11 from the counsel of
Renee Tedrew, offering to buy their share of the property for US$1,000.00. For her part,
Corazon Layumas wrote Pepito Mascuñana, offering to pay the amount of ₱1,000.00,
the balance of the purchase price of the property under the deed of absolute sale
executed by Mascuñana and Sumilhig on August 12, 1961. 12 However, the addressee
refused to receive the mail matter.13

Unknown to the spouses Layumas, TCT No. 898614 was issued over Lot No. 124-B in
the name of Jesus Mascuñana on March 17, 1986.
On November 17, 1986, the heirs of Mascuñana filed a Complaint 15 for recovery of
possession of Lot No. 124-B and damages with a writ of preliminary injunction, alleging
that they owned the subject lot by virtue of successional rights from their deceased
father. They averred that Barte surreptitiously entered the premises, fenced the area
and constructed a house thereon without their consent. Attached as annexes to the
complaint were TCT No. 8986 and a certification 16 from the Office of the City Treasurer,
Land Tax Division, vouching that the property in question was owned by the petitioners
and that they had paid the taxes thereon until 1992.

In his answer to the complaint, Barte admitted having occupied a portion of Lot No. 124-
B, but claimed that he secured the permission of Rodolfo Layumas, the owner of the
subject property. He added that he did not fence the property, and that the petitioners
did not use the same as a passageway in going to Broce Street from their house. Barte
raised the following special defenses: (a) the petitioners were estopped from asserting
ownership over the lot in question because they did not object when he occupied the
said portion of the lot; (b) neither did the petitioners protest when a church was built on
the property, or when residential houses were constructed thereon; (c) the petitioners
still asked Barte and the other occupants whether they had notified Rodolfo Layumas of
the constructions on the property; and (d) the heirs of Mascuñana, through the lawyer of
Mrs. Renee M. Tedrew, even wrote a letter17 to Rodolfo Layumas on October 1, 1985,
expressing her willingness to buy the subject property for US$1,000.00.

On April 8, 1991, the spouses Layumas filed a Motion for Leave to Intervene, 18 alleging
therein that they had a legal interest in Lot No. 124-B-1 as its buyers from Sumilhig, who
in turn purchased the same from Mascuñana. In their answer in intervention, 19 the
spouses Layumas alleged that they were the true owners of the subject property and
that they had wanted to pay the taxes thereon, but the Land Tax clerk refused to receive
their payments on account that the petitioners had already made such payment. The
spouses Layumas further maintained that the petitioners had no cause of action against
Barte, as they had authorized him to occupy a portion of Lot No. 124-B-1. The spouses
Layumas also averred that the petitioners were estopped from denying their right of
ownership and possession of the subject lot, as one of them had even offered to
repurchase a portion of Lot No. 124-B via letter. The said spouses interposed a
counterclaim for damages, claiming ownership over the property, and prayed, thus:

WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render

judgment in favor of the Intervenors and the defendant Aquilino Barte, ordering:

1. That the complaint against Aquilino Barte be dismissed with costs against the
plaintiff;

2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A.

Layumas be declared as the legal and true owners of Lot 124-B;

3. That the plaintiffs should deliver immediately to the Intervenors, TCT No. 8986
which is in their possession;
 4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY
THOUSAND (₱30,000.00) PESOS moral damages; TEN THOUSAND
(₱10,000.00) PESOS attorney’s fees plus THREE HUNDRED (₱300.00) PESOS
as appearance fee per hearing.

Intervenors pray for such other relief and remedies as may be deemed by this
Honorable Court as just and equitable in the premises.

At the trial, intervenor Rodolfo Layumas testified that he and his wife bought the subject
property in 1968, and that nobody objected to their possession of the land, including the
petitioners. In 1970, a religious organization asked his permission to construct a chapel
on the disputed lot; he allowed the construction since the same would be used for the
fiesta. He further declared that part of the chapel still stood on the property. In 1985, a
fire razed the town’s public market, thereby dislocating numerous people. Barte was
one of the fire victims, who also happened to be a good friend and political supporter of
Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of the said lot, along
with some other fire victims. Rodolfo clarified that the others were to stay there only on
a temporary basis, but admitted that Barte’s children also stayed in the subject
property.20

Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the petitioners-
heirs, Pepito Mascuñana, requesting that the title of the lot be transferred in Sumilhig’s
name so that they could likewise arrange for the conveyance of the title in their names.
Pepito failed to claim the letter, and thereafter, filed a case of ejectment against Barte
and Rodolfo Layumas’ brother-in-law, Pepito Antonio. The case, the witness added,
was dismissed as against the two parties. Offered in evidence were the following: a
Sworn Statement on the Current and Fair Market Value of the Real Property issued in
1973 as required by Presidential Decree No. 76, and tax receipts. 21

Rodolfo Layumas admitted on cross-examination that at the time they bought the
property from Sumilhig, the title was still in the possession of the Wuthrich family. He
added that he filed an adverse claim before the Register of Deeds of San Carlos City,
Negros Occidental, on Lot No. 124-B in January 1986, or after the case had already
been filed in court. Lastly, the witness deposed that he did not fence the property after
buying the same, but that his brother-in-law constructed a coco-lumber yard thereon
upon his authority.22

On January 30, 1996, the trial court rendered judgment in favor of Barte and the
spouses Layumas. The fallo of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of

Intervenors-counterclaimants and defendant and against plaintiffs-counterclaim
defendants ordering as follows:

1. The dismissal of the plaintiff’s complaint with costs against them;

 2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge
Rodolfo S. Layumas and Corazon A. Layumas:

(a) ₱10,000.00 for attorney’s fees; and

(b) ₱30,000.00 as moral damages;

3. The plaintiffs, as counterclaim defendants, to comply with the above-stated

obligation of their late father, Mr. Jesus Mascuñana, under the Deed of Absolute
Sale, Exh. "3", pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuñana, including the
desegragation (sic) survey to desegregate the 469-square-meter portion of said
Lot No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado
Sumilhig, if the same has not yet been done despite what has been said herein
earlier to said effect, and the execution of the Final Deed of Sale in their capacity
as the heirs and successors-in-interest of the late Mr. Jesus Mascuñana, thru Mr.
Jose Mascuñana, covering the 469-square-meter desegregated portion of said
Lot No. 124-B, within sixty (60) days counted from the finality of this Decision, in
favor of the Intervenors-spouses, after which the said Intervenors-spouses shall
pay them, thru Mr. Jose Mascuñana, the ₱1,000.00 balance due to them as
successors-in-interest of the late Mr. Jesus Mascuñana;

4. In case plaintiffs fail to comply with what are herein ordered for them to do, the
Clerk of Court V of this Court to do all that they were to do as herein ordered in
the text and dispositive portion hereof, at the expense of Intervenors spouses to
be later reimbursed by plaintiffs, including the desegragation (sic) survey of said
469-square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre, Negros
Occidental, if the same has not yet been done and the execution of the Final
Deed of Sale on behalf of all the plaintiffs as heirs and successors-in-interest of
the late Mr. Jesus Mascuñana covering the said desegregated portion of 469
square meters of the aforesaid lot, in favor of Intervenors spouses, to the end
that separate title therefor may be issued in their names, after they shall have
paid the ₱1,000.00 balance due plaintiffs under said Deed of Absolute Sale, Exh.
"3."

SO ORDERED.23

Forthwith, the petitioners appealed the case to the CA, raising the following issues of
fact and law:

a. Whether or not the contract of alienation of Lot No. 124-B in favor of Diosdado
Sumilhig in 1961 was a contract to sell or a contract of sale;

b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor
of intervenor Corazon Layumas in 1968.24
On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the contract
between the petitioners’ father and Sumilhig was one of sale. Foremost, the CA
explained, the contract was denominated as a "Deed of Absolute Sale." The stipulations
in the contract likewise revealed the clear intention on the part of the vendor
(Mascuñana) to alienate the property in favor of the vendee (Sumilhig). In three various
documents, the late Mascuñana even made declarations that Sumilhig was already the
owner of the disputed land. The CA added that the admission may be given in evidence
against Mascuñana and his predecessors-in-interest under Section 26, Rule 130 of the
Revised Rules on Evidence. As to the argument that the contract between Mascuñana
and Sumilhig was not effective because it was subject to a suspensive condition that did
not occur, the CA ruled that the condition referred to by the petitioners refers only to the
payment of the balance of the purchase price and not to the effectivity of the
contract.1avvphi1.zw+

As to the petitioners’ contention that even if the contract were one of sale, ownership
cannot be transferred to Sumilhig because Mascuñana was not yet the owner of the lot
at the time of the alleged sale, the appellate court ruled that the registration of the land
to be sold is not a prerequisite to a contract of sale.

The Present Petition

Aggrieved, the petitioners filed the instant petition for review on certiorari with this Court,
where the following lone legal issue was raised:

WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUÑANA IN FAVOR
OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE? 25

We note that the original action of the petitioners against Aquilino Barte was one for
recovery of possession of Lot No. 124-B. With the intervention of the respondents
Rodolfo and Corazon Layumas who claimed ownership over the property, and the
acquiescence of the parties, evidence was adduced to prove who, between the
petitioners (as plaintiffs) and the respondents (as defendants-intervenors) were the
lawful owners of the subject property and entitled to its possession.

The petitioners resolutely contend that the Deed of Absolute Sale dated August 12,
1961 between their father and Sumilhig was a mere contract to sell because at the time
of the said sale, the late Mascuñana was not yet the registered owner of Lot No. 124 or
any of its portions. They assert that Sumilhig could not have acquired any rights over
the lot due to the fact that a person can only sell what he owns or is authorized to sell,
and the buyer can acquire no more than what the seller can transfer legally. Finally, the
petitioners insist that the document in controversy was subject to a suspensive
condition, not a resolutory condition, which is a typical attribute of a contract of sale.

The petition is denied for lack of merit.

The issues raised by the petitioners in this case are factual, and under Rule 45 of the
Rules of Court, only questions of law may be raised in this Court, the reason being that
this Court is not a trier of facts. It is not to re-examine the evidence on record and to
calibrate the same. Moreover, the findings and conclusions of the trial court as affirmed
by the CA are conclusive on the Court, absent of any evidence that the trial court, as
well as the CA ignored, misinterpreted and misconstrued facts and circumstances of
substance which, if considered, would alter or reverse the outcome of the case. 26

We have reviewed the records and find no justification for a reversal or even a
modification of the assailed decision of the CA.

Even on the merits of the petition, the Court finds that the decision of the trial court as
well as the ruling of the CA are based on the evidence on record and the applicable law.

The petitioners reiterated their pose that the deed of absolute sale over the property
executed by their father, Jesus Mascuñana, as vendor, and Diosdado Sumilhig as
vendee, was a contract to sell and not a contract of sale. They assert that on its face,
the contract appears to be a contract to sell, because the payment of the ₱1,000.00
balance of the purchase price was subject to a suspensive condition: the survey of the
property, the segregation of the portion thereof subject of the sale, and the completion
of the documents necessary for the issuance of a Torrens title over the property to and
in the name of Sumilhig who was the vendee. The petitioners assert that Sumilhig never
paid the aforesaid amount to the vendor; hence, the obligation of the latter and his
predecessors-in-interest (herein petitioners) to execute a final deed of sale never arose.
As such, they aver, title to the property remained reserved in the vendor and his heirs
even after his death. There was no need for the vendor to rescind the deed or collect
the said amount of ₱1,000.00 under Article 1191 of the New Civil Code because such a
remedy applies only to contracts of sale. The petitioners insist that Sumilhig never
acquired title over the property; he could not have transferred any title to the
respondents. Sumilhig could not have transferred that which he did not own.

The petitioners’ contention has no factual and legal bases.

The deed of absolute sale executed by Jesus Mascuñana and Sumilhig, provides, thus:

That the VENDOR is the true and absolute owner of a parcel of land known as Lot No.
124 of the Cadastral Survey of San Carlos, situated at Broce Street and is free from
liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-1453) of Reg. of
Deeds, Negros Occ.

That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED NINETY
PESOS (₱4,690.00), Philippine Currency, to be paid by the VENDEE in the manner
hereinafter stated, the VENDOR does hereby sell, transfer, cede and convey, a portion
of the above-described property containing an area of 469 square meters, the sketch of
which can be found at the back of this document and having a frontage at Broce Street
of around 14 meters, and from the Broce Street to the interior on its Southwest side with
a length of 30.9 meters, with a length of 24.8 meters on its Northeast side where it
turned to the right with a length of 2.8 meters and continuing to Northwest with a length
of 6.72 meters, the backyard dimension is 17.5 meters to the Northwest, unto the
VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of the down
payment of THREE THOUSAND SIX HUNDRED NINETY PESOS (₱3,690.00), which is
hereby acknowledged by the VENDOR as received by him.lawphil.net

That the balance of ONE THOUSAND PESOS (₱1,000.00) shall be paid by the
VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have been
surveyed in the name of the VENDEE and all papers pertinent and necessary to the
issuance of a separate Certificate of Title in the name of the VENDEE shall have been
prepared.

The evidence on record shows that during the lifetime of vendor Jesus Mascuñana, and
even after his death, his heirs, the petitioners herein, unequivocably declared that
Diosdado Sumilhig was the owner of the property subject of this case, and that the
respondents acquired title over the property, having purchased the same via a deed of
absolute sale from Diosdado Sumilhig. Thus, on December 31, 1961, Jesus Mascuñana
and Jose Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate, in
which both parties declared that they were co-owners of portions of Lot No. 124 abutted
by the property owned by Diosdado Sumilhig.27

In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land Surveyor,
following his survey of Lot No. 124 on July 9, 1962 for and in behalf of Jesus
Mascuñana, et al., it appears that Lot No. 124-B with an area of 540 square meters
belonged to Diosdado Sumilhig,28 which is abutted by Lot No. 124-C, owned by Jesus
Mascuñana.

On October 1, 1985, long after the death of Jesus Mascuñana, one of his heirs,
petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas offering
to buy the property occupied by his overseer Aquilino Barte for US$1,000.00:

ATTY. RODOLFO S. LAYUMAS

San Carlos City
Negros Occidental

Dear Atty. Layumas:

This has reference to the lot located at Broce Street, portions of which are presently
occupied by Mr. Barte.

Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would like to
offer the amount of $1,000.00 to buy your share of the said lot.

If you are amenable, kindly inform the undersigned for him to communicate [with] Mrs.
Tedrew in California.
Very truly yours,

(Sgd.)
SAMUEL SM LEZAMA29

It was only after the respondents rejected the proposal of petitioner Renee Tedrew that
the petitioners secured title over the property on March 17, 1986 in the name of Jesus
Mascuñana (already deceased at the time), canceling TCT No. 967 issued on July 6,
1962 under the name of Jesus Mascuñana, who appears to be a co-owner of Lot No.
124 with an undivided two-seventh (2/7) portion thereof.30

While it is true that Jesus Mascuñana executed the deed of absolute sale over the
property on August 12, 1961 in favor of Diosdado Sumilhig for ₱4,690.00, and that it
was only on July 6, 1962 that TCT No. 967 was issued in his name as one of the co-
owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless acquired
ownership over the property. The deed of sale executed by Jesus Mascuñana in favor
of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale over the
property. It is settled that a perfected contract of sale cannot be challenged on the
ground of the non-transfer of ownership of the property sold at that time of the
perfection of the contract, since it is consummated upon delivery of the property to the
vendee. It is through tradition or delivery that the buyer acquires ownership of the
property sold. As provided in Article 1458 of the New Civil Code, when the sale is made
through a public instrument, the execution thereof is equivalent to the delivery of the
thing which is the object of the contract, unless the contrary appears or can be inferred.
The record of the sale with the Register of Deeds and the issuance of the certificate of
title in the name of the buyer over the property merely bind third parties to the sale. As
between the seller and the buyer, the transfer of ownership takes effect upon the
execution of a public instrument covering the real property. 31 Long before the petitioners
secured a Torrens title over the property, the respondents had been in actual
possession of the property and had designated Barte as their overseer.

Article 1458 of the New Civil Code provides:

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.

A contract of sale may be absolute or conditional.

Thus, there are three essential elements of sale, to wit:

a) Consent or meeting of the minds, that is, consent to transfer ownership in

exchange for the price;

b) Determinate subject matter; and

 c) Price certain in money or its equivalent.32

In this case, there was a meeting of the minds between the vendor and the vendee,
when the vendor undertook to deliver and transfer ownership over the property covered
by the deed of absolute sale to the vendee for the price of ₱4,690.00 of which
₱3,690.00 was paid by the vendee to the vendor as down payment. The vendor
undertook to have the property sold, surveyed and segregated and a separate title
therefor issued in the name of the vendee, upon which the latter would be obliged to
pay the balance of ₱1,000.00. There was no stipulation in the deed that the title to the
property remained with the vendor, or that the right to unilaterally resolve the contract
upon the buyer’s failure to pay within a fixed period was given to such vendor. Patently,
the contract executed by the parties is a deed of sale and not a contract to sell. As the
Court ruled in a recent case:

In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is
devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated,
e.g., until or unless the price is paid. Ownership will then be transferred to the buyer
upon actual or constructive delivery (e.g. by the execution of a public document) of the
property sold. Where the condition is imposed upon the perfection of the contract itself,
the failure of the condition would prevent such perfection. If the condition is imposed on
the obligation of a party which is not fulfilled, the other party may either waive the
condition or refuse to proceed with the sale. (Art. 1545, Civil Code)

Thus, in one case, when the sellers declared in a "Receipt of Down Payment" that they
received an amount as purchase price for a house and lot without any reservation of
title until full payment of the entire purchase price, the implication was that they sold
their property. In People’s Industrial and Commercial Corporation v. Court of Appeals, it
was stated:

A deed of sale is considered absolute in nature where there is neither a stipulation in

the deed that title to the property sold is reserved in the seller until full payment of the
price, nor one giving the vendor the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period.

Applying these principles to this case, it cannot be gainsaid that the contract of sale
between the parties is absolute, not conditional. There is no reservation of ownership
nor a stipulation providing for a unilateral rescission by either party. In fact, the sale was
consummated upon the delivery of the lot to respondent. Thus, Art. 1477 provides that
the ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof.33

The condition in the deed that the balance of ₱1,000.00 shall be paid to the vendor by
the vendee as soon as the property sold shall have been surveyed in the name of the
vendee and all papers pertinent and necessary to the issuance of a separate certificate
of title in the name of the vendee shall have been prepared is not a condition which
prevented the efficacy of the contract of sale. It merely provides the manner by which
the total purchase price of the property is to be paid. The condition did not prevent the
contract from being in full force and effect:

The stipulation that the "payment of the full consideration based on a survey shall be
due and payable in five (5) years from the execution of a formal deed of sale" is not a
condition which affects the efficacy of the contract of sale. It merely provides the
manner by which the full consideration is to be computed and the time within which the
same is to be paid. But it does not affect in any manner the effectivity of the contract.
…34

In a contract to sell, ownership is retained by a seller and is not to be transferred to the

vendee until full payment of the price. Such payment is a positive suspensive condition,
the failure of which is not a breach of contract but simply an event that prevented the
obligation from acquiring binding force.35

It bears stressing that in a contract of sale, the non-payment of the price is a resolutory
condition which extinguishes the transaction that, for a time, existed and discharges the
obligation created under the transaction.36 A seller cannot unilaterally and extrajudicially
rescind a contract of sale unless there is an express stipulation authorizing it. In such
case, the vendor may file an action for specific performance or judicial rescission.37

Article 1169 of the New Civil Code provides that in reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready to comply in a proper manner
with what is incumbent upon him; from the moment one of the parties fulfills his
obligation, delay by the other begins. In this case, the vendor (Jesus Mascuñana) failed
to comply with his obligation of segregating Lot No. 124-B and the issuance of a
Torrens title over the property in favor of the vendee, or the latter’s successors-in-
interest, the respondents herein. Worse, petitioner Jose Mascuñana was able to secure
title over the property under the name of his deceased father.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.

SO ORDERED.

G.R. No. L-25494 June 14, 1972

NICOLAS SANCHEZ, plaintiff-appellee,

vs.
SEVERINA RIGOS, defendant-appellant.

Santiago F. Bautista for plaintiff-appellee.

Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p

Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of
Appeals, which certified the case to Us, upon the ground that it involves a question
purely of law.

The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant
Severina Rigos executed an instrument entitled "Option to Purchase," whereby Mrs.
Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a
parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose,
province of Nueva Ecija, and more particularly described in Transfer Certificate of Title
No. NT-12528 of said province, within two (2) years from said date with the
understanding that said option shall be deemed "terminated and elapsed," if "Sanchez
shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch
as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said
period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said
amount with the Court of First Instance of Nueva Ecija and commenced against the
latter the present action, for specific performance and damages.

After the filing of defendant's answer — admitting some allegations of the complaint,
denying other allegations thereof, and alleging, as special defense, that the contract
between the parties "is a unilateral promise to sell, and the same being unsupported by
any valuable consideration, by force of the New Civil Code, is null and void" — on
February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a
judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered
judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by
him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was,
likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence, this
appeal by Mrs. Rigos.

This case admittedly hinges on the proper application of Article 1479 of our Civil Code,
which provides:

ART. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a

price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.

In his complaint, plaintiff alleges that, by virtue of the option under consideration,
"defendant agreed and committed to sell" and "the plaintiff agreed and committed to
buy" the land described in the option, copy of which was annexed to said pleading as
Annex A thereof and is quoted on the margin.1 Hence, plaintiff maintains that the
promise contained in the contract is "reciprocally demandable," pursuant to the first
paragraph of said Article 1479. Although defendant had really "agreed, promised and
committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn,
"agreed and committed himself " to buy said property. Said Annex A does not bear out
plaintiff's allegation to this effect. What is more, since Annex A has been made "an
integral part" of his complaint, the provisions of said instrument form part "and parcel"2
of said pleading.

The option did not impose upon plaintiff the obligation to purchase defendant's property.
Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy.
And both parties so understood it, as indicated by the caption, "Option to Purchase,"
given by them to said instrument. Under the provisions thereof, the defendant "agreed,
promised and committed" herself to sell the land therein described to the plaintiff for
P1,510.00, but there is nothing in the contract to indicate that her aforementioned
agreement, promise and undertaking is supported by a consideration "distinct from the
price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of
said consideration, and this would seem to be the main factor that influenced its
decision in plaintiff's favor. It should be noted, however, that:

(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 promisor, Article 1479
requires the concurrence of a condition, namely, that the promise be "supported by a
consideration distinct from the price." Accordingly, the promisee can not compel the
promisor 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.

(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a
special defense, the absence of said consideration for her promise to sell and, by
joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the
truth of said averment in defendant's answer. Indeed as early as March 14, 1908, it had
been held, in Bauermann v. Casas,3 that:

One who prays for judgment on the pleadings without offering proof as to
the truth of his own allegations, and without giving the opposing party an
opportunity to introduce evidence, must be understood to admit the truth
of all the material and relevant allegations of the opposing party, and to
rest his motion for judgment on those allegations taken together with such
of his own as are admitted in the pleadings. (La Yebana Company vs.
Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa4 and Mercy's Incorporated v.
Herminia Verde.5

Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,6
from which We quote:

The main contention of appellant is that the option granted to appellee to

sell to it barge No. 10 for the sum of P30,000 under the terms stated
above has no legal effect because it is not supported by any consideration
and in support thereof it invokes article 1479 of the new Civil Code. The
article provides:

"ART. 1479. A promise to buy and sell a determinate thing

for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or 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."

On the other hand, Appellee contends that, even granting that the "offer of
option" is not supported by any consideration, that option became binding
on appellant when the appellee gave notice to it of its acceptance, and
that having accepted it within the period of option, the offer can no longer
be withdrawn and in any event such withdrawal is ineffective. In support
this contention, appellee invokes article 1324 of the Civil Code which
provides:

"ART. 1324. When the offerer has allowed the offeree a

certain period to accept, the offer may be withdrawn any
time before acceptance by communicating such withdrawal,
except when the option is founded upon consideration as
something paid or promised."

There is no question that under article 1479 of the new Civil Code "an
option to sell," or "a promise to buy or to sell," as used in said article, to be
valid must be "supported by a consideration distinct from the price." This is
clearly inferred from the context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if supported by
consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration which means that the
option can still be withdrawn, even if accepted, if the same is not
supported by any consideration. It is not disputed that the option is without
consideration. It can therefore be withdrawn notwithstanding the
acceptance of it by appellee.
 It is true that under article 1324 of the new Civil Code, the general rule
regarding offer and acceptance is that, when the offerer gives to the
offeree a certain period to accept, "the offer may be withdrawn at any time
before acceptance" except when the option is founded upon
consideration, but this general rule must be interpreted as modified by the
provision of article 1479 above referred to, which applies to "a promise to
buy and sell" specifically. As already stated, this rule requires that a
promise to sell to be valid must be supported by a consideration distinct
from the price.

We are not oblivious of the existence of American authorities which hold

that an offer, once accepted, cannot be withdrawn, regardless of whether
it is supported or not by a consideration (12 Am. Jur. 528). These
authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented
from applying them in view of the specific provision embodied in article
1479. While under the "offer of option" in question appellant has assumed
a clear obligation to sell its barge to appellee and the option has been
exercised in accordance with its terms, and there appears to be no valid or
justifiable reason for appellant to withdraw its offer, this Court cannot
adopt a different attitude because the law on the matter is clear. Our
imperative duty is to apply it unless modified by Congress.

However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek,8
decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,9
saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the
former where a unilateral promise to sell similar to the one sued upon here was
involved, treating such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a bilateral contract of
purchase and sale upon acceptance. Speaking through Associate Justice, later Chief
Justice, Cesar Bengzon, this Court said:

Furthermore, an option is unilateral: a promise to sell at the price fixed

whenever the offeree should decide to exercise his option within the
specified time. After accepting the promise and before he exercises his
option, the holder of the option is not bound to buy. He is free either to buy
or not to buy later. In this case, however, upon accepting herein
petitioner's offer a bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a purchaser. He did not
just get the right subsequently to buy or not to buy. It was not a mere
option then; it was a bilateral contract of sale.

Lastly, even supposing that Exh. A granted an option which is not binding
for lack of consideration, the authorities hold that:
 "If the option is given without a consideration, it is a mere
offer of a contract of sale, which is not binding until
accepted. If, however, acceptance is made before a
withdrawal, it constitutes a binding contract of sale, even
though the option was not supported by a sufficient
consideration. ... . (77 Corpus Juris Secundum, p. 652. See
also 27 Ruling Case Law 339 and cases cited.)

"It can be taken for granted, as contended by the defendant,

that the option contract was not valid for lack of
consideration. But it was, at least, an offer to sell, which was
accepted by letter, and of the acceptance the offerer had
knowledge before said offer was withdrawn. The
concurrence of both acts — the offer and the acceptance —
could at all events have generated a contract, if none there
was before (arts. 1254 and 1262 of the Civil Code)." (Zayco
vs. Serra, 44 Phil. 331.)

In other words, since there may be no valid contract without a cause or consideration,
the promisor is not bound by his promise and may, accordingly, withdraw it. Pending
notice of its withdrawal, his accepted promise partakes, however, of the nature of an
offer to sell which, if accepted, results in a perfected contract of sale.

This view has the advantage of avoiding a conflict between Articles 1324 — on the
general principles on contracts — and 1479 — on sales — of the Civil Code, in line with
the cardinal rule of statutory construction that, in construing different provisions of one
and the same law or code, such interpretation should be favored as will reconcile or
harmonize said provisions and avoid a conflict between the same. Indeed, the
presumption is that, in the process of drafting the Code, its author has maintained a
consistent philosophy or position. Moreover, the decision in Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art.
1479 of the Civil Code, in effect, considers the latter as an exception to the former, and
exceptions are not favored, unless the intention to the contrary is clear, and it is not so,
insofar as said two (2) articles are concerned. What is more, the reference, in both the
second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or
founded upon a consideration, strongly suggests that the two (2) provisions intended to
enforce or implement the same principle.

Upon mature deliberation, the Court is of the considered opinion that it should, as it
hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar
as inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses
Co. case should be deemed abandoned or modified.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against
defendant-appellant Severina Rigos. It is so ordered.
G.R. No. 86150 March 2, 1992

GUZMAN, BOCALING & CO., petitioner,

vs.
RAOUL S. V. BONNEVIE, respondent.

E. Voltaire Garcia for petitioner.

Guinto Law Office for private respondent.

CRUZ, J.:

The subject of the controversy is a parcel of land measuring six hundred (600) square
meters, more or less, with two buildings constructed thereon, belonging to the Intestate
Estate of Jose L. Reynoso.

This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the
administratrix, Africa Valdez de Reynoso, for a period of one year beginning August 8,
1976, at a monthly rental of P4,000.00.

The Contract of lease contained the following stipulation:

20. — In case the LESSOR desire or decides to sell the lease property,
the LESSEES shall be given a first priority to purchase the same, all
things and considerations being equal.

On November 3, 1976 according to Reynoso, she notified the private respondents by

registered mail that she was selling the leased premises for P600.000.00 less a
mortgage loan of P100,000.00, and was giving them 30 days from receipt of the letter
within which to exercise their right of first priority to purchase the subject property. She
said that in the event that they did not exercise the said right, she would expect them to
vacate the property not later then March, 1977.

On January 20, 1977, Reynoso sent another letter to private respondents advising them
that in view of their failure to exercise their right of first priority, she had already sold the
property.

Upon receipt of this letter, the private respondents wrote Reynoso informing her that
neither of them had received her letter dated November 3, 1976; that they had advised
her agent to inform them officially should she decide to sell the property so negotiations
could be initiated; and that they were "constrained to refuse (her) request for the
termination of the lease.
On March 7, 1977, the leased premises were formally sold to petitioner Guzman,
Bocaling & Co. The Contract of Sale provided for immediate payment of P137,500.00
on the purchase price, the balance of P262,500.00 to be paid only when the premises
were vacated.

On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that
they vacate the premises within 15 days for their failure to pay the rentals for four
months. When they refuse, Reynoso filed a complaint for ejectment against them which
was docketed as Civil Case No. 043851-CV in the then City Court of Manila.

On September 25, 1979, the parties submitted a Compromise Agreement, which

provided inter alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises
subject of the Lease Contract, Voluntarily and Peacefully not later than October 31,
1979."

This agreement was approved by the City Court and became the basis of its decision.
However, as the private respondents failed to comply with the above-qouted stipulation,
Reynoso filed a motion for execution of the judgment by compromise, which was
granted on November 8, 1979.

On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set
aside the decision of the City Court as well as the Compromise Agreement on the sole
ground that Reynoso had not delivered to him the "records of payments and receipts of
all rentals by or for the account of defendant ..." The motion was denied and the case
was elevated to the then Court of First Instance. That Court remanded the case to the
City Court of Manila for trial on the merits after both parties had agreed to set aside the
Compromise Agreement.

On April 29, 1980, while the ejectment case was pending in the City Court, the private
respondents filed an action for annulment of the sale between Reynoso and herein
petitioner Guzman, Bocaling & Co. and cancellation of the transfer certificate of title in
the name of the latter. They also asked that Reynoso be required to sell the property to
them under the same terms ands conditions agreed upon in the Contract of Sale in
favor of the petitioner This complaint was docketed as Civil Case No. 131461 in the
then Court of First Instance of Manila.

On May 5, 1980, the City Court decided the ejectment case, disposing as follows:

WHEREFORE, judgment is hereby rendered ordering defendants and all

persons holding under them to vacate the premises at No. 658 Gen.
Malvar Street, Malate, Manila, subject of this action, and deliver
possession thereof to the plaintiff, and to pay to the latter; (1) The sum of
P4,000.00 a month from April 1, 1977 to August 8, 1977; (2) The sum of
P7,000.00 a month, as reasonable compensation for the continued
unlawful use and occupation of said premises, from August 9, 1977 and
every month thereafter until defendants actually vacate and deliver
 possession thereof to the plaintiff; (3) The sum of P1,000.00 as and for
attorney's fees; and (4) The costs of suit.

The decision was appealed to the then Court of First Instance of Manila, docketed as
Civil Case No. 132634 and consolidated with Civil Case No. 131461. In due time, Judge
Tomas P. Maddela, Jr., decided the two cases as follows:

WHEREFORE, premises considered, this Court in Civil Case No. 132634

hereby modifies the decision of the lower court as follows:

1 Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie

and all persons holding under them to vacate the premises at No. 658
Gen. Malvar St., Malate, Manila subject of this action and deliver
possessions thereof to the plaintiff; and

2 To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to
September 21, 1980 (when possession of the premises was turned over to
the Sheriff) after deducting whatever payments were made and accepted
by Mrs. Africa Valdez Vda. de Reynoso during said period, without
pronouncement as to costs.

As to Civil Case No. 131461, the Court hereby renders judgment in favor
of the plaintiff Raoul Bonnevie as against the defendants Africa Valdez
Vda. de Reynoso and Guzman and Bocaling & Co. declaring the deed of
sale with mortgage executed by defendant Africa Valdez Vda. de Reynoso
in favor of defendant Guzman and Bocaling null and void; cancelling the
Certificate of Title No. 125914 issued by the Register of Deeds of Manila
in the name of Guzman and Bocaling & Co.,; the name of Guzman and
Bocaling & Co.,; ordering the defendant Africa Valdez Vda. de Reynoso to
execute favor of the plaintiff Raoul Bonnevie a deed of sale with mortgage
over the property leased by him in the amount of P400,000.00 under the
same terms and conditions should there be any other occupants or
tenants in the premises; ordering the defendants jointly and severally to
pay the plaintiff Raoul Bonnevie the amount of P50,000.00 as temperate
damages; to pay the plaintiff jointly and severally the of P2,000.00 per
month from the time the property was sold to defendant Guzman and
Bocaling by defendant Africa Valdez Vda de Reynoso on March 7, 1977,
up to the execution of a deed of sale of the property by defendant Africa
Valdez Vda. de Reynoso in favor of plaintiff Bonnevie; to pay jointly and
severally the plaintiff Bonnevie the amount of P20,000.00 as exemplary
damages, for attorney's fees in the amount of P10,000.00, and to pay the
cost of suit.

Both Reynoso and the petitioner company filed with the Court of Appeals a petition for
review of this decision. The appeal was eventually resolved against them in a decision
promulgated on March 16, 1988, where the respondent court substantially affirmed the
conclusions of the lower court but reduced the award of damages. 1

Its motion for reconsideration having been denied on December 14, 1986, the petitioner
has come to this Court asserting inter alia that the respondent court erred in ruling that
the grant of first priority to purchase the subject properties by the judicial administratrix
needed no authority from the probate court; holding that the Contract of Sale was not
voidable but rescissible; considering the petitioner as a buyer in bad faith ordering
Reynoso to execute the deed of sale in favor of the Bonnevie; and not passing upon the
counterclaim. Reynoso has not appealed.

The Court has examined the petitioner's contentions and finds them to be untenable.

Reynoso claimed to have sent the November 3, 1976 letter by registered mail, but the
registry return card was not offered in evidence. What she presented instead was a
copy of the said letter with a photocopy of only the face of a registry return card claimed
to refer to the said letter. A copy of the other side of the card showing the signature of
the person who received the letter and the data of the receipt was not submitted. There
is thus no satisfactory proof that the letter was received by the Bonnevies.

Even if the letter had indeed been sent to and received by the private respondent and
they did not exercise their right of first priority, Reynoso would still be guilty of violating
Paragraph 20 of the Contract of Lease which specifically stated that the private
respondents could exercise the right of first priority, "all things and conditions being
equal." The Court reads this mean that there should be identity of the terms and
conditions to be offered to the Bonnevies and all other prospective buyers, with the
Bonnevies to enjoy the right of first priority.

The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less
only the mortgage lien of P100,000.00. 2 On the other hand, the selling price offered to
and accepted by the petitioner was only P400,000.00 and only P137,500.00 was paid in
cash while the balance of P272,500.00 was to be paid "when the property (was) cleared
of tenants or occupants. 3

The fact that the Bonnevies had financial problems at that time was no justification for
denying them the first option to buy the subject property. Even if the Bonnevies could
not buy it at the price qouted, Reynoso could not sell it to another for a lower price and
under more favorable terms and conditions. Only if the Bonnevies failed to exercise
their right of first priority could Reynoso lawfully sell the subject property to others, and
at that only under the same terms and conditions offered to the Bonnevies.

The Court agrees with the respondent court that it was not necessary to secure the
approval by the probate court of the Contract of Lease because it did not involve an
alienation of real property of the estate nor did the term of the lease exceed one year so
as top make it fall under Article 1878(8) of the Civil Code. Only if Paragraph 20 of the
Contract of Lease was activated and the said property was intended to be sold would it
be required of the administratrix to secure the approval of the probate court pursuant to
Rule 89 of the Rules of Court.

As a strict legal proposition, no judgment of the probate court was reviewed and
eventually annuled collaterally by the respondent court as contended by the petitioner.
The order authorizing the sale in its favor was duly issued by the probate court, which
thereafter approved the Contract of Sale resulting in the eventual issuance if title in
favor of the petitioner. That order was valid insofar as it recognized the existence of all
the essential elements of a valid contract of sale, but without regard to the special
provision in the Contract of Lease giving another party the right of first priority.

Even if the order of the probate court was valid, the private respondents still had a right
to rescind the Contract of Sale because of the failure of Reynoso to comply with her
duty to give them the first opportunity to purchase the subject property.

The petitioner argues that assuming the Contract of Sale to be voidable, only the parties
thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is
stressed that private respondents are strangers to the agreement and therefore have no
personality to seek its annulment.

The respondent court correctly held that the Contract of Sale was not voidable
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. 4 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. 5 Recission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for
reasons of equity. 6

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. 7
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 its
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.8 Good faith connotes an honest
intention to abstain from taking unconscientious advantage of another. 9 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 nevertherless 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.

Finally, the petitioner also cannot invoke the Compromise Agreement which it says
canceled the right of first priority granted to the Bonnevies by the Contract of Lease.
This agreement was set side by the parties thereto, resulting in the restoration of the
original rights of the private respondents under the Contract of Lease. The Joint Motion
to Remand filed by Reynoso and the private respondents clearly declared inter alia:

That without going into the merits of instant petition, the parties have
agreed to SET ASIDE the compromise agreement, dated September 24,
1979 and remand Civil Case No. 043851 of the City Court of Manila to
Branch IX thereof for trial on the merits. 10

We find, in sum, that the respondent court did not commit the errors imputed to it by the
petitioner. On the contrary, its decision is conformable to the established facts and the
applicable law and jurisprudence and so must be sustained.

WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged
decision is AFFIRMED in toto. It is so ordered.
G.R. No. 117355 April 5, 2002

RIVIERA FILIPINA, INC., petitioner,

vs.
COURT OF APPEALS, JUAN L. REYES, (now deceased), substituted by his heirs,
namely, Estefania B. Reyes, Juanita R. de la Rosa, Juan B. Reyes, Jr. and Fidel B.
Reyes, PHILIPPINE CYPRESS CONSTRUCTION & DEVELOPMENT
CORPORATION, CORNHILL TRADING CORPORATION and URBAN
DEVELOPMENT BANK, respondents.

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2
dated June 6, 1994 in CA-G.R. CV No. 26513 affirming the Decision3 dated March 20,
1990 of the Regional Trial Court of Quezon City, Branch 89 dismissing Civil Case No.
Q-89-3371.

Civil Case No. Q-89-3371 is a suit instituted by Riviera Filipina, Inc. (Riviera) on August
31, 19894 to compel the defendants therein Juan L. Reyes, now deceased, Philippine
Cypress Construction & Development Corporation (Cypress), Cornhill Trading
Corporation (Cornhill) and Urban Development Bank to transfer the title covering a
1,018 square meter parcel of land located along EDSA, Quezon City for alleged
violation of Riviera’s right of first refusal.

It appears that on November 23, 1982, respondent Juan L. Reyes (Reyes, for brevity)
executed a Contract of Lease with Riviera. The ten-year (10) renewable lease of
Riviera, which started on August 1, 1982, involved a 1,018 square meter parcel of land
located along Edsa, Quezon City, covered and described in Transfer Certificate of Title
No. 186326 of the Registry of Deeds of Quezon City in the name of Juan L. Reyes.5

The said parcel of land was subject of a Real Estate Mortgage executed by Reyes in
favor of Prudential Bank. Since the loan with Prudential Bank remained unpaid upon
maturity, the mortgagee bank extrajudicially foreclosed the mortgage thereon. At the
public auction sale, the mortgagee bank emerged as the highest bidder. The
redemption period was set to expire on March 7, 1989. Realizing that he could not
possibly raise in time the money needed to redeem the subject property, Reyes decided
to sell the same.6

Since paragraph 11 of the lease contract expressly provided that the "LESSEE shall
have the right of first refusal should the LESSOR decide to sell the property during the
term of the lease,"7 Reyes offered to sell the subject property to Riviera, through its
President Vicente C. Angeles, for Five Thousand Pesos (P5,000.00) per square meter.
However, Angeles bargained for Three Thousand Five Hundred Pesos (P3,500.00) per
square meter. Since Reyes was not amenable to the said price and insisted on Five
Thousand Pesos (P5,000.00) per square meter, Angeles requested Reyes to allow him
to consult the other members of the Board of Directors of Riviera.8
Seven (7) months later, or sometime in October 1988, Angeles communicated with
Reyes Riviera’s offer to purchase the subject property for Four Thousand Pesos
(P4,000.00) per square meter. However, Reyes did not accept the offer. This time he
asked for Six Thousand Pesos (P6,000.00) per square meter since the value of the
property in the area had appreciated in view of the plans of Araneta to develop the
vicinity.9

In a letter dated November 2, 1988, Atty. Irineo S. Juan, acting as counsel for Reyes,
informed Riviera that Reyes was selling the subject property for Six Thousand Pesos
(P6,000.00) per square meter, net of capital gains and transfer taxes, registration fees,
notarial fees and all other attendant charges. He further stated therein that:

In this connection, conformably to the provisions stipulated in Paragraph/Item No.

11 of your CONTRACT OF LEASE (Doc. No. 365, Page No. 63, Book No. X,
Series of 1982, of the Notarial Registry of Notary Public Leovillo S. Agustin),
notice is served upon your goodselves for you to exercise "the right of first
refusal" in the sale of said property, for which purpose you are hereby given a
period of ten (10) days from your receipt hereof within which to thus purchase the
same under the terms and conditions aforestated, and failing which you shall be
deemed to have thereby waived such pre-emptive right and my client shall
thereafter be absolutely free to sell the subject property to interested buyers.10

To answer the foregoing letter and confirm their telephone conversation on the matter,
Riviera sent a letter dated November 22, 1988 to Atty. Juan, counsel for Reyes,
expressing Riviera’s interest to purchase the subject property and that Riviera is already
negotiating with Reyes which will take a couple of days to formalize.11 Riviera
increased its offer to Five Thousand Pesos (P5,000.00) per square meter but Reyes did
not accede to said price as it was still lower than his quoted price of Six Thousand
Pesos (P6,000.00) per square meter.12 Angeles asked Reyes to give him until the end
of November 1988 for Riviera’s final decision. 1âwphi1.nêt

In a letter dated December 2, 1988, Angeles wrote Reyes confirming Riviera’s intent to
purchase the subject property for the fixed and final13 price of Five Thousand Pesos
(P5,000.00) per square meter, complete payment within sixty (60) to ninety (90) days
which "offer is what we feel should be the market price of your property." Angeles asked
that the decision of Reyes and his written reply to the offer be given within fifteen (15)
days since there are also other properties being offered to them at the moment.14

In response to the foregoing letter, Atty. Juan sent a letter to Riviera dated December 5,
1988 informing Riviera that Riviera’s offer is not acceptable to his client. He further
expressed, "let it be made clear that, much as it is the earnest desire of my client to
really give you the preference to purchase the subject property, you have unfortunately
failed to take advantage of such opportunity and thus lost your right of first refusal in
sale of said property."15
Meanwhile, on December 4, 1988, Reyes confided to Rolando P. Traballo, a close
family friend and President of Cypress, his predicament about the nearing expiry date of
the redemption period of the foreclosed mortgaged property with Prudential Bank, the
money for which he could not raise on time thereby offering the subject property to him
for Six Thousand Pesos (P6,000.00) per square meter. Traballo expressed interest in
buying the said property, told Reyes that he will study the matter and suggested for
them to meet the next day.16

They met the next day, December 5, 1988, at which time Traballo bargained for Five
Thousand Three Hundred Pesos (P5,300.00) per square meter. After considering the
reasons cited by Traballo for his quoted price, Reyes accepted the same. However,
since Traballo did not have the amount with which to pay Reyes, he told the latter that
he will look for a partner for that purpose.17 Reyes told Traballo that he had already
afforded Riviera its right of first refusal but they cannot agree because Riviera’s final
offer was for Five Thousand Pesos (P5,000.00) per square meter.18

Sometime in January 1989, apprehensive of the impending expiration in March 1989 of

the redemption period of the foreclosed mortgaged property with Prudential Bank and
the deal between Reyes and Traballo was not yet formally concluded, Reyes decided to
approach anew Riviera. For this purpose, he requested his nephew, Atty. Estanislao
Alinea, to approach Angeles and find out if the latter was still interested in buying the
subject property and ask him to raise his offer for the purchase of the said property a
little higher. As instructed, Atty. Alinea met with Angeles and asked the latter to increase
his offer of Five Thousand Pesos (P5,000.00) per square meter but Angeles said that
his offer is Five Thousand Pesos (P5,000.00) per square meter.19

Following the meeting, Angeles sent a letter dated February 4, 1989 to Reyes, through
Atty. Alinea, that his offer is Five Thousand Pesos (P5,000.00) per square meter
payment of which would be fifty percent (50%) down within thirty (30) days upon
submission of certain documents in three (3) days, the balance payable in five (5) years
in equal monthly installments at twelve percent (12%) interest in diminishing balance.20
With the terms of this second offer, Angeles admittedly downgraded the previous offer
of Riviera on December 2, 1988.21

Atty. Alinea conveyed to Reyes Riviera’s offer of Five Thousand Pesos (P5,000.00) per
square meter but Reyes did not agree. Consequently, Atty. Alinea contacted again
Angeles and asked him if he can increase his price. Angeles, however, said he cannot
add anymore.22 Reyes did not expressly offer his subject property to Riviera at the
price of Five Thousand Three Hundred Pesos (₱5,300.00) per square meter.23

Sometime in February 1989, Cypress and its partner in the venture, Cornhill Trading
Corporation, were able to come up with the amount sufficient to cover the redemption
money, with which Reyes paid to the Prudential Bank to redeem the subject property.24
On May 1, 1989, a Deed of Absolute Sale covering the subject property was executed
by Reyes in favor of Cypress and Cornhill for the consideration of Five Million Three
Hundred Ninety Five Thousand Four Hundred Pesos (₱5,395,400.00).25 On the same
date, Cypress and Cornhill mortgaged the subject property to Urban Development Bank
for Three Million Pesos (₱3,000,000.00).26

Thereafter, Riviera sought from Reyes, Cypress and Cornhill a resale of the subject
property to it claiming that its right of first refusal under the lease contract was violated.
After several unsuccessful attempts,27 Riviera filed the suit to compel Reyes, Cypress,
Cornhill and Urban Development Bank to transfer the disputed title to the land in favor
of Riviera upon its payment of the price paid by Cypress and Cornhill.

Following trial on the merits, the trial court dismissed the complaint of Riviera as well as
the counterclaims and cross-claims of the other parties.28 It ruled that the defendants
therein did not violate Riviera’s right of first refusal, ratiocinating in this wise:

Resolving the first issue, this Court takes note that since the beginning of the
negotiation between the plaintiff and defendant Reyes for the purchase of the
property, in question, the plaintiff was firm and steadfast in its position, expressed
in writing by its President Vicente Angeles, that it was not willing to buy the said
property higher than ₱5,000.00, per square meter, which was far lower than the
asking price of defendant Reyes for ₱6,000.00, per square meter, undoubtedly,
because, in its perception, it would be difficult for other parties to buy the
property, at a higher price than what it was offering, since it is in occupation of
the property, as lessee, the term of which was to expire after about four (4) years
more.

On the other hand, it was obvious, upon the basis of the last ditch effort of
defendant Reyes, thru his nephew, Atty. Alinea, to have the plaintiff buy the
property, in question, that he was willing to sell the said property at a price less
than ₱6,000.00 and a little higher than ₱5,000.00, per square meter, precisely,
because Atty. Alinea, in behalf of his uncle, defendant Reyes, sought plaintiff’s
Angeles and asked him to raise his price a little higher, indicating thereby the
willingness of defendant Reyes to sell said property at less than his offer of
₱6,000.00, per square meter.

This being the case, it can hardly be validly said by the plaintiff that he was
deprived of his right of first refusal to buy the subject property at a price of
₱5,300.00, per square meter which is the amount defendants Cypress/Cornhill
bought the said property from defendant Reyes. For, it was again given such an
opportunity to exercise its right of first refusal by defendant Reyes had it only
signified its willingness to increase a little higher its purchase price above
₱5,000.00, per square meter, when its President, Angeles, was asked by Atty.
Alinea to do so, instead of adamantly sticking to its offer of only ₱5,000.00 per
square meter, by reason of which, therefore, the plaintiff had lost, for the second
time, its right of first refusal, even if defendant Reyes did not expressly offer to
sell to it the subject land at ₱5,300.00, per square meter, considering that by the
plea of Atty. Alinea, in behalf of defendant Reyes, for it to increase its price a
little, the plaintiff is to be considered as having forfeited again its right of first
 refusal, it having refused to budged from its regid (sic) offer to buy the subject
property at no more than ₱5,000.00, per square meter.

As such, this Court holds that it was no longer necessary for the defendant
Reyes to expressly and categorically offer to the plaintiff the subject property at
₱5,300.00, per square meter, in order that he can comply with his obligation to
give first refusal to the plaintiff as stipulated in the Contract of Lease, the plaintiff
having had already lost its right of first refusal, at the first instance, by refusing to
buy the said property at ₱6,000.00, per square meter, which was the asking price
of defendant Reyes, since to do so would be a useless ceremony and would only
be an exercise in futility, considering the firm and unbending position of the
plaintiff, which defendant Reyes already knew, that the plaintiff, at any event, was
not amenable to increasing its price at over ₱5,000.00, per square meter.

Dissatisfied with the decision of the trial court, both parties appealed to the Court of
Appeals.29 However, the appellate court, through its Special Seventh Division,
rendered a Decision dated June 6, 1994 which affirmed the decision of the trial court in
its entirety.30 In sustaining the decision of the trial court, the Court of Appeals adopted
the above-quoted ratiocination of the trial court and further added:

To put things in its proper perspective in accordance with the peculiar attendant
circumstances herein, particular stress should be given to RIVIERA’s
uncompromising counter offer of only ₱5,000.00 per square meter on all the
occasions when REYES offered the subject property to it. RIVIERA, in its letter to
REYES dated December 2, 1988 (Exhibit "D", p. 68, Rollo) justified its rigid offer
by saying that "the above offer is what we feel should be the market price of your
property." If that be the case, We are convinced, the same manner that REYES
was, that RIVIERA was unwilling to increase its counter offer at any present or
future time. RIVIERA’s unilateral valuation of the subject property thus binds him,
it cannot now be heard to claim that it could have upped its offer had it been
informed of CYPRESS’ and CORNHILL’S offer of ₱5,000.00 (sic) per square
meter. Defendants CYPRESS and CORNHILL were therefore right in saying that:

On the basic assumption that RIVIERA really meant what it said in its
letter, DR. REYES could not be faulted for believing that RIVIERA was
definitely NOT WILLING TO PAY MORE THAN P5,000.00 PER SQUARE
METER ON HIS PROPERTY. The fault lies with the deceptive and
insincere words of RIVIERA. Injustice (sic) and equity, RIVIERA must be
deemed in estoppel in now belatedly asserting that it would have been
willing to pay a price higher than ₱5,000.00 x x x." (Defendants-Appellees
Cypress’ and Cornhill’s Brief, p. 8)

For this reason, no adverse inference can be drawn from REYES’ failure to
disclose to RIVIERA the intervening counter-offer of CYPRESS and CORNHILL.
 It would have been far different had REYES’ non-disclosure of CYPRESS’ and
CORNHILL’s counter-offer to RIVIERA resulted in the sale of the subject property
at equal or less than RIVIERA’s offer; in which case, REYES would have been
rightly accused of cunningly circumventing RIVIERA’s right of first refusal. But the
incontrovertible antecedents obtaining here clearly reveal REYES’ earnest efforts
in respecting RIVIERA’s contractual right to initially purchase the subject
property. Not only once – but twice – did REYES approach RIVIERA, the last one
being the most telling indication of REYES’ sincerest intention in RIVIERA
eventually purchasing the subject property if only the latter would increase a little
its offer of ₱5,000.00 per square meter. And to this REYES was desperately
willing to accede to despite the financial quandary he was then in as the
expiration of the redemption period drew closer and closer, and despite the better
offer of CYPRESS and CORNHILL. REYES unquestionably had displayed good
faith. Can the same be said of RIVIERA? We do not think so. It appears that
RIVIERA all along was trying to push REYES’ back against the wall, for RIVIERA
was well-aware of REYES’ precarious financial needs at that time, and by
clinging to its offer, REYES might eventually succumb to its offer out of sheer
desperation. RIVIERA was, to be frank, whimsically exercising its contractual
right to the prejudice of REYES who had commendably given RIVIERA extra
leeway in exercising it. And to this We say that no amount of jurisprudence
RIVIERA might avail of for the purpose of construing the right of first refusal,
however enlightening and persuasive they may be, will cover-up for its arrogant
exercise of its right as can be gleaned from the factual premises. Equity in this
case tilts in favor of defendants REYES, CYPRESS and CORNHILL that the
consummated sale between them concerning the subject property be given this
Court’s imprimatur, for if RIVIERA lost its opportunity to acquire it, it has only
itself to blame. For after all, REYES’ fundamental and intrinsic right of ownership
which necessarily carries with it the exclusive right to dispose of it to whoever he
pleases, must ultimately prevail over RIVIERA’s right of first refusal which it
unscrupulously tried to exercise.

From this decision, Riviera filed a motion for reconsideration,31 but the appellate court
denied the same in a Resolution dated September 22, 1994.32

Hence, Riviera interposed the instant petition anchored on the following errors:33

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF

DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION
IN RULING THAT PETITIONER RIVIERA FILIPINA, INC. ALREADY LOST ITS
RIGHT OF FIRST REFUSAL.

II
 THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION
IN NOT FINDING THAT IT WAS THE PETITIONER, NOT RESPONDENT JUAN
L. REYES, WHICH HAD BEEN THOROUGHLY DECEIVED BY THE LATTER
OUT OF ITS RIGHTS TO ITS CONTINUING PREJUDICE.

III

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF

DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION
IN DENYING RECONSIDERATION.

IV

THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF

DISCRETION TANTAMOUNT TO LACK OR EXCESS OF ITS JURISDICTION
IN DECIDING PETITIONER’S APPEAL AT A TIME WHEN THE PRINCIPAL
APPELLEE IS ALLEGEDLY DEAD AND NO PROPER SUBSTITUTION OF THE
ALLEGED DECEASED PARTY HAS BEEN MADE; HENCE, THE DECISION OF
THE COURT OF APPEALS AND ITS RESOLUTION DENYING
RECONSIDERATION, IS NULL AND VOID.

At the outset, we note that, while Riviera alleges that the Court of Appeals committed
grave abuse of discretion amounting to lack or excess of jurisdiction, the instant petition
is, as it should be, treated as a petition for review under Rule 45 and not as a special
civil action for certiorari under Rule 65 of the Revised Rules of Court, now the 1997
Rules of Civil Procedure.

The distinctions between Rule 45 and 65 are far and wide, the most notable of which is
that errors of jurisdiction are best reviewed in a special civil action for certiorari under
Rule 65, while errors of judgment are correctible only by appeal in a petition for review
under Rule 45.34 The rationale for the distinction is simple. When a court exercises its
jurisdiction an error committed while so engaged does not deprive it of the jurisdiction
being exercised when the error is committed. If it did, every error committed by a court
would deprive it of its jurisdiction and every erroneous judgment would be a void
judgment. This cannot be allowed. The administration of justice would not countenance
such a rule. Thus, an error of judgment that the court may commit in the exercise of its
jurisdiction is not correctible through the original special civil action of certiorari.35
Appeal from a final disposition of the Court of Appeals, as in the case at bar, is by way
of a petition for review under Rule 45.36

In the petition at bar, Riviera posits the view that its right of first refusal was totally
disregarded or violated by Reyes by the latter’s sale of the subject property to Cypress
and Cornhill. It contends that the right of first refusal principally amounts to a right to
match in the sense that it needs another offer for the right to be exercised.
The concept and interpretation of the right of first refusal and the consequences of a
breach thereof evolved in Philippine juristic sphere only within the last decade. It all
started in 1992 with Guzman, Bocaling & Co. v. Bonnevie37 where the Court held
that a lease with a proviso granting the lessee the right of first priority "all things and
conditions being equal" meant that there should be identity of the terms and conditions
to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the
right of first priority. A deed of sale executed in favor of a third party who cannot be
deemed a purchaser in good faith, and which is in violation of a right of first refusal
granted to the lessee is not voidable under the Statute of Frauds but rescissible under
Articles 1380 to 1381 (3) of the New Civil Code.

Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,38 the

Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v.
Bonnevie and refused to rescind a contract of sale which violated the right of first
refusal. The Court held that the so-called "right of first refusal" cannot be deemed a
perfected contract of sale under Article 1458 of the New Civil Code and, as such, a
breach thereof decreed under a final judgment does not entitle the aggrieved party to a
writ of execution of the judgment but to an action for damages in a proper forum for the
purpose.

In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,39
the Court en banc reverted back to the doctrine in Guzman Bocaling & Co. v.
Bonnevie stating that 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.

Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v. Court of Appeals,40 the

Court affirmed the nature of and the concomitant rights and obligations of parties under
a right of first refusal. The Court, summarizing the rulings in Guzman, Bocaling & Co.
v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held
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 price for which they were finally
sold to a third person should have likewise been first offered to the former. Further,
there should be identity of terms and conditions to be offered to the buyer holding a right
of first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of
first refusal must be the current offer to sell of the seller or offer to purchase of any
prospective buyer.

Thus, the prevailing doctrine is that a right of first refusal means identity of terms and
conditions to be offered to the lessee and all other prospective buyers and a contract of
sale entered into in violation of a right of first refusal of another person, while valid, is
rescissible.

However, we must remember that general propositions do not decide specific cases.
Rather, laws are interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be ruled upon on the
basis of isolated clinical classroom principles.41 Analysis and construction should not
be limited to the words used in the contract, as they may not accurately reflect the
parties’ true intent.42 The court must read a contract as the average person would read
it and should not give it a strained or forced construction.43

In the case at bar, the Court finds relevant and significant the cardinal rule in the
interpretation of contracts that the intention of the parties shall be accorded primordial
consideration and in case of doubt, their contemporaneous and subsequent acts shall
be principally considered.44 Where the parties to a contract have given it a practical
construction by their conduct as by acts in partial performance, such construction may
be considered by the court in construing the contract, determining its meaning and
ascertaining the mutual intention of the parties at the time for contracting. The parties’
practical construction of their contract has been characterized as a clue or index to, or
as evidence of, their intention or meaning and as an important, significant, convincing,
persuasive, or influential factor in determining the proper construction of the contract.45

An examination of the attendant particulars of the case do not persuade us to uphold

Riviera’s view. As clearly shown by the records and transcripts of the case, the actions
of the parties to the contract of lease, Reyes and Riviera, shaped their understanding
and interpretation of the lease provision "right of first refusal" to mean simply that should
the lessor Reyes decide to sell the leased property during the term of the lease, such
sale should first be offered to the lessee Riviera. And that is what exactly ensued
between Reyes and Riviera, a series of negotiations on the price per square meter of
the subject property with neither party, especially Riviera, unwilling to budge from his
offer, as evidenced by the exchange of letters between the two contenders.

It can clearly be discerned from Riviera’s letters dated December 2, 1988 and February
4, 1989 that Riviera was so intractable in its position and took obvious advantage of the
knowledge of the time element in its negotiations with Reyes as the redemption period
of the subject foreclosed property drew near. Riviera strongly exhibited a "take-it or
leave-it" attitude in its negotiations with Reyes. It quoted its "fixed and final" price as
Five Thousand Pesos (P5,000.00) and not any peso more. It voiced out that it had other
properties to consider so Reyes should decide and make known its decision "within
fifteen days." Riviera, in its letter dated February 4, 1989, admittedly, even downgraded
its offer when Reyes offered anew the property to it, such that whatever amount Reyes
initially receives from Riviera would absolutely be insufficient to pay off the redemption
price of the subject property. Naturally, Reyes had to disagree with Riviera’s highly
disadvantageous offer.

Nary a howl of protest or shout of defiance spewed forth from Riviera’s lips, as it were,
but a seemingly whimper of acceptance when the counsel of Reyes strongly expressed
in a letter dated December 5, 1989 that Riviera had lost its right of first refusal. Riviera
cannot now be heard that had it been informed of the offer of Five Thousand Three
Hundred Pesos (P5,300.00) of Cypress and Cornhill it would have matched said price.
Its stubborn approach in its negotiations with Reyes showed crystal-clear that there was
never any need to disclose such information and doing so would be just a futile effort on
the part of Reyes. Reyes was under no obligation to disclose the same. Pursuant to
Article 133946 of the New Civil Code, silence or concealment, by itself, does not
constitute fraud, unless there is a special duty to disclose certain facts, or unless
according to good faith and the usages of commerce the communication should be
made.47 We apply the general rule in the case at bar since Riviera failed to
convincingly show that either of the exceptions are relevant to the case at bar.

In sum, the Court finds that in the interpretation of the right of first refusal as understood
by the parties herein, the question as to what is to be included therein or what is meant
by the same, as in all other provisions of the contract, is for the parties and not for the
court to determine, and this question may not be resolved by what the parties might
have provided had they thought about it, which is evident from Riviera claims, or by
what the court might conclude regarding abstract fairness.48

The Court would be rewriting the contract of Reyes and Riviera under the guise of
construction were we to interpret the right of first refusal as Riviera propounds it, despite
a contrary construction as exhibited by its actions. A court, even the Supreme Court,
has no right to make new contracts for the parties or ignore those already made by
them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal
construction justifies the creation of a contract for the parties which they did not make
themselves or the imposition upon one party to a contract of an obligation not
assumed.49

On the last error attributed to the Court of Appeals which is the effect on the jurisdiction
of the appellate court of the non-substitution of Reyes, who died during the pendency of
the appeal, the Court notes that when Riviera filed its petition with this Court and
assigned this error, it later filed on October 27, 1994 a Manifestation50 with the Court of
Appeals stating that it has discovered that Reyes is already dead, in view of which the
appellate court issued a Resolution dated December 16, 1994 which noted the
manifestation of Riviera and directed the counsel of Reyes to submit a copy of the
latter’s death certificate and to file the proper motion for substitution of party.51
Complying therewith, the necessary motion for substitution of deceased Reyes, who
died on January 7, 1994, was filed by the heirs, namely, Estefania B. Reyes, Juanita R.
de la Rosa, Juan B. Reyes, Jr. and Fidel B. Reyes.52 Acting on the motion for
substitution, the Court of Appeals granted the same.53

Notwithstanding the foregoing, Section 1654 and 1755 of Rule 3 of the Revised Rules of
Court, upon which Riviera anchors its argument, has already been amended by the
1997 Rules of Civil Procedure.56 Even applying the old Rules, the failure of a counsel
to comply with his duty under Section 16 of Rule 3 of the Revised Rules of Court, to
inform the court of the death of his client and no substitution of such is effected, will not
invalidate the proceedings and the judgment thereon if the action survives the death of
such party,57 as this case does, since the death of Reyes did not extinguish his civil
personality. The appellate court was well within its jurisdiction to proceed as it did with
the case since the death of a party is not subject to its judicial notice. Needless to
stress, the purpose behind the rule on substitution of parties is the protection of the right
of every party to due process. This purpose has been adequately met in this case since
both parties argued their respective positions through their pleadings in the trial court
and the appellate court. Besides, the Court has already acquired jurisdiction over the
heirs of Reyes by voluntarily submitting themselves to our jurisdiction.58

In view of all the foregoing, the Court is convinced that the appellate court committed no
reversible error in its challenged Decision.1âwphi1.nêt

WHEREFORE, the instant petition is hereby DENIED, and the Decision of the Court of
Appeals dated June 6, 1994 in CA-G.R. CV No. 26513 is AFFIRMED. No
pronouncement as to costs.

SO ORDERED.

G.R. No. 111538 February 26, 1997

PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact,
LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents.

PANGANIBAN, J.:

Do 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? Is
the grantee of such right entitled to be offered the same terms and conditions as those
given to a third party who eventually bought such properties? In short, is such right of
first refusal enforceable by an action for specific performance?

These questions are answered in the affirmative by this Court in resolving this petition
for review under Rule 45 of the Rules of Court challenging the Decision 1 of the Court of
Appeals 2 promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled
"Parañaque Kings Enterprises, Inc. vs. Catalina L. Santos, et al.," which affirmed the
order 3 of September 2, 1991, of the Regional Trial Court of Makati, Branch 57, 4
dismissing Civil Case No. 91-786 for lack of a valid cause of action.

Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a
complaint, 5 which is reproduced in full below:

Plaintiff, by counsel, respectfully states that:

1. Plaintiff is a private corporation organized and existing under and by
virtue of the laws of the Philippines, with principal place of business of
(sic) Dr. A. Santos Avenue, Parañaque, Metro Manila, while defendant
Catalina L. Santos, is of legal age, widow, with residence and postal
address at 444 Plato Street, Ct., Stockton, California, USA, represented in
this action by her attorney-in-fact, Luz B. Protacio, with residence and
postal address at No, 12, San Antonio Street, Magallanes Village, Makati,
Metro Manila, by virtue of a general power of attorney. Defendant David A.
Raymundo, is of legal age, single, with residence and postal address at
1918 Kamias Street, Damariñas Village, Makati, Metro Manila, where they
(sic) may be served with summons and other court processes. Xerox copy
of the general power of attorney is hereto attached as Annex "A".

2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land

located at (sic) Parañaque, Metro Manila with transfer certificate of title
nos. S-19637, S-19638 and S-19643 to S-19648. Xerox copies of the said
title (sic) are hereto attached as Annexes "B" to "I", respectively.

3. On November 28, 1977, a certain Frederick Chua leased the above-

described property from defendant Catalina L. Santos, the said lease was
registered in the Register of Deeds. Xerox copy of the lease is hereto
attached as Annex "J".

4. On February 12, 1979, Frederick Chua assigned all his rights and
interest and participation in the leased property to Lee Ching Bing, by
virtue of a deed of assignment and with the conformity of defendant
Santos, the said assignment was also registered. Xerox copy of the deed
of assignment is hereto attached as Annex "K".

5. On August 6, 1979, Lee Ching Bing also assigned all his rights and
interest in the leased property to Parañaque Kings Enterprises,
Incorporated by virtue of a deed of assignment and with the conformity of
defendant Santos, the same was duly registered, Xerox copy of the deed
of assignment is hereto attached as Annex "L".

6. Paragraph 9 of the assigned leased (sic) contract provides among

others that:

"9. That in case the properties subject of the lease

agreement are sold or encumbered, Lessors shall impose as
a condition that the buyer or mortgagee thereof shall
recognize and be bound by all the terms and conditions of
this lease agreement and shall respect this Contract of
Lease as if they are the LESSORS thereof and in case of
sale, LESSEE shall have the first option or priority to buy the
properties subject of the lease;"
7. On September 21, 1988, defendant Santos sold the eight parcels of
land subject of the lease to defendant David Raymundo for a
consideration of FIVE MILLION (P5,000,000.00) PESOS. The said sale
was in contravention of the contract of lease, for the first option or priority
to buy was not offered by defendant Santos to the plaintiff. Xerox copy of
the deed of sale is hereto attached as Annex "M".

8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff

informing the same of the sale of the properties to defendant Raymundo,
the said letter was personally handed by the attorney-in-fact of defendant
Santos, Xerox copy of the letter is hereto attached as Annex "N".

9. Upon learning of this fact plaintiff's representative wrote a letter to

defendant Santos, requesting her to rectify the error and consequently
realizing the error, she had it reconveyed to her for the same
consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of
the letter and the deed of reconveyance are hereto attached as Annexes
"O" and "P".

10. Subsequently the property was offered for sale to plaintiff by the
defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS.
Plaintiff was given ten (10) days to make good of the offer, but therefore
(sic) the said period expired another letter came from the counsel of
defendant Santos, containing the same tenor of (sic) the former letter.
Xerox copies of the letters are hereto attached as Annexes "Q" and "R".

11. On May 8, 1989, before the period given in the letter offering the
properties for sale expired, plaintiff's counsel wrote counsel of defendant
Santos offering to buy the properties for FIVE MILLION (P5,000,000.00)
PESOS. Xerox copy of the letter is hereto attached as Annex "S".

12. On May 15, 1989, before they replied to the offer to purchase, another
deed of sale was executed by defendant Santos (in favor of) defendant
Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS.
Xerox copy of the second deed of sale is hereto attached as Annex "T".

13. Defendant Santos violated again paragraph 9 of the contract of lease

by executing a second deed of sale to defendant Raymundo.

14. It was only on May 17, 1989, that defendant Santos replied to the
letter of the plaintiff's offer to buy or two days after she sold her properties.
In her reply she stated among others that the period has lapsed and the
plaintiff is not a privy (sic) to the contract. Xerox copy of the letter is hereto
attached as Annex "U".
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant
Santos of the fact that plaintiff is the assignee of all rights and interest of
the former lessor. Xerox copy of the letter is hereto attached as Annex "V".

16. On July 6, 1989, counsel for defendant Santos informed the plaintiff
that the new owner is defendant Raymundo. Xerox copy of the letter is
hereto attached as Annex "W".

17. From the preceding facts it is clear that the sale was simulated and
that there was a collusion between the defendants in the sales of the
leased properties, on the ground that when plaintiff wrote a letter to
defendant Santos to rectify the error, she immediately have (sic) the
property reconveyed it (sic) to her in a matter of twelve (12) days.

18. Defendants have the same counsel who represented both of them in
their exchange of communication with plaintiff's counsel, a fact that led to
the conclusion that a collusion exist (sic) between the defendants.

19. When the property was still registered in the name of defendant
Santos, her collector of the rental of the leased properties was her brother-
in-law David Santos and when it was transferred to defendant Raymundo
the collector was still David Santos up to the month of June, 1990. Xerox
copies of cash vouchers are hereto attached as Annexes "X" to "HH",
respectively.

20. The purpose of this unholy alliance between defendants Santos and
Raymundo is to mislead the plaintiff and make it appear that the price of
the leased property is much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at
a higher price.

21. Plaintiff has made considerable investments in the said leased

property by erecting a two (2) storey, six (6) doors commercial building
amounting to THREE MILLION (P3,000,000.00) PESOS. This
considerable improvement was made on the belief that eventually the said
premises shall be sold to the plaintiff.

22. As a consequence of this unlawful act of the defendants, plaintiff will

incurr (sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the
actual cost of the building and as such defendants should be charged of
the same amount for actual damages.

23. As a consequence of the collusion, evil design and illegal acts of the
defendants, plaintiff in the process suffered mental anguish, sleepless
nights, bismirched (sic) reputation which entitles plaintiff to moral damages
in the amount of FIVE MILLION (P5,000,000.00) PESOS.
 24. The defendants acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner and as a deterrent to the commission of similar acts,
they should be made to answer for exemplary damages, the amount left to
the discretion of the Court.

25. Plaintiff demanded from the defendants to rectify their unlawful acts
that they committed, but defendants refused and failed to comply with
plaintiffs just and valid and (sic) demands. Xerox copies of the demand
letters are hereto attached as Annexes "KK" to "LL", respectively.

26. Despite repeated demands, defendants failed and refused without

justifiable cause to satisfy plaintiff's claim, and was constrained to
engaged (sic) the services of undersigned counsel to institute this action
at a contract fee of P200,000.00, as and for attorney's fees, exclusive of
cost and expenses of litigation.

PRAYER

WHEREFORE, it is respectfully prayed, that judgment be rendered in

favor of the plaintiff and against defendants and ordering that:

a. The Deed of Sale between defendants dated

May 15, 1989, be annulled and the leased
properties be sold to the plaintiff in the amount
of P5,000,000.00;

b. Dependants (sic) pay plaintiff the sum of

P3,000,000.00 as actual damages;

c. Defendants pay the sum of P5,000,000.00

as moral damages;

d. Defendants pay exemplary damages left to

the discretion of the Court;

e. Defendants pay the sum of not less than

P200,000.00 as attorney's fees.

Plaintiff further prays for other just and

equitable reliefs plus cost of suit.

Instead of filing their respective answers, respondents filed motions to dismiss anchored
on the grounds of lack of cause of action, estoppel and laches.

On September 2, 1991, the trial court issued the order dismissing the complaint for lack
of a valid cause of action. It ratiocinated thus:
 Upon the very face of the plaintiff's Complaint itself, it therefore indubitably
appears that the defendant Santos had verily complied with paragraph 9
of the Lease Agreement by twice offering the properties for sale to the
plaintiff for ~1 5 M. The said offers, however, were plainly rejected by the
plaintiff which scorned the said offer as "RIDICULOUS". There was
therefore a definite refusal on the part of the plaintiff to accept the offer of
defendant Santos. For in acquiring the said properties back to her name,
and in so making the offers to sell both by herself (attorney-in-fact) and
through her counsel, defendant Santos was indeed conscientiously
complying with her obligation under paragraph 9 of the Lease Agreement.
....

xxx xxx xxx

This is indeed one instance where a Complaint, after barely commencing

to create a cause of action, neutralized itself by its subsequent averments
which erased or extinguished its earlier allegations of an impending
wrong. Consequently, absent any actionable wrong in the very face of the
Complaint itself, the plaintiffs subsequent protestations of collusion is
bereft or devoid of any meaning or purpose. . . . .

The inescapable result of the foregoing considerations point to no other

conclusion than that the Complaint actually does not contain any valid
cause of action and should therefore be as it is hereby ordered
DISMISSED. The Court finds no further need to consider the other
grounds of estoppel and laches inasmuch as this resolution is sufficient to
dispose the matter. 6

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial
court, and further reasoned that:

. . . . Appellant's protestations that the P15 million price quoted by

appellee Santos was reduced to P9 million when she later resold the
leased properties to Raymundo has no valid legal moorings because
appellant, as a prospective buyer, cannot dictate its own price and forcibly
ram it against appellee Santos, as owner, to buy off her leased properties
considering the total absence of any stipulation or agreement as to the
price or as to how the price should be computed under paragraph 9 of the
lease contract, . . . . 7

Petitioner moved for reconsideration but was denied in an order dated August 20, 1993.
8

Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of
Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David
A. Raymundo in Contempt of Court." 9 The motion sought to enjoin respondent
Raymundo and his counsel from pursuing the ejectment complaint filed before the
barangay captain of San Isidro, Parañaque, Metro Manila; to direct the dismissal of said
ejectment complaint or of any similar action that may have been filed; and to require
respondent Raymundo to explain why he should not be held in contempt of court for
forum-shopping. The ejectment suit initiated by respondent Raymundo against
petitioner arose from the expiration of the lease contract covering the property subject of
this case. The ejectment suit was decided in favor of Raymundo, and the entry of final
judgment in respect thereof renders the said motion moot and academic.

Issue

The principal legal issue presented before us for resolution is whether the aforequoted
complaint alleging breach of the contractual right of "first option or priority to buy" states
a valid cause of action.

Petitioner contends that the trial court as well as the appellate tribunal erred in
dismissing the complaint because it in fact had not just one but at least three (3) valid
causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law,
and (3) damages.

Respondents Santos and Raymundo, in their separate comments, aver that the petition
should be denied for not raising a question of law as the issue involved is purely factual
— whether respondent Santos complied with paragraph 9 of the lease agreement —
and for not having complied with Section 2, Rule 45 of the Rules of Court, requiring the
filing of twelve (12) copies of the petitioner's brief. Both maintain that the complaint filed
by petitioner before the Regional Trial Court of Makati stated no valid cause of action
and that petitioner failed to substantiate its claim that the lower courts decided the same
"in a way not in accord with law and applicable decisions of the Supreme Court"; or that
the Court of Appeals has "sanctioned departure by a trial court from the accepted and
usual course of judicial proceedings" so as to merit the exercise by this Court of the
power of review under Rule 45 of the Rules of Court. Furthermore, they reiterate
estoppel and laches as grounds for dismissal, claiming that petitioner's payment of
rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30,
1990, was an acknowledgment of the latter's status as new owner-lessor of said
property, by virtue of which petitioner is deemed to have waived or abandoned its first
option to purchase.

Private respondents likewise contend that the deed of assignment of the lease
agreement did not include the assignment of the option to purchase. Respondent
Raymundo further avers that he was not privy to the contract of lease, being neither the
lessor nor lessee adverted to therein, hence he could not be held liable for violation
thereof.

The Court's Ruling

 Preliminary Issue: Failure to File
Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly petitioner's

failure to file twelve (12) copies of its brief. We have ruled that when non-compliance
with the Rules was not intended for delay or did not result in prejudice to the adverse
party, dismissal of appeal on mere technicalities — in cases where appeal is a matter of
right — may be stayed, in the exercise of the court's equity jurisdiction. 10 It does not
appear that respondents were unduly prejudiced by petitioner's nonfeasance. Neither
has it been shown that such failure was intentional.

Main Issue: Validity of Cause of Action

We do not agree with respondents' contention that the issue involved is purely factual.
The principal legal question, as stated earlier, is whether the complaint filed by herein
petitioner in the lower court states a valid cause of action. Since such question assumes
the facts alleged in the complaint as true, it follows that the determination thereof is one
of law, and not of facts. There is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts, and there is a question
of fact when the doubt or difference arises as to the truth or the falsehood of alleged
facts. 11

At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of
cause of action, such ground must appear on the face of the complaint; that to
determine the sufficiency of a cause of action, only the facts alleged in the complaint
and no others should be considered; and that the test of sufficiency of the facts alleged
in a petition or complaint to constitute a cause of action is whether, admitting the facts
alleged, the court could render a valid judgment upon the same in accordance with the
prayer of the petition or complaint.

A cause of action exists if the following elements are present: (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 violative of the right of plaintiff or
constituting a breach of the obligation of defendant to the plaintiff for which the latter
may maintain an action for recovery of damages. 12

In determining whether allegations of a complaint are sufficient to support a cause of

action, it must be borne in mind that the complaint does not have to establish or allege
facts proving the existence of a cause of action at the outset; this will have to be done at
the trial on the merits of the case. To sustain a motion to dismiss for lack of cause of
action, the complaint must show that the claim for relief does not exist, rather than that a
claim has been defectively stated, or is ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the ground of lack of
cause of action is regarded as having hypothetically admitted all the averments thereof.
14

A careful examination of the complaint reveals that it sufficiently alleges an actionable

contractual breach on the part of private respondents. Under paragraph 9 of the
contract of lease between respondent Santos and petitioner, the latter was granted the
"first option or priority" to purchase the leased properties in case Santos decided to sell.
If Santos never decided to sell at all, there can never be a breach, much less an
enforcement of such "right." But on September 21, 1988, Santos sold said properties to
Respondent Raymundo without first offering these to petitioner. Santos indeed realized
her error, since she repurchased the properties after petitioner complained. Thereafter,
she offered to sell the properties to petitioner for P15 million, which petitioner, however,
rejected because of the "ridiculous" price. But Santos again appeared to have violated
the same provision of the lease contract when she finally resold the properties to
respondent Raymundo for only P9 million without first offering them to petitioner at such
price. Whether there was actual breach which entitled petitioner to damages and/or
other just or equitable relief, is a question which can better be resolved after trial on the
merits where each party can present evidence to prove their respective allegations and
defenses. 15

The trial and appellate courts based their decision to sustain respondents' motion to
dismiss on the allegations of Parañaque Kings Enterprises that Santos had actually
offered the subject properties for sale to it prior to the final sale in favor of Raymundo,
but that the offer was rejected. According to said courts, with such offer, Santos had
verily complied with her obligation to grant the right of first refusal to petitioner.

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 million, the price for which they were finally sold to respondent Raymundo, should
have likewise been first 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. 16 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.

Of course, under their contract, they specifically stipulated that the Bonnevies could
exercise the right of first priority, "all things and conditions being equal." This Court
interpreted this proviso to mean that there should be identity of terms and conditions to
be offered to the Bonnevies and all other prospective buyers, with the Bonnevies to
enjoy the right of first priority. We hold that the same rule applies even without the same
proviso if the right of first refusal (or the first option to buy) is not to be rendered illusory.

From the foregoing, the basis of the right of first refusal* must be the current offer to sell
of the seller or offer to purchase of any prospective buyer. Only after the optionee fails
to exercise its right of first priority under the same terms and within the period
contemplated, could the owner validly offer to sell the property to a third person, again,
under the same terms as offered to the optionee.

This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair
Theater, Inc. 17 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" (emphasis
supplied).

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 for 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.

No cause of action
under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law,
as another source of its right of first refusal. It claims to be covered under said law,
being the "rightful occupant of the land and its structures" since it is the lawful lessee
thereof by reason of contract. Under the lease contract, petitioner would have occupied
the property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice
it to say that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the
lessee's right of first refusal to purchase shall be determined by the Urban Zone
Expropriation and Land Management Committee. Hence, . . . . certain prerequisites
must be complied with by anyone who wishes to avail himself of the benefits of the
decree." 19 There being no allegation in its complaint that the prerequisites were
complied with, it is clear that the complaint did fail to state a cause of action on this
ground.

Deed of Assignment included

the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment of
the lease contract to petitioner did not include the option to purchase. The provisions of
the deeds of assignment with regard to matters assigned were very clear. Under the
first assignment between Frederick Chua as assignor and Lee Ching Bing as assignee,
it was expressly stated that:

. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to

herein ASSIGNEE, all his rights, interest and participation over said
premises afore-described, . . . . 20 (emphasis supplied)

And under the subsequent assignment executed between Lee Ching Bing as assignor
and the petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it
was likewise expressly stipulated that;

. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights,
interest and participation over said leased premises, . . . . 21 (emphasis
supplied)

One of such rights included in the contract of lease and, therefore, in the assignments of
rights was the lessee's right of first option or priority to buy the properties subject of the
lease, as provided in paragraph 9 of the assigned lease contract. The deed of
assignment need not be very specific as to which rights and obligations were passed on
to the assignee. It is understood in the general provision aforequoted that all specific
rights and obligations contained in the contract of lease are those referred to as being
assigned. Needless to state, respondent Santos gave her unqualified conformity to both
assignments of rights.

Respondent Raymundo privy

to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to the lease
contract, not being the lessor nor the lessee referred to therein, he could thus not have
violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into
the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all
the obligations of the lessor under the lease contract. Moreover, he received benefits in
the form of rental payments. Furthermore, the complaint, as well as the petition, prayed
for the annulment of the sale of the properties to him. Both pleadings also alleged
collusion between him and respondent Santos which defeated the exercise by petitioner
of its right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a

necessary, if not indispensable, party to the case. 22 A favorable judgment for the
petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the
property over which petitioner would like to assert its right of first option to buy.

Having come to the conclusion that the complaint states a valid cause of action for
breach of the right of first refusal and that the trial court should thus not have dismissed
the complaint, we find no more need to pass upon the question of whether the
complaint states a cause of action for damages or whether the complaint is barred by
estoppel or laches. As these matters require presentation and/or determination of facts,
they can be best resolved after trial on the merits.

While the lower courts erred in dismissing the complaint, private respondents, however,
cannot be denied their day in court. While, in the resolution of a motion to dismiss, the
truth of the facts alleged in the complaint are theoretically admitted, such admission is
merely hypothetical and only for the purpose of resolving the motion. In case of denial,
the movant is not to be deprived of the right to submit its own case and to submit
evidence to rebut the allegations in the complaint. Neither will the grant of the motion by
a trial court and the ultimate reversal thereof by an appellate court have the effect of
stifling such right. 23 So too, the trial court should be given the opportunity to evaluate
the evidence, apply the law and decree the proper remedy. Hence, we remand the
instant case to the trial court to allow private respondents to have their day in court.

WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and
Court of Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED to
the Regional Trial Court of Makati for further proceedings.

SO ORDERED.