G.R. No.

112212 March 2, 1998

GREGORIO FULE vs.
COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO

ROMERO, J.:

This petition for review on certiorari questions the affirmance by the Court of Appeals of the decision 1 of the
Regional Trial Court of San Pablo City, Branch 30, dismissing the complaint that prayed for the nullification of a
contract of sale of a 10-hectare property in Tanay, Rizal in consideration of the amount of P40,000.00 and a 2.5
carat emerald-cut diamond (Civil Case No. SP-2455). The lower court's decision disposed of the case as follows:

WHEREFORE, premises considered, the Court hereby renders judgment dismissing the complaint
for lack of merit and ordering plaintiff to pay:

1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral damages and the
sum of P100,000.00 as and for exemplary damages;

2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral damages and the
sum of P150,000.00 as and for exemplary damages;

3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for attorney's
fees and litigation expenses; and

4. The costs of suit.

SO ORDERED.

As found by the Court of Appeals and the lower court, the antecedent facts of this case are as follows:

Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10-hectare property
in Tanay, Rizal (hereinafter "Tanay property"), covered by Transfer Certificate of Title No. 320725 which used to
be under the name of Fr. Antonio Jacobe. The latter had mortgaged it earlier to the Rural Bank of Alaminos (the
Bank), Laguna, Inc. to secure a loan in the amount of P10,000.00, but the mortgage was later foreclosed and the
property offered for public auction upon his default.

In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza to look
for a buyer who might be interested in the Tanay property. The two found one in the person of herein private
respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner had shown interest in buying a pair of
emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of the same year when his
mother examined and appraised them as genuine. Dr. Cruz, however, declined petitioner's offer to buy the
jewelry for P100,000.00. Petitioner then made another bid to buy them for US$6,000.00 at the exchange rate of
$1.00 to P25.00. At this point, petitioner inspected said jewelry at the lobby of the Prudential Bank branch in San
Pablo City and then made a sketch thereof. Having sketched the jewelry for twenty to thirty minutes, petitioner
gave them back to Dr. Cruz who again refused to sell them since the exchange rate of the peso at the time
appreciated to P19.00 to a dollar.

Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Dr. Cruz
requested herein private respondent Atty. Juan Belarmino to check the property who, in turn, found out that no
sale or barter was feasible because the one-year period for redemption of the said property had not yet expired
at the time.

In an effort to cut through any legal impediment, petitioner executed on October 19, 1984, a deed of
redemption on behalf of Fr. Jacobe purportedly in the amount of P15,987.78, and on even date, Fr. Jacobe sold
the property to petitioner for P75,000.00. The haste with which the two deeds were executed is shown by the
fact that the deed of sale was notarized ahead of the deed of redemption.

As Dr. Cruz had already agreed to the proposed barter, petitioner went to Prudential Bank once again to take a
look at the jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latter's residence to prepare the
documents of sale.2 Dr. Cruz herself was not around but Atty. Belarmino was aware that she and petitioner had
previously agreed to exchange a pair of emerald-cut diamond earrings for the Tanay property. Atty. Belarmino
accordingly caused the preparation of a deed of absolute sale while petitioner and Dr. Cruz attended to the
safekeeping of the jewelry.

The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino
to finally execute a deed of absolute sale. Petitioner signed the deed and gave Atty. Belarmino the amount of
P13,700.00 for necessary expenses in the transfer of title over the Tanay property. Petitioner also issued a
certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as
indicated in the deed of absolute sale. The disparity between the actual contract price and the one indicated on
the deed of absolute sale was purportedly aimed at minimizing the amount of the capital gains tax that
petitioner would have to shoulder. Since the jewelry was appraised only at P160,000.00, the parties agreed that
the balance of P40,000.00 would just be paid later in cash.

As pre-arranged, petitioner left Atty. Belarmino's residence with Dichoso and Mendoza and headed for the bank,
arriving there at past 5:00 p.m. Dr. Cruz also arrived shortly thereafter, but the cashier who kept the other key to
the deposit box had already left the bank. Dr. Cruz and Dichoso, therefore, looked for said cashier and found him
having a haircut. As soon as his haircut was finished, the cashier returned to the bank and arrived there at 5:48
p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety
deposit box, the former retrieving a transparent plastic or cellophane bag with the jewelry inside and handing
over the same to petitioner. The latter took the jewelry from the bag, went near the electric light at the bank's
lobby, held the jewelry against the light and examined it for ten to fifteen minutes. After a while, Dr. Cruz asked,
"Okay na ba iyan?" Petitioner expressed his satisfaction by nodding his head.

For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some
pieces of jewelry. He did not, however, give them half of the pair of earrings in question which he had earlier
promised.

Later, at about 8:00 o'clock in the evening of the same day, petitioner arrived at the residence of Atty. Belarmino
complaining that the jewelry given to him was fake. He then used a tester to prove the alleged fakery.
Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of Dr. Cruz to borrow her car so that, with
Atty. Belarmino, they could register the Tanay property. After Dr. Cruz had agreed to lend her car, Dichoso called
up Atty. Belarmino. The latter, however, instructed Dichoso to proceed immediately to his residence because
petitioner was there. Believing that petitioner had finally agreed to give them half of the pair of earrings,
Dichoso went posthaste to the residence of Atty. Belarmino only to find petitioner already demonstrating with a
tester that the earrings were fake. Petitioner then accused Dichoso and Mendoza of deceiving him which they,
however, denied. They countered that petitioner could not have been fooled because he had vast experience
regarding jewelry. Petitioner nonetheless took back the US$300.00 and jewelry he had given them.

Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings
tested. Dimayuga, after taking one look at the earrings, immediately declared them counterfeit. At around 9:30
p.m., petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside Subdivision in San Pablo City,
complaining about the fake jewelry. Upon being advised by the latter, petitioner reported the matter to the
police station where Dichoso and Mendoza likewise executed sworn statements.

On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of San Pablo City against
private respondents praying, among other things, that the contract of sale over the Tanay property be declared
null and void on the ground of fraud and deceit.

On October 30, 1984, the lower court issued a temporary restraining order directing the Register of Deeds of
Rizal to refrain from acting on the pertinent documents involved in the transaction. On November 20, 1984,
however, the same court lifted its previous order and denied the prayer for a writ of preliminary injunction.

After trial, the lower court rendered its decision on March 7, 1989. Confronting the issue of whether or not the
genuine pair of earrings used as consideration for the sale was delivered by Dr. Cruz to petitioner, the lower
court said:
 The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz delivered (the)
subject jewelries (sic) into the hands of plaintiff who even raised the same nearer to the lights of
the lobby of the bank near the door. When asked by Dra. Cruz if everything was in order,
plaintiff even nodded his satisfaction (Hearing of Feb. 24, 1988). At that instance, plaintiff did
not protest, complain or beg for additional time to examine further the jewelries ( sic). Being a
professional banker and engaged in the jewelry business plaintiff is conversant and competent
to detect a fake diamond from the real thing. Plaintiff was accorded the reasonable time and
opportunity to ascertain and inspect the jewelries (sic) in accordance with Article 1584 of the
Civil Code. Plaintiff took delivery of the subject jewelries (sic) before 6:00 p.m. of October 24,
1984. When he went at 8:00 p.m. that same day to the residence of Atty. Belarmino already
with a tester complaining about some fake jewelries (sic), there was already undue delay
because of the lapse of a considerable length of time since he got hold of subject jewelries (sic).
The lapse of two (2) hours more or less before plaintiff complained is considered by the Court as
unreasonable delay.3

The lower court further ruled that all the elements of a valid contract under Article 1458 of the Civil Code were
present, namely: (a) consent or meeting of the minds; (b) determinate subject matter, and (c) price certain in
money or its equivalent. The same elements, according to the lower court, were present despite the fact that
the agreement between petitioner and Dr. Cruz was principally a barter contract. The lower court explained
thus:

. . . . Plaintiff's ownership over the Tanay property passed unto Dra. Cruz upon the constructive
delivery thereof by virtue of the Deed of Absolute Sale (Exh. D). On the other hand, the
ownership of Dra. Cruz over the subject jewelries (sic) transferred to the plaintiff upon her
actual personal delivery to him at the lobby of the Prudential Bank. It is expressly provided by
law that the thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil. 26).
The ownership and/or title over the jewelries (sic) was transmitted immediately before 6:00
p.m. of October 24, 1984. Plaintiff signified his approval by nodding his head. Delivery or
tradition, is one of the modes of acquiring ownership (Art. 712, Civil Code).

Similarly, when Exhibit D was executed, it was equivalent to the delivery of the Tanay property
in favor of Dra. Cruz. The execution of the public instrument (Exh. D) operates as a formal or
symbolic delivery of the Tanay property and authorizes the buyer, Dra. Cruz to use the
document as proof of ownership (Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does
not contain any proviso or stipulation to the effect that title to the property is reserved with the
vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the
right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed
period (Taguba v. Vda. De Leon, 132 SCRA 722; Luzon Brokerage Co. Inc. vs. Maritime Building
Co. Inc. 86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276). 4

Aside from concluding that the contract of barter or sale had in fact been consummated when petitioner and Dr.
Cruz parted ways at the bank, the trial court likewise dwelt on the unexplained delay with which petitioner
complained about the alleged fakery. Thus:

. . . . Verily, plaintiff is already estopped to come back after the lapse of considerable length of
time to claim that what he got was fake. He is a Business Management graduate of La Salle
University, Class 1978-79, a professional banker as well as a jeweler in his own right. Two hours
is more than enough time to make a switch of a Russian diamond with the real diamond. It must
be remembered that in July 1984 plaintiff made a sketch of the subject jewelries (sic) at the
Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the residence of Atty. Belarmino. Why then
did he not bring it out when he was examining the subject jewelries (sic) at about 6:00 p.m. in
the bank's lobby? Obviously, he had no need for it after being satisfied of the genuineness of the
subject jewelries (sic). When Dra. Cruz and plaintiff left the bank both of them had fully
performed their respective prestations. Once a contract is shown to have been consummated or
fully performed by the parties thereto, its existence and binding effect can no longer be
disputed. It is irrelevant and immaterial to dispute the due execution of a contract if both of
them have in fact performed their obligations thereunder and their respective signatures and
 those of their witnesses appear upon the face of the document (Weldon Construction v. CA G.R.
No. L-35721, Oct. 12, 1987).5

Finally, in awarding damages to the defendants, the lower court remarked:

The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino purports to show
that the Tanay property is worth P25,000.00. However, also on that same day it was executed,
the property's worth was magnified at P75,000.00 (Exh. 3-Belarmino). How could in less than a
day (Oct. 19, 1984) the value would (sic) triple under normal circumstances? Plaintiff, with the
assistance of his agents, was able to exchange the Tanay property which his bank valued only at
P25,000.00 in exchange for a genuine pair of emerald cut diamond worth P200,000.00 belonging
to Dra. Cruz. He also retrieved the US$300.00 and jewelries (sic) from his agents. But he was not
satisfied in being able to get subject jewelries for a song. He had to file a malicious and
unfounded case against Dra. Cruz and Atty. Belarmino who are well known, respected and held
in high esteem in San Pablo City where everybody practically knows everybody. Plaintiff came to
Court with unclean hands dragging the defendants and soiling their clean and good name in the
process. Both of them are near the twilight of their lives after maintaining and nurturing their
good reputation in the community only to be stunned with a court case. Since the filing of this
case on October 26, 1984 up to the present they were living under a pall of doubt. Surely, this
affected not only their earning capacity in their practice of their respective professions, but also
they suffered besmirched reputations. Dra. Cruz runs her own hospital and defendant Belarmino
is a well respected legal practitioner. The length of time this case dragged on during which
period their reputation were (sic) tarnished and their names maligned by the pendency of the
case, the Court is of the belief that some of the damages they prayed for in their answers to the
complaint are reasonably proportionate to the sufferings they underwent (Art. 2219, New Civil
Code). Moreover, because of the falsity, malice and baseless nature of the complaint defendants
were compelled to litigate. Hence, the award of attorney's fees is warranted under the
circumstances (Art. 2208, New Civil Code). 6

From the trial court's adverse decision, petitioner elevated the matter to the Court of Appeals. On October 20,
1992, the Court of Appeals, however, rendered a decision 7 affirming in toto the lower court's decision. His
motion for reconsideration having been denied on October 19, 1993, petitioner now files the instant petition
alleging that:

I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFF'S COMPLAINT AND IN HOLDING THAT THE
PLAINTIFF ACTUALLY RECEIVED A GENUINE PAIR OF EMERALD CUT DIAMOND EARRING(S) FROM
DEFENDANT CRUZ . . . ;

II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY'S FEES IN FAVOR OF DEFENDANTS AND AGAINST THE PLAINTIFF IN THIS CASE; and

III. THE TRIAL, COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE TANAY PROPERTY
(EXH. "D") AS NULL AND VOID OR IN NOT ANNULLING THE SAME, AND IN FAILING TO GRANT
REASONABLE DAMAGES IN FAVOR OF THE PLAINTIFF.8

As to the first allegation, the Court observes that petitioner is essentially raising a factual issue as it invites us to
examine and weigh anew the facts regarding the genuineness of the earrings bartered in exchange for the Tanay
property. This, of course, we cannot do without unduly transcending the limits of our review power in petitions
of this nature which are confined merely to pure questions of law. We accord, as a general rule, conclusiveness
to a lower court's findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on
speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) when
there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; and (6) when the Court of Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admission of both parties. 9 We find nothing, however, that warrants
the application of any of these exceptions.

Consequently, this Court upholds the appellate court's findings of fact especially because these concur with
those of the trial court which, upon a thorough scrutiny of the records, are firmly grounded on evidence
presented at the trial. 10 To reiterate, this Court's jurisdiction is only limited to reviewing errors of law in the
absence of any showing that the findings complained of are totally devoid of support in the record or that they
are glaringly erroneous as to constitute serious abuse of discretion. 11

Nonetheless, this Court has to closely delve into petitioner's allegation that the lower court's decision of March
7, 1989 is a "ready-made" one because it was handed down a day after the last date of the trial of the
case. 12 Petitioner, in this regard, finds it incredible that Judge J. Ausberto Jaramillo was able to write a 12-page
single-spaced decision, type it and release it on March 7, 1989, less than a day after the last hearing on March 6,
1989. He stressed that Judge Jaramillo replaced Judge Salvador de Guzman and heard only his rebuttal
testimony.

This allegation is obviously no more than a desperate effort on the part of petitioner to disparage the lower
court's findings of fact in order to convince this Court to review the same. It is noteworthy that Atty. Belarmino
clarified that Judge Jaramillo had issued the first order in the case as early as March 9, 1987 or two years before
the rendition of the decision. In fact, Atty. Belarmino terminated presentation of evidence on October 13, 1987,
while Dr. Cruz finished hers on February 4, 1989, or more than a month prior to the rendition of the judgment.
The March 6, 1989 hearing was conducted solely for the presentation of petitioner's rebuttal testimony.  13 In
other words, Judge Jaramillo had ample time to study the case and write the decision because the rebuttal
evidence would only serve to confirm or verify the facts already presented by the parties.

The Court finds nothing anomalous in the said situation. No proof has been adduced that Judge Jaramillo was
motivated by a malicious or sinister intent in disposing of the case with dispatch. Neither is there proof that
someone else wrote the decision for him. The immediate rendition of the decision was no more than Judge
Jaramillo's compliance with his duty as a judge to "dispose of the court's business promptly and decide cases
within the required periods." 14 The two-year period within which Judge Jaramillo handled the case provided him
with all the time to study it and even write down its facts as soon as these were presented to court. In fact, this
Court does not see anything wrong in the practice of writing a decision days before the scheduled promulgation
of judgment and leaving the dispositive portion for typing at a time close to the date of promulgation, provided
that no malice or any wrongful conduct attends its adoption. 15The practice serves the dual purposes of
safeguarding the confidentiality of draft decisions and rendering decisions with promptness. Neither can Judge
Jaramillo be made administratively answerable for the immediate rendition of the decision. The acts of a judge
which pertain to his judicial functions are not subject to disciplinary power unless they are committed with
fraud, dishonesty, corruption or bad faith. 16Hence, in the absence of sufficient proof to the contrary, Judge
Jaramillo is presumed to have performed his job in accordance with law and should instead be commended for
his close attention to duty.

Having disposed of petitioner's first contention, we now come to the core issue of this petition which is whether
the Court of Appeals erred in upholding the validity of the contract of barter or sale under the circumstances of
this case.

The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. 17 A contract of sale is perfected at
the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the
price. 18 Being consensual, a contract of sale has the force of law between the contracting parties and they are
expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code
which requires the embodiment of certain contracts in a public instrument, is only for convenience, 19 and
registration of the instrument only adversely affects third parties. 20 Formal requirements are, therefore, for the
benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the
contractual rights and obligations of the parties thereunder.

It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Cruz.
As such, they are bound by the contract unless there are reasons or circumstances that warrant its nullification.
Hence, the problem that should be addressed in this case is whether or not under the facts duly established
herein, the contract can be voided in accordance with law so as to compel the parties to restore to each other
the things that have been the subject of the contract with their fruits, and the price with interest. 21
Contracts that are voidable or annullable, even though there may have been no damage to the contracting
parties are: (1) those where one of the parties is incapable of giving consent to a contract; and (2) those where
the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. 22 Accordingly, petitioner
now stresses before this Court that he entered into the contract in the belief that the pair of emerald-cut
diamond earrings was genuine. On the pretext that those pieces of jewelry turned out to be counterfeit,
however, petitioner subsequently sought the nullification of said contract on the ground that it was, in fact,
"tainted with fraud" 23 such that his consent was vitiated.

There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is
induced to enter into a contract which, without them, he would not have agreed to. 24 The records, however, are
bare of any evidence manifesting that private respondents employed such insidious words or machinations to
entice petitioner into entering the contract of barter. Neither is there any evidence showing that Dr. Cruz
induced petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said
property. On the contrary, Dr. Cruz did not initially accede to petitioner's proposal to buy the said jewelry.
Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that the Tanay property
was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double
that of the jewelry which was valued only at P160,000.00. If indeed petitioner's property was truly worth that
much, it was certainly contrary to the nature of a businessman-banker like him to have parted with his real
estate for half its price. In short, it was in fact petitioner who resorted to machinations to convince Dr. Cruz to
exchange her jewelry for the Tanay property.

Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale. Even
assuming that he did, petitioner cannot successfully invoke the same. To invalidate a contract, mistake must
"refer to the substance of the thing that is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract." 25 An example of mistake as to the object of
the contract is the substitution of a specific thing contemplated by the parties with another.  26 In his allegations
in the complaint, petitioner insinuated that an inferior one or one that had only Russian diamonds was
substituted for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove the
fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution.

Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for the
"mistake." On account of his work as a banker-jeweler, it can be rightfully assumed that he was an expert on
matters regarding gems. He had the intellectual capacity and the business acumen as a banker to take
precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. The fact
that he had seen the jewelry before October 24, 1984 should not have precluded him from having its
genuineness tested in the presence of Dr. Cruz. Had he done so, he could have avoided the present situation
that he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry for a fake
inevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a juridical act.  27 As the
Civil Code provides, "(t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting
the object of the contract."28

Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Code
within which to examine the jewelry as he in fact accepted them when asked by Dr. Cruz if he was satisfied with
the same. 29 By taking the jewelry outside the bank, petitioner executed an act which was more consistent with
his exercise of ownership over it. This gains credence when it is borne in mind that he himself had earlier
delivered the Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That after two hours he
later claimed that the jewelry was not the one he intended in exchange for his Tanay property, could not sever
the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing he had taken preclude its
return after that supervening period within which anything could have happened, not excluding the alteration of
the jewelry or its being switched with an inferior kind.

Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification
of the contract of sale. Ownership over the parcel of land and the pair of emerald-cut diamond earrings had
been transferred to Dr. Cruz and petitioner, respectively, upon the actual and constructive delivery
thereof. 30 Said contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing
sold since there was no stipulation in the contract that title to the property sold has been reserved in the seller
until full payment of the price or that the vendor has the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period. 31 Such stipulations are not manifest in the contract of sale.
While it is true that the amount of P40,000.00 forming part of the consideration was still payable to petitioner,
its nonpayment by Dr. Cruz is not a sufficient cause to invalidate the contract or bar the transfer of ownership
and possession of the things exchanged considering the fact that their contract is silent as to when it becomes
due and demandable. 32

Neither may such failure to pay the balance of the purchase price result in the payment of interest thereon.
Article 1589 of the Civil Code prescribes the payment of interest by the vendee "for the period between the
delivery of the thing and the payment of the price" in the following cases:

(1) Should it have been so stipulated;

(2) Should the thing sold and delivered produce fruits or income;

(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of
the price.

Not one of these cases obtains here. This case should, of course, be distinguished from  De la Cruz
v. Legaspi, 33 where the court held that failure to pay the consideration after the notarization of the
contract as previously promised resulted in the vendee's liability for payment of interest. In the case at
bar, there is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay
property produced fruits or income. Neither did petitioner demand payment of the price as in fact he
filed an action to nullify the contract of sale.

All told, petitioner appears to have elevated this case to this Court for the principal reason of mitigating the
amount of damages awarded to both private respondents which petitioner considers as "exorbitant." He
contends that private respondents do not deserve at all the award of damages. In fact, he pleads for the total
deletion of the award as regards private respondent Belarmino whom he considers a mere "nominal party"
because "no specific claim for damages against him" was alleged in the complaint. When he filed the case, all
that petitioner wanted was that Atty. Belarmino should return to him the owner's duplicate copy of TCT No.
320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of redemption and the check alloted for
expenses. Petitioner alleges further that Atty. Belarmino should not have delivered all those documents to Dr.
Cruz because as the "lawyer for both the seller and the buyer in the sale contract, he should have protected the
rights of both parties." Moreover, petitioner asserts that there was no firm basis for damages except for Atty.
Belarmino's uncorroborated testimony.34

Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the
court shall take into account the circumstances obtaining in the case said assess damages according to its
discretion.35 To warrant the award of damages, it must be shown that the person to whom these are awarded
has sustained injury. He must likewise establish sufficient data upon which the court can properly base its
estimate of the amount of damages. 36 Statements of facts should establish such data rather than mere
conclusions or opinions of witnesses. 37 Thus:

. . . . For moral damages to be awarded, it is essential that the claimant must have satisfactorily
proved during the trial the existence of the factual basis of the damages and its causal
connection with the adverse party's acts. If the court has no proof or evidence upon which the
claim for moral damages could be based, such indemnity could not be outrightly awarded. The
same holds true with respect to the award of exemplary damages where it must be shown that
the party acted in a wanton, oppressive or malevolent manner. 38

In this regard, the lower court appeared to have awarded damages on a ground analogous to malicious
prosecution under Article 2219 (8) of the Civil Code 39 as shown by (1) petitioner's "wanton bad faith" in bloating
the value of the Tanay property which he exchanged for "a genuine pair of emerald-cut diamond worth
P200,00.00;" and (2) his filing of a "malicious and unfounded case" against private respondents who were "well
known, respected and held in high esteem in San Pablo City where everybody practically knows everybody" and
whose good names in the "twilight of their lives" were soiled by petitioner's coming to court with "unclean
hands," thereby affecting their earning capacity in the exercise of their respective professions and besmirching
their reputation.
For its part, the Court of Appeals affirmed the award of damages to private respondents for these reasons:

The malice with which Fule filed this case is apparent. Having taken possession of the genuine
jewelry of Dra. Cruz, Fule now wishes to return a fake jewelry to Dra. Cruz and, more than that,
get back the real property, which his bank owns. Fule has obtained a genuine jewelry which he
could sell anytime, anywhere and to anybody, without the same being traced to the original
owner for practically nothing. This is plain and simple, unjust enrichment. 40

While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in
good faith because it is not sound policy to place a penalty on the right to litigate, 41 the same, however, cannot
apply in the case at bar. The factual findings of the courts a quo to the effect that petitioner filed this case
because he was the victim of fraud; that he could not have been such a victim because he should have examined
the jewelry in question before accepting delivery thereof, considering his exposure to the banking and jewelry
businesses; and that he filed the action for the nullification of the contract of sale with unclean hands, all
deserve full faith and credit to support the conclusion that petitioner was motivated more by ill will than a
sincere attempt to protect his rights in commencing suit against respondents.

As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on October 24, 1984
itself would amply demonstrate that petitioner was not simply negligent in failing to exercise due diligence to
assure himself that what he was taking in exchange for his property were genuine diamonds. He had rather
placed himself in a situation from which it preponderantly appears that his seeming ignorance was actually just a
ruse. Indeed, he had unnecessarily dragged respondents to face the travails of litigation in speculating at the
possible favorable outcome of his complaint when he should have realized that his supposed predicament was
his own making. We, therefore, see here no semblance of an honest and sincere belief on his part that he was
swindled by respondents which would entitle him to redress in court. It must be noted that before petitioner
was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took pains to
thoroughly examine said jewelry, even going to the extent of sketching their appearance. Why at the precise
moment when he was about to take physical possession thereof he failed to exert extra efforts to check their
genuineness despite the large consideration involved has never been explained at all by petitioner. His acts thus
failed to accord with what an ordinary prudent man would have done in the same situation. Being an
experienced banker and a businessman himself who deliberately skirted a legal impediment in the sale of the
Tanay property and to minimize the capital gains tax for its exchange, it was actually gross recklessness for him
to have merely conducted a cursory examination of the jewelry when every opportunity for doing so was not
denied him. Apparently, he carried on his person a tester which he later used to prove the alleged fakery but
which he did not use at the time when it was most needed. Furthermore, it took him two more hours of
unexplained delay before he complained that the jewelry he received were counterfeit. Hence, we stated earlier
that anything could have happened during all the time that petitioner was in complete possession and control of
the jewelry, including the possibility of substituting them with fake ones, against which respondents would have
a great deal of difficulty defending themselves. The truth is that petitioner even failed to successfully prove
during trial that the jewelry he received from Dr. Cruz were not genuine. Add to that the fact that he had been
shrewd enough to bloat the Tanay property's price only a few days after he purchased it at a much lower value.
Thus, it is our considered view that if this slew of circumstances were connected, like pieces of fabric sewn into a
quilt, they would sufficiently demonstrate that his acts were not merely negligent but rather studied and
deliberate.

We do not have here, therefore, a situation where petitioner's complaint was simply found later to be based on
an erroneous ground which, under settled jurisprudence, would not have been a reason for awarding moral and
exemplary damages. 42 Instead, the cause of action of the instant case appears to have been contrived by
petitioner himself. In other words, he was placed in a situation where he could not honestly evaluate whether
his cause of action has a semblance of merit, such that it would require the expertise of the courts to put it to a
test. His insistent pursuit of such case then coupled with circumstances showing that he himself was guilty in
bringing about the supposed wrongdoing on which he anchored his cause of action would render him
answerable for all damages the defendant may suffer because of it. This is precisely what took place in the
petition at bar and we find no cogent reason to disturb the findings of the courts below that respondents in this
case suffered considerable damages due to petitioner's unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby AFFIRMED in  toto. Dr. Cruz,
however, is ordered to pay petitioner the balance of the purchase price of P40,000.00 within ten (10) days from
the finality of this decision. Costs against petitioner.

SO ORDERED.

[G.R. NO. 142618 : July 12, 2007]

PCI LEASING AND FINANCE, INC., Petitioner, v. GIRAFFE-X CREATIVE IMAGING,

INC., Respondent.

On a pure question of law involving the application of Republic Act (R.A.) No. 5980, as
amended by R.A. No. 8556' in relation to Articles 1484 and 1485 of the Civil Code, petitioner
PCI Leasing and Finance, Inc. (PCI LEASING, for short) has directly come to this Court via this
Petition for Review under Rule 45 of the Rules of Court to nullify and set aside the Decision
and Resolution dated December 28, 1998 and February 15, 2000, respectively, of the
Regional Trial Court (RTC) of Quezon City, Branch 227, in its Civil Case No. Q-98-34266, a
suit for a sum of money and/or personal property with prayer for a writ of replevin, thereat
instituted by the petitioner against the herein respondent, Giraffe-X Creative Imaging, Inc.
(GIRAFFE, for brevity).

The facts:

On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a
Lease Agreement,1 whereby the former leased out to the latter one (1) set of Silicon High
Impact Graphics and accessories worth P3,900,00.00 and one (1) unit of Oxberry Cinescan
6400-10 worth P6,500,000.00. In connection with this agreement, the parties subsequently
signed two (2) separate documents, each denominated as Lease Schedule.2 Likewise forming
parts of the basic lease agreement were two (2) separate documents denominated Disclosure
Statements of Loan/Credit Transaction (Single Payment or Installment Plan)3 that GIRAFFE
also executed for each of the leased equipment. These disclosure statements inter alia
described GIRAFFE, vis - à-vis the two aforementioned equipment, as the "borrower" who
acknowledged the "net proceeds of the loan," the "net amount to be financed," the "financial
charges," the "total installment payments" that it must pay monthly for thirty-six (36) months,
exclusive of the 36% per annum "late payment charges." Thus, for the Silicon High Impact
Graphics, GIRAFFE agreed to pay P116,878.21 monthly, and for Oxberry
Cinescan, P181.362.00 monthly. Hence, the total amount GIRAFFE has to pay PCI LEASING
for 36 months of the lease, exclusive of monetary penalties imposable, if proper, is as
indicated below:
By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount
of P3,120,000.00 by way of "guaranty deposit," a sort of performance and compliance bond for
the two equipment. Furthermore, the same agreement embodied a standard acceleration
clause, operative in the event GIRAFFE fails to pay any rental and/or other accounts due.

A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment
obligations. And following a three-month default, PCI LEASING, through one Atty. Florecita R.
Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter4 dated
February 24, 1998 to GIRAFFE.

The demand went unheeded.

Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case
against GIRAFFE. In its complaint,5 docketed in said court as Civil Case No. 98-34266 and
raffled to Branch 2276 thereof, PCI LEASING prayed for the issuance of a writ of replevin for
the recovery of the leased property, in addition to the following relief:

2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and against the
defendant [GIRAFFE], as follows:

A. Declaring the plaintiff entitled to the possession of the subject properties;

b. Ordering the defendant to pay the balance of rental/obligation in the total amount
of P8,248,657.47 inclusive of interest and charges thereon;

c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit'. (Words in
bracket added.)

Upon PCI LEASING's posting of a replevin bond, the trial court issued a writ of replevin, paving
the way for PCI LEASING to secure the seizure and delivery of the equipment covered by the
basic lease agreement.

Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing
that the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action.
Expounding on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on
installment sales of personal property, PCI LEASING is barred from further pursuing any claim
arising from the lease agreement and the companion contract documents, adding that the
agreement between the parties is in reality a lease of movables with option to buy. The given
situation, GIRAFFE continues, squarely brings into applicable play Articles 1484 and 1485 of
the Civil Code, commonly referred to as the Recto Law. The cited articles respectively provide:

ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void. (Emphasis added.)

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.
It is thus GIRAFFE's posture that the aforequoted Article 1484 of the Civil Code applies to its
contractual relation with PCI LEASING because the lease agreement in question, as
supplemented by the schedules documents, is really a lease with option to buy under the
companion article, Article 1485. Consequently, so GIRAFFE argues, upon the seizure of the
leased equipment pursuant to the writ of replevin, which seizure is equivalent to foreclosure,
PCI LEASING has no further recourse against it. In brief, GIRAFFE asserts in its Motion to
Dismiss that the civil complaint filed by PCI LEASING is proscribed by the application to the
case of Articles 1484 and 1485, supra, of the Civil Code.

In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with
GIRAFFE is a straight lease without an option to buy. Prescinding therefrom, PCI LEASING
rejects the applicability to the suit of Article 1484 in relation to Article 1485 of the Civil Code,
claiming that, under the terms and conditions of the basic agreement, the relationship between
the parties is one between an ordinary lessor and an ordinary lessee.

In a decision7 dated December 28, 1998, the trial court granted GIRAFFE's motion to dismiss
mainly on the interplay of the following premises: 1) the lease agreement package, as
memorialized in the contract documents, is akin to the contract contemplated in Article 1485 of
the Civil Code, and 2) GIRAFFE's loss of possession of the leased equipment consequent to
the enforcement of the writ of replevin is "akin to foreclosure, - the condition precedent for
application of Articles 1484 and 1485 [of the Civil Code]." Accordingly, the trial court dismissed
Civil Case No. Q-98-34266, disposing as follows:

WHEREFORE, premises considered, the defendant [GIRAFFE] having relinquished any claim
to the personal properties subject of replevin which are now in the possession of the plaintiff
[PCI LEASING], plaintiff is DEEMED fully satisfied pursuant to the provisions of Articles 1484
and 1485 of the New Civil Code. By virtue of said provisions, plaintiff is DEEMED estopped
from further action against the defendant, the plaintiff having recovered thru (replevin) the
personal property sought to be payable/leased on installments, defendants being under
protection of said RECTO LAW. In view thereof, this case is hereby DISMISSED.

With its motion for reconsideration having been denied by the trial court in its resolution of
February 15, 2000,8 petitioner has directly come to this Court via this Petition for Review
raising the sole legal issue of whether or not the underlying Lease Agreement, Lease
Schedules and the Disclosure Statements that embody the financial leasing arrangement
between the parties are covered by and subject to the consequences of Articles 1484 and
1485 of the New Civil Code.

As in the court below, petitioner contends that the financial leasing arrangement it concluded
with the respondent represents a straight lease covered by R.A. No. 5980, the Financing
Company Act, as last amended by R.A. No. 8556, otherwise known as Financing Company
Act of 1998, and is outside the application and coverage of the Recto Law. To the petitioner,
R.A. No. 5980 defines and authorizes its existence and business.

The recourse is without merit.

R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or regulatory
legislation, merely providing a regulatory framework for the organization, registration, and
regulation of the operations of financing companies. As couched, it does not specifically define
the rights and obligations of parties to a financial leasing arrangement. In fact, it does not go
beyond defining commercial or transactional financial leasing and other financial leasing
concepts. Thus, the relevancy of Article 18 of the Civil Code which reads:

Article 18. - In matters which are governed by - special laws, their deficiency shall be supplied
by the provisions of this [Civil] Code.
Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment
sales of movable property, does not apply to a financial leasing agreement because such
agreement, by definition, does not confer on the lessee the option to buy the property subject
of the financial lease. To the petitioner, the absence of an option-to-buy stipulation in a
financial leasing agreement, as understood under R.A. No. 8556, prevents the application
thereto of Articles 1484 and 1485 of the Civil Code.

We are not persuaded.

The Court can allow that the underlying lease agreement has the earmarks or made to appear
as a financial leasing,9 a term defined in Section 3(d) of R.A. No. 8556 as -

a mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, - office machines,
and other movable or immovable property in consideration of the periodic payment by the
lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the
purchase price or acquisition cost, including any incidental expenses and a margin of profit
over an obligatory period of not less than two (2) years during which the lessee has the right to
hold and use the leased property - but with no obligation or option on his part to purchase the
leased property from the owner-lessor at the end of the lease contract.

In its previous holdings, however, the Court, taking into account the following mix: the
imperatives of equity, the contractual stipulations in question and the actuations of parties vis -
à-vis their contract, treated disguised transactions technically tagged as financing lease, like
here, as creating a different contractual relationship. Notable among the Court's decisions
because of its parallelism with this case is BA Finance Corporation v. Court of Appeals 10 which
involved a motor vehicle. Thereat, the Court has treated a purported financial lease as actually
a sale of a movable property on installments and prevented recovery beyond the buyer's
arrearages. Wrote the Court in BA Finance:

The transaction involved - is one of a "financial lease" or "financial leasing," where a financing
company would, in effect, initially purchase a mobile equipment and turn around to lease it to a
client who gets, in addition, an option to purchase the property at the expiry of the lease
period. xxx.

xxx     xxx     xxx

The pertinent provisions of [RA] 5980, thus implemented, read:

"'Financing companies,' - are primarily organized for the purpose of extending credit facilities to
consumers - either by - leasing of motor vehicles, - and office machines and equipment, - and
other movable property."

"'Credit' shall mean any loan, - any contract to sell, or sale or contract of sale of property or
service, - under which part or all of the price is payable subsequent to the making of such sale
or contract; any rental-purchase contract; '.;"

The foregoing provisions indicate no less than a mere financing scheme extended by a
financing company to a client in acquiring a motor vehicle and allowing the latter to obtain the
immediate possession and use thereof pending full payment of the financial accommodation
that is given.

In the case at bench, xxx. [T]he term of the contract [over a motor vehicle] was for thirty six
(36) months at a "monthly rental" - (P1,689.40), or for a total amount of P60,821.28. The
contract also contained [a] clause [requiring the Lessee to give a guaranty deposit in the
amount of P20,800.00] xxx
After the private respondent had paid the sum of P41,670.59, excluding the guaranty deposit
of P20,800.00, he stopped further payments. Putting the two sums together, the financing
company had in its hands the amount of P62,470.59 as against the total agreed "rentals" of
P60,821.28 or an excess of P1,649.31.

The respondent appellate court considered it only just and equitable for the guaranty deposit
made by the private respondent to be applied to his arrearages and thereafter to hold the
contract terminated. Adopting the ratiocination of the court a quo, the appellate court said:

xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant should and
must be credited in his favor, in the interest of fairness, justice and equity. The plaintiff should
not be allowed to unduly enrich itself at the expense of the defendant. xxx This is even more
compelling in this case where although the transaction, on its face, appear ostensibly, to be a
contract of lease, it is actually a financing agreement, with the plaintiff financing the purchase
of defendant's automobile '. The Court is constrained, in the interest of truth and justice, to go
into this aspect of the transaction between the plaintiff and the defendant - with all the facts
and circumstances existing in this case, and which the court must consider in deciding the
case, if it is to decide the case according to all the facts. xxx.

xxx     xxx     xxx

Considering the factual findings of both the court a quo and the appellate court, the only logical
conclusion is that the private respondent did opt, as he has claimed, to acquire the motor
vehicle, justifying then the application of the guarantee deposit to the balance still due and
obligating the petitioner to recognize it as an exercise of the option by the private respondent.
The result would thereby entitle said respondent to the ownership and possession of the
vehicle as the buyer thereof. We, therefore, see no reversible error in the ultimate judgment of
the appellate court.11 (Italics in the original; underscoring supplied and words in bracket
added.)

In Cebu Contractors Consortium Co. v. Court of Appeals,12 the Court viewed and thus declared
a financial lease agreement as having been simulated to disguise a simple loan with security, it
appearing that the financing company purchased equipment already owned by a capital-
strapped client, with the intention of leasing it back to the latter.

In the present case, petitioner acquired the office equipment in question for their
subsequent lease to the respondent, with the latter undertaking to pay a monthly fixed rental
therefor in the total amount of P292,531.00, or a total of P10,531,116.00 for the whole 36
months. As a measure of good faith, respondent made an up-front guarantee deposit in the
amount of P3,120,000.00. The basic agreement provides that in the event the respondent fails
to pay any rental due or is in a default situation, then the petitioner shall have cumulative
remedies, such as, but not limited to, the following:13

1. Obtain possession of the property/equipment;

2. Retain all amounts paid to it. In addition, the guaranty deposit may be applied towards the
payment of "liquidated damages";

3. Recover all accrued and unpaid rentals;

4. Recover all rentals for the remaining term of the lease had it not been cancelled, as
additional penalty;

5. Recovery of any and all amounts advanced by PCI LEASING for GIRAFFE's account xxx;

6. Recover all expenses incurred in repossessing, removing, repairing and storing the
property; and,
7. Recover all damages suffered by PCI LEASING by reason of the default.

In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit shall be forfeited
in the event the respondent, for any reason, returns the equipment before the expiration of the
lease.

At bottom, respondent had paid the equivalent of about a year's lease rentals, or a total
of P3,510,372.00, more or less. Throw in the guaranty deposit (P3,120,000.00) and the
respondent had made a total cash outlay of P6,630,372.00 in favor of the petitioner. The
replevin-seized leased equipment had, as alleged in the complaint, an estimated residual value
of P6,900.000.00 at the time Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding
all cash advances thus made to the residual value of the equipment, the total value which the
petitioner had actually obtained by virtue of its lease agreement with the respondent amounts
to P13,530,372.00 (P3,510,372.00 + P3,120,000.00 + P6,900.000.00 = P13,530,372.00).

The acquisition cost for both the Silicon High Impact Graphics equipment and the Oxberry
Cinescan was, as stated in no less than the petitioner's letter to the respondent dated
November 11, 199614 approving in the latter's favor a lease facility, was P8,100,000.00.
Subtracting the acquisition cost of P8,100,000.00 from the total amount, i.e., P13,530,372.00,
creditable to the respondent, it would clearly appear that petitioner realized a gross income
of P5,430,372.00 from its lease transaction with the respondent. The amount of P5,430,372.00
is not yet a final figure as it does not include the rentals in arrears, penalties thereon, and
interest earned by the guaranty deposit.

As may be noted, petitioner's demand letter15 fixed the amount of P8,248,657.47 as

representing the respondent's "rental" balance which became due and demandable
consequent to the application of the acceleration and other clauses of the lease agreement.
Assuming, then, that the respondent may be compelled to pay P8,248,657.47, then it would
end up paying a total of P21,779,029.47 (P13,530,372.00 + P8,248,657.47 = P21,779,029.47)
for its use - for a year and two months at the most - of the equipment. All in all, for an
investment of P8,100,000.00, the petitioner stands to make in a year's time, out of the
transaction, a total of P21,779,029.47, or a net of P13,679,029.47, if we are to believe its
outlandish legal submission that the PCI LEASING-GIRAFFE Lease Agreement was an
honest-to-goodness straight lease.

A financing arrangement has a purpose which is at once practical and salutary. R.A. No. 8556
was, in fact, precisely enacted to regulate financing companies' operations with the end in view
of strengthening their critical role in providing credit and services to small and medium
enterprises and to curtail acts and practices prejudicial to the public interest, in general, and to
their clienteles, in particular.16 As a regulated activity, financing arrangements are not meant to
quench only the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has made
that abundantly clear.

We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and
obligations, as between each other, of the financial lessor and the lessee. In determining the
respective responsibilities of the parties to the agreement, courts, therefore, must train a keen
eye on the attendant facts and circumstances of the case in order to ascertain the intention of
the parties, in relation to the law and the written agreement. Likewise, the public interest and
policy involved should be considered. It may not be amiss to state that, normally, financing
contracts come in a standard prepared form, unilaterally thought up and written by the
financing companies requiring only the personal circumstances and signature of the borrower
or lessee; the rates and other important covenants in these agreements are still largely
imposed unilaterally by the financing companies. In other words, these agreements are usually
one-sided in favor of such companies. A perusal of the lease agreement in question exposes
the many remedies available to the petitioner, while there are only the standard contractual
prohibitions against the respondent. This is characteristic of standard printed form contracts.
There is more. In the adverted February 24, 1998 demand letter17 sent to the respondent,
petitioner fashioned its claim in the alternative: payment of the full amount of P8,248,657.47,
representing the unpaid balance for the entire 36-month lease period or the surrender of the
financed asset under pain of legal action. To quote the letter:

Demand is hereby made upon you to pay in full your outstanding balance in the amount of
P8,248,657.47 on or before March 04, 1998 OR to surrender to us the one (1) set Silicon High
Impact Graphics and one (1) unit Oxberry Cinescan 6400-10'

We trust you will give this matter your serious and preferential attention. (Emphasis added).

Evidently, the letter did not make a demand for the payment of the P8,248,657.47 AND the
return of the equipment; only either one of the two was required. The demand letter was
prepared and signed by Atty. Florecita R. Gonzales, presumably petitioner's counsel. As such,
the use of "or" instead of "and" in the letter could hardly be treated as a simple typographical
error, bearing in mind the nature of the demand, the amount involved, and the fact that it was
made by a lawyer. Certainly Atty. Gonzales would have known that a world of difference exists
between "and" and "or" in the manner that the word was employed in the letter.

A rule in statutory construction is that the word "or" is a disjunctive term signifying dissociation
and independence of one thing from other things enumerated unless the context requires a
different interpretation.18

In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an

alternative. It often connects a series of words or propositions indicating a choice of either.
When "or" is used, the various members of the enumeration are to be taken separately.19

The word "or" is a disjunctive term signifying disassociation and independence of one thing
from each of the other things enumerated.20

The demand could only be that the respondent need not return the equipment if it paid
the P8,248,657.47 outstanding balance, ineluctably suggesting that the respondent can keep
possession of the equipment if it exercises its option to acquire the same by paying the unpaid
balance of the purchase price. Stated otherwise, if the respondent was not minded to exercise
its option of acquiring the equipment by returning them, then it need not pay the outstanding
balance. This is the logical import of the letter: that the transaction in this case is a lease in
name only. The so-called monthly rentals are in truth monthly amortizations of the price of the
leased office equipment.

On the whole, then, we rule, as did the trial court, that the PCI LEASING - GIRAFFE lease
agreement is in reality a lease with an option to purchase the equipment. This has been made
manifest by the actions of the petitioner itself, foremost of which is the declarations made in its
demand letter to the respondent. There could be no other explanation than that if the
respondent paid the balance, then it could keep the equipment for its own; if not, then it should
return them. This is clearly an option to purchase given to the respondent. Being so, Article
1485 of the Civil Code should apply.

The present case reflects a situation where the financing company can withhold and conceal -
up to the last moment - its intention to sell the property subject of the finance lease, in order
that the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out,
that the basic "lease agreement" does not contain a "purchase option" clause. The absence,
however, does not necessarily argue against the idea that what the parties are into is not a
straight lease, but a lease with option to purchase. This Court has, to be sure, long been aware
of the practice of vendors of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the object of the sale from passing to
the vendee until and unless the price is fully paid. As this Court noted in Vda. de Jose v.
Barrueco:21
Sellers desirous of making conditional sales of their goods, but who do not wish openly to
make a bargain in that form, for one reason or another, have frequently resorted to the device
of making contracts in the form of leases either with options to the buyer to purchase for a
small consideration at the end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It
is obvious that such transactions are leases only in name. The so-called rent must necessarily
be regarded as payment of the price in installments since the due payment of the agreed
amount results, by the terms of the bargain, in the transfer of title to the lessee.

In another old but still relevant case of U.S. Commercial v. Halili,22 a lease agreement was
declared to be in fact a sale of personal property by installments. Said the Court:

. . . There can hardly be any question that the so-called contracts of lease on which the
present action is based were veritable leases of personal property with option to purchase, and
as such come within the purview of the above article [Art. 1454-A of the old Civil Code on sale
of personal property by installment]. xxx

Being leases of personal property with option to purchase as contemplated in the above
article, the contracts in question are subject to the provision that when the lessor in such case
"has chosen to deprive the lessee of the enjoyment of such personal property," "he shall have
no further action" against the lessee "for the recovery of any unpaid balance" owing by the
latter, "agreement to the contrary being null and void."

In choosing, through replevin, to deprive the respondent of possession of the leased

equipment, the petitioner waived its right to bring an action to recover unpaid rentals on the
said leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code,
which we are hereunder re-reproducing, cannot be any clearer.

ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

xxx     xxx     xxx

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.

As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals,23 the remedies

provided for in Article 1484 of the Civil Code are alternative, not cumulative. The exercise of
one bars the exercise of the others. This limitation applies to contracts purporting to be leases
of personal property with option to buy by virtue of the same Article 1485. The condition that
the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of
applying Article 1485 was fulfilled in this case by the filing by petitioner of the complaint for a
sum of money with prayer for replevin to recover possession of the office equipment.24 By
virtue of the writ of seizure issued by the trial court, the petitioner has effectively deprived
respondent of their use, a situation which, by force of the Recto Law, in turn precludes the
former from maintaining an action for recovery of "accrued rentals" or the recovery of the
balance of the purchase price plus interest.25

The imperatives of honest dealings given prominence in the Civil Code under the heading:
Human Relations, provide another reason why we must hold the petitioner to its word as
embodied in its demand letter. Else, we would witness a situation where even if the respondent
surrendered the equipment voluntarily, the petitioner can still sue upon its claim. This would be
most unfair for the respondent. We cannot allow the petitioner to renege on its word. Yet more
than that, the very word "or" as used in the letter conveys distinctly its intention not to claim
both the unpaid balance and the equipment. It is not difficult to discern why: if we add up the
amounts paid by the respondent, the residual value of the property recovered, and the amount
claimed by the petitioner as sued upon herein (for a total of P21,779,029.47), then it would end
up making an instant killing out of the transaction at the expense of its client, the respondent.
The Recto Law was precisely enacted to prevent this kind of aberration. Moreover, due to
considerations of equity, public policy and justice, we cannot allow this to
happen.ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ

Not only to the respondent, but those similarly situated who may fall prey to a similar scheme.

WHEREFORE, the instant petition is DENIED and the trial court's decision is AFFIRMED.

Costs against petitioner.

SO ORDERED.

Cook vs McMicking, 27 Phil 10 (1914) (Art.1490)

Ching vs Goyanko, 506 SCRA 735, G.R.165879, Nov. 10, 2006 (Art.1490)

G.R. No. 165879             November 10, 2006

MARIA B. CHING, Petitioner,
vs.
JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA
GOYANKO, JULIUS GOYANKO, MARY ELLEN GOYANKO AND JESS
GOYANKO, Respondents.

DECISION

CARPIO MORALES, J.:

On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania) were
married.1 Out of the union were born respondents Joseph, Jr., Evelyn, Jerry, Imelda, Julius,
Mary Ellen and Jess, all surnamed Goyanko.

Respondents claim that in 1961, their parents acquired a 661 square meter property located at
29 F. Cabahug St., Cebu City but that as they (the parents) were Chinese citizens at the time,
the property was registered in the name of their aunt, Sulpicia Ventura (Sulpicia).

On May 1, 1993, Sulpicia executed a deed of sale2 over the property in favor of respondents’
father Goyanko. In turn, Goyanko executed on October 12, 1993 a deed of sale3 over the
property in favor of his common-law-wife-herein petitioner Maria B. Ching. Transfer Certificate
of Title (TCT) No. 138405 was thus issued in petitioner’s name.

After Goyanko’s death on March 11, 1996, respondents discovered that ownership of the
property had already been transferred in the name of petitioner. Respondents thereupon had
the purported signature of their father in the deed of sale verified by the Philippine National
Police Crime Laboratory which found the same to be a forgery.4

Respondents thus filed with the Regional Trial Court of Cebu City a complaint for recovery of
property and damages against petitioner, praying for the nullification of the deed of sale and of
TCT No. 138405 and the issuance of a new one in favor of their father Goyanko.
In defense, petitioner claimed that she is the actual owner of the property as it was she who
provided its purchase price. To disprove that Goyanko’s signature in the questioned deed of
sale is a forgery, she presented as witness the notary public who testified that Goyanko
appeared and signed the document in his presence.

By Decision of October 16, 1998,5 the trial court dismissed the complaint against petitioner, the
pertinent portions of which decision read:

There is no valid and sufficient ground to declare the sale as null and void, fictitious and
simulated. The signature on the questioned Deed of Sale is genuine. The testimony of Atty.
Salvador Barrameda who declared in court that Joseph Goyanko, Sr. and Maria Ching
together with their witnesses appeared before him for notarization of Deed of Sale in question
is more reliable than the conflicting testimonies of the two document examiners. Defendant
Maria Ching asserted that the Deed of Sale executed by Joseph Goyanko, Sr. in her favor is
valid and genuine. The signature of Joseph Goyanko, Sr. in the questioned Deed of Absolute
Sale is genuine as it was duly executed and signed by Joseph Goyanko, Sr. himself.

The parcel of lands known as Lot No. 6 which is sought to be recovered in this case could
never be considered as the conjugal property of the original Spouses Joseph C. Goyanko and
Epifania dela Cruz or the exclusive capital property of the husband. The acquisition of the said
property by defendant Maria Ching is well-elicited from the aforementioned testimonial and
documentary evidence presented by the defendant. Although for a time being the property
passed through Joseph Goyanko, Sr. as a buyer yet his ownership was only temporary and
transitory for the reason that it was subsequently sold to herein defendant Maria Ching. Maria
Ching claimed that it was even her money which was used by Joseph Goyanko, Sr. in the
purchase of the land and so it was eventually sold to her. In her testimony, defendant Ching
justified her financial capability to buy the land for herself. The transaction undertaken was
from the original owner Sulpicia Ventura to Joseph Goyanko, Sr. and then from Joesph
Goyanko, Sr. to herein defendant Maria Ching.

The land subject of the litigation is already registered in the name of defendant Maria Ching
under TCT No. 138405. By virtue of the Deed of Sale executed in favor of Maria Ching,
Transfer Certificate of Title No. 138405 was issued in her favor. In recognition of the proverbial
virtuality of a Torrens title, it has been repeatedly held that, unless bad faith can be established
on the part of the person appearing as owner on the certificate of title, there is no other owner
than that in whose favor it has been issued. A Torrens title is not subject to collateral attack. It
is a well-known doctrine that a Torrens title, as a rule, is irrevocable and indefeasible, and the
duty of the court is to see to it that this title is maintained and respected unless challenged in a
direct proceedings [sic].6 (Citations omitted; underscoring supplied)

Before the Court of Appeals where respondents appealed, they argued that the trial court
erred:

1. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the
subject property between Joseph, Sr. and the defendant-appellee, despite the
proliferation in the records and admissions by both parties that defendant-appellee was
the "mistress" or "common-law wife" of Joseph, Sr..

2. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the
subject property between Joseph, Sr. and the defendant-appellee, despite the fact that
the marriage of Joseph, Sr. and Epifania was then still subsisting thereby rendering the
subject property as conjugal property of Joseph, Sr. and Epifania.

3. . . . in dismissing the complaint a quo . . . , in effect, sustaining the validity of the sale
of the subject property between Joseph, Sr. and the defendant-appellee, despite the
clear findings of forgery and the non-credible testimony of notary public.7
By Decision dated October 21, 2003,8 the appellate court reversed that of the trial court and
declared null and void the questioned deed of sale and TCT No. 138405. Held the appellate
court:

. . . The subject property having been acquired during the existence of a valid marriage
between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the conjugal
partnership. Moreover, while this presumption in favor of conjugality is rebuttable with clear
and convincing proof to the contrary, we find no evidence on record to conclude otherwise.
The record shows that while Joseph Sr. and his wife Epifania have been estranged for years
and that he and defendant-appellant Maria Ching, have in fact been living together as
common-law husband and wife, there has never been a judicial decree declaring the
dissolution of his marriage to Epifania nor their conjugal partnership. It is therefore undeniable
that the 661-square meter property located at No. 29 F. Cabahug Street, Cebu City belongs to
the conjugal partnership.

Even if we were to assume that the subject property was not conjugal, still we cannot sustain
the validity of the sale of the property by Joseph, Sr. to defendant-appellant Maria Ching, there
being overwhelming evidence on records that they have been living together as common-law
husband and wife. On this score, Art. 1352 of the Civil Code provides:

"Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or public policy."

We therefore find that the contract of sale in favor of the defendant-appellant Maria Ching was
null and void for being contrary to morals and public policy. The purported sale, having been
made by Joseph Sr. in favor of his concubine, undermines the stability of the family, a basic
social institution which public policy vigilantly protects. Furthermore, the law emphatically
prohibits spouses from selling property to each other, subject to certain exceptions. And this is
so because transfers or conveyances between spouses, if allowed during the marriage would
destroy the system of conjugal partnership, a basic policy in civil law. The prohibition was
designed to prevent the exercise of undue influence by one spouse over the other and is
likewise applicable even to common-law relationships otherwise, "the condition of those who
incurred guilt would turn out to be better than those in legal union.9 (Underscoring supplied)

Hence, the present petition, petitioners arguing that the appellate court gravely erred in:

I.

. . . APPLYING THE STATE POLICY ON PROHIBITION AGAINST CONVEYANCES

AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW
SPOUSES ON THE SUBJECT PROPERTY, THE SAME BEING FOUND BY THE
COURT A QUO, AS THE EXCLUSIVE PROPERTY OF PETITIONER, AND THAT THE
SAME WAS NEVER PART OF THE CONJUGAL PROPERTY OF THE MARRIAGE
BETWEEN RESPONDENTS’ MOTHER EPIFANIA GOYANKO AND PETITIONER’S
COMMON LAW HUSBAND, JOSEPH GOYANKO, SR., NOR THE EXCLUSIVE OR
CAPITAL PROPERTY OF THE LATTER AT ANYTIME BEFORE THE SAME WAS
VALIDLY ACQUIRED BY PETITIONER.

II.

. . . NOT FINDING THAT A JURIDICAL RELATION OF TRUST AS PROVIDED FOR

UNDER ARTICLES 1448 AND 1450 OF THE NEW CIVIL CODE CAN VALIDLY EXIST
BETWEEN COMMON LAW SPOUSES.

III.
 . . . NOT FINDING THAT A CONVEYANCE OVER A PROPERTY MADE BY A
TRUSTEE, WHO BECAME AS SUCH IN CONTEMPLATION OF LAW, AND WHO
HAPPENS TO BE A COMMON LAW HUSBAND OF THE BENEFICIARY, IS NOT A
VIOLATION OF A STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND
TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW
SPOUSES.

IV.

. . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF

THEIR CASE DURING APPEAL.10

The pertinent provisions of the Civil Code which apply to the present case read:

ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, good customs, public order or public policy.

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;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;

(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.

ARTICLE 1490. The husband and wife cannot sell property to each other, except:

(1) When a separation of property was agreed upon in the marriage settlements; or

(2) When there has been a judicial separation of property under Article 191.
(Underscoring supplied)

The proscription against sale of property between spouses applies even to common law
relationships. So this Court ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al.:11

Anent the second issue, we find that the contract of sale was null and void for being contrary to
morals and public policy. The sale was made by a husband in favor of a concubine after
he had abandoned his family and left the conjugal home where his wife and children
lived and from whence they derived their support. The sale was subversive of the
stability of the family, a basic social institution which public policy cherishes and
protects.
Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or purposes
is contrary to law, morals, good customs, public order, or public policy
are void and inexistent from the very beginning.

Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce no
effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public
order, or public policy."

Additionally, the law emphatically prohibits the spouses from selling property to each
other subject to certain exceptions.1âwphi1 Similarly, donations between spouses
during marriage are prohibited. And this is so because if transfers or conveyances between
spouses were allowed during marriage, that would destroy the system of conjugal partnership,
a basic policy in civil law. It was also designed to prevent the exercise of undue influence by
one spouse over the other, as well as to protect the institution of marriage, which is the
cornerstone of family law. The prohibitions apply to a couple living as husband and wife
without benefit of marriage, otherwise, "the condition of those who incurred guilt would
turn out to be better than those in legal union." Those provisions are dictated by public
interest and their criterion must be imposed upon the will of the parties. . . . 12 (Italics in the
original; emphasis and underscoring supplied)

As the conveyance in question was made by Goyangko in favor of his common- law-wife-
herein petitioner, it was null and void.

Petitioner’s argument that a trust relationship was created between Goyanko as trustee and
her as beneficiary as provided in Articles 1448 and 1450 of the Civil Code which read:

ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is granted
to one party but the price is paid by another for the purpose of having the beneficial interest of
the property. The former is the trustee, while the latter is the beneficiary. However, if the
person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the
price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in
favor of the child.

ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the benefit
of another and the conveyance is made to the lender or payor to secure the payment of the
debt, a trust arises by operation of law in favor of the person to whom the money is loaned or
for whom it is paid. The latter may redeem the property and compel a conveyance thereof to
him.

does not persuade.

For petitioner’s testimony that it was she who provided the purchase price is uncorroborated.
That she may have been considered the breadwinner of the family and that there was proof
that she earned a living do not conclusively clinch her claim.

As to the change of theory by respondents from forgery of their father’s signature in the deed
of sale to sale contrary to public policy, it too does not persuade. Generally, a party in a
litigation is not permitted to freely and substantially change the theory of his case so as not to
put the other party to undue disadvantage by not accurately and timely apprising him of what
he is up against,13 and to ensure that the latter is given the opportunity during trial to refute all
allegations against him by presenting evidence to the contrary. In the present case, petitioner
cannot be said to have been put to undue disadvantage and to have been denied the chance
to refute all the allegations against her. For the nullification of the sale is anchored on its
illegality per se, it being violative of the above-cited Articles 1352, 1409 and 1490 of the Civil
Code.

WHEREFORE, the petition is DENIED for lack of merit.

Distajo vs. Court of Appeals, 339 SCRA 52, G.R. No. 112954, August 25, 2000 (Art. 1491);

G.R. No. 112954               August 25, 2000

RICARDO DISTAJO, ERNESTO DISTAJO, RAUL DISTAJO, FEDERICO DISTAJO,

ZACARIAS A. DISTAJO, EDUARDO DISTAJO, and PILAR DISTAJO TAPAR, petitioners,
vs.
COURT OF APPEALS and LAGRIMAS SORIANO DISTAJO, respondents.

DECISION

PARDO, J.:

The case under consideration is a petition for review on certiorari of a decision of the Court of
Appeals1 , which modified the ruling of the Regional Trial Court, Roxas City regarding seven
parcels of land located in Barangay Hipona, Pontevedra, Capiz.2

During the lifetime of Iluminada Abiertas, she designated one of her sons, Rufo Distajo, to be
the administrator of her parcels of land denoted as Lot Nos. 1018, 1046, 1047, and 1057
situated in Barangay Hipona, Pontevedra, Capiz.

On May 21, 1954, Iluminada Abiertas sold a portion of Lot No. 1018 (1018-A) to her other
children, namely, Raul Distajo, Ricardo Distajo, Ernesto Distajo, Federico Distajo, and Eduardo
Distajo.3

On May 29, 1963, Iluminada Abiertas certified to the sale of Lot Nos. 1046 and 1047 in favor of
Rufo Distajo.4

On June 4, 1969, Iluminada Abiertas sold Lot No. 1057 to Rhodora Distajo, the daughter of
Rufo Distajo.5

On July 12, 1969, Iluminada Abiertas sold Lot No. 1018 to Rufo Distajo.6

Meanwhile, Justo Abiertas, Jr., the brother of Iluminada Abiertas, died leaving behind his
children, Teresita, Alicia, Josefa and Luis Abiertas. Teresita paid for the real estate taxes of the
following properties, which she inherited from her father: Lot Nos. 1001, 1048, 1049, and a
portion of Lot No. 1047, all located in Capiz. On May 26, 1954, Teresita Abiertas sold Lot No.
1001 in favor of Rufo Distajo.7 On June 2, 1965, Teresita Abiertas, for herself and representing
her sisters and brother, sold Lot Nos. 1048, 1049, and a portion of Lot No. 1047 to Rufo
Distajo.8

After purchasing the above-mentioned parcels of land, Rufo Distajo took possession of the
property and paid the corresponding real estate taxes thereon. Rhodora Distajo likewise paid
for the real estate taxes of Lot No. 1057.

When Iluminada Abiertas died in 1971, Zacarias Distajo, Pilar Distajo-Tapar, and Rizaldo
Distajo,9 demanded possession of the seven parcels of land from Lagrimas S. Distajo, and her
husband, Rufo Distajo. The latter refused.

Consequently, on June 5, 1986, Ricardo Distajo, with the other heirs of Iluminada Abiertas,
namely, Ernesto Distajo, Raul Distajo, Federico Distajo, Zacarias Distajo, Eduardo Distajo, and
Pilar Distajo, filed with the Regional Trial Court, Roxas City a complaint for recovery of
possession and ownership of Lot No. 1018, partition of Lot Nos. 1001, 1018-B, 1046, 1047,
1048, 1049, 1057, and damages.
On September 4, 1986, private respondent Lagrimas Distajo10 filed an answer with
counterclaim.

On April 9, 1990, the trial court dismissed the complaint for lack of cause of action, laches and
prescription. The counterclaim was likewise dismissed. The parties appealed to the Court of
Appeals.11

On August 21, 1992, the Court of Appeals rendered its decision, 12 the dispositive portion of
which states as follows:

"PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE and a new
judgment rendered, as follows:

WHEREFORE, the Court decides the case in favor of the defendant and dismisses the
plaintiffs’ complaint for lack of cause of action except with regard to the plaintiffs’ claim over a
238 sq. m. portion of Lot No. 1018 (the portion adjoining the market site and measuring
seventeen meters and that adjoining the property of E. Rodriguez measuring 14 meters). The
Court hereby Orders the partition of Lot No. 1018 to conform to the following: 238 sq. m. as
above specified to belong to the plaintiffs as prayed for by them while the rest is declared
property of the defendant.

Upon partition of Lot No. 1018 in accordance with this Court’s Order, the City Assessor of
Roxas City is hereby Ordered to cancel Tax Declaration 2813 in the name of Rufo Distajo (or
any subsequent tax declaration/s issued relative to the above-cited Tax Declaration No. 2813)
and forthwith to issue the corresponding tax declarations in the names of the respective parties
herein.

SO ORDERED."

On September 10, 1992, Ricardo Distajo filed a motion for reconsideration. 13 On December 9,
1993, the Court of Appeals denied the motion.14

Hence, this petition.15

Petitioner alleges that Iluminada Abiertas exclusively owns the seven parcels of land
delineated as Lot Nos. 1001, 1018, 1046, 1047, 1048, 1049, and 1057, all of which should be
partitioned among all her heirs. Furthermore, Rufo Distajo cannot acquire the subject parcels
of land owned by Iluminada Abiertas because the Civil Code prohibits the administrator from
acquiring properties under his administration.16 Rufo Distajo merely employed fraudulent
machinations in order to obtain the consent of his mother to the sale, and may have even
forged her signature on the deeds of sale of the parcels of land.

In her comment dated May 13, 1994, private respondent Lagrimas S. Distajo contends that
Rufo Distajo rightfully owns the subject parcels of land because of various deeds of sale
executed by Iluminada Abiertas selling Lot Nos. 1018-B, 1047 and 1046 in favor of Rufo
Distajo and Lot No. 1057 in favor of Rhodora Distajo. Private respondent also avers that
petitioner cannot claim any right over Lot Nos. 1001, 1048 and 1049, considering that such
lands belong to the brother of Iluminada Abiertas, namely, Justo Abiertas, Jr., whose heirs sold
said parcels of land to Rufo Distajo.

The petition lacks merit.

Factual findings of the trial court will not be disturbed on appeal unless the court has
overlooked or ignored some fact or circumstance of sufficient weight or significance, which, if
considered, would alter the result of the case.17 When there is no conflict between the findings
of the trial and appellate courts, a review of the facts found by the appellate court is
unnecessary.18
Since the trial court and the Court of Appeals agree that Iluminada Abiertas owned Lot Nos.
1046, 1057 and a portion of Lot No. 1047, and that Justo Abiertas Jr. owned Lot Nos. 1001,
1048, and 1049, such findings are binding on this Court, which is not a trier of facts. 19 However,
the record shows that Lot No. 1018 should be divided into Lot No. 1018-A and 1018-B, the
delineation of which the Court of Appeals clarified in its decision.

The issues in this case, therefore, are limited to those properties which were owned by
Iluminada Abiertas, ascendant of petitioner, consisting of Lot Nos. 1018-A, 1046, 1057, and a
portion of 1047.

In his petition, Ricardo Distajo assails the genuineness of the signatures of Iluminada Abiertas
in the deeds of sale of the parcels of land, and claims that Rufo Distajo forged the signature of
Iluminada Abiertas. However, no handwriting expert was presented to corroborate the claim of
forgery. Petitioner even failed to present a witness who was familiar with the signature of
Iluminada Abiertas. Forgery should be proved by clear and convincing evidence, and whoever
alleges it has the burden of proving the same.20

Petitioner likewise contends that the sale transactions are void for having been entered into by
the administrator of the properties.1âwphi1 We disagree. The pertinent Civil Code provision
provides:

"Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial
auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under
guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to them,
unless the consent of the principal has been given;

(3) Executors and administrators, the property of the estate under administration;" x x x

Under paragraph (2) of the above article, the prohibition against agents purchasing property in
their hands for sale or management is not absolute. It does not apply if the principal consents
to the sale of the property in the hands of the agent or administrator. In this case, the deeds of
sale signed by Iluminada Abiertas shows that she gave consent to the sale of the properties in
favor of her son, Rufo, who was the administrator of the properties. Thus, the consent of the
principal Iluminada Abiertas removes the transaction out of the prohibition contained in Article
1491(2).

Petitioner also alleges that Rufo Distajo employed fraudulent machinations to obtain the
consent of Iluminada Abiertas to the sale of the parcels of land. However, petitioner failed to
adduce convincing evidence to substantiate his allegations.

In the absence of any showing of lack of basis for the conclusions made by the Court of
Appeals, this Court finds no cogent reason to reverse the ruling of the appellate court.

WHEREFORE, the Court DENIES the petition and AFFIRMS the decision of the Court of
Appeals in CA-G.R. CV No. 30063.

SO ORDERED.
Fiestan vs. Court of Appeals, 185 SCRA 751, G.R. 81552, May 28, 1980 (Art.
1491)
G.R. No. 81552 May 28, 1990
DIONISIO FIESTAN and JUANITA ARCONADO, petitioners
vs.
COURT OF APPEALS; DEVELOPMENT BANK OF THE PHILIPPINES, LAOAG CITY
BRANCH; PHILIPPINE NATIONAL BANK, VIGAN BRANCH, ILOCOS SUR, FRANCISCO
PERIA and REGISTER OF DEEDS OF ILOCOS SUR, respondents.
Pedro Singson Reyes for petitioners.
The Chief Legal Counsel for PNB.
Public Assistance Office for Francisco Peria.
Ruben O. Fruto, Bonifacio M. Abad and David C. Frez for DBP Laoag Branch.

FERNAN, C.J.:

In this petition for review on certiorari, petitioners spouses Dionisio Fiestan and Juanita
Arconada owners of a parcel of land (Lot No. 2B) situated in Ilocos Sur covered by TCT T-
13218 which they mortgaged to the Development Bank of the Philippines (DBP) as security for
their P22,400.00 loan, seek the reversal of the decision of the Court of Appeals 1 dated June 5,
1987 affirming the dismissal of their complaint filed against the Development Bank of the
Philippines, Laoag City Branch, Philippine National Bank, Vigan Branch, Ilocos Sur, Francisco
Peria and the Register of Deeds of Ilocos Sur, for annulment of sale, mortgage, and
cancellation of transfer certificates of title.

Records show that Lot No. 2-B was acquired by the DBP as the highest bidder at a public
auction sale on August 6, 1979 after it was extrajudicially foreclosed by the DBP in accordance
with Act No. 3135, as amended by Act No. 4118, for failure of petitioners to pay their mortgage
indebtedness. A certificate of sale was subsequently issued by the Provincial Sheriff of Ilocos
Sur on the same day and the same was registered on September 28, 1979 in the Office of the
Register of Deeds of Ilocos Sur. Earlier, or on September 26, 1979, petitioners executed a
Deed of Sale in favor of DBP which was likewise registered on September 28, 1979.

Upon failure of petitioners to redeem the property within the one (1) year period which expired
on September 28, 1980, petitioners' TCT T-13218 over Lot No. 2-B was cancelled by the
Register of Deeds and in lieu thereof TCT T-19077 was issued to the DBP upon presentation
of a duly executed affidavit of consolidation of ownership.

On April 13,1982, the DBP sold the lot to Francisco Peria in a Deed of Absolute Sale and the
same was registered on April 15, 1982 in the Office of the Register of Deeds of Ilocos Sur.
Subsequently, the DBP's title over the lot was cancelled and in lieu thereof TCT T-19229 was
issued to Francisco Peria.

After title over said lot was issued in his name, Francisco Peria secured a tax declaration for
said lot and accordingly paid the taxes due thereon. He thereafter mortgaged said lot to the
PNB Vigan Branch as security for his loan of P115,000.00 as required by the bank to increase
his original loan from P49,000.00 to P66,000.00 until it finally reached the approved amount of
P115,000.00. Since petitioners were still in possession of Lot No. 2-B, the Provincial Sheriff
ordered them to vacate the premises.

On the other hand, petitioners filed on August 23, 1982 a complaint for annulment of sale,
mortgage and cancellation of transfer certificates of title against the DBP-Laoag City, PNB
Vigan Branch, Ilocos Sur, Francisco Peria and the Register of Deeds of Ilocos Sur, docketed
as Civil Case No. 3447-V before the Regional Trial Court of Vigan, Ilocos Sur.

After trial, the RTC of Vigan, Ilocos Sur, Branch 20, rendered its decision 2 on November 14,
1983 dismissing the complaint, declaring therein, as valid the extrajudicial foreclosure sale of
the mortgaged property in favor of the DBP as highest bidder in the public auction sale held on
August 6, 1979, and its subsequent sale by DBP to Francisco Peria as well as the real estate
mortgage constituted thereon in favor of PNB Vigan as security for the P115,000.00 loan of
Francisco Peria.

The Court of Appeals affirmed the decision of the RTC of Vigan, Ilocos Sur on June 20, 1987.

The motion for reconsideration having been denied 3 on January 19, 1988, petitioners filed the
instant petition for review on certiorari with this Court. Petitioners seek to annul the extrajudicial
foreclosure sale of the mortgaged property on August 6, 1979 in favor of the Development
Bank of the Philippines (DBP) on the ground that it was conducted by the Provincial Sheriff of
Ilocos Sur without first effecting a levy on said property before selling the same at the public
auction sale. Petitioners thus maintained that the extrajudicial foreclosure sale being null and
void by virtue of lack of a valid levy, the certificate of sale issued by the Provincial Sheriff
cannot transfer ownership over the lot in question to the DBP and consequently the deed of
sale executed by the DBP in favor of Francisco Peria and the real estate mortgage constituted
thereon by the latter in favor of PNB Vigan Branch are likewise null and void.

The Court finds these contentions untenable.

The formalities of a levy, as an essential requisite of a valid execution sale under Section 15 of
Rule 39 and a valid attachment lien under Rule 57 of the Rules of Court, are not basic
requirements before an extrajudicially foreclosed property can be sold at public auction. At the
outset, distinction should be made of the three different kinds of sales under the law, namely:
an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial foreclosure sale,
because a different set of law applies to each class of sale mentioned. An ordinary execution
sale is governed by the pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the
Rules of Court applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135,
as amended by Act No. 4118 otherwise known as "An Act to Regulate the Sale of Property
under Special Powers Inserted in or Annexed to Real Estate Mortgages" applies in cases of
extrajudicial foreclosure sale.

The case at bar, as the facts disclose, involves an extrajudicial foreclosure sale. The public
auction sale conducted on August 6, 1979 by the Provincial Sheriff of Ilocos Sur refers to the
"sale" mentioned in Section 1 of Act No. 3135, as amended, which was made pursuant to a
special power inserted in or attached to a real estate mortgage made as security for the
payment of money or the fulfillment of any other obligation. It must be noted that in the
mortgage contract, petitioners, as mortgagor, had appointed private respondent DBP, for the
purpose of extrajudicial foreclosure, "as his attorney-in-fact to sell the property mortgaged
under Act No. 3135, as amended, to sign all documents and perform any act requisite and
necessary to accomplish said purpose .... In case of foreclosure, the Mortgagor hereby
consents to the appointment of the mortgagee or any of its employees as receiver, without any
bond, to take charge of the mortgaged property at once, and to hold possession of the
same ... 4

There is no justifiable basis, therefore, to apply by analogy the provisions of Rule 39 of the
Rules of Court on ordinary execution sale, particularly Section 15 thereof as well as the
jurisprudence under said provision, to an extrajudicial foreclosure sale conducted under the
provisions of Act No. 3135, as amended. Act No. 3135, as amended, being a special law
governing extrajudicial foreclosure proceedings, the same must govern as against the
provisions on ordinary execution sale under Rule 39 of the Rules of Court.

In that sense, the case of Aparri vs. Court Of Appeals, 13 SCRA 611 (1965), cited by
petitioners, must be distinguished from the instant case. On the question of what should be
done in the event the highest bid made for the property at the extrajudicial foreclosure sale is
in excess of the mortgage debt, this Court applied the rule and practice in a judicial foreclosure
sale to an extrajudicial foreclosure sale in a similar case considering that the governing
provisions of law as mandated by Section 6 of Act No. 3135, as amended, specifically Sections
29, 30 and 34 of Rule 39 of the Rules of Court (previously Sections 464, 465 and 466 of the
Code of Civil Procedure) are silent on the matter. The said ruling cannot, however, be
construed as the legal basis for applying the requirement of a levy under Section 15 of Rule 39
of the Rules of Court before an extrajudicially foreclosed property can be sold at public auction
when none is expressly required under Act No. 3135, as amended.

Levy, as understood under Section 15, Rule 39 of the Rules of Court in relation to execution of
money judgments, has been defined by this Court as the act whereby a sheriff sets apart or
appropriates for the purpose of satisfying the command of the writ, a part or the whole of the
judgment-debtor's property. 5

In extrajudicial foreclosure of mortgage, the property sought to be foreclosed need not be

identified or set apart by the sheriff from the whole mass of property of the mortgagor for the
purpose of satisfying the mortgage indebtedness. For, the essence of a contract of mortgage
indebtedness is that a property has been identified or set apart from the mass of the property
of the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation
to answer the amount of indebtedness, in case of default of payment. By virtue of the special
power inserted or attached to the mortgage contract, the mortgagor has authorized the
mortgagee-creditor or any other person authorized to act for him to sell said property in
accordance with the formalities required under Act No. 3135, as amended.

The Court finds that the formalities prescribed under Sections 2, 3 and 4 of Act No. 3135, as
amended, were substantially complied with in the instant case. Records show that the notices
of sale were posted by the Provincial Sheriff of Ilocos Sur and the same were published in
Ilocos Times, a newspaper of general circulation in the province of Ilocos Sur, setting the date
of the auction sale on August 6, 1979 at 10:00 a.m. in the Office of the Sheriff, Vigan, Ilocos
Sur. 6

The nullity of the extrajudicial foreclosure sale in the instant case is further sought by
petitioners on the ground that the DBP cannot acquire by purchase the mortgaged property at
the public auction sale by virtue of par. (2) of Article 1491 and par. (7) of Article 1409 of the
Civil Code which prohibits agents from acquiring by purchase, even at a public or judicial
auction either in person or through the mediation of another, the property whose administration
or sale may have been entrusted to them unless the consent of the principal has been given.

The contention is erroneous.

The prohibition mandated by par. (2) of Article 1491 in relation to Article 1409 of the Civil Code
does not apply in the instant case where the sale of the property in dispute was made under a
special power inserted in or attached to the real estate mortgage pursuant to Act No. 3135, as
amended. It is a familiar rule of statutory construction that, as between a specific statute and
general statute, the former must prevail since it evinces the legislative intent more clearly than
a general statute does. 7 The Civil Code (R.A. 386) is of general character while Act No. 3135,
as amended, is a special enactment and therefore the latter must prevail. 8

Under Act No. 3135, as amended, a mortgagee-creditor is allowed to participate in the bidding
and purchase under the same conditions as any other bidder, as in the case at bar, thus:

Section 5. At any sale, the creditor, trustee, or other person authorized to act for
the creditor, may participate in the bidding and purchase under the same
conditions as any other bidder, unless the contrary has been expressly provided
in the mortgage or trust deed under which the sale is made.

In other words, Section 5 of Act No. 3135, as amended, creates and is designed to create an
exception to the general rule that a mortgagee or trustee in a mortgage or deed of trust which
contains a power of sale on default may not become the purchaser, either directly or through
the agency of a third person, at a sale which he himself makes under the power. Under such
an exception, the title of the mortgagee-creditor over the property cannot be impeached or
defeated on the ground that the mortgagee cannot be a purchaser at his own sale.

Needless to state, the power to foreclose is not an ordinary agency that contemplates
exclusively the representation of the principal by the agent but is primarily an authority
conferred upon the mortgagee for the latter's own protection. It is an ancillary stipulation
supported by the same cause or consideration for the mortgage and forms an essential and
inseparable part of that bilateral agreement. 9 Even in the absence of statutory provision, there
is authority to hold that a mortgagee may purchase at a sale under his mortgage to protect his
own interest or to avoid a loss to himself by a sale to a third person at a price below the
mortgage debt. 10 The express mandate of Section 5 of Act No. 3135, as amended, amply
protects the interest of the mortgagee in this jurisdiction.

WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit and the
decision of the Court of Appeals dated June 20, 1987 is hereby AFFIRMED. No cost.

SO ORDERED.

Macariola vs. Asuncion, 114 SCRA 77, A.M. No. 133-J May 31, 1982 (Art. 1491);

A.M. No. 133-J May 31, 1982

BERNARDITA R. MACARIOLA, complainant,
vs.
HONORABLE ELIAS B. ASUNCION, Judge of the Court of First Instance of
Leyte, respondent.

MAKASIAR, J:

In a verified complaint dated August 6, 1968 Bernardita R. Macariola charged respondent

Judge Elias B. Asuncion of the Court of First Instance of Leyte, now Associate Justice of the
Court of Appeals, with "acts unbecoming a judge."

The factual setting of the case is stated in the report dated May 27, 1971 of then Associate
Justice Cecilia Muñoz Palma of the Court of Appeals now retired Associate Justice of the
Supreme Court, to whom this case was referred on October 28, 1968 for investigation, thus:

Civil Case No. 3010 of the Court of First Instance of Leyte was a complaint for
partition filed by Sinforosa R. Bales, Luz R. Bakunawa, Anacorita Reyes, Ruperto
Reyes, Adela Reyes, and Priscilla Reyes, plaintiffs, against Bernardita R.
Macariola, defendant, concerning the properties left by the deceased Francisco
Reyes, the common father of the plaintiff and defendant.

In her defenses to the complaint for partition, Mrs. Macariola alleged among
other things that; a) plaintiff Sinforosa R. Bales was not a daughter of the
deceased Francisco Reyes; b) the only legal heirs of the deceased were
defendant Macariola, she being the only offspring of the first marriage of
Francisco Reyes with Felisa Espiras, and the remaining plaintiffs who were the
children of the deceased by his second marriage with Irene Ondez; c) the
properties left by the deceased were all the conjugal properties of the latter and
his first wife, Felisa Espiras, and no properties were acquired by the deceased
during his second marriage; d) if there was any partition to be made, those
conjugal properties should first be partitioned into two parts, and one part is to be
adjudicated solely to defendant it being the share of the latter's deceased mother,
Felisa Espiras, and the other half which is the share of the deceased Francisco
Reyes was to be divided equally among his children by his two marriages.

On June 8, 1963, a decision was rendered by respondent Judge Asuncion in

Civil Case 3010, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court,

upon a preponderance of evidence, finds and so holds, and hereby
renders judgment (1) Declaring the plaintiffs Luz R. Bakunawa,
Anacorita Reyes, Ruperto Reyes, Adela Reyes and Priscilla Reyes
as the only children legitimated by the subsequent marriage of
Francisco Reyes Diaz to Irene Ondez; (2) Declaring the plaintiff
Sinforosa R. Bales to have been an illegitimate child of Francisco
Reyes Diaz; (3) Declaring Lots Nos. 4474, 4475, 4892, 5265, 4803,
4581, 4506 and 1/4 of Lot 1145 as belonging to the conjugal
partnership of the spouses Francisco Reyes Diaz and Felisa
Espiras; (4) Declaring Lot No. 2304 and 1/4 of Lot No. 3416 as
belonging to the spouses Francisco Reyes Diaz and Irene Ondez in
common partnership; (5) Declaring that 1/2 of Lot No. 1184 as
belonging exclusively to the deceased Francisco Reyes Diaz; (6)
Declaring the defendant Bernardita R. Macariola, being the only
legal and forced heir of her mother Felisa Espiras, as the exclusive
owner of one-half of each of Lots Nos. 4474, 4475, 4892, 5265,
4803, 4581, 4506; and the remaining one-half (1/2) of each of said
Lots Nos. 4474, 4475, 4892, 5265, 4803, 4581, 4506 and one-half
(1/2) of one-fourth (1/4) of Lot No. 1154 as belonging to the estate
of Francisco Reyes Diaz; (7) Declaring Irene Ondez to be the
exclusive owner of one-half (1/2) of Lot No. 2304 and one-half (1/2)
of one-fourth (1/4) of Lot No. 3416; the remaining one-half (1/2) of
Lot 2304 and the remaining one-half (1/2) of one-fourth (1/4) of Lot
No. 3416 as belonging to the estate of Francisco Reyes Diaz; (8)
Directing the division or partition of the estate of Francisco Reyes
Diaz in such a manner as to give or grant to Irene Ondez, as
surviving widow of Francisco Reyes Diaz, a hereditary share of.
one-twelfth (1/12) of the whole estate of Francisco Reyes Diaz (Art.
996 in relation to Art. 892, par 2, New Civil Code), and the
remaining portion of the estate to be divided among the plaintiffs
Sinforosa R. Bales, Luz R. Bakunawa, Anacorita Reyes, Ruperto
Reyes, Adela Reyes, Priscilla Reyes and defendant Bernardita R.
Macariola, in such a way that the extent of the total share of plaintiff
Sinforosa R. Bales in the hereditary estate shall not exceed the
equivalent of two-fifth (2/5) of the total share of any or each of the
other plaintiffs and the defendant (Art. 983, New Civil Code), each
of the latter to receive equal shares from the hereditary estate,
(Ramirez vs. Bautista, 14 Phil. 528; Diancin vs. Bishop of Jaro,
O.G. [3rd Ed.] p. 33); (9) Directing the parties, within thirty days
after this judgment shall have become final to submit to this court,
for approval a project of partition of the hereditary estate in the
proportion above indicated, and in such manner as the parties may,
by agreement, deemed convenient and equitable to them taking
into consideration the location, kind, quality, nature and value of the
properties involved; (10) Directing the plaintiff Sinforosa R. Bales
and defendant Bernardita R. Macariola to pay the costs of this suit,
in the proportion of one-third (1/3) by the first named and two-thirds
(2/3) by the second named; and (I 1) Dismissing all other claims of
the parties [pp 27-29 of Exh. C].
The decision in civil case 3010 became final for lack of an appeal, and on
October 16, 1963, a project of partition was submitted to Judge Asuncion which
is marked Exh. A. Notwithstanding the fact that the project of partition was not
signed by the parties themselves but only by the respective counsel of plaintiffs
and defendant, Judge Asuncion approved it in his Order dated October 23, 1963,
which for convenience is quoted hereunder in full:

The parties, through their respective counsels, presented to this

Court for approval the following project of partition:

COMES NOW, the plaintiffs and the defendant in the above-entitled

case, to this Honorable Court respectfully submit the following
Project of Partition:

l. The whole of Lots Nos. 1154, 2304 and 4506 shall belong
exclusively to Bernardita Reyes Macariola;

2. A portion of Lot No. 3416 consisting of 2,373.49 square meters

along the eastern part of the lot shall be awarded likewise to
Bernardita R. Macariola;

3. Lots Nos. 4803, 4892 and 5265 shall be awarded to Sinforosa

Reyes Bales;

4. A portion of Lot No. 3416 consisting of 1,834.55 square meters

along the western part of the lot shall likewise be awarded to
Sinforosa Reyes-Bales;

5. Lots Nos. 4474 and 4475 shall be divided equally among Luz
Reyes Bakunawa, Anacorita Reyes, Ruperto Reyes, Adela Reyes
and Priscilla Reyes in equal shares;

6. Lot No. 1184 and the remaining portion of Lot No. 3416 after
taking the portions awarded under item (2) and (4) above shall be
awarded to Luz Reyes Bakunawa, Anacorita Reyes, Ruperto
Reyes, Adela Reyes and Priscilla Reyes in equal shares, provided,
however that the remaining portion of Lot No. 3416 shall belong
exclusively to Priscilla Reyes.

WHEREFORE, it is respectfully prayed that the Project of Partition

indicated above which is made in accordance with the decision of
the Honorable Court be approved.

Tacloban City, October 16, 1963.

(SGD) BONIFACIO RAMO Atty. for the Defendant Tacloban City

(SGD) ZOTICO A. TOLETE Atty. for the Plaintiff Tacloban City

While the Court thought it more desirable for all the parties to have
signed this Project of Partition, nevertheless, upon assurance of
both counsels of the respective parties to this Court that the Project
of Partition, as above- quoted, had been made after a conference
and agreement of the plaintiffs and the defendant approving the
above Project of Partition, and that both lawyers had represented to
the Court that they are given full authority to sign by themselves the
Project of Partition, the Court, therefore, finding the above-quoted
 Project of Partition to be in accordance with law, hereby approves
the same. The parties, therefore, are directed to execute such
papers, documents or instrument sufficient in form and substance
for the vesting of the rights, interests and participations which were
adjudicated to the respective parties, as outlined in the Project of
Partition and the delivery of the respective properties adjudicated to
each one in view of said Project of Partition, and to perform such
other acts as are legal and necessary to effectuate the said Project
of Partition.

SO ORDERED.

Given in Tacloban City, this 23rd day of October, 1963.

(SGD) ELIAS B. ASUNCION Judge

EXH. B.

The above Order of October 23, 1963, was amended on November 11, 1963,
only for the purpose of giving authority to the Register of Deeds of the Province
of Leyte to issue the corresponding transfer certificates of title to the respective
adjudicatees in conformity with the project of partition (see Exh. U).

One of the properties mentioned in the project of partition was Lot 1184 or rather
one-half thereof with an area of 15,162.5 sq. meters. This lot, which according to
the decision was the exclusive property of the deceased Francisco Reyes, was
adjudicated in said project of partition to the plaintiffs Luz, Anacorita Ruperto,
Adela, and Priscilla all surnamed Reyes in equal shares, and when the project of
partition was approved by the trial court the adjudicatees caused Lot 1184 to be
subdivided into five lots denominated as Lot 1184-A to 1184-E inclusive (Exh. V).

Lot 1184-D was conveyed to Enriqueta D. Anota, a stenographer in Judge

Asuncion's court (Exhs. F, F-1 and V-1), while Lot 1184-E which had an area of
2,172.5556 sq. meters was sold on July 31, 1964 to Dr. Arcadio Galapon (Exh. 2)
who was issued transfer certificate of title No. 2338 of the Register of Deeds of
the city of Tacloban (Exh. 12).

On March 6, 1965, Dr. Arcadio Galapon and his wife Sold a portion of Lot 1184-E
with an area of around 1,306 sq. meters to Judge Asuncion and his wife, Victoria
S. Asuncion (Exh. 11), which particular portion was declared by the latter for
taxation purposes (Exh. F).

On August 31, 1966, spouses Asuncion and spouses Galapon conveyed their
respective shares and interest in Lot 1184-E to "The Traders Manufacturing and
Fishing Industries Inc." (Exit 15 & 16). At the time of said sale the stockholders of
the corporation were Dominador Arigpa Tan, Humilia Jalandoni Tan, Jaime
Arigpa Tan, Judge Asuncion, and the latter's wife, Victoria S. Asuncion, with
Judge Asuncion as the President and Mrs. Asuncion as the secretary (Exhs. E-4
to E-7). The Articles of Incorporation of "The Traders Manufacturing and Fishing
Industries, Inc." which we shall henceforth refer to as "TRADERS" were
registered with the Securities and Exchange Commission only on January 9,
1967 (Exh. E) [pp. 378-385, rec.].

Complainant Bernardita R. Macariola filed on August 9, 1968 the instant complaint dated
August 6, 1968 alleging four causes of action, to wit: [1] that respondent Judge Asuncion
violated Article 1491, paragraph 5, of the New Civil Code in acquiring by purchase a portion of
Lot No. 1184-E which was one of those properties involved in Civil Case No. 3010 decided by
him; [2] that he likewise violated Article 14, paragraphs I and 5 of the Code of Commerce,
Section 3, paragraph H, of R.A. 3019, otherwise known as the Anti-Graft and Corrupt Practices
Act, Section 12, Rule XVIII of the Civil Service Rules, and Canon 25 of the Canons of Judicial
Ethics, by associating himself with the Traders Manufacturing and Fishing Industries, Inc., as a
stockholder and a ranking officer while he was a judge of the Court of First Instance of Leyte;
[3] that respondent was guilty of coddling an impostor and acted in disregard of judicial
decorum by closely fraternizing with a certain Dominador Arigpa Tan who openly and publicly
advertised himself as a practising attorney when in truth and in fact his name does not appear
in the Rolls of Attorneys and is not a member of the Philippine Bar; and [4] that there was a
culpable defiance of the law and utter disregard for ethics by respondent Judge (pp. 1-7, rec.).

Respondent Judge Asuncion filed on September 24, 1968 his answer to which a reply was
filed on October 16, 1968 by herein complainant. In Our resolution of October 28, 1968, We
referred this case to then Justice Cecilia Muñoz Palma of the Court of Appeals, for
investigation, report and recommendation. After hearing, the said Investigating Justice
submitted her report dated May 27, 1971 recommending that respondent Judge should be
reprimanded or warned in connection with the first cause of action alleged in the complaint,
and for the second cause of action, respondent should be warned in case of a finding that he is
prohibited under the law to engage in business. On the third and fourth causes of action,
Justice Palma recommended that respondent Judge be exonerated.

The records also reveal that on or about November 9 or 11, 1968 (pp. 481, 477, rec.),
complainant herein instituted an action before the Court of First Instance of Leyte, entitled
"Bernardita R. Macariola, plaintiff, versus Sinforosa R. Bales, et al., defendants," which was
docketed as Civil Case No. 4235, seeking the annulment of the project of partition made
pursuant to the decision in Civil Case No. 3010 and the two orders issued by respondent
Judge approving the same, as well as the partition of the estate and the subsequent
conveyances with damages. It appears, however, that some defendants were dropped from
the civil case. For one, the case against Dr. Arcadio Galapon was dismissed because he was
no longer a real party in interest when Civil Case No. 4234 was filed, having already conveyed
on March 6, 1965 a portion of lot 1184-E to respondent Judge and on August 31, 1966 the
remainder was sold to the Traders Manufacturing and Fishing Industries, Inc. Similarly, the
case against defendant Victoria Asuncion was dismissed on the ground that she was no longer
a real party in interest at the time the aforesaid Civil Case No. 4234 was filed as the portion of
Lot 1184 acquired by her and respondent Judge from Dr. Arcadio Galapon was already sold
on August 31, 1966 to the Traders Manufacturing and Fishing industries, Inc. Likewise, the
cases against defendants Serafin P. Ramento, Catalina Cabus, Ben Barraza Go, Jesus Perez,
Traders Manufacturing and Fishing Industries, Inc., Alfredo R. Celestial and Pilar P. Celestial,
Leopoldo Petilla and Remedios Petilla, Salvador Anota and Enriqueta Anota and Atty. Zotico
A. Tolete were dismissed with the conformity of complainant herein, plaintiff therein, and her
counsel.

On November 2, 1970, Judge Jose D. Nepomuceno of the Court of First Instance of Leyte,
who was directed and authorized on June 2, 1969 by the then Secretary (now Minister) of
Justice and now Minister of National Defense Juan Ponce Enrile to hear and decide Civil Case
No. 4234, rendered a decision, the dispositive portion of which reads as follows:

A. IN THE CASE AGAINST JUDGE ELIAS B. ASUNCION

(1) declaring that only Branch IV of the Court of First Instance of Leyte has
jurisdiction to take cognizance of the issue of the legality and validity of the
Project of Partition [Exhibit "B"] and the two Orders [Exhibits "C" and "C- 3"]
approving the partition;

(2) dismissing the complaint against Judge Elias B. Asuncion;

 (3) adjudging the plaintiff, Mrs. Bernardita R. Macariola to pay defendant Judge
Elias B. Asuncion,

(a) the sum of FOUR HUNDRED THOUSAND PESOS

[P400,000.00] for moral damages;

(b) the sum of TWO HUNDRED THOUSAND PESOS

[P200,000.001 for exemplary damages;

(c) the sum of FIFTY THOUSAND PESOS [P50,000.00] for nominal

damages; and

(d) he sum of TEN THOUSAND PESOS [PI0,000.00] for Attorney's

Fees.

B. IN THE CASE AGAINST THE DEFENDANT MARIQUITA

VILLASIN, FOR HERSELF AND FOR THE HEIRS OF THE
DECEASED GERARDO VILLASIN —

(1) Dismissing the complaint against the defendants Mariquita Villasin and the
heirs of the deceased Gerardo Villasin;

(2) Directing the plaintiff to pay the defendants Mariquita Villasin and the heirs of
Gerardo Villasin the cost of the suit.

C. IN THE CASE AGAINST THE DEFENDANT SINFOROSA R.

BALES, ET AL., WHO WERE PLAINTIFFS IN CIVIL CASE NO.
3010 —

(1) Dismissing the complaint against defendants Sinforosa R. Bales, Adela R.

Herrer, Priscilla R. Solis, Luz R. Bakunawa, Anacorita R. Eng and Ruperto O.
Reyes.

D. IN THE CASE AGAINST DEFENDANT BONIFACIO RAMO —

(1) Dismissing the complaint against Bonifacio Ramo;

(2) Directing the plaintiff to pay the defendant Bonifacio Ramo the cost of the suit.

SO ORDERED [pp. 531-533, rec.]

It is further disclosed by the record that the aforesaid decision was elevated to the Court of
Appeals upon perfection of the appeal on February 22, 1971.

WE find that there is no merit in the contention of complainant Bernardita R. Macariola, under
her first cause of action, that respondent Judge Elias B. Asuncion violated Article 1491,
paragraph 5, of the New Civil Code in acquiring by purchase a portion of Lot No. 1184-E which
was one of those properties involved in Civil Case No. 3010. 'That Article provides:

Article 1491. The following persons cannot acquire by purchase, even at a public
or judicial action, either in person or through the mediation of another:

xxx xxx xxx

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

The prohibition in the aforesaid Article applies only to the sale or assignment of the property
which is the subject of litigation to the persons disqualified therein. WE have already ruled that
"... for the prohibition to operate, the sale or assignment of the property must take place during
the pendency of the litigation involving the property" (The Director of Lands vs. Ababa et al.,
88 SCRA 513, 519 [1979], Rosario vda. de Laig vs. Court of Appeals, 86 SCRA 641, 646
[1978]).

In the case at bar, when the respondent Judge purchased on March 6, 1965 a portion of Lot
1184-E, the decision in Civil Case No. 3010 which he rendered on June 8, 1963 was already
final because none of the parties therein filed an appeal within the reglementary period; hence,
the lot in question was no longer subject of the litigation. Moreover, at the time of the sale on
March 6, 1965, respondent's order dated October 23, 1963 and the amended order
dated November 11, 1963 approving the October 16, 1963 project of partition made pursuant
to the June 8, 1963 decision, had long become final for there was no appeal from said orders.

Furthermore, respondent Judge did not buy the lot in question on March 6, 1965 directly from
the plaintiffs in Civil Case No. 3010 but from Dr. Arcadio Galapon who earlier purchased
on July 31, 1964 Lot 1184-E from three of the plaintiffs, namely, Priscilla Reyes, Adela Reyes,
and Luz R. Bakunawa after the finality of the decision in Civil Case No. 3010. It may be
recalled that Lot 1184 or more specifically one-half thereof was adjudicated in equal shares to
Priscilla Reyes, Adela Reyes, Luz Bakunawa, Ruperto Reyes and Anacorita Reyes in the
project of partition, and the same was subdivided into five lots denominated as Lot 1184-A to
1184-E. As aforestated, Lot 1184-E was sold on July 31, 1964 to Dr. Galapon for which he was
issued TCT No. 2338 by the Register of Deeds of Tacloban City, and on March 6, 1965 he
sold a portion of said lot to respondent Judge and his wife who declared the same for taxation
purposes only. The subsequent sale on August 31, 1966 by spouses Asuncion and spouses
Galapon of their respective shares and interest in said Lot 1184-E to the Traders
Manufacturing and Fishing Industries, Inc., in which respondent was the president and his wife
was the secretary, took place long after the finality of the decision in Civil Case No. 3010 and
of the subsequent two aforesaid orders therein approving the project of partition.

While it appears that complainant herein filed on or about November 9 or 11, 1968 an action
before the Court of First Instance of Leyte docketed as Civil Case No. 4234, seeking to annul
the project of partition and the two orders approving the same, as well as the partition of the
estate and the subsequent conveyances, the same, however, is of no moment.

The fact remains that respondent Judge purchased on March 6, 1965 a portion of Lot 1184-E
from Dr. Arcadio Galapon; hence, after the finality of the decision which he rendered on June
8, 1963 in Civil Case No. 3010 and his two questioned orders dated October 23, 1963 and
November 11, 1963. Therefore, the property was no longer subject of litigation.

The subsequent filing on November 9, or 11, 1968 of Civil Case No. 4234 can no longer alter,
change or affect the aforesaid facts — that the questioned sale to respondent Judge, now
Court of Appeals Justice, was effected and consummated long after the finality of the aforesaid
decision or orders.

Consequently, the sale of a portion of Lot 1184-E to respondent Judge having taken place over
one year after the finality of the decision in Civil Case No. 3010 as well as the two orders
approving the project of partition, and not during the pendency of the litigation, there was no
violation of paragraph 5, Article 1491 of the New Civil Code.

It is also argued by complainant herein that the sale on July 31, 1964 of Lot 1184-E to Dr.
Arcadio Galapon by Priscilla Reyes, Adela Reyes and Luz R. Bakunawa was only a mere
scheme to conceal the illegal and unethical transfer of said lot to respondent Judge as a
consideration for the approval of the project of partition. In this connection, We agree with the
findings of the Investigating Justice thus:

And so we are now confronted with this all-important question whether or not the
acquisition by respondent of a portion of Lot 1184-E and the subsequent transfer
of the whole lot to "TRADERS" of which respondent was the President and his
wife the Secretary, was intimately related to the Order of respondent approving
the project of partition, Exh. A.

Respondent vehemently denies any interest or participation in the transactions

between the Reyeses and the Galapons concerning Lot 1184-E, and he insists
that there is no evidence whatsoever to show that Dr. Galapon had acted, in the
purchase of Lot 1184-E, in mediation for him and his wife. (See p. 14 of
Respondent's Memorandum).

xxx xxx xxx

On this point, I agree with respondent that there is no evidence in the record
showing that Dr. Arcadio Galapon acted as a mere "dummy" of respondent in
acquiring Lot 1184-E from the Reyeses. Dr. Galapon appeared to this
investigator as a respectable citizen, credible and sincere, and I believe him
when he testified that he bought Lot 1184-E in good faith and for valuable
consideration from the Reyeses without any intervention of, or previous
understanding with Judge Asuncion (pp. 391- 394, rec.).

On the contention of complainant herein that respondent Judge acted illegally in approving the
project of partition although it was not signed by the parties, We quote with approval the
findings of the Investigating Justice, as follows:

1. I agree with complainant that respondent should have required the signature of
the parties more particularly that of Mrs. Macariola on the project of partition
submitted to him for approval; however, whatever error was committed by
respondent in that respect was done in good faith as according to Judge
Asuncion he was assured by Atty. Bonifacio Ramo, the counsel of record of Mrs.
Macariola, That he was authorized by his client to submit said project of partition,
(See Exh. B and tsn p. 24, January 20, 1969). While it is true that such written
authority if there was any, was not presented by respondent in evidence, nor did
Atty. Ramo appear to corroborate the statement of respondent, his affidavit being
the only one that was presented as respondent's Exh. 10, certain actuations of
Mrs. Macariola lead this investigator to believe that she knew the contents of the
project of partition, Exh. A, and that she gave her conformity thereto. I refer to the
following documents:

1) Exh. 9 — Certified true copy of OCT No. 19520 covering Lot 1154 of the
Tacloban Cadastral Survey in which the deceased Francisco Reyes holds a "1/4
share" (Exh. 9-a). On tills certificate of title the Order dated November 11, 1963,
(Exh. U) approving the project of partition was duly entered and registered on
November 26, 1963 (Exh. 9-D);

2) Exh. 7 — Certified copy of a deed of absolute sale executed by Bernardita

Reyes Macariola on October 22, 1963, conveying to Dr. Hector Decena the one-
 fourth share of the late Francisco Reyes-Diaz in Lot 1154. In this deed of sale the
vendee stated that she was the absolute owner of said one-fourth share, the
same having been adjudicated to her as her share in the estate of her father
Francisco Reyes Diaz as per decision of the Court of First Instance of Leyte
under case No. 3010 (Exh. 7-A). The deed of sale was duly registered and
annotated at the back of OCT 19520 on December 3, 1963 (see Exh. 9-e).

In connection with the abovementioned documents it is to be noted that in the

project of partition dated October 16, 1963, which was approved by respondent
on October 23, 1963, followed by an amending Order on November 11, 1963, Lot
1154 or rather 1/4 thereof was adjudicated to Mrs. Macariola. It is this 1/4 share
in Lot 1154 which complainant sold to Dr. Decena on October 22, 1963, several
days after the preparation of the project of partition.

Counsel for complainant stresses the view, however, that the latter sold her one-
fourth share in Lot 1154 by virtue of the decision in Civil Case 3010 and not
because of the project of partition, Exh. A. Such contention is absurd because
from the decision, Exh. C, it is clear that one-half of one- fourth of Lot 1154
belonged to the estate of Francisco Reyes Diaz while the other half of said one-
fourth was the share of complainant's mother, Felisa Espiras; in other words, the
decision did not adjudicate the whole of the one-fourth of Lot 1154 to the herein
complainant (see Exhs. C-3 & C-4). Complainant became the owner of the entire
one-fourth of Lot 1154 only by means of the project of partition, Exh. A.
Therefore, if Mrs. Macariola sold Lot 1154 on October 22, 1963, it was for no
other reason than that she was wen aware of the distribution of the properties of
her deceased father as per Exhs. A and B. It is also significant at this point to
state that Mrs. Macariola admitted during the cross-examination that she went to
Tacloban City in connection with the sale of Lot 1154 to Dr. Decena (tsn p. 92,
November 28, 1968) from which we can deduce that she could not have been
kept ignorant of the proceedings in civil case 3010 relative to the project of
partition.

Complainant also assails the project of partition because according to her the
properties adjudicated to her were insignificant lots and the least valuable.
Complainant, however, did not present any direct and positive evidence to prove
the alleged gross inequalities in the choice and distribution of the real properties
when she could have easily done so by presenting evidence on the area,
location, kind, the assessed and market value of said properties. Without such
evidence there is nothing in the record to show that there were inequalities in the
distribution of the properties of complainant's father (pp. 386389, rec.).

Finally, while it is. true that respondent Judge did not violate paragraph 5, Article 1491 of the
New Civil Code in acquiring by purchase a portion of Lot 1184-E which was in litigation in his
court, it was, however, improper for him to have acquired the same. He should be reminded of
Canon 3 of the Canons of Judicial Ethics which requires that: "A judge's official conduct should
be free from the appearance of impropriety, and his personal behavior, not only upon the
bench and in the performance of judicial duties, but also in his everyday life, should be beyond
reproach." And as aptly observed by the Investigating Justice: "... it was unwise and indiscreet
on the part of respondent to have purchased or acquired a portion of a piece of property that
was or had been in litigation in his court and caused it to be transferred to a corporation of
which he and his wife were ranking officers at the time of such transfer. One who occupies an
exalted position in the judiciary has the duty and responsibility of maintaining the faith and trust
of the citizenry in the courts of justice, so that not only must he be truly honest and just, but his
actuations must be such as not give cause for doubt and mistrust in the uprightness of his
administration of justice. In this particular case of respondent, he cannot deny that the
transactions over Lot 1184-E are damaging and render his actuations open to suspicion and
distrust. Even if respondent honestly believed that Lot 1184-E was no longer in litigation in his
court and that he was purchasing it from a third person and not from the parties to the
litigation, he should nonetheless have refrained from buying it for himself and transferring it to
a corporation in which he and his wife were financially involved, to avoid possible suspicion
that his acquisition was related in one way or another to his official actuations in civil case
3010. The conduct of respondent gave cause for the litigants in civil case 3010, the lawyers
practising in his court, and the public in general to doubt the honesty and fairness of his
actuations and the integrity of our courts of justice" (pp. 395396, rec.).

II

With respect to the second cause of action, the complainant alleged that respondent Judge
violated paragraphs 1 and 5, Article 14 of the Code of Commerce when he associated himself
with the Traders Manufacturing and Fishing Industries, Inc. as a stockholder and a ranking
officer, said corporation having been organized to engage in business. Said Article provides
that:

Article 14 — The following cannot engage in commerce, either in person or by

proxy, nor can they hold any office or have any direct, administrative, or financial
intervention in commercial or industrial companies within the limits of the districts,
provinces, or towns in which they discharge their duties:

1. Justices of the Supreme Court, judges and officials of the department of public
prosecution in active service. This provision shall not be applicable to mayors,
municipal judges, and municipal prosecuting attorneys nor to those who by
chance are temporarily discharging the functions of judge or prosecuting
attorney.

xxx xxx xxx

5. Those who by virtue of laws or special provisions may not engage in

commerce in a determinate territory.

It is Our considered view that although the aforestated provision is incorporated in the Code of
Commerce which is part of the commercial laws of the Philippines, it, however, partakes of the
nature of a political law as it regulates the relationship between the government and certain
public officers and employees, like justices and judges.

Political Law has been defined as that branch of public law which deals with the organization
and operation of the governmental organs of the State and define the relations of the state with
the inhabitants of its territory (People vs. Perfecto, 43 Phil. 887, 897 [1922]). It may be recalled
that political law embraces constitutional law, law of public corporations, administrative law
including the law on public officers and elections. Specifically, Article 14 of the Code of
Commerce partakes more of the nature of an administrative law because it regulates the
conduct of certain public officers and employees with respect to engaging in business: hence,
political in essence.

It is significant to note that the present Code of Commerce is the Spanish Code of Commerce
of 1885, with some modifications made by the "Commission de Codificacion de las Provincias
de Ultramar," which was extended to the Philippines by the Royal Decree of August 6, 1888,
and took effect as law in this jurisdiction on December 1, 1888.

Upon the transfer of sovereignty from Spain to the United States and later on from the United
States to the Republic of the Philippines, Article 14 of this Code of Commerce must be
deemed to have been abrogated because where there is change of sovereignty, the political
laws of the former sovereign, whether compatible or not with those of the new sovereign, are
automatically abrogated, unless they are expressly re-enacted by affirmative act of the new
sovereign.
Thus, We held in Roa vs. Collector of Customs (23 Phil. 315, 330, 311 [1912]) that:

By well-settled public law, upon the cession of territory by one nation to another,
either following a conquest or otherwise, ... those laws which are political in their
nature and pertain to the prerogatives of the former government immediately
cease upon the transfer of sovereignty. (Opinion, Atty. Gen., July 10, 1899).

While municipal laws of the newly acquired territory not in conflict with the, laws
of the new sovereign continue in force without the express assent or affirmative
act of the conqueror, the political laws do not. (Halleck's Int. Law, chap. 34, par.
14). However, such political laws of the prior sovereignty as are not in conflict
with the constitution or institutions of the new sovereign, may be continued in
force if the conqueror shall so declare by affirmative act of the commander-in-
chief during the war, or by Congress in time of peace. (Ely's Administrator vs.
United States, 171 U.S. 220, 43 L. Ed. 142). In the case of American and Ocean
Ins. Cos. vs. 356 Bales of Cotton (1 Pet. [26 U.S.] 511, 542, 7 L. Ed. 242), Chief
Justice Marshall said:

On such transfer (by cession) of territory, it has never been held

that the relations of the inhabitants with each other undergo any
change. Their relations with their former sovereign are dissolved,
and new relations are created between them and the government
which has acquired their territory. The same act which transfers
their country, transfers the allegiance of those who remain in it; and
the law which may be denominated political, is necessarily
changed, although that which regulates the intercourse and general
conduct of individuals, remains in force, until altered by the newly-
created power of the State.

Likewise, in People vs. Perfecto (43 Phil. 887, 897 [1922]), this Court stated that: "It is a
general principle of the public law that on acquisition of territory the previous political relations
of the ceded region are totally abrogated. "

There appears no enabling or affirmative act that continued the effectivity of the aforestated
provision of the Code of Commerce after the change of sovereignty from Spain to the United
States and then to the Republic of the Philippines. Consequently, Article 14 of the Code of
Commerce has no legal and binding effect and cannot apply to the respondent, then Judge of
the Court of First Instance, now Associate Justice of the Court of Appeals.

It is also argued by complainant herein that respondent Judge violated paragraph H, Section 3
of Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, which
provides that:

Sec. 3. Corrupt practices of public officers. — In addition to acts or omissions of

public officers already penalized by existing law, the following shall constitute
corrupt practices of any public officer and are hereby declared to be unlawful:

x x x           x x x          x x x

(h) Directly or indirectly having financial or pecuniary interest in any

business, contract or transaction in connection with which he
intervenes or takes part in his official capacity, or in which he is
prohibited by the Constitution or by any Iaw from having any
interest.

Respondent Judge cannot be held liable under the aforestated paragraph because there is no
showing that respondent participated or intervened in his official capacity in the business or
transactions of the Traders Manufacturing and Fishing Industries, Inc. In the case at bar, the
business of the corporation in which respondent participated has obviously no relation or
connection with his judicial office. The business of said corporation is not that kind where
respondent intervenes or takes part in his capacity as Judge of the Court of First Instance. As
was held in one case involving the application of Article 216 of the Revised Penal Code which
has a similar prohibition on public officers against directly or indirectly becoming interested in
any contract or business in which it is his official duty to intervene, "(I)t is not enough to be a
public official to be subject to this crime; it is necessary that by reason of his office, he has to
intervene in said contracts or transactions; and, hence, the official who intervenes in contracts
or transactions which have no relation to his office cannot commit this crime.' (People vs.
Meneses, C.A. 40 O.G. 11th Supp. 134, cited by Justice Ramon C. Aquino; Revised Penal
Code, p. 1174, Vol. 11 [1976]).

It does not appear also from the records that the aforesaid corporation gained any undue
advantage in its business operations by reason of respondent's financial involvement in it, or
that the corporation benefited in one way or another in any case filed by or against it in court. It
is undisputed that there was no case filed in the different branches of the Court of First
Instance of Leyte in which the corporation was either party plaintiff or defendant except Civil
Case No. 4234 entitled "Bernardita R. Macariola, plaintiff, versus Sinforosa O. Bales, et
al.," wherein the complainant herein sought to recover Lot 1184-E from the aforesaid
corporation. It must be noted, however, that Civil Case No. 4234 was filed only on November 9
or 11, 1968 and decided on November 2, 1970 by CFI Judge Jose D. Nepomuceno when
respondent Judge was no longer connected with the corporation, having disposed of his
interest therein on January 31, 1967.

Furthermore, respondent is not liable under the same paragraph because there is no provision
in both the 1935 and 1973 Constitutions of the Philippines, nor is there an existing law
expressly prohibiting members of the Judiciary from engaging or having interest in any lawful
business.

It may be pointed out that Republic Act No. 296, as amended, also known as the Judiciary Act
of 1948, does not contain any prohibition to that effect. As a matter of fact, under Section 77 of
said law, municipal judges may engage in teaching or other vocation not involving the practice
of law after office hours but with the permission of the district judge concerned.

Likewise, Article 14 of the Code of Commerce which prohibits judges from engaging in
commerce is, as heretofore stated, deemed abrogated automatically upon the transfer of
sovereignty from Spain to America, because it is political in nature.

Moreover, the prohibition in paragraph 5, Article 1491 of the New Civil Code against the
purchase by judges of a property in litigation before the court within whose jurisdiction they
perform their duties, cannot apply to respondent Judge because the sale of the lot in question
to him took place after the finality of his decision in Civil Case No. 3010 as well as his two
orders approving the project of partition; hence, the property was no longer subject of litigation.

In addition, although Section 12, Rule XVIII of the Civil Service Rules made pursuant to the
Civil Service Act of 1959 prohibits an officer or employee in the civil service from engaging in
any private business, vocation, or profession or be connected with any commercial, credit,
agricultural or industrial undertaking without a written permission from the head of department,
the same, however, may not fall within the purview of paragraph h, Section 3 of the Anti-Graft
and Corrupt Practices Act because the last portion of said paragraph speaks of a prohibition by
the Constitution or law on any public officer from having any interest in any business and not
by a mere administrative rule or regulation. Thus, a violation of the aforesaid rule by any officer
or employee in the civil service, that is, engaging in private business without a written
permission from the Department Head may not constitute graft and corrupt practice as defined
by law.
On the contention of complainant that respondent Judge violated Section 12, Rule XVIII of the
Civil Service Rules, We hold that the Civil Service Act of 1959 (R.A. No. 2260) and the Civil
Service Rules promulgated thereunder, particularly Section 12 of Rule XVIII, do not apply to
the members of the Judiciary. Under said Section 12: "No officer or employee shall engage
directly in any private business, vocation, or profession or be connected with any commercial,
credit, agricultural or industrial undertaking without a written permission from the Head of
Department ..."

It must be emphasized at the outset that respondent, being a member of the Judiciary, is
covered by Republic Act No. 296, as amended, otherwise known as the Judiciary Act of 1948
and by Section 7, Article X, 1973 Constitution.

Under Section 67 of said law, the power to remove or dismiss judges was then vested in the
President of the Philippines, not in the Commissioner of Civil Service, and only on two
grounds, namely, serious misconduct and inefficiency, and upon the recommendation of the
Supreme Court, which alone is authorized, upon its own motion, or upon information of the
Secretary (now Minister) of Justice to conduct the corresponding investigation. Clearly, the
aforesaid section defines the grounds and prescribes the special procedure for the discipline of
judges.

And under Sections 5, 6 and 7, Article X of the 1973 Constitution, only the Supreme Court can
discipline judges of inferior courts as well as other personnel of the Judiciary.

It is true that under Section 33 of the Civil Service Act of 1959: "The Commissioner may, for ...
violation of the existing Civil Service Law and rules or of reasonable office regulations, or in the
interest of the service, remove any subordinate officer or employee from the service, demote
him in rank, suspend him for not more than one year without pay or fine him in an amount not
exceeding six months' salary." Thus, a violation of Section 12 of Rule XVIII is a ground for
disciplinary action against civil service officers and employees.

However, judges cannot be considered as subordinate civil service officers or employees

subject to the disciplinary authority of the Commissioner of Civil Service; for, certainly, the
Commissioner is not the head of the Judicial Department to which they belong. The Revised
Administrative Code (Section 89) and the Civil Service Law itself state that the Chief Justice is
the department head of the Supreme Court (Sec. 20, R.A. No. 2260) [1959]); and under the
1973 Constitution, the Judiciary is the only other or second branch of the government (Sec. 1,
Art. X, 1973 Constitution). Besides, a violation of Section 12, Rule XVIII cannot be considered
as a ground for disciplinary action against judges because to recognize the same as applicable
to them, would be adding another ground for the discipline of judges and, as aforestated,
Section 67 of the Judiciary Act recognizes only two grounds for their removal, namely, serious
misconduct and inefficiency.

Moreover, under Section 16(i) of the Civil Service Act of 1959, it is the Commissioner of Civil
Service who has original and exclusive jurisdiction "(T)o decide, within one hundred twenty
days, after submission to it, all administrative cases against permanent officers and employees
in the competitive service, and, except as provided by law, to have final authority to pass upon
their removal, separation, and suspension and upon all matters relating to the conduct,
discipline, and efficiency of such officers and employees; and prescribe standards, guidelines
and regulations governing the administration of discipline" (emphasis supplied). There is no
question that a judge belong to the non-competitive or unclassified service of the government
as a Presidential appointee and is therefore not covered by the aforesaid provision. WE have
already ruled that "... in interpreting Section 16(i) of Republic Act No. 2260, we emphasized
that only permanent officers and employees who belong to the classified service come under
the exclusive jurisdiction of the Commissioner of Civil Service" (Villaluz vs. Zaldivar, 15 SCRA
710,713 [1965], Ang-Angco vs. Castillo, 9 SCRA 619 [1963]).
Although the actuation of respondent Judge in engaging in private business by joining the
Traders Manufacturing and Fishing Industries, Inc. as a stockholder and a ranking officer, is
not violative of the provissions of Article 14 of the Code of Commerce and Section 3(h) of the
Anti-Graft and Corrupt Practices Act as well as Section 12, Rule XVIII of the Civil Service
Rules promulgated pursuant to the Civil Service Act of 1959, the impropriety of the same is
clearly unquestionable because Canon 25 of the Canons of Judicial Ethics expressly declares
that:

A judge should abstain from making personal investments in enterprises which

are apt to be involved in litigation in his court; and, after his accession to the
bench, he should not retain such investments previously made, longer than a
period sufficient to enable him to dispose of them without serious loss. It is
desirable that he should, so far as reasonably possible, refrain from all relations
which would normally tend to arouse the suspicion that such relations warp or
bias his judgment, or prevent his impartial attitude of mind in the administration of
his judicial duties. ...

WE are not, however, unmindful of the fact that respondent Judge and his wife had withdrawn
on January 31, 1967 from the aforesaid corporation and sold their respective shares to third
parties, and it appears also that the aforesaid corporation did not in anyway benefit in any case
filed by or against it in court as there was no case filed in the different branches of the Court of
First Instance of Leyte from the time of the drafting of the Articles of Incorporation of the
corporation on March 12, 1966, up to its incorporation on January 9, 1967, and the eventual
withdrawal of respondent on January 31, 1967 from said corporation. Such disposal or sale by
respondent and his wife of their shares in the corporation only 22 days after the incorporation
of the corporation, indicates that respondent realized that early that their interest in the
corporation contravenes the aforesaid Canon 25. Respondent Judge and his wife therefore
deserve the commendation for their immediate withdrawal from the firm after its incorporation
and before it became involved in any court litigation

III

With respect to the third and fourth causes of action, complainant alleged that respondent was
guilty of coddling an impostor and acted in disregard of judicial decorum, and that there was
culpable defiance of the law and utter disregard for ethics. WE agree, however, with the
recommendation of the Investigating Justice that respondent Judge be exonerated because
the aforesaid causes of action are groundless, and WE quote the pertinent portion of her report
which reads as follows:

The basis for complainant's third cause of action is the claim that respondent
associated and closely fraternized with Dominador Arigpa Tan who openly and
publicly advertised himself as a practising attorney (see Exhs. I, I-1 and J) when
in truth and in fact said Dominador Arigpa Tan does not appear in the Roll of
Attorneys and is not a member of the Philippine Bar as certified to in Exh. K.

The "respondent denies knowing that Dominador Arigpa Tan was an "impostor"
and claims that all the time he believed that the latter was a bona fide member of
the bar. I see no reason for disbelieving this assertion of respondent. It has been
shown by complainant that Dominador Arigpa Tan represented himself publicly
as an attorney-at-law to the extent of putting up a signboard with his name and
the words "Attorney-at Law" (Exh. I and 1- 1) to indicate his office, and it was but
natural for respondent and any person for that matter to have accepted that
statement on its face value. "Now with respect to the allegation of complainant
that respondent is guilty of fraternizing with Dominador Arigpa Tan to the extent
of permitting his wife to be a godmother of Mr. Tan's child at baptism (Exh. M &
M-1), that fact even if true did not render respondent guilty of violating any canon
of judicial ethics as long as his friendly relations with Dominador A. Tan and
 family did not influence his official actuations as a judge where said persons were
concerned. There is no tangible convincing proof that herein respondent gave
any undue privileges in his court to Dominador Arigpa Tan or that the latter
benefitted in his practice of law from his personal relations with respondent, or
that he used his influence, if he had any, on the Judges of the other branches of
the Court to favor said Dominador Tan.

Of course it is highly desirable for a member of the judiciary to refrain as much as

possible from maintaining close friendly relations with practising attorneys and
litigants in his court so as to avoid suspicion 'that his social or business relations
or friendship constitute an element in determining his judicial course" (par. 30,
Canons of Judicial Ethics), but if a Judge does have social relations, that in itself
would not constitute a ground for disciplinary action unless it be clearly shown
that his social relations be clouded his official actuations with bias and partiality in
favor of his friends (pp. 403-405, rec.).

In conclusion, while respondent Judge Asuncion, now Associate Justice of the Court of
Appeals, did not violate any law in acquiring by purchase a parcel of land which was in
litigation in his court and in engaging in business by joining a private corporation during his
incumbency as judge of the Court of First Instance of Leyte, he should be reminded to be more
discreet in his private and business activities, because his conduct as a member of the
Judiciary must not only be characterized with propriety but must always be above suspicion.

WHEREFORE, THE RESPONDENT ASSOCIATE JUSTICE OF THE COURT OF APPEALS

IS HEREBY REMINDED TO BE MORE DISCREET IN HIS PRIVATE AND BUSINESS
ACTIVITIES.

SO ORDERED.

Valencia VS. Cabanting, 196SCRA 302, A.M. No. 1302, April 26,1991 (Art. 1491);

A.M. Nos. 1302, 1391 and 1543             April 26, 1991

PAULINO VALENCIA, complainant,
vs.
ATTY. ARSENIO FER CABANTING, respondent.
CONSTANCIA L. VALENCIA, complainant,
vs.
ATTY. DIONISIO C. ANTINIW, ATTY. EDUARDO U. JOVELLANOS and ATTY. ARSENIO
FER. CABANTING, respondents.
LYDIA BERNAL, complainant,
vs.
ATTY. DIONISIO C. ANTINIW, respondent.

PER CURIAM:

These consolidated administrative cases seek to disbar respondents Dionisio Antiniw, Arsenio
Fer. Cabanting and Eduardo Jovellanos (the last named, now an MCTC Judge) for grave
malpractice and misconduct in the exercise of their legal profession committed in the following
manner:

1. Administrative Cases No. 1302 and 1391.

In 1933, complainant Paulino Valencia (Paulino in short) and his wife Romana allegedly
bought a parcel of land, where they built their residential house, from a certain Serapia
Raymundo, an heir of Pedro Raymundo the original owner. However, they failed to register the
sale or secure a transfer certificate of title in their names.

Sometime in December, 1968, a conference was held in the house of Atty. Eduardo Jovellanos
to settle the land dispute between Serapia Raymundo (Serapia in short) another heir of Pedro
Raymundo, and the Valencia spouses since both were relatives and distant kin of Atty.
Jovellanos. Serapia was willing to relinquish ownership if the Valencias could show documents
evidencing ownership. Paulino exhibited a deed of sale written in the Ilocano dialect. However,
Serapia claimed that the deed covered a different property. Paulino and Serapia were not able
to settle their differences. (Report of Investigating Judge Catalino Castaneda, Jr., pp. 21-22).

On December 15, 1969 Serapia, assisted by Atty. Arsenio Fer. Cabanting, filed a complaint
against Paulino for the recovery of possession with damages. The case was docketed as Civil
Case No. V-2170, entitled "Serapia Raymundo, Plaintiff, versus Paulino Valencia, Defendant."
(Report, p. 11).

Summoned to plead in Civil Case No. V-2170, the Valencias engaged the services of Atty.
Dionisio Antiniw. Atty. Antiniw advised them to present a notarized deed of sale in lieu of the
private document written in Ilocano. For this purpose, Paulino gave Atty. Antiniw an amount of
P200.00 to pay the person who would falsify the signature of the alleged vendor (Complaint, p.
2; Rollo, p. 7). A "Compraventa Definitiva" (Exh. B) was executed purporting to be a sale of the
questioned lot.

On January 22, 1973, the Court of First Instance of Pangasinan, Branch V, rendered a
decision in favor of plaintiff, Serapia Raymundo. The lower court expressed the belief that the
said document is not authentic. (Report, p. 14)

Paulino, thereafter, filed a Petition for Certiorari, under Rule 65, with Preliminary Injunction
before the Court of Appeals alleging that the trial court failed to provide a workable solution
concerning his house. While the petition was pending, the trial court, on March 9, 1973, issued
an order of execution stating that "the decision in this case has already become final and
executory" (Exhibits 3 and 3-A). On March 14, 1973, a writ of execution was issued.

On March 20, 1973, Serapia sold 40 square meters of the litigated lot to Atty. Jovellanos and
the remaining portion she sold to her counsel, Atty. Arsenio Fer. Cabanting, on April 25, 1973.
(Annex "A" of Administrative Case No. 1302).

On March 4, 1974, Paulino filed a disbarment proceeding (docketed as Administrative Case

No. 1302) against Atty. Cabanting on the ground that said counsel allegedly violated Article
1491 of the New Civil Code as well as Article II of the Canons of Professional Ethics,
prohibiting the purchase of property under litigation by a counsel.

On March 21, 1974 the appellate court dismissed the petition of Paulino.

On October 14, 1974, Constancia Valencia, daughter of Paulino, filed a disbarment proceeding
(docketed as Administrative Case No. 1391) against Atty. Dionisio Antiniw for his participation
in the forgery of "Compraventa Definitiva" and its subsequent introduction as evidence for his
client; and also, against Attys. Eduardo Jovellanos and Arsenio Cabanting for purchasing a
litigated property allegedly in violation of Article 1491 of the New Civil Code; and against the
three lawyers, for allegedly rigging Civil Case No. V-2170 against her parents. On August 17,
1975, Constancia Valencia filed additional charges against Atty. Antiniw and Atty. Jovellanos
as follows:

1. AGAINST ATTY. DIONISIO ANTINIW:

 In the year 1973 Atty. Dionisio Antiniw fraudulently and in confabulation with one Lydia
Bernal had a deed of sale, fabricated, executed and ratified before him as Notary Public
by one Santiago Bernal in favor of Lydia Bernal when as a matter of fact said Santiago
Bernal had died already about eight years before in the year 1965.

2. AGAINST ATTY. EDUARDO JOVELLANOS:

In the year 1954 Atty. Eduardo Jovellanos, fraudulently and in bad faith, in confabulation
with Rosa de los Santos as vendee had, as Notary Public, executed and ratified before
him, two (2) deeds of sale in favor of said Rosa de los Santos when as a matter of fact
the said deeds were not in fact executed by the supposed vendor Rufino Rincoraya and
so Rufino Rincoraya had filed a Civil Case in Court to annul and declare void the said
sales (p. 7, Report)

2. Administrative Case No. 1543.

A deed of donation propter nuptias involving the transfer of a piece of land by the

grandparents of Lydia Bernal (complainant,) in favor of her parents, was lost during the last
world war. For this reason, her grandmother (the living donor) executed a deed of confirmation
of the donation propter nuptias with renunciation of her rights over the property. (Complaint, p.
1). Notwithstanding the deed, her grandmother still offered to sell the same property in favor of
the complainant, ostensibly to strengthen the deed of donation (to prevent others from claim-
ing the property).

On consultation, Atty., Antiniw advised them to execute a deed of sale. Atty. Antiniw allegedly
prepared and notarized the deed of sale in the name of her grandfather (deceased at the time
of signing) with her grandmother's approval.

Felicidad Bernal-Duzon, her aunt who had a claim over the property filed a complaint against
her (Lydia Bernal) and her counsel, Atty. Antiniw for falsification of a public document.
(Complaint, pp. 1-2) The fiscal exonerated the counsel for lack of evidence, while a case was
filed in court against Lydia Bernal.

On October 3, 1975, Lydia Bernal filed a disbarment proceeding (docketed as Administrative

Case No.1543) against Atty. Antiniw for illegal acts and bad advice.

Pursuant to the resolution of the First Division of this Court dated December 9, 1974, the
resolution of the Second Division dated March 3, 1975 and the two resolutions of the Second
Division both dated December 3, 1975, Administrative Cases Nos. 1302, 1391 and 1543 were
referred to the Office of the Solicitor General for investigation, report and recommendation.

Upon formal request of Constancia L. Valencia and Lydia Bernal dated March 3, 1976, all of
these cases were ordered consolidated by Solicitor General Estelito P. Mendoza per his
handwritten directive of March 9, 1976.

On April 12, 1988, We referred the investigation of these cases to the Integrated Bar of the
Philippines.1âwphi1 When Atty. Jovellanos was appointed as Municipal Circuit Trial Court
Judge of Alcala-Bautista, Pangasinan, We referred the investigation of these cases to Acting
Presiding Judge Cesar Mindaro, Regional Trial Court, Branch 50, Villasis, Pangasinan, for
further investigation.

In view of the seriousness of the charge against the respondents and the alleged threats
against the person of complainant Constancia L. Valencia, We directed the transfer of
investigation to the Regional Trial Court of Manila.

The three administrative cases were raffled to Branch XVII of the Regional Trial Court of
Manila, under the sala of Judge Catalino Castaneda, Jr.
After investigation, Judge Catalino Castañeda, Jr., recommended the dismissal of cases
against Atty. Jovellanos and Atty. Arsenio Fer. Cabanting; dismissal of Administrative Case
No. 1543 and the additional charges in Administrative Case No. 1391 against Antiniw and
Judge Jovellanos; however, he recommended the suspension of Atty. Antiniw from the
practice of law for six months finding him guilty of malpractice in falsifying the "Compraventa
Definitiva."

The simplified issues of these consolidated cases are:

I. Whether or not Atty. Cabanting purchased the subject property in violation of Art.
1491 of the New Civil Code.

II. Whether or not Attys. Antiniw and Jovellanos are guilty of malpractice in falsifying
notarial documents.

III. Whether or not the three lawyers connived in rigging Civil Case No. V-2170.

Under Article 1491 of the New Civil Code:

The following persons cannot acquire by purchase, even at a public of judicial auction,
either in person or through the mediation of another:

x x x           x x x          x x x

(5) . . . this prohibition includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any litigation
in which they make take part by virtue of their profession.

Public policy prohibits the transactions in view of the fiduciary relationship involved. It is
intended to curtail any undue influence of the lawyer upon his client. Greed may get the better
of the sentiments of loyalty and disinterestedness. Any violation of this prohibition would
constitute malpractice (In re: Attorney Melchor Ruste, 40 O.G. p. 78) and is a ground for
suspension. (Beltran vs. Fernandez, 70 Phil. 248).

Art. 1491, prohibiting the sale to the counsel concerned, applies only while the litigation is
pending. (Director of Lands vs. Adaba, 88 SCRA 513; Hernandez vs. Villanueva, 40 Phil. 775).

In the case at bar, while it is true that Atty. Arsenio Fer. Cabanting purchased the lot
after finality of judgment, there was still a pending certiorari proceeding. A thing is said to be in
litigation not only if there is some contest or litigation over it in court, but also from the moment
that it becomes subject to the judicial action of the judge. (Gan Tingco vs. Pabinguit, 35 Phil.
81). Logic indicates, in certiorari proceedings, that the appellate court may either grant or
dismiss the petition. Hence, it is not safe to conclude, for purposes under Art. 1491 that the
litigation has terminated when the judgment of the trial court become final while
a certiorari connected therewith is still in progress. Thus, purchase of the property by Atty.
Cabanting in this case constitutes malpractice in violation of Art. 1491 and the Canons of
Professional Ethics. Clearly, this malpractice is a ground for suspension.

The sale in favor of Atty. Jovellanos does not constitute malpractice. There was no attorney-
client relationship between Serapia and Atty. Jovellanos, considering that the latter did not take
part as counsel in Civil Case No. V-2170. The transaction is not covered by Art. 1491 nor by
the Canons adverted to.

II
It is asserted by Paulino that Atty. Antiniw asked for and received the sum of P200.00 in
consideration of his executing the document "Compraventa Definitiva" which would show that
Paulino bought the property. This charge, Atty. Antiniw simply denied. It is settled
jurisprudence that affirmative testimony is given greater weight than negative testimony
(Bayasen vs. CA, L-25785, Feb. 26, 1981; Vda. de Ramos vs. CA, et al., L40804, Jan. 31,
1978). When an individual's integrity is challenged by evidence, it is not enough that he deny
the charges against him; he must meet the issue and overcome the evidence for the relator
and show proofs that he still maintains the highest degree of morality and integrity which at all
time is expected of him. (De los Reyes vs. Aznar, Adm. Case No. 1334, Nov. 28, 1989).

Although Paulino was a common farmer who finished only Grade IV, his testimony, even if not
corroborated by another witness, deserves credence and can be relied upon. His declaration
dwelt on a subject which was so delicate and confidential that it would be difficult to believe the
he fabricated his evidence.

There is a clear preponderant evidence that Atty. Antiniw committed falsification of a deed of
sale, and its subsequent introduction in court prejudices his prime duty in the administration of
justice as an officer of the court.

A lawyer owes entire devotion to the interest of his client (Santos vs. Dichoso, 84 SCRA 622),
but not at the expense of truth. (Cosmos Foundry Shopworkers Union vs. La Bu, 63 SCRA
313). The first duty of a lawyer is not to his client but to the administration of justice. (Lubiano
vs. Gordalla, 115 SCRA 459) To that end, his client's success is wholly subordinate. His
conduct ought to and must always be scrupulously observant of law and ethics. While a lawyer
must advocate his client's cause in utmost earnestness and with the maximum skill he can
marshal, he is not at liberty to resort to illegal means for his client's interest. It is the duty of an
attorney to employ, for the purpose of maintaining the causes confided to him, such means as
are consistent with truth and honor. (Pangan vs. Ramos, 93 SCRA 87).

Membership in the Bar is a privilege burdened with conditions. By far, the most important of
them is mindfulness that a lawyer is an officer of the court. (In re: Ivan T. Publico, 102 SCRA
722). This Court may suspend or disbar a lawyer whose acts show his unfitness to continue as
a member of the Bar. (Halili vs. CIR, 136 SCRA 112). Disbarment, therefore, is not meant as a
punishment depriving him of a source of livelihood but is rather intended to protect the
administration of justice by requiring that those who exercise this function should be
competent, honorable and reliable in order that courts and the public may rightly repose
confidence in them. (Noriega vs. Sison, 125 SCRA 293). Atty. Antiniw failed to live up to the
high standards of the law profession.

The other charges of malpractice against Atty. Antiniw and Atty. Jovellanos should be
dismissed for lack of evidence.

During the proceedings in Administrative Case No. 1543, Lydia Bernal testified in full on direct
examination, but she never submitted herself for cross-examination. Several subpoenas for
cross-examination were unheeded. She eventually requested the withdrawal of her complaint.

Procedural due process demands that respondent lawyer should be given an opportunity to
cross-examine the witnesses against him.1âwphi1 He enjoys the legal presumption that he is
innocent of the charges against him until the contrary is proved. (Santos vs. Dichoso, 84 SCRA
622). The case must be established by clear, convincing and satisfactory proof. (Camus vs.
Diaz, Adm. Case No. 1616, February 9, 1989), Since Atty. Antiniw was not accorded this
procedural due process, it is but proper that the direct testimony of Lydia Bernal be stricken
out.

In view also of the affidavit of desistance executed by the complainant, Administrative Case
No. 1543 should be dismissed. Although the filing of an affidavit of desistance by complainant
for lack of interest does not ipso facto result in the termination of a case for suspension or
disbarment of an erring lawyer (Munar vs. Flores, 122 SCRA 448), We are constrained in the
case at bar, to dismiss the same because there was no evidence to substantiate the charges.

The additional charge against Atty. Antiniw in Administrative Case No. 1391 is predicated on
the information furnished by Lydia Bernal. It was not based on the personal knowledge of
Constancia L. Valencia: hence, hearsay. "Any evidence, whether oral or documentary, is
hearsay if its probative value is not based on the personal knowledge of the witness but on the
knowledge of some other person not on the witness stand." (Regalado, Remedial Law
Compendium, 6th ed., vol. 2, 1989, p. 486). Being hearsay, the evidence presented is
inadmissible.

The additional charge filed by Constancia L. Valencia against Atty. Jovellanos in Administrative
Case No. 1391 was not proved at all. Complainant failed to prove her additional charges.

III

There is no evidence on record that the three lawyers involved in these administrative cases
conspired in executing the falsified "Compraventa Definitiva" and rigged the Civil Case No. V-
2170.

Atty. Jovellanos is a distant kin of the Raymundos and Valencias. In fact, he and the Valencias
are neighbors and only two meters separate their houses. It would not be believable that Atty.
Jovellanos, a practicing lawyer, would hold a meeting with the heirs of Pedro Raymundo in his
house with the intention of inducing them to sue the Valencias. Atty. Jovellanos even tried to
settle the differences between the parties in a meeting held in his house. He appeared in Civil
Case No. V-2170 as an involuntary witness to attest to the holding of the conference.

Besides, the camaraderie among lawyers is not proof of conspiracy, but a sign of brotherhood
among them. One of the fourfold duties of a lawyer is his duty to the Bar. A lawyer should treat
the opposing counsel, and his brethren in the law profession, with courtesy, dignity and civility.
They may "do as adversaries do in law: strive mightily but (they) eat and drink as friends." This
friendship does not connote conspiracy.

WHEREFORE, judgment is hereby rendered declaring: 1. Dionisio Antiniw DISBARRED from

the practice of law, and his name is ordered stricken off from the roll of attorneys; 2. Arsenio
Fer. Cabanting SUSPENDED from the practice of law for six months from finality of this
judgment; and 3. Administrative Case No. 1391 against Attorney Eduardo Jovellanos and
additional charges therein, and Administrative Case No. 1543 DISMISSED.

SO ORDERED.
Fabillo vs. Intermediate Appellate Court, 195 SCRA 28, G.R. No. L-68838, March 11, 1991
(Art. 1491):

G.R. No. L-68838             March 11, 1991

FLORENCIO FABILLO and JOSEFA TANA (substituted by their heirs Gregorio Fabillo,
Roman Fabillo, Cristeta F. Maglinte and Antonio Fabillo), petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (Third Civil Case Division) and
ALFREDO MURILLO (substituted by his heirs Fiamita M. Murillo, Flor M. Agcaoili and
Charito M. Babol), respondents.

Francisco A. Tan for petitioners.

Von Kaiser P. Soro for private respondent.

FERNAN, C.J.:

In the instant petition for review on certiorari, petitioners seek the reversal of the appellate
court's decision interpreting in favor of lawyer Alfredo M. Murillo the contract of services
entered into between him and his clients, spouses Florencio Fabillo and Josefa Taña.

In her last will and testament dated August 16, 1957, Justina Fabillo bequeathed to her
brother, Florencio, a house and lot in San Salvador Street, Palo, Leyte which was covered by
tax declaration No. 19335, and to her husband, Gregorio D. Brioso, a piece of land in
Pugahanay, Palo, Leyte.1 After Justina's death, Florencio filed a petition for the probate of said
will. On June 2, 1962, the probate court approved the project of partition "with the reservation
that the ownership of the land declared under Tax Declaration No. 19335 and the house
erected thereon be litigated and determined in a separate proceedings."2

Two years later, Florencio sought the assistance of lawyer Alfredo M. Murillo in recovering the
San Salvador property. Acquiescing to render his services, Murillo wrote Florencio the
following handwritten letter:

Dear Mr. Fabillo:

I have instructed my stenographer to prepare the complaint and file the same on Wednesday if
you are ready with the filing fee and sheriffs fee of not less than P86.00 including
transportation expenses.

Considering that Atty. Montilla lost this case and the present action is a revival of a lost case, I
trust that you will gladly give me 40% of the money value of the house and lot as a contigent
(sic) fee in case of a success. When I come back I shall prepare the contract of services for
your signature.

Thank you.

Cordially yours,
(Sgd.) Alfredo M. Murillo
Aug. 9, 19643

Thirteen days later, Florencio and Murillo entered into the following contract:

CONTRACT OF SERVICES

KNOW ALL MEN BY THESE PRESENTS:

That I, FLORENCIO FABILLO, married to JOSEFA TANA, of legal age, Filipino
citizen and with residence and postal address at Palo, Leyte, was the Petitioner
in Special Proceedings No. 843, entitled "In the Matter of the Testate Estate of
the late Justina Fabillo, Florencio Fabillo, Petitioner" of the Court of First Instance
of Leyte;

That by reason of the Order of the Court of First Instance of Leyte dated June 2,
1962, my claim for the house and lot mentioned in paragraph one (1) of the last
will and testament of the late Justina Fabillo, was denied altho the will was
probated and allowed by the Court;

That acting upon the counsel of Atty. Alfredo M. Murillo, I have cause(d) the
preparation and filing of another case, entitled "Florencio Fabillo vs. Gregorio D.
Brioso," which was docketed as Civil Case No. 3532 of the Court of First
Instance of Leyte;

That I have retained and engaged the services of Atty. ALFREDO M. MURILLO,
married and of legal age, with residence and postal address at Santa Fe, Leyte
to be my lawyer not only in Social Proceedings No. 843 but also in Civil Case No.
3532 under the following terms and conditions;

That he will represent me and my heirs, in case of my demise in the two cases
until their successful conclusion or until the case is settled to my entire
satisfaction;

That for and in consideration for his legal services, in the two cases, I hereby
promise and bind myself to pay Atty. ALFREDO M. MURILLO, in case of success
in any or both cases the sum equivalent to FORTY PER CENTUM (40%) of
whatever benefit I may derive from such cases to be implemented as follows:

If the house and lot in question is finally awarded to me or a part of the same by
virtue of an amicable settlement, and the same is sold, Atty. Murillo, is hereby
constituted as Atty. in-fact to sell and convey the said house and lot and he shall
be given as his compensation for his services as counsel and as attorney-in-fact
the sum equivalent to forty per centum of the purchase price of the house and
lot;

If the same house and lot is just mortgage(d) to any person, Atty. Murillo shall be
given the sum equivalent to forty per centum (40%) of the proceeds of the
mortgage;

If the house and lot is leased to any person, Atty. Murillo shall be entitled to
receive an amount equivalent to 40% (FORTY PER CENTUM) of the rentals of
the house and lot, or a part thereof;

If the house and lot or a portion thereof is just occupied by the undersigned or his
heirs, Atty. Murillo shall have the option of either occupying or leasing to any
interested party FORTY PER CENT of the house and lot.

Atty. Alfredo M. Murillo shall also be given as part of his compensation for legal
services in the two cases FORTY PER CENTUM of whatever damages, which
the undersigned can collect in either or both cases, provided, that in case I am
awarded attorney's fees, the full amount of attorney's fees shall be given to the
said Atty. ALFREDO M. MURILLO;

That in the event the house and lot is (sic) not sold and the same is maintained
by the undersigned or his heirs, the costs of repairs, maintenance, taxes and
 insurance premiums shall be for the account of myself or my heirs and Attorney
Murillo, in proportion to our rights and interest thereunder that is forty per cent
shall be for the account of Atty. Murillo and sixty per cent shall be for my account
or my heirs.

IN WITNESS HEREOF, I hereby set unto my signature below this 22nd day of
August 1964 at Tacloban City.

(Sgd.) FLORENCIO FABILLO

(Sgd.) JOSEFA T. FABILLO

WITH MY CONFORMITY:

(Sgd.) ALFREDO M. MURILLO

(Sgd.) ROMAN T. FABILLO (Sgd.) CRISTETA F. MAGLINTE

(Witness) (Witness)4

Pursuant to said contract, Murillo filed for Florencio Fabillo Civil Case No. 3532 against
Gregorio D. Brioso to recover the San Salvador property. The case was terminated on October
29, 1964 when the court, upon the parties' joint motion in the nature of a compromise
agreement, declared Florencio Fabillo as the lawful owner not only of the San Salvador
property but also the Pugahanay parcel of land.

Consequently, Murillo proceeded to implement the contract of services between him and
Florencio Fabillo by taking possession and exercising rights of ownership over 40% of said
properties. He installed a tenant in the Pugahanay property.

Sometime in 1966, Florencio Fabillo claimed exclusive right over the two properties and
refused to give Murillo his share of their produce.5 Inasmuch as his demands for his share of
the produce of the Pugahanay property were unheeded, Murillo filed on March 23, 1970 in the
then Court of First Instance of Leyte a complaint captioned "ownership of a parcel of land,
damages and appointment of a receiver" against Florencio Fabillo, his wife Josefa Taña, and
their children Ramon (sic) Fabillo and Cristeta F. Maglinte.6

Murillo prayed that he be declared the lawful owner of forty per cent of the two properties; that
defendants be directed to pay him jointly and severally P900.00 per annum from 1966 until he
would be given his share of the produce of the land plus P5,000 as consequential damages
and P1,000 as attorney's fees, and that defendants be ordered to pay moral and exemplary
damages in such amounts as the court might deem just and reasonable.

In their answer, the defendants stated that the consent to the contract of services of the Fabillo
spouses was vitiated by old age and ailment; that Murillo misled them into believing that
Special Proceedings No. 843 on the probate of Justina's will was already terminated when
actually it was still pending resolution; and that the contingent fee of 40% of the value of the
San Salvador property was excessive, unfair and unconscionable considering the nature of the
case, the length of time spent for it, the efforts exerted by Murillo, and his professional
standing.

They prayed that the contract of services be declared null and void; that Murillo's fee be fixed
at 10% of the assessed value of P7,780 of the San Salvador property; that Murillo be ordered
to account for the P1,000 rental of the San Salvador property which he withdrew from the court
and for the produce of the Pugahanay property from 1965 to 1966; that Murillo be ordered to
vacate the portion of the San Salvador property which he had occupied; that the Pugahanay
property which was not the subject of either Special Proceedings No. 843 or Civil Case No.
3532 be declared as the exclusive property of Florencio Fabillo, and that Murillo be ordered to
pay moral damages and the total amount of P1,000 representing expenses of litigation and
attorney's fees.

In its decision of December 2, 1975,7 the lower court ruled that there was insufficient evidence
to prove that the Fabillo spouses' consent to the contract was vitiated. It noted that the contract
was witnessed by two of their children who appeared to be highly educated. The spouses
themselves were old but literate and physically fit.

In claiming jurisdiction over the case, the lower court ruled that the complaint being one "to
recover real property from the defendant spouses and their heirs or to enforce a lien thereon,"
the case could be decided independent of the probate proceedings. Ruling that the contract of
services did not violate Article 1491 of the Civil Code as said contract stipulated a contingent
fee, the court upheld Murillo's claim for "contingent attorney's fees of 40% of the value of
recoverable properties." However, the court declared Murillo to be the lawful owner of 40% of
both the San Salvador and Pugahanay properties and the improvements thereon. It directed
the defendants to pay jointly and severally to Murillo the amount of P1,200 representing 40%
of the net produce of the Pugahanay property from 1967 to 1973; entitled Murillo to 40% of the
1974 and 1975 income of the Pugahanay property which was on deposit with a bank, and
ordered defendants to pay the costs of the suit.

Both parties filed motions for the reconsideration of said decision: Fabillo, insofar as the lower
court awarded 40% of the properties to Murillo and the latter insofar as it granted only P1,200
for the produce of the properties from 1967 to 1973. On January 29, 1976, the lower court
resolved the motions and modified its decision thus:

ACCORDINGLY, the judgment heretofore rendered is modified to read as follows:

(a) Declaring the plaintiff as entitled to and the true and lawful owner of forty percent
(40%) of the parcels of land and improvements thereon covered by Tax Declaration
Nos. 19335 and 6229 described in Paragraph 5 of the complaint;

(b) Directing all the defendants to pay jointly and severally to the plaintiff the sum of Two
Thousand Four Hundred Fifty Pesos (P2,450.00) representing 40% of the net produce
of the Pugahanay property from 1967 to 1973;

(c) Declaring the plaintiff entitled to 40% of the 1974 and 1975 income of said riceland
now on deposit with the Prudential Bank, Tacloban City, deposited by Mr. Pedro Elona,
designated receiver of the property;

(d) Ordering the defendants to pay the plaintiff the sum of Three Hundred Pesos (P
300.00) as attorney's fees; and

(e) Ordering the defendants to pay the costs of this suit.

SO ORDERED.

In view of the death of both Florencio and Justina Fabillo during the pendency of the case in
the lower court, their children, who substituted them as parties to the case, appealed the
decision of the lower court to the then Intermediate Appellate Court. On March 27, 1984, said
appellate court affirmed in toto the decision of the lower court.8

The instant petition for review on certiorari which was interposed by the Fabillo children, was
filed shortly after Murillo himself died. His heirs likewise substituted him in this case. The
Fabillos herein question the appellate court's interpretation of the contract of services and
contend that it is in violation of Article 1491 of the Civil Code.
The contract of services did not violate said provision of law. Article 1491 of the Civil Code,
specifically paragraph 5 thereof, prohibits lawyers from acquiring by purchase even at a public
or judicial auction, properties and rights which are the objects of litigation in which they may
take part by virtue of their profession. The said prohibition, however, applies only if the sale or
assignment of the property takes place during the pendency of the litigation involving the
client's property.9

Hence, a contract between a lawyer and his client stipulating a contingent fee is not covered
by said prohibition under Article 1491 (5) of the Civil Code because the payment of said fee is
not made during the pendency of the litigation but only after judgment has been rendered in
the case handled by the lawyer. In fact, under the 1988 Code of Professional Responsibility, a
lawyer may have a lien over funds and property of his client and may apply so much thereof as
may be necessary to satisfy his lawful fees and disbursements.10

As long as the lawyer does not exert undue influence on his client, that no fraud is committed
or imposition applied, or that the compensation is clearly not excessive as to amount to
extortion, a contract for contingent fee is valid and enforceable.11 Moreover, contingent fees
were impliedly sanctioned by No. 13 of the Canons of Professional Ethics which governed
lawyer-client relationships when the contract of services was entered into between the Fabillo
spouses and Murillo.12

However, we disagree with the courts below that the contingent fee stipulated between the
Fabillo spouses and Murillo is forty percent of the properties subject of the litigation for which
Murillo appeared for the Fabillos. A careful scrutiny of the contract shows that the parties
intended forty percent of the value of the properties as Murillo's contingent fee. This is borne
out by the stipulation that "in case of success of any or both cases," Murillo shall be paid "the
sum equivalent to forty per centum of whatever benefit" Fabillo would derive from favorable
judgments. The same stipulation was earlier embodied by Murillo in his letter of August 9, 1964
aforequoted.

Worth noting are the provisions of the contract which clearly states that in case the properties
are sold, mortgaged, or leased, Murillo shall be entitled respectively to 40% of the "purchase
price," "proceeds of the mortgage," or "rentals." The contract is vague, however, with respect
to a situation wherein the properties are neither sold, mortgaged or leased because Murillo is
allowed "to have the option of occupying or leasing to any interested party forty per cent of the
house and lot." Had the parties intended that Murillo should become the lawful owner of 40%
of the properties, it would have been clearly and unequivocally stipulated in the contract
considering that the Fabillos would part with actual portions of their properties and cede the
same to Murillo.

The ambiguity of said provision, however, should be resolved against Murillo as it was he
himself who drafted the contract.13 This is in consonance with the rule of interpretation that, in
construing a contract of professional services between a lawyer and his client, such
construction as would be more favorable to the client should be adopted even if it would work
prejudice to the lawyer.14 Rightly so because of the inequality in situation between an attorney
who knows the technicalities of the law on the one hand and a client who usually is ignorant of
the vagaries of the law on the other hand.15

Considering the nature of the case, the value of the properties subject matter thereof, the
length of time and effort exerted on it by Murillo, we hold that Murillo is entitled to the amount
of Three Thousand Pesos (P3,000.00) as reasonable attorney's fees for services rendered in
the case which ended on a compromise agreement. In so ruling, we uphold "the time-honored
legal maxim that a lawyer shall at all times uphold the integrity and dignity of the legal
profession so that his basic ideal becomes one of rendering service and securing justice, not
money-making. For the worst scenario that can ever happen to a client is to lose the litigated
property to his lawyer in whom all trust and confidence were bestowed at the very inception of
the legal controversy."16
WHEREFORE, the decision of the then Intermediate Appellate Court is hereby reversed and
set aside and a new one entered (a) ordering the petitioners to pay Atty. Alfredo M. Murillo or
his heirs the amount of P3,000.00 as his contingent fee with legal interest from October 29,
1964 when Civil Case No. 3532 was terminated until the amount is fully paid less any and all
amounts which Murillo might have received out of the produce or rentals of the Pugahanay and
San Salvador properties, and (b) ordering the receiver of said properties to render a complete
report and accounting of his receivership to the court below within fifteen (15) days from the
finality of this decision. Costs against the private respondent.

SO ORDERED.

Rubias vs. Batiller, 51 SCRA 120, G.R. No. L-35702, May 29, 1973 (Art. 1491);

G.R. No. L-35702 May 29, 1973

DOMINGO D. RUBIAS, plaintiff-appellant,
vs.
ISAIAS BATILLER, defendant-appellee.
Gregorio M. Rubias for plaintiff-appellant.
Vicente R. Acsay for defendant-appellee.

TEEHANKEE, J.:

In this appeal certified by the Court of Appeals to this Court as involving purely legal questions,
we affirm the dismissal order rendered by the Iloilo court of first instance after pre-trial and
submittal of the pertinent documentary exhibits.

Such dismissal was proper, plaintiff having no cause of action, since it was duly established in
the record that the application for registration of the land in question filed by Francisco
Militante, plaintiff's vendor and predecessor interest, had been dismissed by decision of 1952
of the land registration court as affirmed by final judgment in 1958 of the Court of Appeals and
hence, there was no title or right to the land that could be transmitted by the purported sale to
plaintiff.

As late as 1964, the Iloilo court of first instance had in another case of ejectment likewise
upheld by final judgment defendant's "better right to possess the land in question . having been
in the actual possession thereof under a claim of title many years before Francisco Militante
sold the land to the plaintiff."

Furthermore, even assuming that Militante had anything to sell, the deed of sale executed in
1956 by him in favor of plaintiff at a time when plaintiff was concededly his counsel of record in
the land registration case involving the very land in dispute (ultimately decided adversely
against Militante by the Court of Appeals' 1958 judgment affirming the lower court's dismissal
of Militante's application for registration) was properly declared inexistent and void by the lower
court, as decreed by Article 1409 in relation to Article 1491 of the Civil Code.

The appellate court, in its resolution of certification of 25 July 1972, gave the following
backgrounder of the appeal at bar:

On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover
the ownership and possession of certain portions of lot under Psu-99791 located
in Barrio General Luna, Barotac Viejo, Iloilo which he bought from his father-in-
law, Francisco Militante in 1956 against its present occupant defendant, Isaias
Batiller, who illegally entered said portions of the lot on two occasions — in 1945
and in 1959. Plaintiff prayed also for damages and attorneys fees. (pp. 1-7,
Record on Appeal). In his answer with counter-claim defendant claims the
complaint of the plaintiff does not state a cause of action, the truth of the matter
being that he and his predecessors-in-interest have always been in actual, open
and continuous possession since time immemorial under claim of ownership of
the portions of the lot in question and for the alleged malicious institution of the
complaint he claims he has suffered moral damages in the amount of P 2,000.00,
as well as the sum of P500.00 for attorney's fees. ...

On December 9, 1964, the trial court issued a pre-trial order, after a pre-trial
conference between the parties and their counsel which order reads as follows..

'When this case was called for a pre-trial conference today, the
plaintiff appeared assisted by himself and Atty. Gregorio M. Rubias.
The defendant also appeared, assisted by his counsel Atty. Vicente
R. Acsay.

A. During the pre-trial conference, the parties have agreed that

the following facts are attendant in this case and that they will no
longer introduced any evidence, testimonial or documentary to
prove them:

1. That Francisco Militante claimed ownership of a parcel of land located in the

Barrio of General Luna, municipality of Barotac Viejo province of Iloilo, which he
caused to be surveyed on July 18-31, 1934, whereby he was issued a plan Psu-
99791 (Exhibit "B"). (The land claimed contained an area of 171:3561 hectares.)

2. Before the war with Japan, Francisco Militante filed with the Court of First
Instance of Iloilo an application for the registration of the title of the land
technically described in psu-99791 (Exh. "B") opposed by the Director of Lands,
the Director of Forestry and other oppositors. However, during the war with
Japan, the record of the case was lost before it was heard, so after the war
Francisco Militante petitioned this court to reconstitute the record of the case.
The record was reconstituted on the Court of the First Instance of Iloilo and
docketed as Land Case No. R-695, GLRO Rec. No. 54852. The Court of First
Instance heard the land registration case on November 14, 1952, and after the
trial this court dismissed the application for registration. The appellant, Francisco
Militante, appealed from the decision of this Court to the Court of Appeals where
the case was docketed as CA-GR No. 13497-R..

3. Pending the disposal of the appeal in CA-GR No. 13497-R and more
particularly on June 18, 1956, Francisco Militante sold to the plaintiff, Domingo
Rubias the land technically described in psu-99791 (Exh. "A"). The sale was duly
recorded in the Office of the Register of Deeds for the province of Iloilo as Entry
No. 13609 on July 11, 1960 (Exh. "A-1").

(NOTE: As per deed of sale, Exh. A, what Militante purportedly sold to plaintiff-
appellant, his son-in-law, for the sum of P2,000.00 was "a parcel of untitled land
having an area Of 144.9072 hectares ... surveyed under Psu 99791 ... (and)
subject to the exclusions made by me, under (case) CA-i3497, Land Registration
Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the province of
Iloilo. These exclusions referred to portions of the original area of over 171
hectares originally claimed by Militante as applicant, but which he expressly
recognized during the trial to pertain to some oppositors, such as the Bureau of
Public Works and Bureau of Forestry and several other individual occupants and
accordingly withdrew his application over the same. This is expressly made of
record in Exh. A, which is the Court of Appeals' decision of 22 September 1958
confirming the land registration court's dismissal of Militante's application for
registration.)
4. On September 22,1958 the Court of appeals in CA-G.R. No. 13497-R
promulgated its judgment confirming the decision of this Court in Land Case No.
R-695, GLRO Rec. No. 54852 which dismissed the application for Registration
filed by Francisco Militante (Exh. "I").

5. Domingo Rubias declared the land described in Exh. 'B' for taxation purposes
under Tax Dec. No. 8585 (Exh. "C") for 1957; Tax Dec. Nos. 9533 (Exh. "C-1")
and 10019 (Exh. "C-3")for the year 1961; Tax Dec. No. 9868 (Exh. "C-2") for the
year 1964, paying the land taxes under Tax Dec. No. 8585 and 9533 (Exh. "D",
"D-1", "G-6").

6. Francisco Militante immediate predecessor-in-interest of the plaintiff, has also

declared the land for taxation purposes under Tax Dec. No. 5172 in 1940 (Exh.
"E") for 1945; under Tax Dec. No. T-86 (Exh. "E-1") for 1948; under Tax Dec. No.
7122 (Exh. "2"), and paid the land taxes for 1940 (Exhs. "G" and "G-7"), for 1945
46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G-3"), for 1948
(Exh. "G-4"), and for 1948 and 1949 (Exh. "G-5").

7. Tax Declaration No. 2434 in the name of Liberato Demontaño for the land
described therein (Exh. "F") was cancelled by Tax. Dec. No. 5172 of Francisco
Militante (Exh. "E"). Liberato Demontaño paid the land tax under Tax Dec. No.
2434 on Dec. 20, 1939 for the years 1938 (50%) and 1959 (Exh. "H").

8. The defendant had declared for taxation purposes Lot No. 2 of the Psu-
155241 under Tax Dec. Not. 8583 for 1957 and a portion of Lot No. 2, Psu-
155241, for 1945 under Tax Dec. No. 8584 (Exh. "2-A" Tax No. 8583 (Exh. "2")
was revised by Tax Dec. No. 9498 in the name of the defendant (Exh. "2-B") and
Tax Dec. No. 8584 (Exh. "2-A") was cancelled by Tax Dec. No. 9584 also in the
name of the defendant (Exh. "2-C"). The defendant paid the land taxes for Lot 2,
Psu-155241, on Nov. 9, 1960 for the years 1945 and 1946, for the year 1950,
and for the year 1960 as shown by the certificate of the treasurer (Exh. "3"). The
defendant may present to the Court other land taxes receipts for the payment of
taxes for this lot.

9. The land claimed by the defendant as his own was surveyed on June 6 and
7,1956, and a plan approved by Director of Land on November 15, 1956 was
issued, identified as Psu 155241 (Exh. "5").

10. On April 22, 1960, the plaintiff filed forcible Entry and Detainer case against
Isaias Batiller in the Justice of the Peace Court of Barotac Viejo Province of Iloilo
(Exh. "4") to which the defendant Isaias Batiller riled his answer on August 29,
1960 (Exh. "4-A"). The Municipal Court of Barotac Viejo after trial, decided the
case on May 10, 1961 in favor of the defendant and against the plaintiff (Exh. "4-
B"). The plaintiff appealed from the decision of the Municipal Court of Barotac
Viejo which was docketed in this Court as Civil Case No. 5750 on June 3, 1961,
to which the defendant, Isaias Batiller, on June 13, 1961 filed his answer (Exh.
"4-C"). And this Court after the trial. decided the case on November 26, 1964, in
favor of the defendant, Isaias Batiller and against the plaintiff (Exh. "4-D").

(NOTE: As per Exh. 4-B, which is the Iloilo court of first instance decision of 26
November 1964 dismissing plaintiff's therein complaint for ejectment against
defendant, the iloilo court expressly found "that plaintiff's complaint is unjustified,
intended to harass the defendant" and "that the defendant, Isaias Batiller, has a
better right to possess the land in question described in Psu 155241 (Exh. "3"),
Isaias Batiller having been in the actual physical possession thereof under a
claim of title many years before Francisco Militante sold the land to the plaintiff-
 hereby dismissing plaintiff's complaint and ordering the plaintiff to pay the
defendant attorney's fees ....")

B. During the trial of this case on the merit, the plaintiff will prove by competent evidence the
following:

1. That the land he purchased from Francisco Militante under Exh. "A" was
formerly owned and possessed by Liberato Demontaño but that on September 6,
1919 the land was sold at public auction by virtue of a judgment in a Civil Case
entitled "Edw J. Pflieder plaintiff vs. Liberato Demontaño Francisco
Balladeros and Gregorio Yulo, defendants", of which Yap Pongco was the
purchaser (Exh. "1-3"). The sale was registered in the Office of the Register of
Deeds of Iloilo on August 4, 1920, under Primary Entry No. 69 (Exh. "1"), and a
definite Deed of Sale was executed by Constantino A. Canto, provincial Sheriff of
Iloilo, on Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having been
registered in the Office of the Register of Deeds of Iloilo on February 10, 1934
(Exh. "1-1").

2. On September 22, 1934, Yap Pongco sold this land to Francisco Militante as
evidenced by a notarial deed (Exh. "J") which was registered in the Registry of
Deeds on May 13, 1940 (Exh. "J-1").

3. That plaintiff suffered damages alleged in his complaint.

C. Defendants, on the other hand will prove by competent evidence during the trial of this case
the following facts:

1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned and possessed
by Felipe Batiller, grandfather of the defendant Basilio Batiller, on the death of
the former in 1920, as his sole heir. Isaias Batiller succeeded his father , Basilio
Batiller, in the ownership and possession of the land in the year 1930, and since
then up to the present, the land remains in the possession of the defendant, his
possession being actual, open, public, peaceful and continuous in the concept of
an owner, exclusive of any other rights and adverse to all other claimants.

2. That the alleged predecessors in interest of the plaintiff have never been in the
actual possession of the land and that they never had any title thereto.

3. That Lot No. 2, Psu 155241, the subject of Free Patent application of the
defendant has been approved.

4. The damages suffered by the defendant, as alleged in his counterclaim."'1

The appellate court further related the developments of the case, as follows:

On August 17, 1965, defendant's counsel manifested in open court that before
any trial on the merit of the case could proceed he would file a motion to
dismiss plaintiff's complaint which he did, alleging that plaintiff does not have
cause of action against him because the property in dispute which he (plaintiff)
allegedly bought from his father-in-law, Francisco Militante was the subject
matter of LRC No. 695 filed in the CFI of Iloilo, which case was brought on
appeal to this Court and docketed as CA-G.R. No. 13497-R in which aforesaid
case plaintiff was the counsel on record of his father-in-law, Francisco Militante.
Invoking Arts. 1409 and 1491 of the Civil Code which reads:

'Art. 1409. The following contracts are inexistent and void from the
beginning:
xxx xxx xxx

(7) Those expressly prohibited by law.

'ART. 1491. The following persons cannot acquire any purchase,

even at a public auction, either in person of through the mediation
of another: .

xxx xxx xxx

(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts,

and other officers and employees connected with the administration of
justice, the property and rights of in litigation or levied upon an execution before
the court within whose jurisdiction or territory they exercise their respective
functions; this prohibition includes the act of acquiring an 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.'

defendant claims that plaintiff could not have acquired any interest in the property
in dispute as the contract he (plaintiff) had with Francisco Militante was inexistent
and void. (See pp. 22-31, Record on Appeal). Plaintiff strongly opposed
defendant's motion to dismiss claiming that defendant can not invoke Articles
1409 and 1491 of the Civil Code as Article 1422 of the same Code provides that
'The defense of illegality of contracts is not available to third persons whose
interests are not directly affected' (See pp. 32-35 Record on Appeal).

On October 18, 1965, the lower court issued an order disclaiming plaintiffs
complaint (pp. 42-49, Record on Appeal.) In the aforesaid order of dismissal the
lower court practically agreed with defendant's contention that the contract (Exh.
A) between plaintiff and Francism Militante was null and void. In due season
plaintiff filed a motion for reconsideration (pp. 50-56 Record on Appeal) which
was denied by the lower court on January 14, 1966 (p. 57, Record on Appeal).

Hence, this appeal by plaintiff from the orders of October 18, 1965 and January
14, 1966.

Plaintiff-appellant imputes to the lower court the following errors:

'1. The lower court erred in holding that the contract of sale
between the plaintiff-appellant and his father-in-law, Francisco
Militante, Sr., now deceased, of the property covered by Plan Psu-
99791, (Exh. "A") was void, not voidable because it was made
when plaintiff-appellant was the counsel of the latter in the Land
Registration case.

'2. The lower court erred in holding that the defendant-appellee is

an interested person to question the validity of the contract of sale
between plaintiff-appellant and the deceased, Francisco Militante,
Sr.

'3. The lower court erred in entertaining the motion to dismiss of the
defendant-appellee after he had already filed his answer, and after
the termination of the pre-trial, when the said motion to dismiss
raised a collateral question.

'4. The lower court erred in dismissing the complaint of the plaintiff-
appellant.'
The appellate court concluded that plaintiffs "assignment of errors gives rise to two (2) legal
posers — (1) whether or not the contract of sale between appellant and his father-in-law, the
late Francisco Militante over the property subject of Plan Psu-99791 was void because it was
made when plaintiff was counsel of his father-in-law in a land registration case involving the
property in dispute; and (2) whether or not the lower court was correct in entertaining
defendant-appellee's motion to dismiss after the latter had already filed his answer and after he
(defendant) and plaintiff-appellant had agreed on some matters in a pre-trial conference.
Hence, its elevation of the appeal to this Court as involving pure questions of law.

It is at once evident from the foregoing narration that the pre-trial conference held by the trial
court at which the parties with their counsel agreed and stipulated on the material and relevant
facts and submitted their respective documentary exhibits as referred to in the pre-trial
order, supra,2 practically amounted to a fulldress trial which placed on record all the facts and
exhibits necessary for adjudication of the case.

The three points on which plaintiff reserved the presentation of evidence at the-trial dealing
with the source of the alleged right and title of Francisco Militante's
predecessors, supra,3 actually are already made of record in the stipulated facts and admitted
exhibits. The chain of Militante's alleged title and right to the land as supposedly traced back to
Liberato Demontaño was actually asserted by Militante (and his vendee, lawyer and son-in-
law, herein plaintiff) in the land registration case and rejected by the Iloilo land registration
court which dismissed Militante's application for registration of the land. Such dismissal, as
already stated, was affirmed by the final judgment in 1958 of the Court of Appeals.4

The four points on which defendant on his part reserved the presentation of evidence at the
trial dealing with his and his ancestors' continuous, open, public and peaceful possession in
the concept of owner of the land and the Director of Lands' approval of his survey plan
thereof, supra,5 are likewise already duly established facts of record, in the land registration
case as well as in the ejectment case wherein the Iloilo court of first instance recognized the
superiority of defendant's right to the land as against plaintiff.

No error was therefore committed by the lower court in dismissing plaintiff's complaint upon
defendant's motion after the pre-trial.

1. The stipulated facts and exhibits of record indisputably established plaintiff's lack of cause of
action and justified the outright dismissal of the complaint. Plaintiff's claim of ownership to the
land in question was predicated on the sale thereof for P2,000.00 made in 1956 by his father-
in- law, Francisco Militante, in his favor, at a time when Militante's application for registration
thereof had already been dismissed by the Iloilo land registration court and was pending
appeal in the Court of Appeals.

With the Court of Appeals' 1958 final judgment affirming the dismissal of Militante's application
for registration, the lack of any rightful claim or title of Militante to the land was conclusively
and decisively judicially determined. Hence, there was no right or title to the land that could be
transferred or sold by Militante's purported sale in 1956 in favor of plaintiff.

Manifestly, then plaintiff's complaint against defendant, to be declared absolute owner of the
land and to be restored to possession thereof with damages was bereft of any factual or legal
basis.

2. No error could be attributed either to the lower court's holding that the purchase by a lawyer
of the property in litigation from his client is categorically prohibited by Article 1491, paragraph
(5) of the Philippine Civil Code, reproduced supra;6 and that consequently, plaintiff's purchase
of the property in litigation from his client (assuming that his client could sell the same since as
already shown above, his client's claim to the property was defeated and rejected) was void
and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code
which provides that contracts "expressly prohibited or declared void by law' are "inexistent and
that "(T)hese contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived."

The 1911 case of Wolfson vs. Estate of Martinez7 relied upon by plaintiff as holding that a sale
of property in litigation to the party litigant's lawyer "is not void but voidable at the election of
the vendor" was correctly held by the lower court to have been superseded by the later 1929
case of Director of Lands vs. Abagat.8 In this later case of Abagat, the Court expressly cited
two antecedent cases involving the same transaction of purchase of property in litigation by the
lawyer which was expressly declared invalid under Article 1459 of the Civil Code of Spain (of
which Article 1491 of our Civil Code of the Philippines is the counterpart) upon challenge
thereof not by the vendor-client but by the adverse parties against whom the lawyer was to
enforce his rights as vendee thus acquired.

These two antecedent cases thus cited in Abagat clearly superseded (without so expressly
stating the previous ruling in Wolfson:

The spouses, Juan Soriano and Vicente Macaraeg, were the owners of twelve
parcels of land. Vicenta Macaraeg died in November, 1909, leaving a large
number of collateral heirs but no descendants. Litigation between the surviving
husband, Juan Soriano, and the heirs of Vicenta immediately arose, and the
herein appellant Sisenando Palarca acted as Soriano's lawyer. On May 2, 1918,
Soriano executed a deed for the aforesaid twelve parcels of land in favor of
Sisenando Palarca and on the following day, May 3, 1918, Palarca filed an
application for the registration of the land in the deed. After hearing, the Court of
First Instance declared that the deed was invalid by virtue of the provisions of
article 1459 of the Civil Code, which prohibits lawyers and solicitors from
purchasing property rights involved in any litigation in which they take part by
virtue of their profession. The application for registration was consequently
denied, and upon appeal by Palarca to the Supreme Court, the judgement of the
lower court was affirmed by a decision promulgated November 16,1925. (G.R.
No. 24329, Palarca vs. Director of Lands, not reported.)

In the meantime cadastral case No. 30 of the Province of Tarlac was instituted,
and on August 21, 1923, Eleuteria Macaraeg, as administratrix of the estate of
Vicente Macaraeg, filed claims for the parcels in question. Buenaventura
Lavitoria administrator of the estate of Juan Soriano, did likewise and so did
Sisenando Palarca. In a decision dated June 21, 1927, the Court of First
Instance, Judge Carballo presiding, rendered judgment in favor of Palarea and
ordered the registration of the land in his name. Upon appeal to this court by the
administration of the estates of Juan Soriano and Vicente Macaraeg, the
judgment of the court below was reversed and the land adjudicated to the two
estates as conjugal property of the deceased spouses. (G.R. No. 28226, Director
of Lands vs. Abagat, promulgated May 21, 1928, not reported.)9

In the very case of Abagat itself, the Court, again affirming the invalidity and nullity of the
lawyer's purchase of the land in litigation from his client, ordered the issuance of a writ of
possession for the return of the land by the lawyer to the adverse parties without
reimbursement of the price paid by him and other expenses, and ruled that "the appellant
Palarca is a lawyer and is presumed to know the law. He must, therefore, from the beginning,
have been well aware of the defect in his title and is, consequently, a possessor in bad faith."

As already stated, Wolfson and Abagat were decided with relation to Article 1459 of the Civil

Code of Spain then adopted here, until it was superseded on August 30, 1950 by the Civil
Code of the Philippines whose counterpart provision is Article 1491.

Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six
paragraphs certain persons, by reason of the relation of trust or their peculiar control over the
property, from acquiring such property in their trust or control either directly or indirectly and
"even at a public or judicial auction," as follows: (1) guardians; (2) agents; (3) administrators;
(4) public officers and employees; judicial officers and employees, prosecuting attorneys, and
lawyers; and (6) others especially disqualified by law.

In Wolfson which involved the sale and assignment of a money judgment by the client to the
lawyer, Wolfson, whose right to so purchase the judgment was being challenged by the
judgment debtor, the Court, through Justice Moreland, then expressly reserved decision on
"whether or not the judgment in question actually falls within the prohibition of the article" and
held only that the sale's "voidability can not be asserted by one not a party to the transaction or
his representative," citing from Manresa 10 that "(C)onsidering the question from the point of
view of the civil law, the view taken by the code, we must limit ourselves to classifying as void
all acts done contrary to the express prohibition of the statute. Now then: As the code does not
recognize such nullity by the mere operation of law, the nullity of the acts hereinbefore referred
to must be asserted by the person having the necessary legal capacity to do so and decreed
by a competent
11
court." 

The reason thus given by Manresa in considering such prohibited acquisitions under Article
1459 of the Spanish Civil Code as merely voidable at the instance and option of the vendor
and not void — "that the Code does not recognize such nullity de pleno derecho" — is no
longer true and applicable to our own Philippine Civil Code which does recognize the absolute
nullity of contracts "whose cause, object, or purpose is contrary to law, morals, good
customs, public order or public policy" or which are "expressly prohibited or declared void by
law" and declares such contracts "inexistent and void from the beginning." 12

The Supreme Court of Spain and modern authors have likewise veered from Manresa's view
of the Spanish codal provision itself. In its sentencia of 11 June 1966, the Supreme Court of
Spain ruled that the prohibition of Article 1459 of the Spanish Civil Code is based on public
policy, that violation of the prohibition contract cannot be validated by confirmation or
ratification, holding that:

... la prohibicion que el articulo 1459 del C.C. establece respecto a los
administradores y apoderados, la cual tiene conforme a la doctrina de esta Sala,
contendia entre otras, en S. de 27-5-1959, un fundamento de orden moral lugar
la violacion de esta a la nulidad de pleno derecho del acto o negocio
celebrado, ... y prohibicion legal, afectante orden publico, no cabe con efecto
alguno la aludida retification ... 13

The criterion of nullity of such prohibited contracts under Article 1459 of the Spanish Civil Code
(Article 1491 of our Civil Code) as a matter of public order and policy as applied by the
Supreme Court of Spain to administrators and agents in its above cited decision should
certainly apply with greater reason to judges, judicial officers, fiscals and lawyers under
paragraph 5 of the codal article.

Citing the same decisions of the Supreme Court of Spain, Gullon Ballesteros, his "Curso de
Derecho Civil, (Contratos Especiales)" (Madrid, 1968) p. 18, affirms that, with respect to Article
1459, Spanish Civil Code:.

Que caracter tendra la compra que se realice por estas personas? Porsupuesto
no cabe duda de que el caso (art.) 1459, 40 y 50, la nulidad esabsoluta porque el
motivo de la prohibicion es de orden publico. 14

Perez Gonzales in such view, stating that "Dado el caracter prohibitivo delprecepto, la
consequencia de la infraccion es la nulidad radical y ex lege." 15

Castan, quoting Manresa's own observation that.

"El fundamento do esta prohibicion es clarisimo. No sa trata con este precepto tan solo de
guitar la ocasion al fraude; persiguese, ademasel proposito de rodear a las personas que
intervienen en la administrcionde justicia de todos los retigios que necesitan pora ejercer su
ministerio librandolos de toda suspecha, que aunque fuere in fundada, redundura
endescredito de la institucion." 16 arrives at the contrary and now accepted view that "Puede
considerace en nuestro derecho inexistente 'o radicalmente nulo el contrato en los siguentes
cases: a) ...; b) cuando el contrato se ha celebrado en violacion de una prescripcion 'o
prohibicion legal, fundada sobre motivos de orden publico (hipotesis del art. 4 del codigo) ..." 17

It is noteworthy that Caltan's rationale for his conclusion that fundamental consideration of
public policy render void and inexistent such expressly prohibited purchase (e.g. by public
officers and employees of government property intrusted to them and by justices, judges,
fiscals and lawyers of property and rights in litigation and submitted to or handled by them,
under Article 1491, paragraphs (4) and (5) of our Civil Code) has been adopted in a new article
of our Civil Code, viz, Article 1409 declaring such prohibited contracts as "inexistent and void
from the beginning." 18

Indeed, the nullity of such prohibited contracts is definite and permanent and cannot be cured
by ratification. The public interest and public policy remain paramount and do not permit of
compromise or ratification. In his aspect, the permanent disqualification of public and judicial
officers and lawyers grounded on public policy differs from the first three cases of guardians,
agents and administrators (Article 1491, Civil Code), as to whose transactions it had been
opined that they may be "ratified" by means of and in "the form of a new contact, in which
cases its validity shall be determined only by the circumstances at the time the execution of
such new contract. The causes of nullity which have ceased to exist cannot impair the validity
of the new contract. Thus, the object which was illegal at the time of the first contract, may
have already become lawful at the time of the ratification or second contract; or the service
which was impossible may have become possible; or the intention which could not be
ascertained may have been clarified by the parties. The ratification or second contract would
then be valid from its execution; however, it does not retroact to the date of the first
contract." 19

As applied to the case at bar, the lower court therefore properly acted upon defendant-
appellant's motion to dismiss on the ground of nullity of plaintiff's alleged purchase of the land,
since its juridical effects and plaintiff's alleged cause of action founded thereon were being
asserted against defendant-appellant. The principles governing the nullity of such prohibited
contracts and judicial declaration of their nullity have been well restated by Tolentino in his
treatise on our Civil Code, as follows:

Parties Affected. — Any person may invoke the in existence of the contract

whenever juridical effects founded thereon are asserted against him. Thus, if
there has been a void transfer of property, the transferor can recover it by
the accion reinvindicatoria; and any prossessor may refuse to deliver it to the
transferee, who cannot enforce the contract. Creditors may attach property of the
debtor which has been alienated by the latter under a void contract; a mortgagee
can allege the inexistence of a prior encumbrance; a debtor can assert the nullity
of an assignment of credit as a defense to an action by the assignee.

Action On Contract. — Even when the contract is void or inexistent, an action is

necessary to declare its inexistence, when it has already been fulfilled. Nobody
can take the law into his own hands; hence, the intervention of the competent
court is necessary to declare the absolute nullity of the contract and to decree the
restitution of what has been given under it. The judgment, however, will retroact
to the very day when the contract was entered into.
 If the void contract is still fully executory, no party need bring an action to declare
its nullity; but if any party should bring an action to enforce it, the other party can
simply set up the nullity as a defense. 20

ACCORDINGLY, the order of dismissal appealed from is hereby affirmed, with costs in all
instances against plaintiff-appellant. So ordered.

Halili vs. Court of Appeals, 287 SCRA 465,G.R. No. 113539,March 12,1998 (Art.1491).

G.R. No. 113539 March 12, 1998

CELSO R. HALILI and ARTHUR R. HALILI, Petitioners, vs. COURT OF APPEALS, HELEN

MEYERS GUZMAN, DAVID REY GUZMAN and EMILIANO CATANIAG, Respondents.

PANGANIBAN, J.:

The factual findings of a trial court, when affirmed by the Court of Appeals, may no longer be
reviewed and reversed by this Court in a petition for review under Rule 45 of the Rules of
Court. The transfer of an interest in a piece of land to an alien may no longer be assailed on
constitutional grounds after the entire parcel has been sold to a qualified citizen.

The Case

These familiar and long-settled doctrines are applied by this Court in denying this petition
under Rule 45 to set aside the Decision 1 of the Court of Appeals 2 in CA-GR CV No. 37829
promulgated on September 14, 1993, the dispositive portion of which states: 3

WHEREFORE, and upon all the foregoing, the Decision of the court below dated March 10,
1992 dismissing the complaint for lack of merit is AFFIRMED without pronouncement as to
costs.

The Facts

The factual antecedents, as narrated by Respondent Court, are not disputed by the parties.
We reproduce them in part, as follows:

Simeon de Guzman, an American citizen, died sometime in 1968, leaving real properties in the
Philippines. His forced heirs were his widow, defendant appellee [herein private respondent]
Helen Meyers Guzman, and his son, defendant appellee [also herein private respondent]
David Rey Guzman, both of whom are also American citizens. On August 9, 1989, Helen
executed a deed of quitclaim (Annex A-Complaint), assigning [,] transferring and conveying to
David Rey all her rights, titles and interests in and over six parcels of land which the two of
them inherited from Simeon.

Among the said parcels of land is that now in litigation, . . . situated in Bagbaguin, Sta. Maria,
Bulacan, containing an area of 6,695 square meters, covered by Transfer Certificate of Title
No. T-170514 of the Registry of Deeds of Bulacan. The quitclaim having been registered, TCT
No. T-170514 was cancelled and TCT No. T-120259 was issued in the name of appellee David
Rey Guzman.

On February 5, 1991, David Rey Guzman sold said parcel of land to defendant-appellee [also
herein private respondent] Emiliano Cataniag, upon which TCT No. T-120259 was cancelled
and TCT No. T-130721(M) was issued in the latter's name. 4
Petitioners, who are owners of the adjoining lot, filed a complaint before the Regional Trial
Court of Malolos, Bulacan, questioning the constitutionality and validity of the two conveyances
- between Helen Guzman and David Rey Guzman, and between the latter and Emiliano
Cataniag - and claiming ownership thereto based on their right of legal redemption under Art.
1621 5 of the Civil Code.

In its decision 6 dated March 10, 1992, 7 the trial court dismissed the complaint. It ruled that
Helen Guzman's waiver of her inheritance in favor of her son was not contrary to the
constitutional prohibition against the sale of land to an alien, since the purpose of the waiver
was simply authorize David Rey Guzman to dispose of their properties in accordance with the
Constitution and the laws of the Philippines, and not to subvert them. On the second issue, it
held that the subject land was urban; hence, petitioners had no reason to invoke their right of
redemption under Art. 1621 of the Civil Code.

The Halilis sought a reversal from the Court of Appeals which, however, denied their appeal.
Respondent Court affirmed the factual finding of the trial court that the subject land was urban.
Citing Tejido vs. Zamacoma,  8 and Yap vs. Grageda, 9 it further held that, although the transfer
of the land to David Rey may have been invalid for being contrary to the Constitution, there
was no more point in allowing herein petitioners to recover the property, since it has passed on
to and was thus already owned by a qualified person.

Hence, this petition. 10

Issues

The petition submits the following assignment of errors:

. . . the Honorable Court of Appeals -

1. Erred in affirming the conclusion of the trial court that the land in question is urban, not rural

2. Erred in denying petitioners' right of redemption under Art. 1621 of the Civil Code

3. Having considered the conveyance from Helen Meyers Guzman to her son David Rey
Guzman illegal, erred in not declaring the same null and void[.] 11

The Court's Ruling

The petition has no merit.

First Issue: The Land Is Urban;

Thus, No Right of Redemption

The first two errors assigned by petitioners being interrelated - the determination of the first
being a prerequisite to the resolution of the second - shall be discussed together

Subject Land Is Urban

Whether the land in dispute is rural or urban is a factual question which, as a rule, is not
reviewable by this Court. 12 Basic and long-settled is the doctrine that findings of fact of a trial
judge, when affirmed by the Court of Appeals, are binding upon the Supreme Court. This
admits of only a few exceptions, such as when the findings are grounded entirely on
speculation, surmises or conjectures; when an inference made by the appellate court from its
factual findings is manifestly mistaken, absurd or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the findings of the appellate court go beyond the
issues of the case, run contrary to the admissions of the parties to the case or fail to notice
certain relevant facts which, if properly considered, will justify a different conclusion; when
there is a misappreciation of facts; when the findings of fact are conclusions without mention of
the specific evidence on which they are based, are premised on the absence of evidence or
are contradicted by evidence on record. 13

The instant case does not fall within any of the aforecited exceptions. In fact, the conclusion of
the trial court - that the subject property is urban land - is based on clear and convincing
evidence, as shown in its decision which disposed thus:

. . . As observed by the court, almost all the roadsides along the national ghighway [sic] of
Bagbaguin, Sta. Maria, Bulacan, are lined up with residential, commercial or industrial
establishments. Lined up along the Bagbaguin Road are factories of feeds, woodcrafts [sic]
and garments, commercial stores for tires, upholstery materials, feeds supply and spare parts.
Located therein likewise were the Pepsi-Cola Warehouse, the Cruz Hospital, three gasoline
stations, apartment buildings for commercial purposes and construction firms. There is no
doubt, therefore, that the community is a commercial area thriving in business activities. Only a
short portion of said road [is] vacant. It is to be noted that in the Tax Declaration in the name of
Helen Meyers Guzman[,] the subject land is termed agricultural[,] while in the letter addressed
to defendant Emiliano Cataniag, dated October 3, 1991, the Land Regulatory Board attested
that the subject property is commercial and the trend of development along the road is
commercial. The Board's classification is based on the present condition of the property and
the community thereat. Said classification is far more later [sic] than the tax declaration. 14

No Ground to Invoke
Right of Redemption

In view of the finding that the subject land is urban in character, petitioners have indeed no
right to invoke Art. 1621 of the Civil Code, which presupposes that the land sought to be
redeemed is rural. The provision is clearly worded and admits of no ambiguity in construction:

Art. 1621. The owners of adjoining lands shall also have the right of redemption when a piece
of rural land, the area of which does not exceed one hectare, is alienated, unless the grantee
does not own any rural land.

xxx xxx xxx

Under this article, both lands - that sought to be redeemed and the adjacent lot belonging to
the person exercising the right of redemption - must be rural. If one or both are urban, the right
cannot be invoked. 15 The purpose of this provision, which is limited in scope to rural lands not
exceeding one hectare, is to favor agricultural development.  16 The subject land not being rural
and, therefore, not agricultural, this purpose would not be served if petitioners are granted the
right of redemption under Art. 1621. Plainly, under the circumstances, they cannot invoke it.

Second Issue: Sale to Cataniag Valid

Neither do we find any reversible error in the appellate court's holding that the sale of the
subject land to Private Respondent Cataniag renders moot any question on the constitutionally
of the prior transfer made by Helen Guzman to her son David Rey.

True, Helen Guzman's deed of quitclaim - in which she assigned, transferred and conveyed to
David Rey all her rights, titles and interests over the property she had inherited from her
husband - collided with the Constitution, Article XII, Section 7 of which 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.
The landmark case of Krivenko vs. Register of Deeds  17 settled the issue as to who are
qualified (and disqualified) to own public as well as private lands in the Philippines. Following a
long discourse maintaining that the "public agricultural lands" mentioned in Section 1, Article
XIII of the 1935 Constitution, include residential, commercial and industrial lands, the Court
then stated:

Under section 1 of Article XIII [now Sec. 2, Art. XII] of the Constitution, "natural resources, with
the exception of public agricultural land, shall not be alienated," and with respect to public
agricultural lands, their alienation is limited to Filipino citizens. But this constitutional purpose
conserving agricultural resources in the hands of Filipino citizens may easily be defeated by
the Filipino citizens themselves who may alienate their agricultural lands in favor of aliens. It is
partly to prevent this result that section 5 is included in Article XIII, and it reads as follows:

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.

This constitutional provision closes the only remaining avenue through which agricultural
resources may leak into aliens' hands. It would certainly be futile to prohibit the alienation of
public agricultural lands to aliens if, after all, they may be freely so alienated upon their
becoming private agricultural lands in the hands of Filipino citizens. Undoubtedly, as above
indicated, section 5 [now Sec. 7] is intended to insure the policy of nationalization contained in
section 1 [now Sec. 2]. Both sections must, therefore, be read together for they have the same
purpose and the same subject matter. It must be noticed that the persons against whom the
prohibition is directed in section 5 [now Sec. 7] are the very same persons who under section 1
[now Sec. 2] are disqualified "to acquire or hold lands of the public domain in the Philippines."
And the subject matter of both sections is the same, namely, the non transferability of
"agricultural land" to aliens . . . . 18

The Krivenko rule was recently reiterated in Ong Ching Po vs. Court of Appeals,  19 which

involves a sale of land to a Chinese citizen. The Court sad:

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" (II Bernas, The Constitution of the
Philippines 439-440 [1988 ed.]).

The 1935 Constitution reserved the right to participate in the "disposition, exploitation,
development and utilization" of all "lands of the public domain and other natural resources of
the Philippines" for Filipino citizens or corporations at least sixty percent of the capital of which
was owned by Filipinos. Aliens, whether individuals or corporations, have been disqualified
from acquiring public lands; hence, they have also been disqualified from acquiring private
lands. 20

In fine, non-Filipinos cannot acquire or hold title to private lands or to lands of the public
domain, except only by way of legal succession. 21

But what is the effect of a subsequent sale by the disqualified alien vendee to a qualified
Filipino citizen? This is not a novel question. Jurisprudence is consistent that "if land is invalidly
transferred to an alien who subsequently becomes a citizen or transfers it to a citizen, the flaw
in the original transaction is considered cured and the title of the transferee is rendered
valid." 22

Thus, in United Church Board of Word Ministries vs. Sebastian, 23 in which an alien resident
who owned properties in the Philippines devised to an American non-stock corporation part of
his shares of stock in a Filipino corporation that owned a tract of land in Davao del Norte, the
Court sustained the invalidity of such legacy. However, upon proof that ownership of the
American corporation has passed on to a 100 percent Filipino corporation, the Court ruled that
the defect in the will was "rectified by the subsequent transfer of the property."

The present case is similar to De Castro vs. Tan. 24 In that case, a residential lot was sold to a
Chinese. Upon his death, his widow and children executed an extrajudicial settlement,
whereby said lot was allotted to one of his sons who became a naturalized Filipino. The Court
did not allow the original vendor to have the sale annulled and to recover the property, for the
reason that the land has since become the property of a naturalized Filipino citizen who is
constitutionally qualified to own land.

Likewise, in the cases of Sarsosa vs. Cuenco, 25 Godinez vs. Pak Luen, 26 Vasquez vs. Li

Seng Giap 27 and Herrera vs. Luy Kim Guan, 28 which similarly involved the sale of land to an
alien who thereafter sold the same to a Filipino citizen, the Court again applied the rule that the
subsequent sale can no longer be impugned on the basis of the invalidity of the initial transfer.

The rationale of this principle was explained in Vasquez vs. Li Seng Giap thus:

. . . [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 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. 29

Accordingly, since the disputed land is now owned by Private Respondent Cataniag, a Filipino
citizen, the prior invalid transfer can no longer be assailed. The objective of the constitutional
provision - to keep our land in Filipino hands - has been served.

WHEREFORE, the petition is hereby DENIED. The challenged Decision is AFFIRMED. Costs
against petitioner.

SO ORDERED.

Carrascoso, Jr. vs. CA,477 SCRA 66 (2005)

G.R. No. 123672 December 14, 2005

FERNANDO CARRASCOSO, JR., Petitioner,

vs.
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority
Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc. and EL
DORADO PLANTATION, INC., represented by one of its minority stockholders, Lauro P.
Leviste, Respondents

x---------------------------------------x

G.R. No. 164489

PHILIPPINE LONG DISTANCE TELEPHONE COMPANY, Petitioner,

vs.
LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other
Stockholders of El Dorado Plantation, Inc., EL DORADO PLANTATION, INC.,
represented by Minority Stockholder, Lauro P. Leviste, and FERNANDO CARRASCOSO,
JR., Respondents.

DECISION

CARPIO MORALES, J.:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of land (the
property) with an area of approximately 1,825 hectares covered by Transfer Certificate of Title
(TCT) No. T-931 situated in Sablayan, Occidental Mindoro.

On February 15, 1972, at a special meeting of El Dorado’s Board of Directors, a

Resolution2 was passed authorizing Feliciano Leviste, then President of El Dorado, to
negotiate the sale of the property and sign all documents and contracts bearing thereon.

On March 23, 1972, by a Deed of Sale of Real Property,3 El Dorado, through Feliciano Leviste,
sold the property to Fernando O. Carrascoso, Jr. (Carrascoso).

The pertinent provisions of the Deed of Sale read:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT HUNDRED
THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor hereby sells, cedes, and
transfer (sic) unto the herein VENDEE, his heirs, successors and assigns, the above-described
property subject to the following terms and consitions (sic):

1. Of the said sum of P1,800,000.00 which constitutes the full consideration of this
sale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic) National Bank,
thereby effecting the release and cancellation fo (sic) the present mortgage  over the above-
described property.

2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE to the
VENDOR, receipt of which amount is hereby acknowledged by the VENDOR.

3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of 10% per annum
shall be paid by the VENDEE to the VENDOR within a period of three (3) years, as follows:

(a) One (1) year from the date of the signing of this agreement, the VENDEE shall pay to the
VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND EIGHT HUNDRED THIRTY
THREE & 33/100 (P519,833.33) PESOS.

(b) Two (2) years from the date of signing of this agreement, the VENDEE shall pay to the
VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND EIGHT HUNDRED AND
THIRTY-THREE & 33/100 (P519,833.33) PESOS.

(c) Three (3) years from the date of signing of this agreement, the VENDEE shall pay to the
VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT HUNDRED AND
THIRTY-THREE & 33/100 (P519,833.33) PESOS.

4. The title of the property, subject of this agreement, shall pass and be transferred to the
VENDEE who shall have full authority to register the same and obtain the corresponding
transfer certificate of title in his name.

xxx

6. THE VENDOR certifies and warrants that the property above-described is not being
cultivated by any tenant and is therefore not covered by the provisions of the Land Reform
Code. If, therefore, the VENDEE becomes liable under the said law, the VENDOR shall
reimburse the VENDEE for all expenses and damages he may incur thereon.4 (Underscoring
supplied)

From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay the full amount
of the purchase price on March 23, 1975.

On even date, the Board of Directors of El Dorado passed a Resolution reading:

"RESOLVED that by reason of the sale of that parcel of land covered by TCT No. T-93 to Dr.
FERNANDO O. CARRASCOSO, JR., the corporation interposes no objection to the
property being mortgage (sic) by Dr. FERNANDO O. CARRASCOSO, JR. to any bank of
his choice as long as the balance on the Deed of Sale shall be recognized by Dr.
FERNANDO O. CARRASCOSO, JR.;

"RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim on the
property to be subordinated to any mortgage that may be constituted by Dr. FERNANDO O.
CARRASCOSO, JR.;

"RESOLVED, FINALLY, that in case of any mortgage on the property, the corporation waives
the preference of any vendor’s lien on the property."5 (Emphasis and underscoring supplied)

Feliciano Leviste also executed the following affidavit on the same day:

1. That by reason of the sale of that parcel of land covered by Transfer Certificate of Title T-93
as evidenced by the Deed of Sale attached hereto as Annex "A" and made an integral part
hereof, the El Dorado Plantation, Inc. has no objection to the aforementioned property
being mortgaged by Dr. Fernando O. Carrascoso, Jr. to any bank of his choice, as long
as the payment of the balance due the El Dorado Plantation, Inc. under the Deed of Sale,
Annex "A" hereof, shall be recognized by the vendee therein, Dr. Fernando O.
Carrascoso, Jr. though subordinated to the preferred claim of the mortgagee bank.

2. That in case of any mortgage on the property, the vendor hereby waives the preference of
any vendor’s lien on the property, subject matter of the deed of sale.

3. That this affidavit is being executed to avoid any question on the authority of Dr. Fernando
O. Carrascoso, Jr. to mortgage the property subject of the Deed of Sale, Annex "A" hereof,
where the purchase price provided therein has not been fully paid.

4. That this affidavit has been executed pursuant to a board resolution of El Dorado Plantation,
Inc.6 (Emphasis and underscoring supplied)

On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real
Estate Mortgage7 over the property in favor of Home Savings Bank (HSB) to secure a loan in
the amount of ₱1,000,000.00. Of this amount, ₱290,000.00 was paid to Philippine National
Bank to release the mortgage priorly constituted on the property and ₱210,000.00 was paid to
El Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and conditions of the
Deed of Sale.8

The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El
Dorado’s TCT No. T-93 as Entry No. 15240 9 on April 5, 1972. On even date, TCT No. T-93
covering the property was cancelled and TCT No. T-605510 was in its stead issued by the
Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which the real estate
mortgage in favor of HSB was annotated as Entry No. 15242.11

On May 18, 1972, the real estate mortgage in favor of HSB was amended to include an
additional three year loan of ₱70,000.00 as requested by the spouses Carrascoso.12 The
Amendment of Real Estate Mortgage was also annotated on TCT No. T-6055 as Entry No.
15486 on May 24, 1972.13

The 3-year period for Carrascoso to fully pay for the property on March 23, 1975 passed
without him having complied therewith.

In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance Telephone
Company (PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy
and Sell14 whereby the former agreed to sell 1,000 hectares of the property to the latter at a
consideration of ₱3,000.00 per hectare or a total of ₱3,000,000.00.

The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on
Carrascoso’s TCT No. T-6055.

Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of El Dorado,
through his counsel, Atty. Benjamin Aquino, by letter15 dated December 27, 1976, called the
attention of the Board to Carrascoso’s failure to pay the balance of the purchase price of the
property amounting to ₱1,300,000.00. And Lauro’s lawyer manifested that:

Because of the default for a long time of Mr. Carrascoso to pay the balance of the
consideration of the sale, Don Lauro Leviste, in his behalf and in behalf of the other
shareholders similarly situated like him, want a rescission of the sale made by the El Dorado
Plantation, Inc. to Mr. Carrascoso. He desires that the Board of Directors take the
corresponding action for rescission.16

Lauro’s desire to rescind the sale was reiterated in two other letters17 addressed to the Board
dated January 20, 1977 and March 3, 1977.

Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 197718 to
Carrascoso informing him that in view of his failure to pay the balance of the purchase price of
the property, El Dorado was seeking the rescission of the March 23, 1972 Deed of Sale of
Real Property.

The pertinent portions of the letter read:

xxx

I regret to inform you that the balance of P1,300,000.00 and the interest thereon have long
been due and payable, although you have mortgaged said property with the Home Savings
Bank for P1,000,000.00 on March 24, 1972, which was subsequently increased to
P1,070,000.00 on May 18, 1972.

You very well know that the El Dorado Plantation, Inc., is a close family corporation, owned
exclusively by the members of the Leviste family and I am one of the co-owners of the land. As
nothing appears to have been done on your part after our numerous requests for payment of
the said amount of P1,300,000.00 and the interest of 10% per annum due thereon, please be
advised that we would like to rescind the contract of sale of the land.19 (Underscoring supplied)

Jose Leviste, by letter20 dated March 10, 1977, informed Lauro’s counsel Atty. Aquino of his
(Jose’s) February 21, 1977 letter to Carrascoso, he lamenting that "Carrascoso has not
deemed it fit to give [his] letter the courtesy of a reply" and advis[ing] that some of the Directors
of [El Dorado] could not see their way clear in complying with the demands of your client
[Lauro] and have failed to reach a consensus to bring the corresponding action for rescission
of the contract against . . . Carrascoso."21

Lauro and El Dorado finally filed on March 15, 1977 a complaint22 for rescission of the March
23, 1972 Deed of Sale of Real Property between El Dorado and Carrascoso with damages
before the Court of First Instance (CFI) of Occidental Mindoro, docketed as Civil Case No. R-
226.

Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name of
Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free from any liens and
encumbrances. Furthermore, the two prayed for the issuance of an order for Carrascoso to: (1)
reconvey the property to El Dorado upon return to him of ₱500,000.00, (2) secure a discharge
of the real estate mortgage constituted on the property from HSB, (3) submit an accounting of
the fruits of the property from March 23, 1972 up to the return of possession of the land to El
Dorado, (4) turn over said fruits or the equivalent value thereof to El Dorado and (5) pay the
amount of ₱100,000.00 for attorney’s fees and other damages.23

Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT No. T-6055 a
Notice of Lis Pendens, inscribed as Entry No. 39737.24

In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6, 1977 a Deed
of Absolute Sale25 over the 1,000 hectare portion of the property subject of their July 11, 1975
Agreement to Buy and Sell. The pertinent portions of the Deed are as follows:

WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and Sell on
July 11, 1975, which is made a part hereof by reference;

WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed of Absolute
Sale referred to in the aforementioned agreement to Buy and Sell;

WHEREFORE, for and in consideration of the foregoing premises and the terms hereunder
stated, the VENDOR and the VENDEE have agreed as follows:

1. For and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00), Philippine
currency, of which ONE HUNDRED TWENTY THOUSAND PESOS P120,000.00 have (sic)
already been received by the VENDOR, the VENDOR hereby sells, transfers and conveys
unto the VENDEE one thousand hectares (1,000 has.) of his parcel of land covered by T.C.T.
No. T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the subdivision
survey plan xxx

2. The VENDEE shall pay to the VENDOR upon the signing of this agreement, the sum of
TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in the following
manner:

a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS (P2,300,000.00) to

Home Savings Bank in full payment of the VENDOR’s mortgaged obligation therewith;

b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;

The remaining balance of the purchase price in the sum of THREE HUNDRED EIGHTY
THOUSAND PESOS (P380,000.00), less such expenses which may be advanced by the
VENDEE but which are for the account of the VENDOR under Paragraph 6 of the Agreement
to Buy and Sell, shall be paid by the VENDEE to the VENDOR upon issuance of title to the
VENDEE.26 (Underscoring supplied)

In turn, PLDT, by Deed of Absolute Sale27 dated May 30, 1977, conveyed the aforesaid 1,000
hectare portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC), for a
consideration of ₱3,000,000.00, the amount of ₱2,620,000.00 of which was payable to PLDT
upon signing of said Deed, and ₱380,000.00 to Carrascoso upon issuance of title to PLDTAC.

In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a special
meeting,28 adopted and approved a Resolution ratifying and conferring "the prosecution of Civil
Case No. R-226 of the Court of First Instance of Occidental Mindoro, entitled ‘Lauro P. Leviste
vs. Fernando Carascoso (sic), etc.’ initiated by stockholder Mr. Lauro P. Leviste."29

In his Answer with Compulsory Counterclaim,30 Carrascoso alleged that: (1) he had not paid
his remaining ₱1,300,000.00 obligation under the March 23, 1972 Deed of Sale of Real
Property in view of the extensions of time to comply therewith granted him by El Dorado; (2)
the complaint suffered from fatal defects, there being no showing of compliance with the
condition precedent of exhaustion of intra-corporate remedies and the requirement that a
derivative suit instituted by a complaining stockholder be verified under oath; (3) El Dorado
committed a gross misrepresentation when it warranted that the property was not being
cultivated by any tenant to take it out of the coverage of the Land Reform Code; and (4) he
suffered damages due to the premature filing of the complaint for which Lauro and El Dorado
must be held liable.

On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute Sale and the
respective Articles of Incorporation of PLDT and PLDTAC were annotated on TCT No. T-6055
as Entry Nos. 24770,31 42774,32 4276933 and 24772,34 respectively. On even date, Carrascoso’s
TCT No. T-6055 was cancelled and TCT No. T-1248035 covering the 1,000 hectare portion of
the property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis
Pendens was carried over to TCT No. T-12480.

On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention36 which was
granted by the trial court by Order37 of September 7, 1978.

PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory Counterclaim
and Crossclaim38 against Carrascoso on November 13, 1978, alleging that: (1) when
Carrascoso executed the April 6, 1977 Deed of Absolute Sale in favor of PLDT, PLDT was not
aware of any litigation involving the 1,000 hectare portion of the property or of any flaw in his
title, (2) PLDT is a purchaser in good faith and for value; (3) when PLDT executed the May 30,
1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any pending
litigation over the property and neither were they aware that a notice of lis pendens had been
annotated on Carrascoso’s title; and (4) Lauro and El Dorado knew of the sale by Carrascoso
to PLDT and PLDT’s actual possession of the 1,000 hectare portion of the property since June
30, 1975 and of its exercise of exclusive rights of ownership thereon through agricultural
development.39

By Decision40 of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional
Trial Court to which the CFI has been renamed, dismissed the complaint on the ground of
prematurity, disposing as follows, quoted verbatim:

WHEREFORE, in view of all the foregoing considerations, judgment is hereby rendered:

1. Dismissing the plaintiffs’ complaint against the defendant on the ground of prematurity;

2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as actual and

compensatory damages, as well as the sum of P100,000.00 as and for attorneys fees;
provided, however, that the aforesaid amounts must first be set off from the latter’s unpaid
balance to the former;

3. Dismissing the defendants-intervenors’ counterclaim and cross-claim; and

4. Ordering the plaintiffs to pay to (sic) the costs of suit.

SO ORDERED.41 (Underscoring supplied)

Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.

By Decision42 of January 31, 1996, the appellate court reversed the decision of the trial court,
disposing as follows, quoted verbatim:

WHEREFORE, not being meritorious, PLDT’s/PLDTAC’s appeal is hereby DISMISSED and

finding El Dorado’s appeal to be impressed with merit, We REVERSE the appealed Decision
and render the following judgment:
1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No. T-12480
(Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated.

2. Fernando Carrascoso, Jr. is commanded to:

2.1. return the possession of the 825 [hectare-] remaining portion of the land to El Dorado
Plantation, Inc. without prejudice to the landholdings of legitimate tenants thereon;

2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March 23, 1972 to July
11, 1975, and of the 825-hectare-remaining portion minus the tenants’ landholdings, from July
11, 1975 up to its delivery to El Dorado Plantation, Inc. including whatever he may have
received from the tenants if any by way of compensation under the Operation Land Transfer or
under any other pertinent agrarian law;

2.3 Pay El Dorado Plantation, Inc. an attorney’s fee of P20,000.00 and litigation expenses of
P30,000.00;

2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural Corporation

P3,000,000.00 plus legal interest from April 6, 1977 until fully paid;

3. PLDT Agricultural Corporation is ordered to surrender the possession of the 1000-hectare

Farm to El Dorado Plantation, Inc.;

4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando Carrascoso, Jr.
plus legal interest from March 23, 1972 until fully paid. The performance of this obligation will
however await the full compliance by Fernando Carrascoso, Jr. of his obligation to account for
and deliver the net fruits of the land mentioned above to El Dorado Plantation, Inc.

5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic) the court a
quo a full accounting of the fruits of the land during the period mentioned above for the latter’s
approval, after which the net fruits shall be delivered to El Dorado, Plantation, Inc.

6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT
Agricultural Corporation in writing within ten (10) days after finality of this decision regarding
the exercise of its option under Art. 448 of the Civil Code.

SO ORDERED.43 (Underscoring supplied)

PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration 44 of the January
31, 1996 CA Decision, while Carrascoso went up this Court by filing on March 25, 1996 a
petition for review,45 docketed as G.R. No. 123672, assailing the January 31, 1996 CA
Decision and seeking the reinstatement of the January 28, 1991 Decision of the trial court
except with respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000
hectare portion of the property was subject to the notice of lis pendens.

Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party46 was
filed praying that his heirs, represented by Conrad C. Leviste, be substituted as respondents.
The Motion was granted by Resolution47 of July 10, 1996.

PLDT and PLDTAC filed their Comment48 to Carrascoso’s petition and prayed that judgment be
rendered finding them to be purchasers in good faith to thus entitle them to possession and
ownership of the 1,000 hectare portion of the property, together with all the improvements they
built thereon. Reiterating that they were not purchasers pendente lite, they averred that El
Dorado and Lauro had actual knowledge of their interests in the said portion of the property
prior to the annotation of the notice of lis pendens to thereby render said notice ineffective.
El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their
Comment49 to Carrascoso’s petition, praying that it be dismissed for lack of merit and that
paragraph 6 of the dispositive portion of the January 31, 1996 CA Decision be modified to read
as follows:

6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone Co. and PLDT
Agricultural Corporation in writing within ten (10) days after finality of this decision regarding
the exercise of its option under Arts. 449 and 450 of the Civil Code, without right to indemnity
on the part of the latter should the former decide to keep the improvements under Article
449.50 (Underscoring supplied)

Carrascoso filed on November 13, 1996 his Reply51 to the Comment of El Dorado and the heirs
of Lauro.

In the meantime, as the February 22, 1996 Motion for Reconsideration filed by PLDT and
PLDTAC of the CA decision had remained unresolved, this Court, by Resolution52 of June 30,
2003, directed the appellate court to resolve the same.

By Resolution53 of July 8, 2004, the CA denied PLDT and PLDTAC’s Motion for
Reconsideration for lack of merit.

PLDT54 thereupon filed on September 2, 2004 a petition for review55 before this Court, docketed
as G.R. No. 164489, seeking to reverse and set aside the January 31, 1996 Decision and the
July 8, 2004 Resolution of the appellate court. It prayed that judgment be rendered upholding
its right, interest and title to the 1,000 hectare portion of the property and that it and its
successors-in-interest be declared owners and legal possessors thereof, together with all
improvements built, sown and planted thereon.

By Resolution56 of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No. 123672.

In his petition, Carrascoso faults the CA as follows:

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND

COMMITTED A MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR
RESCISSION WAS PREMATURELY FILED.

II

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND

COMMITTED A MISTAKE OF LAW IN DISREGARDING THE CRUCIAL SIGNIFICANCE OF
THE WARRANTY OF NON-TENANCY EXPRESSLY STIPULATED IN THE CONTRACT OF
SALE.

III

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN REVERSING

THE DECISION OF THE TRIAL COURT.57 (Underscoring supplied)

PLDT, on the other hand, faults the CA as follows:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT

PETITIONER AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM
SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE
PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE NEW CIVIL
CODE.

II

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT

PETITIONER AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE FARM
SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF THE LEGAL
PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.’s PRIOR, ACTUAL KNOWLEDGE
OF PETITIONER PLDT’S AGREEMENT TO BUY AND SELL WITH RESPONDENT
CARRASCOSO RESULTING IN THE DELIVERY TO, AND POSSESSION, OCCUPATION
AND DEVELOPMENT BY, SAID PETITIONER OF THE FARM, IS EQUIVALENT TO
REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE AND, THEREFORE, A PRIOR
REGISTRATION NOT AFFECTED BY THE LATER NOTICE OF LIS
58 
PENDENS. (Underscoring supplied)

Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of Feliciano Leviste,
both dated March 23, 1972, no objection was interposed to his mortgaging of the property to
any bank provided that the balance of the purchase price of the property under the March 23,
1972 Deed of Sale of Real Property is recognized, hence, El Dorado could collect the unpaid
balance of ₱1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the filing
of the complaint for rescission with damages on March 15, 1977 was premature as he fully
paid his obligation to HSB only on April 5, 1977 as evidenced by the Cancellation of
Mortgage59 signed by HSB President Gregorio B. Licaros.

Carrascoso further posits that extensions of the period to pay El Dorado were verbally
accorded him by El Dorado’s directors and officers, particularly Jose and Angel Leviste.

Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Reciprocal obligations are those which arise from the same cause, and in which each party is
a debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other.60 They are to be performed simultaneously such that the performance of
one is conditioned upon the simultaneous fulfillment of the other.61

The right of rescission of a party to an obligation under Article 1191 is predicated on a breach
of faith by the other party who violates the reciprocity between them.62

A contract of sale is a reciprocal obligation. The seller obligates itself to transfer the ownership
of and deliver a determinate thing, and the buyer obligates itself to pay therefor a price certain
in money or its equivalent.63 The non-payment of the price by the buyer is a resolutory
condition which extinguishes the transaction that for a time existed, and discharges the
obligations created thereunder.64 Such failure to pay the price in the manner prescribed by the
contract of sale entitles the unpaid seller to sue for collection or to rescind the contract.65
In the case at bar, El Dorado already performed its obligation through the execution of the
March 23, 1972 Deed of Sale of Real Property which effectively transferred ownership of the
property to Carrascoso. The latter, on the other hand, failed to perform his correlative
obligation of paying in full the contract price in the manner and within the period agreed upon.

The terms of the Deed are clear and unequivocal: Carrascoso was to pay the balance of the
purchase price of the property amounting to ₱1,300,000.00 plus interest thereon at the rate of
10% per annum within a period of three (3) years from the signing of the contract on March 23,
1972. When Jose Leviste informed him that El Dorado was seeking rescission of the contract
by letter of February 21, 1977, the period given to him within which to fully satisfy his obligation
had long lapsed.

The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no objection to
Carrascoso’s mortgaging of the property to any bank did not have the effect of suspending the
period to fully pay the purchase price, as expressly stipulated in the Deed, pending full
payment of any mortgage obligation of Carrascoso.

As the CA correctly found:

The adverted resolution (Exhibit 2) does not say that the obligation of Carrascoso to pay the
balance was extended. Neither can We see in it anything that can logically infer said
accommodation.

A partially unpaid seller can agree to the buyer’s mortgaging the subject of the sale without
changing the time fixed for the payment of the balance of the price. The two agreements are
not incompatible with each other such that when one is to be implemented, the other has to be
suspended. In the case at bench, there was no impediment for Carrascoso to pay the balance
of the price after mortgaging the land.

Also, El Dorado’s subordinating its "preferred claim" or waiving its superior "vendor’s lien" over
the land in favor of the mortgagee of said property only means that in a situation where the
unpaid price of the Land and loan secured by the mortgage over the Land both become due
and demandable, the mortgagee shall have precedence in going after the Land for the
satisfaction of the loan. Such accommodations do not necessarily imply the modification of the
period fixed in the contract of sale for the payment by Carrascoso of the balance.

The palpable purpose of El Dorado in not raising any objection to Carrascoso’s mortgaging the
land was to eliminate any legal impediment to such a contract. That was so succinctly
expressed in the Affidavit (Exhibit 2-A) of President Feleciano (sic) Leviste. El Dorado’s
yielding its "superior lien" over the land in favor of the mortgagee was plainly intended to
overcome the natural reluctance of lending institutions to accept a land whose price has not
yet been fully paid as collateral of a loan.66 (Underscoring supplied)

Respecting Carrascoso’s insistence that he was granted verbal extensions within which to pay
the balance of the purchase price of the property by El Dorado’s directors and officers Jose
and Angel Leviste, this Court finds the same unsubstantiated by the evidence on record.

It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, 1977, calling his
attention to his failure to comply, despite "numerous" requests, with his obligation to pay the
amount of ₱1,300,000.00 and 10% annual interest thereon, and advising him that "we would
like to rescind the contract of sale." This letter reiterated the term of payment agreed upon in
the March 23, 1972 Deed of Sale of Real Property and Carrascosos’s non-compliance
therewith.

Carrascoso, harping on Jose Leviste’s March 10, 1977 letter to Lauro’s counsel wherein he
(Jose Leviste) stated that "some of the Directors of the corporation could not see their way
clear in complying with the demands of [Lauro] and have failed to reach a consensus to bring
the corresponding action for rescission of the contract against Dr. Fernando Carrascoso,"
argues that the extensions priorly given to him "no doubt lead to the logical conclusion on
some of the directors’ inability to file suit against him."67

The argument is specious. As the CA found, even if some officers of El Dorado were initially
reluctant to file suit against him, the same should not be interpreted to mean that this was
brought about by a prior extension of the period to pay the balance of the purchase price of the
property as such reluctance could have been due to a myriad of reasons totally unrelated to
the period of payment of the balance.

The bottomline however is, if El Dorado really intended to extend the period of payment of the
balance there was absolutely no reason why it did not do it in writing in clear and unmistakable
terms. That there is no such writing negates all the speculations of the court a quo and
pretensions of Carrascoso.

xxx

The unalterable fact here remains that on March 23, 1973, with or without demand, the
obligation of Carrascoso to pay P519,933.33 became due. The same was true on March 23,
1974 and on March 23, 1975 for equal amounts. Since he did not perform his obligation under
the contract of sale, he, therefore, breached it. Having breached the contract, El Dorado’s
cause of action for rescission of that contract arose.68 (Underscoring supplied)

Carrascoso goes on to argue that the appellate court erred in ignoring the import of the
warranty of non-tenancy expressly stipulated in the March 23, 1972 Deed of Sale of Real
Property. He alleges that on March 8, 1972 or two weeks prior to the execution of the Deed of
Sale, he discovered, while inspecting the property on board a helicopter, that there were
people and cattle in the area; when he confronted El Dorado about it, he was told that the
occupants were caretakers of cattle who would soon leave;69 four months after the execution of
the Deed of Sale, upon inquiry with the Bureau of Lands and the Bureau of Soils, he was
informed that there were people claiming to be tenants in certain portions of the property; 70 and
he thus brought the matter again to El Dorado which informed him that the occupants were not
tenants but squatters.71

Carrascoso now alleges that as a result of what he concludes to be a breach of the warranty of
non-tenancy committed by El Dorado, he incurred expenses in the amount of ₱2,890,000.00
for which he should be reimbursed, his unpaid obligation to El Dorado amounting to
₱1,300,000.00 to be deducted therefrom.72

The breach of an express warranty makes the seller liable for damages.73 The following
requisites must be established in order that there be an express warranty in a contract of sale:
(1) the express warranty must be an affirmation of fact or any promise by the seller relating to
the subject matter of the sale; (2) the natural tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on such
affirmation or promise thereon.74

Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted that the
property was not being cultivated by any tenant and was, and therefore, not covered by the
provisions of the Land Reform Code. If Carrascoso would become liable under the said law, he
would be reimbursed for all expenses and damages incurred thereon.

Carrascoso claims to have incurred expenses in relocating persons found on the property four
months after the execution of the Deed of Sale. Apart from such bare claim, the records are
bereft of any proof that those persons were indeed tenants. 75 The fact of tenancy76 not having
been priorly established,77 El Dorado may not be held liable for actual damages.
Carrascoso further argues that both the trial and appellate courts erred in holding that the sale
of the 1,000 hectare portion of the property to PLDT, as well as its subsequent sale to
PLDTAC, is subject to the March 15, 1977 Notice of Lis Pendens.

PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy and Sell which
it entered into with Carrascoso on July 11, 1975, positing that the efficacy of its purchase from
Carrascoso, upon his fulfillment of the condition it imposed resulting in its decision to formalize
their transaction and execute the April 6, 1977 Deed of Sale, retroacted to July 11, 1975 or
before the annotation of the Notice of Lis Pendens.78

The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between PLDT and
Carrascoso read:

2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby agrees to
purchase from the former, 1,000 hectares of the above-described parcel of land as shown in
the map hereto attached as Annex "A" and made an integral part hereof and as hereafter to be
more particularly determined by the survey to be conducted by Certeza & Co., at the purchase
price of P3,000.00 per hectare or for a total consideration of Three Million Pesos
(P3,000,000.00) payable in cash.

3. That this contract shall be considered rescinded and cancelled and of no further force and
effect, upon failure of the VENDOR to clear the aforementioned 1,000 hectares of land of all
the occupants therein located, within a period of one (1) year from the date of execution of this
Agreement. However, the VENDEE shall have the option to extend the life of this Agreement
by another six months, during which period the VENDEE shall definitely inform the VENDOR
of its decision on whether or not to finalize the deed of absolute sale for the aforementioned
1,000 hectares of land.

The VENDOR agrees that the amount of P500.00 per family within the aforementioned 1,000
hectares of land shall be spent by him for relocation purposes, which amount however shall be
advanced by the VENDEE and which shall not exceed the total amount of P120,000.00, the
same to be thereafter deducted by the VENDEE from the aforementioned purchase price of
P3,000,000.00.

The aforementioned advance of P120,000.00 shall be remitted by the VENDEE to the

VENDOR upon the signing of this Agreement.

xxx

It is likewise further agreed that the VENDEE shall have the right to enter into any part of the
aforementioned 1,000 hectares at any time within the period of this Agreement for purposes of
commencing the development of the same.

xxx

5. Title to the aforementioned land shall also be cleared of all liens or encumbrances and if
there are any unpaid taxes, existing mortgages, liens and encumbrances on the land, the
payments to be made by the VENDEE to the VENDOR of the purchase price shall first be
applied to liquidate said mortgages, liens and/or encumbrances, such that said payments shall
be made directly to the corresponding creditors. Thus, the balance of the purchase price will
be paid to the VENDOR after the title to the land is cleared of all such liens and
encumbrances.

xxx
7. The VENDOR agrees that, during the existence of this Agreement and without the previous
written permission from the VENDEE, he shall not sell, cede, assign and/or transfer the parcel
of land subject of this Agreement.79

A notice of lis pendens is an announcement to the whole world that a particular real property is
in litigation, and serves as a warning that one who acquires an interest over said property does
so at his own risk, or that he gambles on the result of the litigation over said property.80

Once a notice of lis pendens has been duly registered, any cancellation or issuance of title
over the land involved as well as any subsequent transaction affecting the same would have to
be subject to the outcome of the suit. In other words, a purchaser who buys registered land
with full notice of the fact that it is in litigation between the vendor and a third party stands in
the shoes of his vendor and his title is subject to the incidents and result of the pending
litigation.81

x x x Notice of lis pendens has been conceived and, more often than not, availed of, to protect
the real rights of the registrant while the case involving such rights is pending resolution or
decision. With the notice of lis pendens duly recorded, and while it remains uncancelled, the
registrant could rest secure that he would not lose the property or any part of it during the
litigation.

The filing of a notice of lis pendens in effect (1) keeps the subject matter of litigation within the
power of the court until the entry of the final judgment so as to prevent the defeat of the latter
by successive alienations; and (2) binds a purchaser of the land subject of the litigation to the
judgment or decree that will be promulgated thereon whether such a purchaser is a bona
fide purchaser or not; but (3) does not create a non-existent right or lien.

The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose
of which is to keep the subject matter of the litigation within the power of the court until the
judgment or decree shall have been entered; otherwise by successive alienations pending the
litigation, its judgment or decree shall be rendered abortive and impossible of execution. The
doctrine of lis pendens is based on considerations of public policy and convenience, which
forbid a litigant to give rights to others, pending the litigation, so as to affect the proceedings of
the court then progressing to enforce those rights, the rule being necessary to the
administration of justice in order that decisions in pending suits may be binding and may be
given full effect, by keeping the subject matter in controversy within the power of the court until
final adjudication, that there may be an end to litigation, and to preserve the property that the
purpose of the pending suit may not be defeated by successive alienations and transfers of
title.82 (Italics in the original)

In ruling against PLDT and PLDTAC, the appellate court held:

PLDT and PLDTAC argue that in reality the Farm was bought by the former on July 11, 1975
when Carrascoso and it entered into the Agreement to Buy and Sell (Exhibit 15). How can an
agreement to buy and sell which is a preparatory contract be the same as a contract of sale
which is a principal contract? If PLDT’s contention is correct that it bought the Farm on July 11,
1975, why did it buy the same property again on April 6, 1977? There is simply no way PLDT
and PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens. It is
admitted that PLDT took possession of the Farm on July 11, 1975 after the execution of the
Agreement to Buy and Sell but it did so not as owner but as prospective buyer of the property.
As prospective buyer which had actual on (sic) constructive notice of the lis pendens, why did
it pursue and go through with the sale if it had not been willing to gamble with the result of this
case?83 (Underscoring supplied)

Further, in its July 8, 2004 Resolution, the CA held:

PLDT cannot shield itself from the notice of lis pendens because all that it had at the time of its
inscription was an Agreement to Buy and Sell with CARRASCOSO, which in effect is a mere
contract to sell that did not pass to it the ownership of the property.

xxx

Ownership was retained by CARRASCOSO which EL DORADO may very well recover
through its action for rescission.

xxx

PLDT’s possession at the time the notice of lis pendens was registered not being a legal
possession based on ownership but a mere possession in fact and the Agreement to Buy and
Sell under which it supposedly took possession not being registered, it is not protected from an
adverse judgment that may be rendered in the case subject of the notice of lis
pendens.84 (Underscoring supplied)

In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas
in a contract to sell, ownership is not transferred upon delivery of the property but upon full
payment of the purchase price.85 In the former, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas in the latter, title is
retained by the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective.86

PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional contract of
sale, thus calling for the application of Articles 118187 and 118788 of the Civil Code as held
in Coronel v. Court of Appeals.89

The Court is not persuaded.

For in a conditional contract of sale, if the suspensive condition is fulfilled, the contract of sale
is thereby perfected, such that if there had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the seller. 90 Whereas in a
contract to sell, upon fulfillment of the suspensive condition, ownership will not
automatically transfer to the buyer although the property may have been previously delivered
to him. The prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale.91

A perusal of the contract92 adverted to in Coronel reveals marked differences from the

Agreement to Buy and Sell in the case at bar. In the Coronel contract, there was a clear intent
on the part of the therein petitioners-sellers to transfer title to the therein respondent-buyer. In
the July 11, 1975 Agreement to Buy and Sell, PLDT still had to "definitely inform Carrascoso of
its decision on whether or not to finalize the deed of absolute sale for the 1,000 hectare portion
of the property," such that in the April 6, 1977 Deed of Absolute Sale subsequently executed,
the parties declared that they "are now decided to execute" such deed, indicating that the
Agreement to Buy and Sell was, as the appellate court held, merely a preparatory contract in
the nature of a contract to sell. In fact, the parties even had to stipulate in the said Agreement
to Buy and Sell that Carrascoso, "during the existence of the Agreement, shall not sell, cede,
assign and/or transfer the parcel of land," which provision this Court has held to be a typical
characteristic of a contract to sell.93

Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy and Sell to
PLDT was merely the beneficial title to the 1,000 hectare portion of the property.
The right of Daniel Jovellanos to the property under the contract [to sell] with Philamlife was
merely an inchoate and expectant right which would ripen into a vested right only upon his
acquisition of ownership which, as aforestated, was contingent upon his full payment of the
rentals and compliance with all his contractual obligations thereunder. A vested right is an
immediate fixed right of present and future enjoyment. It is to be distinguished from a right that
is expectant or contingent. It is a right which is fixed, unalterable, absolute, complete and
unconditional to the exercise of which no obstacle exists, and which is perfect in itself and not
dependent upon a contingency. Thus, for a property right to be vested, there must be a
transition from the potential or contingent to the actual, and the proprietary interest must have
attached to a thing; it must have become fixed or established and is no longer open to doubt or
controversy.94 (Underscoring supplied)

In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not registered, which act
of registration is the operative act to convey and affect the land.

An agreement to sell is a voluntary instrument as it is a willful act of the registered owner. As

such voluntary instrument, Section 50 of Act No. 496 [now Section 51 of PD 1529] expressly
provides that the act of registration shall be the operative act to convey and affect the land.
And Section 55 of the same Act [now Section 53 of PD 1529] requires the presentation of the
owner’s duplicate certificate of title for the registration of any deed or voluntary instrument. As
the agreement to sell involves an interest less than an estate in fee simple, the same should
have been registered by filing it with the Register of Deeds who, in turn, makes a brief
memorandum thereof upon the original and owner’s duplicate certificate of title. The reason for
requiring the production of the owner’s duplicate certificate in the registration of a voluntary
instrument is that, being a willful act of the registered owner, it is to be presumed that he is
interested in registering the instrument and would willingly surrender, present or produce his
duplicate certificate of title to the Register of Deeds in order to accomplish such registration.
However, where the owner refuses to surrender the duplicate certificate for the annotation of
the voluntary instrument, the grantee may file with the Register of Deeds a statement setting
forth his adverse claim, as provided for in Section 110 of Act No. 496. xxx95 (Underscoring
supplied)

In Valley Golf Club, Inc. v. Salas,96 where a Deed of Absolute Sale covering a parcel of land
was executed prior to the annotation of a notice of lis pendens by the original owner thereof
but which Deed was registered after such annotation, this Court held:

The advance payment of P15,000.00 by the CLUB on October 18, 1960 to ROMERO, and the
additional payment by the CLUB of P54,887.50 as full payment of the purchase price on
October 26, 1960, also to ROMERO, cannot be held to be the dates of sale such as to precede
the annotation of the adverse claim by the SISTERS on October 25, 1960 and the lis
pendens on October 27, 1960. It is basic that it is the act of registration of the sale that is the
operative act to convey and affect the land. That registration was not effected by the CLUB
until December 4, 1963, or three (3) years after it had made full payment to ROMERO. xxx

xxx

As matters stand, therefore, in view of the prior annotations of the adverse claim and lis
pendens, the CLUB must be legally held to have been aware of the flaws in the title. By virtue
of the lis pendens, its acquisition of the property was subject to whatever judgment was to be
rendered in Civil Case No. 6365. xxx The CLUB’s cause of action lies, not against the
SISTERS, to whom the property had been adjudged by final judgment in Civil Case No. 6365,
but against ROMERO who was found to have had no right to dispose of the
land.97 (Underscoring supplied)

PLDT further argues that El Dorado’s prior, actual knowledge of the July 11, 1975 Agreement
to Buy and Sell is equivalent to prior registration not affected by the Notice of Lis Pendens. As
such, it concludes that it was not a purchaser pendente lite nor a purchaser in bad faith.
PLDT anchors its argument on the testimony of Lauro and El Dorado’s counsel Atty. Aquino
from which it infers that Atty. Aquino filed the complaint for rescission and caused the notice
of lis pendens to be annotated on Carrascoso’s title only after reading newspaper reports on
the sale to PLDT of the 1,000 hectare portion of the property.

The pertinent portions of Atty. Aquino’s testimony are reproduced hereunder:

Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in the instant case
of Dr. Carrascoso?

A: Yes, I asked my associates to go to Mamburao and had the notice of Lis Pendens covering
the property as a result of the filing of the instant complaint.

Q: Do you know the notice of Lis Pendens?

A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso entitled

"Notice of Lis Pendens".

Q: As a consequence of the filing of the complaint which was annotated, you have known that?

A: Yes.

xxx

Q: After the annotation of the notice of Lis Pendens, do you know, if any further transaction
was held on the property?

A: As we have read in the newspaper, that Dr. Carrascoso had sold the property in favor of the
PLDT, Co.

Q: And what did you do?

A: We verified the portion of the property having recorded under entry No. 24770 xxx and we
also discovered that the articles incorporated (sic) and other corporate matters had been
organized and established of the PLDT, Co., and had been annotated.

xxx

Q: Do you know what happened to the property?

A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time there was
already notice of Lis Pendens.

xxx

Q: In your testimony, you mentioned that you had come cross- (sic) reading the sale of the
subject litigation (sic) between Dr. Fernando Carrascoso, the defendant herein and the PLDT,
one of defendants-intervenor, may I say when?

A: I cannot remember now, but it was in the newspaper where it was informed or mentioned of
the sold property to PLDT.

xxx

Q: Will you tell to the Honorable Court what newspaper was that?
A: Well, I cannot remember what is that newspaper. That is only a means of [confirming] the
transaction. What was [confirmed] to us is whether there was really transaction (sic) and we
found out that there was in the Register of Deeds and that was the reason why we obtained
the case.

Q: Well, may I say, is there any reason, the answer is immaterial. The question is as regard
the matter of time when counsel is being able (sic) to read the newspaper allegedly
(interrupted)

xxx

Q: The idea of the question, your Honor, is to establish and ask further the notice of [lis
pendens] with regards (sic) to the transfer of property to PLDT, would have been accorded
prior to the pendency of the case.

xxx

A: I cannot remember.98

PLDT also relies on the following testimony of Carrascoso:

Q: You mentioned Doctor a while ago that you mentioned to the late Governor Feliciano
Leviste regarding your transaction with the PLDT in relation to the subject property you
allegedly mention (sic) your intention to sell with the PLDT?

A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched (sic) with me
with respect to my transaction with the PLDT, sir.

Q: Any other officer of the corporation who knows with instruction aside from Dr. Angel Leviste
and Dr. Jose Leviste?

A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.

xxx

Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-corporation?

A: One of the stockholders and director of the plaintiff-corporation, sir.

Q: Will you please tell us the other officers?

A: Expedito Leviste, sir.

A: Will you tell the position of Expedito Leviste?

A: He was the corporate secretary, sir.

Q: If you know, was Dr. Jose Leviste also a director at that time?

A: Yes, sir.99

On the other hand, El Dorado asserts that it had no knowledge of the July 11, 1975 Agreement
to Buy and Sell prior to the filing of the complaint for rescission against Carrascoso and the
annotation of the notice of lis pendens on his title. It further asserts that it always acted in good
faith:
xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was executed in July
11, 1975. There is no evidence that El Dorado was notified of this contract. The property is
located in Mindoro, El Dorado is based in Manila. The land was planted to rice. This was not
an unusual activity on the land, thus it could have been the Petitioner who was using the land.
Not having been notified of this sale, El Dorado could not have stopped PLDT from developing
the land.

The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the filing of this
case on March 15, 1977 and the annotation of a notice of lis pendens on March 16, 1977.
Inspite of the notice of lis pendens, PLDT then PLDTAC persisted not only in buying the land
but also in putting up improvements on the property such as buildings, roads, irrigation
systems and drainage. This was done during the pendency of this case, where PLDT and
PLDTAC actively participated as intervenors. They were not innocent bystanders. xxx100

This Court finds the above-quoted testimony of Atty. Aquino to be susceptible of conflicting
interpretations. As such, it cannot be the basis for inferring that El Dorado knew of the July 11,
1975 Agreement to Buy and Sell prior to the annotation of the notice of lis pendens on
Carrascoso’s title.

Respecting Carrascoso’s allegation that some of the directors and officers of El Dorado had
knowledge of his dealings with PLDT, it is true that knowledge of facts acquired or possessed
by an officer or agent of a corporation in the course of his employment, and in relation to
matters within the scope of his authority, is notice to the corporation, whether he
communicates such knowledge or not.101 In the case at bar, however, apart from Carrascoso’s
claim that he in fact notified several of the directors about his intention to sell the 1,000 hectare
portion of the property to PLDT, no evidence was presented to substantiate his claim. Such
self-serving, uncorroborated assertion is indubitably inadequate to prove that El Dorado had
notice of the July 11, 1975 Agreement to Buy and Sell before the annotation of the notice of lis
pendens on his title.

PLDT is, of course, not without recourse. As held by the CA:

Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the latter acted in
good faith. This is so because it was Carrascoso’s refusal to pay his just debt to El Dorado that
caused PLDT/PLDTAC to suffer pecuniary losses. Therefore, Carrascoso should return to
PLDT/PLDTAC the P3,000,000.00 price of the farm plus legal interest from receipt thereof until
paid.102 (Underscoring supplied)

The appellate court’s decision ordering the rescission of the March 23, 1972 Deed of Sale of
Real Property between El Dorado and Carrascoso being in order, mutual restitution follows to
put back the parties to their original situation prior to the consummation of the contract.

The exercise of the power to rescind extinguishes the obligatory relation as if it had never been
created, the extinction having a retroactive effect. The rescission is equivalent to invalidating
and unmaking the juridical tie, leaving things in their status before the celebration of the
contract.

Where a contract is rescinded, it is the duty of the court to require both parties to surrender
that which they have respectively received and to place each other as far as practicable in his
original situation, the rescission has the effect of abrogating the contract in all
parts.103 (Underscoring supplied)

The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of lis
pendens, and as the Court affirms the declaration by the appellate court of the rescission of
the Deed of Sale executed by El Dorado in favor of Carrascoso, possession of the 1,000
hectare portion of the property should be turned over by PLDT to El Dorado.
As regards the improvements introduced by PLDT on the 1,000 hectare portion of the property,
a distinction should be made between those which it built prior to the annotation of the notice
of lis pendens and those which it introduced subsequent thereto.

When a person builds in good faith on the land of another, Article 448 of the Civil Code
governs:

Art. 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in Articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper rent. However, the
builder or planter cannot be obliged to buy the land if its value is considerably more than that of
the building or trees. In such a case, he shall pay reasonable rent, if the owner of the land
does not choose to appropriate the building or trees after the proper indemnity. The parties
shall agree upon the terms of the lease and in case of disagreement, the court shall fix the
terms thereof.

The above provision covers cases in which the builders, sowers or planters believe themselves
to be owners of the land or, at least, to have a claim of title thereto. 104 Good faith is thus
identified by the belief that the land is owned; or that by some title one has the right to build,
plant, or sow thereon.105

The owner of the land on which anything has been built, sown or planted in good faith shall
have the right to appropriate as his own the building, planting or sowing, after payment to the
builder, planter or sower of the necessary and useful expenses,106 and in the proper case,
expenses for pure luxury or mere pleasure.107

The owner of the land may also oblige the builder, planter or sower to purchase and pay the
price of the land.

If the owner chooses to sell his land, the builder, planter or sower must purchase the land,
otherwise the owner may remove the improvements thereon. The builder, planter or sower,
however, is not obliged to purchase the land if its value is considerably more than the building,
planting or sowing. In such case, the builder, planter or sower must pay rent to the owner of
the land.

If the parties cannot come to terms over the conditions of the lease, the court must fix the
terms thereof.

The right to choose between appropriating the improvement or selling the land on which the
improvement of the builder, planter or sower stands, is given to the owner of the land.108

On the other hand, when a person builds in bad faith on the land of another, Articles 449 and
450 govern:

Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right to indemnity.

Art. 450. The owner of the land on which anything has been built, planted or sown in bad faith
may demand the demolition of the work, or that the planting or sowing be removed, in order to
replace things in their former condition at the expense of the person who built, planted or
sowed; or he may compel the builder or planter to pay the price of the land, and the sower the
proper rent.

In the case at bar, it is undisputed that PLDT commenced construction of improvements on the
1,000 hectare portion of the property immediately after the execution of the July 11, 1975
Agreement to Buy and Sell with the full consent of Carrascoso.109 Thus, until March 15, 1977
when the Notice of Lis Pendens was annotated on Carrascoso’s TCT No. T-6055, PLDT is
deemed to have been in good faith in introducing improvements on the 1,000 hectare portion
of the property.

After March 15, 1977, however, PLDT could no longer invoke the rights of a builder in good
faith.

Should El Dorado then opt to appropriate the improvements made by PLDT on the 1,000
hectare portion of the property, it should only be made to pay for those improvements at the
time good faith existed on the part of PLDT or until March 15, 1977,110 to be pegged at its
current fair market value.111

The commencement of PLDT’s payment of reasonable rent should start on March 15, 1977 as
well, to be paid until such time that the possession of the 1,000 hectare portion is delivered to
El Dorado, subject to the reimbursement of expenses as aforestated, that is, if El Dorado opts
to appropriate the improvements.112

If El Dorado opts for compulsory sale, however, the payment of rent should continue up to the
actual transfer of ownership.113

WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 and
Resolution dated July 8, 2004 of the Court of Appeals are AFFIRMED with MODIFICATION in
that

1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further directed to:

a. determine the present fair price of the 1,000 hectare portion of the property and the amount
of the expenses actually spent by PLDT for the improvements thereon as of March 15, 1977;

b. include for determination the increase in value ("plus value") which the 1,000 hectare portion
may have acquired by reason of the existence of the improvements built by PLDT before
March 15, 1977 and the current fair market value of said improvements;

2. El Dorado is ordered to exercise its option under the law, whether to appropriate the
improvements, or to oblige PLDT to pay the price of the land, and

3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (₱2,000.00) per month as
reasonable compensation for its occupancy of the 1,000 hectare portion of the property from
the time that its good faith ceased to exist until such time that possession of the same is
delivered to El Dorado, subject to the reimbursement of the aforesaid expenses in favor of
PLDT or until such time that the payment of the purchase price of the 1,000 hectare portion is
made by PLDT in favor of El Dorado in case the latter opts for its compulsory sale.

Costs against petitioners.

SO ORDERED.
Velarde vs. CA, 361SCRA 56 (2001)

G.R. No. 108346. July 11, 2001

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, Petitioners, vs. COURT OF

APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, Respondents.

DECISION

PANGANIBAN, J.:

A substantial breach of a reciprocal obligation, like failure to pay the price in the manner
prescribed by the contract, entitles the injured party to rescind the obligation. Rescission
abrogates the contract from its inception and requires a mutual restitution of benefits received.
The Case

Before us is a Petition for Review on Certiorari 1 questioning the Decision 2 of the Court of

Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution 3 dated
December 29, 1992 denying petitioners motion for reconsideration. 4cräläwvirtualibräry

The dispositive portion of the assailed Decision reads:

WHEREFORE, the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the
Decision dated November 14, 1990 dismissing the [C]omplaint is REINSTATED. The bonds
posted by plaintiffs-appellees and defendants-appellants are hereby RELEASED.5
The Facts

The factual antecedents of the case, as found by the CA, are as follows:

x x x. David Raymundo [herein private respondent] is the absolute and registered owner of a
parcel of land, together with the house and other improvements thereon, located at 1918
Kamias St., Dasmarias Village, Makati and covered by TCT No. 142177. Defendant George
Raymundo [herein private respondent] is Davids father who negotiated with plaintiffs Avelina
and Mariano Velarde [herein petitioners] for the sale of said property, which was, however,
under lease (Exh. 6, p. 232, Record of Civil Case No. 15952).

On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. A; Exh. 1, pp. 11-12,
Record) was executed by defendant David Raymundo, as vendor, in favor of plaintiff Avelina
Velarde, as vendee, with the following terms and conditions:

xxx

That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS
(P800,000.00), Philippine currency, receipt of which in full is hereby acknowledged by the
VENDOR from the VENDEE, to his entire and complete satisfaction, by these presents the
VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and
voluntarily, with full warranty of a legal and valid title as provided by law, unto the VENDEE,
her heirs, successors and assigns, the parcel of land mentioned and described above,
together with the house and other improvements thereon.

That the aforesaid parcel of land, together with the house and other improvements thereon,
were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE ISLANDS, Makati, Metro
Manila, to secure the payment of a loan of ONE MILLION EIGHT HUNDRED THOUSAND
PESOS (P1,800,000.00), Philippine currency, as evidenced by a Real Estate Mortgage signed
and executed by the VENDOR in favor of the said Bank of the Philippine Islands, on______
and which Real Estate Mortgage was ratified before Notary Public for Makati, _______, as
Doc. No. ____, Page No. ___, Book No. ___, Series of 1986 of his Notarial Register.

That as part of the consideration of this sale, the VENDEE hereby assumes to pay the
mortgage obligations on the property herein sold in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of Bank of the
Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully
comply with all the terms and conditions appearing in the Real Estate Mortgage signed and
executed by the VENDOR in favor of BPI, including interests and other charges for late
payment levied by the Bank, as if the same were originally signed and executed by the
VENDEE.

It is further agreed and understood by the parties herein that the capital gains tax and
documentary stamps on the sale shall be for the account of the VENDOR; whereas, the
registration fees and transfer tax thereon shall be for the account of the VENDEE. (Exh. A, pp.
11-12, Record).

On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the
consent of her husband, Mariano, executed an Undertaking (Exh. C, pp. 13-14, Record), the
pertinent portions of which read, as follows:

xxx

Whereas, as per Deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo
the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, and
assume the mortgage obligations on the property with the Bank of the Philippine Islands in the
amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in accordance with the terms and conditions of the Deed of Real Estate Mortgage
dated _________, signed and executed by Mr. David A. Raymundo with the said Bank,
acknowledged before Notary Public for Makati, _____, as Doc. No. ___, Page No. ___, Book
No. __, Series of 1986 of his Notarial Register.

WHEREAS, while my application for the assumption of the mortgage obligations on the
property is not yet approved by the mortgagee Bank, I have agreed to pay the mortgage
obligations on the property with the Bank in the name of Mr. David A. Raymundo, in
accordance with the terms and conditions of the said Deed of Real Estate Mortgage, including
all interests and other charges for late payment.

WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for
purposes of attesting and confirming our private understanding concerning the said mortgage
obligations to be assumed.

NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption
of the mortgage obligations of ONE MILLION EIGHT HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency, with the Bank of the Philippine islands, I, Mrs. Avelina D.
Velarde, with the consent of my husband, Mariano Z. Velarde, do hereby bind and obligate
myself, my heirs, successors and assigns, to strictly and faithfully comply with the following
terms and conditions:

1. That until such time as my assumption of the mortgage obligations on the property
purchased is approved by the mortgagee bank, the Bank of the Philippine Islands, I shall
continue to pay the said loan in accordance with the terms and conditions of the Deed of Real
Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor.

2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate
Mortgage, I hereby agree that my downpayment of P800,000.00, plus all payments made with
the Bank of the Philippine Islands on the mortgage loan, shall be forfeited in favor of Mr. David
A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial
declaration to that effect, and Mr. David A Raymundo shall resume total and complete
ownership and possession of the property sold by way of Deed of Sale with Assumption of
Mortgage, and the same shall be deemed automatically cancelled and be of no further force or
effect, in the same manner as if (the) same had never been executed or entered into.

3. That I am executing this Undertaking for purposes of binding myself, my heirs, successors
and assigns, to strictly and faithfully comply with the terms and conditions of the mortgage
obligations with the Bank of the Philippine Islands, and the covenants, stipulations and
provisions of this Undertaking.

That, David A. Raymundo, the vendor of the property mentioned and identified above, [does]
hereby confirm and agree to the undertakings of the Vendee pertinent to the assumption of the
mortgage obligations by the Vendee with the Bank of the Philippine Islands. (Exh. C, pp. 13-
14, Record).

This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.

It appears that the negotiated terms for the payment of the balance of P1.8 million was from
the proceeds of a loan that plaintiffs were to secure from a bank with defendants help.
Defendants had a standing approved credit line with the Bank of the Philippine Islands (BPI).
The parties agreed to avail of this, subject to BPIs approval of an application for assumption of
mortgage by plaintiffs. Pending BPIs approval o[f] the application, plaintiffs were to continue
paying the monthly interests of the loan secured by a real estate mortgage.

Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by
the aforementioned mortgage for three (3) months as follows: September 19, 1986
at P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at P23,925.00 (Exh.
E, H & J, pp. 15, 17 and 18, Record).

On December 15, 1986, plaintiffs were advised that the Application for Assumption of
Mortgage with BPI was not approved (Exh. J, p. 133, Record). This prompted plaintiffs not to
make any further payment.

On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their
non-payment to the mortgage bank constitute[d] non-performance of their obligation (Exh. 3, p.
220, Record).

In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:

This is to advise you, therefore, that our client is willing to pay the balance in cash not later
than January 21, 1987 provided: (a) you deliver actual possession of the property to her not
later than January 15, 1987 for her immediate occupancy; (b) you cause the release of title
and mortgage from the Bank of P.I. and make the title available and free from any liens and
encumbrances; and (c) you execute an absolute deed of sale in her favor free from any liens
or encumbrances not later than January 21, 1987. (Exhs. K, 4, p. 223, Record).

On January 8, 1987, defendants sent plaintiffs a notarial notice of cancellation/rescission of the

intended sale of the subject property allegedly due to the latters failure to comply with the
terms and conditions of the Deed of Sale with Assumption of Mortgage and the Undertaking
(Exh. 5, pp. 225-226, Record). 6cräläwvirtualibräry

Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents

for specific performance, nullity of cancellation, writ of possession and damages. This was
docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case
was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this
Court), who dismissed the Complaint in a Decision dated November 14, 1990. 7 Thereafter,
petitioners filed a Motion for Reconsideration. 8cräläwvirtualibräry

Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge
Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15,
1991, 9 Judge Abad Santos granted petitioners Motion for Reconsideration and directed the
parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to
private respondents who, in turn, were ordered to execute a deed of absolute sale and to
surrender possession of the disputed property to petitioners.

Private respondents appealed to the CA.

Ruling of the Court of Appeals

The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-
Santiagos earlier Decision dismissing petitioners Complaint. Upholding the validity of the
rescission made by private respondents, the CA explained its ruling in this wise:

In the Deed of Sale with Assumption of Mortgage, it was stipulated that as part of the
consideration of this sale, the VENDEE (Velarde) would assume to pay the mortgage
obligation on the subject property in the amount of P1.8 million in favor of BPI in the name of
the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde includes the
downpayment of P800,000.00 and the balance of P1.8 million, and the balance of P1.8 million
cannot be paid in cash, Vendee Velarde, as part of the consideration of the sale, had to
assume the mortgage obligation on the subject property. In other words, the assumption of the
mortgage obligation is part of the obligation of Velarde, as vendee, under the contract. Velarde
further agreed to strictly and faithfully comply with all the terms and conditions appearing in the
Real Estate Mortgage signed and executed by the VENDOR in favor of BPI x x x as if the
same were originally signed and executed by the Vendee. (p.2, thereof, p.12, Record). This
was reiterated by Velarde in the document entitled Undertaking wherein the latter agreed to
continue paying said loan in accordance with the terms and conditions of the Deed of Real
Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that in the event of
violation by Velarde of any terms and conditions of said deed of real estate mortgage, the
downpayment of P800,000.00 plus all payments made with BPI or the mortgage loan would be
forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be cancelled
automatically and of no force and effect (pars. 2 & 3, thereof, pp. 13-14, Record).

From these 2 documents, it is therefore clear that part of the consideration of the sale was the
assumption by Velarde of the mortgage obligation of Raymundo in the amount of P1.8 million.
This would mean that Velarde had to make payments to BPI under the [D]eed of [R]eal
[E]state [M]ortgage in the name of Raymundo. The application with BPI for the approval of the
assumption of mortgage would mean that, in case of approval, payment of the mortgage
obligation will now be in the name of Velarde. And in the event said application is disapproved,
Velarde had to pay in full. This is alleged and admitted in Paragraph 5 of the Complaint.
Mariano Velarde likewise admitted this fact during the hearing on September 15, 1997 (p. 47,
t.s.n., September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This being the case,
the non-payment of the mortgage obligation would result in a violation of the contract. And,
upon Velardes failure to pay the agreed price, the[n] Raymundo may choose either of two (2)
actions - (1) demand fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil
Code).

The disapproval by BPI of the application for assumption of mortgage cannot be used as an
excuse for Velardes non-payment of the balance of the purchase price. As borne out by the
evidence, Velarde had to pay in full in case of BPIs disapproval of the application for
assumption of mortgage. What Velarde should have done was to pay the balance of P1.8
million. Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh. K, 4) which was
strongly given weight by the lower court in reversing the decision rendered by then Judge
Ynares-Santiago. In said letter, Velarde registered their willingness to pay the balance in cash
but enumerated 3 new conditions which, to the mind of this Court, would constitute a new
undertaking or new agreement which is subject to the consent or approval of Raymundo.
These 3 conditions were not among those previously agreed upon by Velarde and Raymundo.
These are mere offers or, at most, an attempt to novate. But then again, there can be no
novation because there was no agreement of all the parties to the new contract (Garcia, Jr. vs.
Court of Appeals, 191 SCRA 493).

It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale
with Assumption of Mortgage would be deemed automatically cancelled and of no further force
and effect, as if the same had never been executed or entered into. While it is true that even if
the contract expressly provided for automatic rescission upon failure to pay the price, the
vendee may still pay, he may do so only for as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act (Article 1592, Civil
Code). In the case at bar, Raymundo sent Velarde a notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the latters failure to comply with their obligation.
The rescission was justified in view of Velardes failure to pay the price (balance) which is
substantial and fundamental as to defeat the object of the parties in making the agreement. As
adverted to above, the agreement of the parties involved a reciprocal obligation wherein the
obligation of one is a resolutory condition of the obligation of the other, the non-fulfillment of
which entitles the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28). Thus,
the non-payment of the mortgage obligation by appellees Velarde would create a right to
demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing &
Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellees failure, therefore, to pay
the balance, the contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720).
Consequently, appellees Velarde having violated the contract, they have lost their right to its
enforcement and hence, cannot avail of the action for specific performance (Voysaw vs.
Interphil Promotions, Inc., 148 SCRA 635).10cräläwvirtualibräry

Hence, this appeal. 11

The Issues

Petitioners, in their Memorandum, 12 interpose the following assignment of errors:

I.

The Court of Appeals erred in holding that the non-payment of the mortgage obligation
resulted in a breach of the contract.

II.

The Court of Appeals erred in holding that the rescission (resolution) of the contract by
private respondents was justified.

III.

The Court of Appeals erred in holding that petitioners January 7, 1987 letter gave three
new conditions constituting mere offers or an attempt to novate necessitating a new
agreement between the parties.
The Courts Ruling

The Petition is partially meritorious.

First Issue :
Breach of Contract

Petitioners aver that their nonpayment of private respondents mortgage obligation did not
constitute a breach of contract, considering that their request to assume the obligation had
been disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations
ceased to be their obligation and, instead, it devolved upon private respondents again.

However, petitioners did not merely stop paying the mortgage obligations; they also failed to
pay the balance of the purchase price. As admitted by both parties, their agreement mandated
that petitioners should pay the purchase price balance of P1.8 million to private respondents in
case the request to assume the mortgage would be disapproved. Thus, on December 15,
1986, when petitioners received notice of the banks disapproval of their application to assume
respondents mortgage, they should have paid the balance of the P1.8 million loan.

Instead of doing so, petitioners sent a letter to private respondents offering to make such
payment only upon the fulfillment of certain conditions not originally agreed upon in the
contract of sale. Such conditional offer to pay cannot take the place of actual payment as
would discharge the obligation of a buyer under a contract of sale.

In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a
determinate thing, and the buyer to pay therefor a price certain in money or its
equivalent. 13 Private respondents had already performed their obligation through the execution
of the Deed of Sale, which effectively transferred ownership of the property to petitioner
through constructive delivery. Prior physical delivery or possession is not legally required, and
the execution of the Deed of Sale is deemed equivalent to delivery. 14cräläwvirtualibräry

Petitioners, on the other hand, did not perform their correlative obligation of paying the contract
price in the manner agreed upon. Worse, they wanted private respondents to perform
obligations beyond those stipulated in the contract before fulfilling their own obligation to pay
the full purchase price.
Second Issue

Validity of the Rescission

Petitioners likewise claim that the rescission of the contract by private respondents was not
justified, inasmuch as the former had signified their willingness to pay the balance of the
purchase price only a little over a month from the time they were notified of the disapproval of
their application for assumption of mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a rescission. They cite several cases 15 in which
this Court declared that rescission of a contract would not be permitted for a slight or casual
breach. Finally, they argue that they have substantially performed their obligation in good faith,
considering that they have already made the initial payment of P800,000 and three (3) monthly
mortgage payments.

As pointed out earlier, the breach committed by petitioners was not so much their nonpayment
of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents right to rescind the contract
finds basis in Article 1191 of the Civil Code, which explicitly provides as follows:

Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible.
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between
them. 16 The breach contemplated in the said provision is the obligors failure to comply with an
existing obligation. 17 When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission. 18cräläwvirtualibräry

In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of
sale, a violation that consequently gave rise to private respondents right to rescind the same in
accordance with law.

True, petitioners expressed their willingness to pay the balance of the purchase price one
month after it became due; however, this was not equivalent to actual payment as would
constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was
conditioned on the performance by private respondents of additional burdens that had not
been agreed upon in the original contract. Thus, it cannot be said that the breach committed by
petitioners was merely slight or casual as would preclude the exercise of the right to rescind.

Misplaced is petitioners reliance on the cases 19 they cited because the factual circumstances
in those cases are not analogous to those in the present one. In Song Fo there was, on the
part of the buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover,
the buyers offer to pay was unconditional and was accepted by the seller. In Zepeda, the
breach involved a mere one-week delay in paying the balance of P1,000, which was actually
paid. In Tan, the alleged breach was private respondents delay of only a few days, which was
for the purpose of clearing the title to the property; there was no reference whatsoever to the
nonpayment of the contract price.

In the instant case, the breach committed did not merely consist of a slight delay in payment or
an irregularity; such breach would not normally defeat the intention of the parties to the
contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also
imposed upon private respondents new obligations as preconditions to the performance of
their own obligation. In effect, the qualified offer to pay was a repudiation of an existing
obligation, which was legally due and demandable under the contract of sale. Hence, private
respondents were left with the legal option of seeking rescission to protect their own interest.
Mutual Restitution
Required in Rescission

As discussed earlier, the breach committed by petitioners was the nonperformance of a

reciprocal obligation, not a violation of the terms and conditions of the mortgage contract.
Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract
does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this
controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code,
mutual restitution is required to bring back the parties to their original situation prior to the
inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding
mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00)
advanced by petitioners should be returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the former.

Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. 20 To
rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each
other, but to abrogate it from the beginning and restore the parties to their relative positions as
if no contract has been made. 21
Third Issue

Attempt to Novate

In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third
issue raised by petitioners. Suffice it to say that the three conditions appearing on the January
7, 1987 letter of petitioners to private respondents were not part of the original contract. By that
time, it was already incumbent upon the former to pay the balance of the sale price. They had
no right to demand preconditions to the fulfillment of their obligation, which had become due.

WHEREFORE , the assailed Decision is hereby AFFIRMED with the MODIFICATIONthat

private respondents are ordered to return to petitioners the amount of P874,150, which the
latter paid as a consequence of the rescinded contract, with legal interest thereon from
January 8, 1987, the date of rescission. No pronouncement as to costs.

SO ORDERED.

Recio v. Heirs of Sps. Agueda and Altamirano, G.R. No. 182349, July 24, 2013

G.R. No. 182349               July 24, 2013

REMAN RECIO, Petitioner,
vs.
HEIRS OF THE SPOUSES AGUEDO and MARIA ALTAMIRANO, namely: ALEJANDRO,
ADELAIDA, CATALINA, ALFREDO, FRANCISCO, all surnamed ALTAMIRANO;
VIOLETAALTAMIRANO OLFATO, and LORETAALTAMIRANO VDA. DE MARALIT and
SPOUSES LAURO and MARCELINA LAJARCA, Respondents.

DECISION

REYES, J.:

This petition for review on certiorari1 under Rule 45 of the Rules of Court seeks to modify the
Decision2 of the Court of Appeals (CA) dated November 29, 2007 in CA-G.R. CV No. 86001,
affirming with modification the Decision3 dated August 23, 2005 of the Regional Trial Court
(RTC) of Lipa City, Branch 85 in Civil Case No. 97-0107. The petitioner asks this Court to
reinstate in full the said RTC decision.

The Facts

In the 1950’s, Nena Recio (Nena), the mother of Reman Recio (petitioner), leased from the
respondents Alejandro, Adelaida, Catalina, Alfredo, Francisco, all surnamed Altamirano,
Violeta Altamirano Olfato, and Loreto Altamirano Vda. De Maralit (referred to as the
Altamiranos) a parcel of land with improvements, situated at No. 39 10 de Julio Street (now
Esteban Mayo Street), Lipa City, Batangas. The said land has an area of more or less eighty-
nine square meters and fifty square decimeters (89.50 sq m), and is found at the northern
portion of two (2) parcels of land covered by Transfer Certificate of Title (TCT) Nos. 66009 and
66010 of the Registry of Deeds of Lipa City. The Altamiranos inherited the subject land from
their deceased parents, the spouses Aguedo Altamirano and Maria Valduvia.4

Nena used the ground floor of the subject property as a retail store for grains and the upper
floor as the family’s residence. The petitioner claimed that in 1988, the Altamiranos offered to
sell the subject property to Nena for Five Hundred Thousand Pesos (₱500,000.00). The latter
accepted such offer, which prompted the Altamiranos to waive the rentals for the subject
property. However, the sale did not materialize at that time due to the fault of the Altamiranos.
Nonetheless, Nena continued to occupy and use the property with the consent of the
Altamiranos.5

Meanwhile, the Altamiranos consolidated the two (2) parcels of land covered by TCT Nos.
66009 and 66010. They were eventually subdivided into three (3) parcels of land which were
then denominated as Lots 1, 2, and 3 of the Consolidation-Subdivision Plan PCS-04-00367.
Subsequently, TCT No. T-102563 of the Registry of Deeds of Lipa City was issued to cover the
subject property. The petitioner and his family remained in peaceful possession of Lot No. 3.6

In the latter part of 1994, the petitioner renewed Nena’s option to buy the subject property. The
petitioner conducted a series of negotiations with respondent Alejandro who introduced himself
as representing the other heirs. After the said negotiations, the Altamiranos through Alejandro
entered into an oral contract of sale with the petitioner over the subject property. In January
1995, in view of the said oral contract of sale, the petitioner made partial payments to the
Altamiranos in the total amount of One Hundred Ten Thousand Pesos (₱110,000.00).
Alejandro duly received and acknowledged these partial payments as shown in a receipt dated
January 24, 1995. On April 14, 1995, the petitioner made another payment in the amount of
Fifty Thousand Pesos (₱50,000.00), which Alejandro again received and acknowledged
through a receipt of the same date. Subsequently, the petitioner offered in many instances to
pay the remaining balance of the agreed purchase price of the subject property in the amount
of Three Hundred Forty Thousand Pesos (₱340,000.00), but Alejandro kept on avoiding the
petitioner. Because of this, the petitioner demanded from the Altamiranos, through Alejandro,
the execution of a Deed of Absolute Sale in exchange for the full payment of the agreed price.7

Thus, on February 24, 1997, the petitioner filed a complaint for Specific Performance with
Damages. On March 14, 1997, the petitioner also caused to annotate on the TCT No. T-
102563 a Notice of Lis Pendens.8

Pending the return of service of summons to the Altamiranos, the petitioner discovered that the
subject property has been subsequently sold to respondents Lauro and Marcelina Lajarca
(Spouses Lajarca). TCT No. T-102563 was cancelled and a new title, TCT No. 112727, was
issued in the name of the Spouses Lajarca by virtue of a Deed of Sale executed by the latter
and the Altamiranos on February 26, 1998. Thus, the petitioner filed an Amended Complaint
impleading the Spouses Lajarca and adding as a cause of action the annulment of the sale
between the Altamiranos and the Spouses Lajarca.9

Thereafter, trial ensued. Alejandro was called to testify at the instance of the petitioner but after
a brief testimony, he excused himself and never returned to the witness stand despite several
subpoenas. For the respondents, the Altamiranos manifested that they would no longer
present any witness while the Spouses Lajarca were considered to have waived their right to
present evidence since they failed to appear on the day set for them to do so.10

The Ruling of the RTC in Civil Case No. 97-0107

On August 23, 2005, the trial court rendered a decision, 11 the dispositive portion of which reads
as follows:

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

against the defendants as follows:

1. declaring as NULL AND VOID the Deed of Absolute Sale dated 26 February 1998
between the defendants Altamiranos and the defendants Lajarcas covering that parcel
of land together with all improvements thereon situated at No. 39 10 de Julio Street
(now Esteban Mayo Street), Lipa City, Batangas, containing an area of more or less
 Eighty-Nine Square Meters and Fifty Square Decimeters (89.50 sq. m) then covered by
Transfer Certificate of Title No. T-102563 of the Registry of Deeds of Lipa City;

2. ordering the Register of Deeds of Lipa City to cancel Transfer Certificate of Title No.
T-112727 of the Registry of Deeds of Lipa City in the name of the defendants Lajarcas
and to reinstate Transfer Certificate of Title No. T-102563;

3. directing the defendants Altamiranos to execute a Deed of Absolute Sale in favor of

plaintiff covering the parcel of land together with all improvements thereon situated at
No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa City, Batangas, containing
an area of more or less Eighty-Nine Square Meters and Fifty Square Decimeters (89.50
sq. m) then covered by Transfer Certificate of Title No. T-102563 upon payment by said
plaintiff of the balance of the purchase price in the amount of THREE HUNDRED
FORTY THOUSAND PESOS (₱340,000.00).

4. directing the defendants Altamiranos and Lajarcas, jointly and severally, to pay
plaintiff moral damages in the amount of ₱100,000.00, actual and compensatory
damages in the amount of ₱100,000.00, ₱50,000.00 as exemplary damages and the
sum of ₱50,000.00 as attorney’s fees plus ₱2,500.00 for every hearing attended as and
for appearance fees, and costs of suit.

SO ORDERED.12

Aggrieved, the Spouses Lajarca filed an appeal assailing the above RTC decision.

The Ruling of the CA in CA-G.R. CV No. 86001

In its Decision13 dated November 29, 2007, the CA affirmed with modification, the dispositive
portion of which states:

WHEREFORE, premises considered, the August 23, 2005 Decision of the Regional Trial
Court, Br. 85, Fourth Judicial Region, Lipa City, in Civil Case No. 97-0107, is hereby
AFFIRMED with

MODIFICATION. Concomitantly, judgment is hereby rendered, as follows:

1) The complaint, as far as Adelaida Altamirano, Catalina Altamirano, Alfredo

Altamirano, Francisco Altamirano, Violeta Altamirano Olfato and Loreta Altamirano vda.
de Maralit are concerned, is hereby DISMISSED;

2) The contract of sale between Alejandro Altamirano and Reman Recio is VALID only
with respect to the aliquot share of Alejandro Altamirano in the lot previously covered by
TCT No. T-102563 (now covered by TCT No. 112727);

3) The Deed of Sale, dated February 26, 1998, between the Altamiranos and the
Lajarca Spouses is declared NULL and VOID as far as the aliquot share of Alejandro
Altamirano is concerned;

4) Reman Recio is DECLARED a co-owner of the Spouses Lauro and Marcelina

Lajarca over the property previously covered by TCT No. T-102563 (now TCT No.
112727), his share being that which previously corresponds to the aliquot share of
Alejandro Altamirano; and

5) The damages awarded below to Reman Recio are AFFIRMED. No costs.

SO ORDERED.14
In précis, the CA found and ruled as follows:

1) That the summons to Alejandro is not summons to the other Altamiranos since
Alejandro’s authority to represent his co-heirs is disputed for lack of a written special
power of attorney (SPA). Furthermore, the CA found that the Altamiranos, save for
Alejandro and Violeta, reside abroad with unknown addresses. Thus, for the CA,
summons to the non-resident Altamiranos should have been served extraterritorially as
provided in Section 15, Rule 1415 of the Revised Rules of Court.16

2) That there was a valid contract of sale entered into by Alejandro and the petitioner
considering that: (a) Alejandro did not make any express reservation of ownership or
title to the subject parcel of land, and that he issued receipts precisely to acknowledge
the payments made for the purchase of Lot No. 3; (b) Alejendro actually delivered Lot
No. 3 to the petitioner and waived the rental payments thereof; (c) Alejandro did not
actually refuse the petitioner’s offer to pay the balance of the purchase price but
instead, merely avoided the petitioner; and (d) all the elements of a valid contract of sale
exist in the transaction between the petitioner and the Altamiranos.17

3) That Alejandro’s sale of Lot No. 3 did not bind his co-owners because a sale of real
property by one purporting to be an agent of the owner without any written authority
from the latter is null and void. An SPA from the co-owners pursuant to Article 1878 of
the New Civil Code is necessary.

However, the CA held that the contract of sale between Alejandro and the petitioner is valid
because under a regime of co-ownership, a co-owner can freely sell and dispose his undivided
interest, citing Acabal v. Acabal.18 Furthermore, the Spouses Lajarca were not buyers in good
faith because they had knowledge of the prior sale to the petitioner who even caused the
annotation of the Notice of Lis Pendens on TCT No. T-102563.19

The CA, thereby, held that insofar as the verbal contract of sale between Alejandro and the
petitioner is concerned, Alejandro’s disposition affects only his pro indiviso share, such that the
transferee (the petitioner) receives only what corresponds to Alejandro’s undivided share in the
subject lot. Likewise, the CA declared the deed of absolute sale between the Altamiranos and
the Spouses Lajarca valid only insofar as the aliquot shares of the other Altamiranos are
concerned. Thus, in effect, the petitioner and the Spouses Lajarca are co-owners of the
subject property.

Not satisfied with the decision, the petitioner sought reconsideration but his motion was denied
in the CA Resolution20 dated March 18, 2008.

Issue

The petitioner filed the instant petition alleging in the main that the CA gravely and seriously
erred in modifying the RTC decision.

Our Ruling

The petition has no merit.

Under Rule 45 of the Rules of Court, jurisdiction is generally limited to the review of errors of
law committed by the appellate court. The Supreme Court is not obliged to review all over
again the evidence which the parties adduced in the court a quo. Of course, the general rule
admits of exceptions, such as where the factual findings of the CA and the trial court are
conflicting or contradictory.21 In the instant case, the findings of the trial court and its
conclusion based on the said findings contradict those of the CA. After a careful review, the
Court finds no reversible error with the decision of the CA.
At the core of the present petition is the validity of the verbal contract of sale between
Alejandro and the petitioner; and the Deed of Absolute Sale between the Altamiranos and the
Spouses Lajarca involving the subject property.

A valid contract of sale requires: (a) a meeting of minds of the parties to transfer ownership of
the thing sold in exchange for a price; (b) the subject matter, which must be a possible thing;
and (c) the price certain in money or its equivalent.22

In the instant case, all these elements are present. The records disclose that the Altamiranos
were the ones who offered to sell the property to Nena but the transaction did not push through
due to the fault of the respondents. Thereafter, the petitioner renewed Nena’s option to
purchase the property to which Alejandro, as the representative of the Altamiranos verbally
agreed. The determinate subject matter is Lot No. 3, which is covered under TCT No. T-
102563 and located at No. 39 10 de Julio Street (now Esteban Mayo Street), Lipa City,
Batangas.23 The price agreed for the sale of the property was Five Hundred Thousand Pesos
(₱500,000.00).24 It cannot be denied that the oral contract of sale entered into between the
petitioner and Alejandro was valid.

However, the CA found that it was only Alejandro who agreed to the sale.1âwphi1 There is no
evidence to show that the other co-owners consented to Alejandro’s sale transaction with the
petitioner. Hence, for want of authority to sell Lot No. 3, the CA ruled that Alejandro only sold
his aliquot share of the subject property to the petitioner.

In Alcantara v. Nido,25 the Court emphasized the requirement of an SPA before an agent may
sell an immovable property. In the said case, Revelen was the owner of the subject land. Her
mother, respondent Brigida Nido accepted the petitioners’ offer to buy Revelen’s land at Two
Hundred Pesos (₱200.00) per sq m. However, Nido was only authorized verbally by Revelen.
Thus, the Court declared the sale of the said land null and void under Articles 1874 and 1878
of the Civil Code.26

Articles 1874 and 1878 of the Civil Code explicitly provide:

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void.

Art. 1878. Special powers of attorney are necessary in the following cases:

xxxx

(5) To enter into any contract by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration;

The petitioner insists that the authority of Alejandro to represent his co-heirs in the contract of
sale entered into with the petitioner had been adequately proven during the trial. He alleges
that the other Altamiranos are deemed to have knowledge of the contract of sale entered into
by Alejandro with the petitioner since all of them, either personally or through their authorized
representatives participated in the sale transaction with the Spouses Lajarca involving the
same property covered by TCT No. T-102563. In fact, said TCT even contained a notice of lis
pendens which should have called their attention that there was a case involving the property.
Moreover, the petitioner points out that Alejandro represented a considerable majority of the
co-owners as can be observed from other transaction and documents, i.e., three (3) Deeds of
Sale executed in favor of the Spouses Lajarca and the two other buyers of the parcels of land
co-owned by the Altamiranos.27

The petitioner’s contentions are untenable. Given the expressed requirement under the
Articles 1874 and 1878 of the Civil Code that there must be a written authority to sell an
immovable property, the petitioner’s arguments must fail. The petitioner asserts that since TCT
No. T-102563 contained a notice of lis pendens, the Altamiranos very well knew of the earlier
sale to him by Alejandro. While this may be true, it does not negate the fact that Alejandro did
not have any SPA. It was a finding that need not be disturbed that Alejandro had no authority
from his co-owners to sell the subject property.

Moreover, the fact that Alejandro allegedly represented a majority of the co-owners in the
transaction with the Spouses Lajarca, is of no moment. The Court cannot just simply assume
that Alejandro had the same authority when he transacted with the petitioner.

In Woodchild Holdings, Inc. v. Roxas Electric and Construction Company, Inc. 28 the Court
stated that "persons dealing with an assumed agency, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it."29 In other words, when
the petitioner relied only on the words of respondent Alejandro without securing a copy of the
SPA in favor of the latter, the petitioner is bound by the risk accompanying such trust on the
mere assurance of Alejandro.

The same Woodchild case stressed that apparent authority based on estoppel can arise from
the principal who knowingly permit the agent to hold himself out with authority and from the
principal who clothe the agent with indicia of authority that would lead a reasonably prudent
person to believe that he actually has such authority.30 Apparent authority of an agent arises
only from "acts or conduct on the part of the principal and such acts or conduct of the principal
must have been known and relied upon in good faith and as a result of the exercise of
reasonable prudence by a third person as claimant and such must have produced a change of
position to its detriment."31 In the instant case, the sale to the Spouses Lajarca and other
transactions where Alejandro allegedly represented a considerable majority of the co-owners
transpired after the sale to the petitioner; thus, the petitioner cannot rely upon these acts or
conduct to believe that Alejandro had the same authority to negotiate for the sale of the subject
property to him.

Indeed, the petitioner can only apply the principle of apparent authority if he is able to prove
the acts of the Altamiranos which justify his belief in Alejandro’s agency; that the Altamiranos
had such knowledge thereof; and if the petitioner relied upon those acts and conduct,
consistent with ordinary care and prudence.32

The instant case shows no evidence on record of specific acts which the Altamiranos made
before tile sale of the subject property to the petitioner, indicating that they fully knew of the
representation of Alejandro. All that the petitioner relied upon were acts that happened after
the sale to him. Absent the consent of Alejandro's co-owners, the Court holds that the sale
between the other Altamiranos and the petitioner is null and void. But as held by the appellate
court, the sale between the petitioner and Alejandro is valid insofar as the aliquot share of
respondent Alejandro is concerned. Being a co-owner, Alejandro can validly and legally
dispose of his share even without the consent of all the other co-heirs. 33 Since the balance of
the full price has not yet been paid, the amount paid shall represent as payment to his aliquot
share.34 This then leaves the sale of the lot of the Altamiranos to the Spouses Lajarca valid
only insofar as their shares are concerned, exclusive of the aliquot part of Alejandro, as ruled
by the CA. The Court finds no reversible error with the decision of the CA in all respects.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated November
29, 2007 in CA-G.R. CV No. 86001 is AFFIRMED.

SO ORDERED.
Diego v. Diego,G.R. No. 179965, 691 SCRA 361, February 20, 2013

G.R. No. 179965               February 20, 2013

NICOLAS P. DIEGO, Petitioner,
vs.
RODOLFO P. DIEGO and EDUARDO P. DIEGO, Respondents.

DECISION

DEL CASTILLO, J.:

It is settled jurisprudence, to the point of being elementary, that an agreement which stipulates
that the seller shall execute a deed of sale only upon or after tl1ll payment of the purchase
price is a contract to sell, not a contract of sale. In Reyes v. Tuparan,  1 this Court declared in
categorical terms that "[w]here the vendor promises to execute a deed of absolute sale
upon the completion by the vendee of the payment of the price, the contract is only a
contract to sell. The aforecited stipulation shows that the vendors reserved title to the
subject property until full payment of the purchase price."

In this case, it is not disputed as in tact both parties agreed that the deed of sale shall only be
executed upon payment of the remaining balance of the purchase price. Thus, pursuant to the
above stated jurisprudence, we similarly declare that the transaction entered into by the parties
is a contract to sell.

Before us is a Petition for Review on Certiorari2 questioning the June 29, 2007 Decision3 and
the October 3, 2007 Resolution4 of the Court of Appeals (CA) in CA-G.R. CV No. 86512, which
affirmed the April 19, 2005 Decision5 of the Regional Trial Court (RTC), Branch 40, of Dagupan
City in Civil Case No. 99-02971-D.

Factual Antecedents

In 1993, petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, respondent herein,
entered into an oral contract to sell covering Nicolas’s share, fixed at ₱500,000.00, as co-
owner of the family’s Diego Building situated in Dagupan City. Rodolfo made a downpayment
of ₱250,000.00. It was agreed that the deed of sale shall be executed upon payment of the
remaining balance of ₱250,000.00. However, Rodolfo failed to pay the remaining balance.

Meanwhile, the building was leased out to third parties, but Nicolas’s share in the rents were
not remitted to him by herein respondent Eduardo, another brother of Nicolas and designated
administrator of the Diego Building. Instead, Eduardo gave Nicolas’s monthly share in the rents
to Rodolfo. Despite demands and protestations by Nicolas, Rodolfo and Eduardo failed to
render an accounting and remit his share in the rents and fruits of the building, and Eduardo
continued to hand them over to Rodolfo.

Thus, on May 17, 1999, Nicolas filed a Complaint6 against Rodolfo and Eduardo before the
RTC of Dagupan City and docketed as Civil Case No. 99-02971-D. Nicolas prayed that
Eduardo be ordered to render an accounting of all the transactions over the Diego Building;
that Eduardo and Rodolfo be ordered to deliver to Nicolas his share in the rents; and that
Eduardo and Rodolfo be held solidarily liable for attorney’s fees and litigation expenses.

Rodolfo and Eduardo filed their Answer with Counterclaim7 for damages and attorney’s fees.
They argued that Nicolas had no more claim in the rents in the Diego Building since he had
already sold his share to Rodolfo. Rodolfo admitted having remitted only ₱250,000.00 to
Nicolas. He asserted that he would pay the balance of the purchase price to Nicolas only after
the latter shall have executed a deed of absolute sale.
Ruling of the Regional Trial Court

After trial on the merits, or on April 19, 2005, the trial court rendered its Decision8 dismissing
Civil Case No. 99-02971-D for lack of merit and ordering Nicolas to execute a deed of absolute
sale in favor of Rodolfo upon payment by the latter of the ₱250,000.00 balance of the agreed
purchase price. It made the following interesting pronouncement:

It is undisputed that plaintiff (Nicolas) is one of the co-owners of the Diego Building, x x x. As a
co-owner, he is entitled to [his] share in the rentals of the said building. However, plaintiff [had]
already sold his share to defendant Rodolfo Diego in the amount of ₱500,000.00 and in fact,
[had] already received a partial payment in the purchase price in the amount of
₱250,000.00. Defendant Eduardo Diego testified that as per agreement, verbal, of the
plaintiff and defendant Rodolfo Diego, the remaining balance of ₱250,000.00 will be paid
upon the execution of the Deed of Absolute Sale. It was in the year 1997 when plaintiff was
being required by defendant Eduardo Diego to sign the Deed of Absolute Sale. Clearly,
defendant Rodolfo Diego was not yet in default as the plaintiff claims which cause [sic] him to
refuse to sign [sic] document. The contract of sale was already perfected as early as the year
1993 when plaintiff received the partial payment, hence, he cannot unilaterally revoke or
rescind the same. From then on, plaintiff has, therefore, ceased to be a co-owner of the
building and is no longer entitled to the fruits of the Diego Building.

Equity and fairness dictate that defendant [sic] has to execute the necessary document
regarding the sale of his share to defendant Rodolfo Diego. Correspondingly, defendant
Rodolfo Diego has to perform his obligation as per their verbal agreement by paying the
remaining balance of ₱250,000.00.9

To summarize, the trial court ruled that as early as 1993, Nicolas was no longer entitled to the
fruits of his aliquot share in the Diego Building because he had "ceased to be a co-owner"
thereof. The trial court held that when Nicolas received the ₱250,000.00 downpayment, a
"contract of sale" was perfected. Consequently, Nicolas is obligated to convey such share to
Rodolfo, without right of rescission. Finally, the trial court held that the ₱250,000.00 balance
from Rodolfo will only be due and demandable when Nicolas executes an absolute deed of
sale.

Ruling of the Court of Appeals

Nicolas appealed to the CA which sustained the trial court’s Decision in toto. The CA held that
since there was a perfected contract of sale between Nicolas and Rodolfo, the latter may
compel the former to execute the proper sale document. Besides, Nicolas’s insistence that he
has since rescinded their agreement in 1997 proved the existence of a perfected sale. It added
that Nicolas could not validly rescind the contract because: "1) Rodolfo ha[d] already made a
partial payment; 2) Nicolas ha[d] already partially performed his part regarding the contract;
and 3) Rodolfo opposes the rescission."10

The CA then proceeded to rule that since no period was stipulated within which Rodolfo shall
deliver the balance of the purchase price, it was incumbent upon Nicolas to have filed a civil
case to fix the same. But because he failed to do so, Rodolfo cannot be considered to be in
delay or default.

Finally, the CA made another interesting pronouncement, that by virtue of the agreement
Nicolas entered into with Rodolfo, he had already transferred his ownership over the subject
property and as a consequence, Rodolfo is legally entitled to collect the fruits thereof in the
form of rentals. Nicolas’ remaining right is to demand payment of the balance of the purchase
price, provided that he first executes a deed of absolute sale in favor of Rodolfo.

Nicolas moved for reconsideration but the same was denied by the CA in its Resolution dated
October 3, 2007.
Hence, this Petition.

Issues

The Petition raises the following errors that must be rectified:

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THERE WAS
NO PERFECTED CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND
RESPONDENT RODOLFO DIEGO OVER NICOLAS’S SHARE OF THE BUILDING
BECAUSE THE SUSPENSIVE CONDITION HAS NOT YET BEEN FULFILLED.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT OF

SALE BETWEEN PETITIONER AND RESPONDENT RODOLFO DIEGO REMAINS LEGALLY
BINDING AND IS NOT RESCINDED GIVING MISPLACED RELIANCE ON PETITIONER
NICOLAS’ STATEMENT THAT THE SALE HAS NOT YET BEEN REVOKED.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER

NICOLAS DIEGO ACTED LEGALLY AND CORRECTLY WHEN HE UNILATERALLY
RESCINDED AND REVOKED HIS AGREEMENT OF SALE WITH RESPONDENT RODOLFO
DIEGO CONSIDERING RODOLFO’S MATERIAL, SUBSTANTIAL BREACH OF THE
CONTRACT.

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS

NO MORE RIGHTS OVER HIS SHARE IN THE BUILDING, DESPITE THE FACT THAT
THERE WAS AS YET NO PERFECTED CONTRACT OF SALE BETWEEN PETITIONER
NICOLAS DIEGO AND RODOLFO DIEGO AND THERE WAS YET NO TRANSFER OF
OWNERSHIP OF PETITIONER’S SHARE TO RODOLFO DUE TO THE NON-FULFILLMENT
BY RODOLFO OF THE SUSPENSIVE CONDITION UNDER THE CONTRACT.

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT

RODOLFO HAS UNJUSTLY ENRICHED HIMSELF AT THE EXPENSE OF PETITIONER
BECAUSE DESPITE NOT HAVING PAID THE BALANCE OF THE PURCHASE PRICE OF
THE SALE, THAT RODOLFO HAS NOT YET ACQUIRED OWNERSHIP OVER THE SHARE
OF PETITIONER NICOLAS, HE HAS ALREADY BEEN APPROPRIATING FOR HIMSELF
AND FOR HIS PERSONAL BENEFIT THE SHARE OF THE INCOME OF THE BUILDING
AND THE PORTION OF THE BUILDING ITSELF WHICH WAS DUE TO AND OWNED BY
PETITIONER NICOLAS.

VI

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ACTUAL DAMAGES,

ATTORNEY’S FEES AND LITIGATION EXPENSES TO THE PETITIONER DESPITE THE
FACT THAT PETITIONER’S RIGHTS HAD BEEN WANTONLY VIOLATED BY THE
RESPONDENTS.11

Petitioner’s Arguments
In his Petition, the Supplement12 thereon, and Reply,13 Nicolas argues that, contrary to what
the CA found, there was no perfected contract of sale even though Rodolfo had partially paid
the price; that in the absence of the third element in a sale contract – the price – there could be
no perfected sale; that failing to pay the required price in full, Nicolas had the right to rescind
the agreement as an unpaid seller.

Nicolas likewise takes exception to the CA finding that Rodolfo was not in default or delay in
the payment of the agreed balance for his (Nicolas’s) failure to file a case to fix the period
within which payment of the balance should be made. He believes that Rodolfo’s failure to pay
within a reasonable time was a substantial and material breach of the agreement which gave
him the right to unilaterally and extrajudicially rescind the agreement and be discharged of his
obligations as seller; and that his repeated written demands upon Rodolfo to pay the balance
granted him such rights.

Nicolas further claims that based on his agreement with Rodolfo, there was to be no transfer of
title over his share in the building until Rodolfo has effected full payment of the purchase price,
thus, giving no right to the latter to collect his share in the rentals.

Finally, Nicolas bewails the CA’s failure to award damages, attorney’s fees and litigation
expenses for what he believes is a case of unjust enrichment at his expense.

Respondents’ Arguments

Apart from echoing the RTC and CA pronouncements, respondents accuse the petitioner of
"cheating" them, claiming that after the latter received the ₱250,000.00 downpayment, he
"vanished like thin air and hibernated in the USA, he being an American citizen," 14 only to
come back claiming that the said amount was a mere loan.

They add that the Petition is a mere rehash and reiteration of the petitioner’s arguments below,
which are deemed to have been sufficiently passed upon and debunked by the appellate court.

Our Ruling

The Court finds merit in the Petition.

The contract entered into by Nicolas and Rodolfo was a contract to sell.

a) The stipulation to execute a deed of sale upon full payment of the purchase price is a
unique and distinguishing characteristic of a contract to sell. It also shows that the
vendor reserved title to the property until full payment.

There is no dispute that in 1993, Rodolfo agreed to buy Nicolas’s share in the Diego Building
for the price of ₱500,000.00. There is also no dispute that of the total purchase price, Rodolfo
paid, and Nicolas received, ₱250,000.00. Significantly, it is also not disputed that the parties
agreed that the remaining amount of ₱250,000.00 would be paid after Nicolas shall have
executed a deed of sale.

This stipulation, i.e., to execute a deed of absolute sale upon full payment of the purchase
price, is a unique and distinguishing characteristic of a contract to sell. In Reyes v.
Tuparan,15 this Court ruled that a stipulation in the contract, "[w]here the vendor promises to
execute a deed of absolute sale upon the completion by the vendee of the payment of
the price," indicates that the parties entered into a contract to sell. According to this Court,
this particular provision is tantamount to a reservation of ownership on the part of the vendor.
Explicitly stated, the Court ruled that the agreement to execute a deed of sale upon full
payment of the purchase price "shows that the vendors reserved title to the subject
property until full payment of the purchase price." 16
In Tan v. Benolirao,17 this Court, speaking through Justice Brion, ruled that the parties
entered into a contract to sell as revealed by the following stipulation:

d) That in case, BUYER has complied with the terms and conditions of this contract, then the
SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale;18

The Court further held that "[j]urisprudence has established that where the seller
promises to execute a deed of absolute sale upon the completion by the buyer of the
payment of the price, the contract is only a contract to sell." 19

b) The acknowledgement receipt signed by Nicolas as well as the contemporaneous

acts of the parties show that they agreed on a contract to sell, not of sale. The absence
of a formal deed of conveyance is indicative of a contract to sell.

In San Lorenzo Development Corporation v. Court of Appeals,20 the facts show that spouses
Miguel and Pacita Lu (Lu) sold a certain parcel of land to Pablo Babasanta (Pablo). After
several payments, Pablo wrote Lu demanding "the execution of a final deed of sale in his favor
so that he could effect full payment of the purchase price." 21 To prove his allegation that there
was a perfected contract of sale between him and Lu, Pablo presented a receipt signed by Lu
acknowledging receipt of ₱50,000.00 as partial payment.22

However, when the case reached this Court, it was ruled that the transaction entered into by
Pablo and Lu was only a contract to sell, not a contract of sale. The Court held thus:

The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand
pesos (₱50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in
Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the
property until full payment of the price which is a distinguishing feature of a contract to sell, the
subsequent acts of the parties convince us that the Spouses Lu never intended to transfer
ownership to Babasanta except upon full payment of the purchase price.

Babasanta’s letter dated 22 May 1989 was quite telling. He stated therein that despite his
repeated requests for the execution of the final deed of sale in his favor so that he could effect
full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself
recognized that ownership of the property would not be transferred to him until such
time as he shall have effected full payment of the price. Moreover, had the sellers
intended to transfer title, they could have easily executed the document of sale in its
required form simultaneously with their acceptance of the partial payment, but they did
not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a
perfected contract to sell.23

In the instant case, records show that Nicolas signed a mere receipt 24 acknowledging partial
payment of ₱250,000.00 from Rodolfo. It states:

July 8, 1993

Received the amount of [₱250,000.00] for 1 share of Diego Building as partial payment for
Nicolas Diego.

(signed)
Nicolas Diego25

As we ruled in San Lorenzo Development Corporation v. Court of Appeals,26 the parties could

have executed a document of sale upon receipt of the partial payment but they did not. This is
thus an indication that Nicolas did not intend to immediately transfer title over his share but
only upon full payment of the purchase price. Having thus reserved title over the property, the
contract entered into by Nicolas is a contract to sell. In addition, Eduardo admitted that he and
Rodolfo repeatedly asked Nicolas to sign the deed of sale27 but the latter refused because he
was not yet paid the full amount. As we have ruled in San Lorenzo Development Corporation
v. Court of Appeals, 28 the fact that Eduardo and Rodolfo asked Nicolas to execute a deed of
sale is a clear recognition on their part that the ownership over the property still remains with
Nicolas. In fine, the totality of the parties’ acts convinces us that Nicolas never intended to
transfer the ownership over his share in the Diego Building until the full payment of the
purchase price. Without doubt, the transaction agreed upon by the parties was a contract to
sell, not of sale.

In Chua v. Court of Appeals,29 the parties reached an impasse when the seller wanted to be
first paid the consideration before a new transfer certificate of title (TCT) is issued in the name
of the buyer. Contrarily, the buyer wanted to secure a new TCT in his name before paying the
full amount. Their agreement was embodied in a receipt containing the following terms: "(1) the
balance of ₱10,215,000.00 is payable on or before 15 July 1989; (2) the capital gains tax is for
the account of x x x; and (3) if [the buyer] fails to pay the balance x x x the [seller] has the right
to forfeit the earnest money x x x."30 The case eventually reached this Court. In resolving the
impasse, the Court, speaking through Justice Carpio, held that "[a] perusal of the Receipt
shows that the true agreement between the parties was a contract to sell." 31 The Court noted
that "the agreement x x x was embodied in a receipt rather than in a deed of sale, ownership
not having passed between them."32 The Court thus concluded that "[t]he absence of a
formal deed of conveyance is a strong indication that the parties did not intend
immediate transfer of ownership, but only a transfer after full payment of the purchase
price."33 Thus, the "true agreement between the parties was a contract to sell."34

In the instant case, the parties were similarly embroiled in an impasse. The parties’ agreement
was likewise embodied only in a receipt. Also, Nicolas did not want to sign the deed of sale
unless he is fully paid. On the other hand, Rodolfo did not want to pay unless a deed of sale is
duly executed in his favor. We thus say, pursuant to our ruling in Chua v. Court of
Appeals35 that the agreement between Nicolas and Rodolfo is a contract to sell.

This Court cannot subscribe to the appellate court’s view that Nicolas should first execute a
deed of absolute sale in favor of Rodolfo, before the latter can be compelled to pay the
balance of the price. This is patently ridiculous, and goes against every rule in the book. This
pronouncement virtually places the prospective seller in a contract to sell at the mercy of the
prospective buyer, and sustaining this point of view would place all contracts to sell in jeopardy
of being rendered ineffective by the act of the prospective buyers, who naturally would demand
that the deeds of absolute sale be first executed before they pay the balance of the price.
Surely, no prospective seller would accommodate.

In fine, "the need to execute a deed of absolute sale upon completion of payment of the
price generally indicates that it is a contract to sell, as it implies the reservation of title
in the vendor until the vendee has completed the payment of the price." 36 In addition, "[a]
stipulation reserving ownership in the vendor until full payment of the price is x x x typical in a
contract to sell."37 Thus, contrary to the pronouncements of the trial and appellate courts, the
parties to this case only entered into a contract to sell; as such title cannot legally pass to
Rodolfo until he makes full payment of the agreed purchase price.

c) Nicolas did not surrender or deliver title or possession to Rodolfo.

Moreover, there could not even be a surrender or delivery of title or possession to the
prospective buyer Rodolfo. This was made clear by the nature of the agreement, by Nicolas’s
repeated demands for the return of all rents unlawfully and unjustly remitted to Rodolfo by
Eduardo, and by Rodolfo and Eduardo’s repeated demands for Nicolas to execute a deed of
sale which, as we said before, is a recognition on their part that ownership over the subject
property still remains with Nicolas.
Significantly, when Eduardo testified, he claimed to be knowledgeable about the terms and
conditions of the transaction between Nicolas and Rodolfo. However, aside from stating that
out of the total consideration of ₱500,000.00, the amount of ₱250,000.00 had already been
paid while the remaining ₱250,000.00 would be paid after the execution of the Deed of Sale,
he never testified that there was a stipulation as regards delivery of title or possession.38

It is also quite understandable why Nicolas belatedly demanded the payment of the rentals.
Records show that the structural integrity of the Diego Building was severely compromised
when an earthquake struck Dagupan City in 1990.39 In order to rehabilitate the building, the co-
owners obtained a loan from a bank.40 Starting May 1994, the property was leased to third
parties and the rentals received were used to pay off the loan.41 It was only in 1996, or after
payment of the loan that the co-owners started receiving their share in the rentals. 42 During this
time, Nicolas was in the USA but immediately upon his return, he demanded for the payment
of his share in the rentals which Eduardo remitted to Rodolfo. Failing which, he filed the instant
Complaint. To us, this bolsters our findings that Nicolas did not intend to immediately transfer
title over the property.

It must be stressed that it is anathema in a contract to sell that the prospective seller should
deliver title to the property to the prospective buyer pending the latter’s payment of the price in
full. It certainly is absurd to assume that in the absence of stipulation, a buyer under a contract
to sell is granted ownership of the property even when he has not paid the seller in full. If this
were the case, then prospective sellers in a contract to sell would in all likelihood not be paid
the balance of the price.

This ponente has had occasion to rule that "[a] contract to sell is one where the prospective
seller reserves the transfer of title to the prospective buyer until the happening of an event,
such as full payment of the purchase price. What the seller obliges himself to do is to sell the
subject property only when the entire amount of the purchase price has already been delivered
to him. ‘In other words, the full payment of the purchase price partakes of a suspensive
condition, the nonfulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the prospective
buyer.’ It does not, by itself, transfer ownership to the buyer."43

The contract to sell is terminated or cancelled.

Having established that the transaction was a contract to sell, what happens now to the
parties’ agreement?

The remedy of rescission is not available in contracts to sell.44 As explained in Spouses Santos
v. Court of Appeals:45

In view of our finding in the present case that the agreement between the parties is a contract
to sell, it follows that the appellate court erred when it decreed that a judicial rescission of said
agreement was necessary. This is because there was no rescission to speak of in the first
place. As we earlier pointed out, in a contract to sell, title remains with the vendor and does not
pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the
payment of the purchase price is a positive suspensive condition. Failure to pay the price
agreed upon is not a mere breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an obligatory force. This is entirely
different from the situation in a contract of sale, where non-payment of the price is a negative
resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has
lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded
and set aside. In a contract to sell, however, the vendor remains the owner for as long as the
vendee has not complied fully with the condition of paying the purchase price. If the vendor
should eject the vendee for failure to meet the condition precedent, he is enforcing the contract
and not rescinding it. When the petitioners in the instant case repossessed the disputed house
and lot for failure of private respondents to pay the purchase price in full, they were merely
enforcing the contract and not rescinding it. As petitioners correctly point out, the Court of
Appeals erred when it ruled that petitioners should have judicially rescinded the contract
pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of
the purchase price as a resolutory condition. It does not apply to a contract to sell. As to Article
1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable
property. Neither provision is applicable in the present case.46

Similarly, we held in Chua v. Court of Appeals47 that "Article 1592 of the Civil Code permits the
buyer to pay, even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by notarial act. However, Article 1592
does not apply to a contract to sell where the seller reserves the ownership until full payment
of the price,"48 as in this case.1âwphi1

Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay the purchase
price, the contract to sell was deemed terminated or cancelled.49 As we have held in Chua v.
Court of Appeals,50 "[s]ince the agreement x x x is a mere contract to sell, the full payment of
the purchase price partakes of a suspensive condition. The non-fulfillment of the condition
prevents the obligation to sell from arising and ownership is retained by the seller
without further remedies by the buyer." Similarly, we held in Reyes v. Tuparan51 that
"petitioner’s obligation to sell the subject properties becomes demandable only upon the
happening of the positive suspensive condition, which is the respondent’s full payment of the
purchase price. Without respondent’s full payment, there can be no breach of contract to
speak of because petitioner has no obligation yet to turn over the title. Respondent’s
failure to pay in full the purchase price in full is not the breach of contract contemplated under
Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from
being bound to convey title to respondent." Otherwise stated, Rodolfo has no right to compel
Nicolas to transfer ownership to him because he failed to pay in full the purchase price.
Correlatively, Nicolas has no obligation to transfer his ownership over his share in the Diego
Building to Rodolfo.52

Thus, it was erroneous for the CA to rule that Nicolas should have filed a case to fix the period
for Rodolfo’s payment of the balance of the purchase price. It was not Nicolas’s obligation to
compel Rodolfo to pay the balance; it was Rodolfo’s duty to remit it.

It would appear that after Nicolas refused to sign the deed as there was yet no full payment,
Rodolfo and Eduardo hired the services of the Daroya Accounting Office "for the purpose of
estimating the amount to which [Nicolas] still owes [Rodolfo] as a consequence of the
unconsummated verbal agreement regarding the former’s share in the co-ownership of [Diego
Building] in favor of the latter."53 According to the accountant’s report, after Nicolas revoked his
agreement with Rodolfo due to non-payment, the downpayment of ₱250,000.00 was
considered a loan of Nicolas from Rodolfo.54 The accountant opined that the ₱250,000.00
should earn interest at 18%.55 Nicolas however objected as regards the imposition of interest
as it was not previously agreed upon. Notably, the contents of the accountant’s report were not
disputed or rebutted by the respondents. In fact, it was stated therein that "[a]ll the bases and
assumptions made particularly in the fixing of the applicable rate of interest have been
discussed with [Eduardo]."56

We find it irrelevant and immaterial that Nicolas described the termination or cancellation of his
agreement with Rodolfo as one of rescission. Being a layman, he is understandably not adept
in legal terms and their implications. Besides, this Court should not be held captive or bound
by the conclusion reached by the parties. The proper characterization of an action should be
based on what the law says it to be, not by what a party believed it to be. "A contract is what
the law defines it to be x x x and not what the contracting parties call it."57

On the other hand, the respondents’ additional submission – that Nicolas cheated them by
"vanishing and hibernating" in the USA after receiving Rodolfo’s ₱250,000.00 downpayment,
only to come back later and claim that the amount he received was a mere loan – cannot be
believed. How the respondents could have been cheated or disadvantaged by Nicolas’s
leaving is beyond comprehension. If there was anybody who benefited from Nicolas’s
perceived "hibernation", it was the respondents, for they certainly had free rein over Nicolas’s
interest in the Diego Building. Rodolfo put off payment of the balance of the price, yet, with the
aid of Eduardo, collected and appropriated for himself the rents which belonged to Nicolas.

Eduardo is solidarily liable with Rodolfo as regards the share of Nicolas in the rents.

For his complicity, bad faith and abuse of authority as the Diego Building administrator,
Eduardo must be held solidarily liable with Rodolfo for all that Nicolas should be entitled to
from 1993 up to the present, or in respect of actual damages suffered in relation to his interest
in the Diego Building. Eduardo was the primary cause of Nicolas’s loss, being directly
responsible for making and causing the wrongful payments to Rodolfo, who received them
under obligation to return them to Nicolas, the true recipient.1âwphi1 As such, Eduardo should
be principally responsible to Nicolas as well. Suffice it to state that every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith; and every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the latter for the same.58

Attorney’s fees and other costs.

"Although attorney’s fees are not allowed in the absence of stipulation, the court can award the
same when the defendant’s act or omission has compelled the plaintiff to incur expenses to
protect his interest or where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff’s plainly valid, just and demandable claim."59 In the instant case, it is beyond
cavil that petitioner was constrained to file the instant case to protect his interest because of
respondents’ unreasonable and unjustified refusal to render an accounting and to remit to the
petitioner his rightful share in rents and fruits in the Diego Building. Thus, we deem it proper to
award to petitioner attorney’s fees in the amount of ₱50,000.00, 60 as well as litigation expenses
in the amount of ₱20,000.00 and the sum of ₱1,000.00 for each court appearance by his
lawyer or lawyers, as prayed for.

WHEREFORE, premises considered, the Petition is GRANTED. The June 29, 2007 Decision
and October 3, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 86512, and the
April 19, 2005 Decision of the Dagupan City Regional Trial Court, Branch 40 in Civil Case No.
99-02971-D, are hereby ANNULLED and SET ASIDE.

The Court further decrees the following:

1. The oral contract to sell between petitioner Nicolas P. Diego and respondent Rodolfo
P. Diego is DECLARED terminated/cancelled;

2. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED to surrender

possession and control, as the case may be, of Nicolas P. Diego’s share in the Diego
Building. Respondents are further commanded to return or surrender to the petitioner
the documents of title, receipts, papers, contracts, and all other documents in any form
or manner pertaining to the latter’s share in the building, which are deemed to be in their
unauthorized and illegal possession;

3. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED to immediately

render an accounting of all the transactions, from the period beginning 1993 up to the
present, pertaining to Nicolas P. Diego’s share in the Diego Building, and thereafter
commanded to jointly and severally remit to the petitioner all rents, monies, payments
and benefits of whatever kind or nature pertaining thereto, which are hereby deemed
received by them during the said period, and made to them or are due, demandable and
forthcoming during the said period and from the date of this Decision, with legal interest
from the filing of the Complaint;
 4. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED, immediately
and without further delay upon receipt of this Decision, to solidarily pay the petitioner
attorney’s fees in the amount of ₱50,000.00; litigation expenses in the amount of
₱20,000.00 and the sum of ₱1,000.00 per counsel for each court appearance by his
lawyer or lawyers;

5. The payment of ₱250,000.00 made by respondent Rodolfo P. Diego, with legal

interest from the filing of the Complaint, shall be APPLIED, by way of compensation, to
his liabilities to the petitioner and to answer for all damages and other awards and
interests which are owing to the latter under this Decision; and

6. Respondents’ counterclaim is DISMISSED.

SO ORDERED.

Dr. Lorna C. Formaran vs. Dr. Glenda B. Ong and Solomon S. Ong, G.R. No. 186264; July
8,2013

G.R. No. 186264               July 8, 2013

DR. LORNA C. FORMARAN, Petitioner,
vs.
DR. GLENDA B. ONG AND SOLOMON S. ONG, Respondents.

DECISION

PEREZ, J.:

This is an Appeal by certiorari under Rule 45 of the Revised Rules of Court of the Decision 1 of
the Court of Appeals (CA) rendered on August 30, 2007, the dispositive portion of which reads
as follows:

"WHEREFORE, in the (sic) light of the foregoing, the assailed Decision is REVERSED AND
SET ASIDE. The Complaint of appellee Lorna C. Formaran is DISMISSED. The appellee, her
agents or representatives are ORDERED to vacate the land in question and to restore the
same to appellants."

The facts adopted by both the trial court and the Court of Appeals are summarized thus:

"According to plaintiff (Petitioner)'s complaint, she owns the afore-described parcel of land
which was donated to her intervivos by her uncle and aunt, spouses Melquiades Barraca and
Praxedes Casidsid on June 25, 1967; that on August 12, 1967 upon the proddings and
representation of defendant (Respondent) Glenda, that she badly needed a collateral for a
loan which she was applying from a bank to equip her dental clinic, plaintiff made it appear that
she sold one-half of the afore-described parcel of land to the defendant Glenda; that the sale
was totally without any consideration and fictitious; that contrary to plaintiff’s agreement with
defendant Glenda for the latter to return the land, defendant Glenda filed a case for unlawful
detainer against the plaintiff who consequently suffered anxiety, sleepless nights and
besmirched reputation; and that to protect plaintiff’s rights and interest over the land in
question, she was constrained to file the instant case, binding herself to pay ₱50,000.00 as
and for attorney's fees.

In an answer filed on December 22, 1997, defendant Glenda insisted on her ownership over
the land in question on account of a Deed of Absolute Sale executed by the plaintiff in her
favor; and that plaintiff’s claim of ownership therefore was virtually rejected by the Municipal
Circuit Trial Court of Ibaja-Nabas, Ibajay, Aklan, when it decided in her favor the unlawful
detainer case she filed against the plaintiff, docketed therein as Civil Case No. 183.
Defendants are also claiming moral damages and attorney’s fees in view of the filing of the
present case against them.

Plaintiff’s testimony tends to show that the land in question is part of the land donated to her on
June 25, 1967 by spouses Melquiades Barraca and Praxedes Casidsid, plaintiff’s uncle and
aunt, respectively. As owner thereof, she declared the land for taxation purposes (Exhibits A-1
to A-5, inclusive). She religiously paid its realty taxes (Exhibit A-6). She mortgaged the land to
Aklan Development Bank to secure payment of a loan.

In 1967, defendant Glenda and her father, Melquiades Barraca came to her residence asking
for help. They were borrowing one-half of land donated to her so that defendant Glenda could
obtain a loan from the bank to buy a dental chair. They proposed that she signs an alleged
sale over the said portion of land.

Acceding to their request, she signed on August 12, 1967 a prepared Deed of Absolute Sale
(Exhibit C) which they brought along with them (TSN, p. 22, Ibid), covering the land in question
without any money involved. There was no monetary consideration in exchange for executing
Exhibit C. She did not also appear before the Notary Public Edilberto Miralles when Exhibit C
was allegedly acknowledged by her on November 9, 1967.

A month thereafter, plaintiff inquired from her uncle, Melquiades Barracca if they have obtained
the loan. The latter informed her that they did not push through with the loan because the
bank’s interest therefore was high. With her uncle’s answer, plaintiff inquired about Exhibit C.
Her uncle replied that they crampled (kinumos) the Deed of Absolute Sale (Exhibit C) and
threw it away. Knowing that Exhibit C was already thrown away, plaintiff did not bother
anymore about the document (TSN, p. 7, Ibid) she thought that there was no more transaction.
Besides, she is also in actual possession of the land and have even mortgaged the same.

In 1974, plaintiff transferred her residence from Nabas, Aklan, to Antipolo City where she has
been residing up to the present time. From the time she signed the Deed of Absolute Sale
(Exhibit C) in August, 1967 up to the present time of her change of residence to Antipolo City,
defendant Glenda never demanded actual possession of the land in question, except when the
latter filed on May 30, 1996 a case for unlawful detainer against her. Following the filing of the
ejectment case, she learned for the first time that the Deed of Absolute Sale was registered on
May 25, 1991 and was not thrown away contrary to what Melquiades Barraca told her.
Moreover, she and Melquiades Barraca did not talk anymore about Exhibit C. That was also
the first time she learned that the land in question is now declared for taxation purposes in the
name of defendant Glenda.

In closing her direct testimony, plaintiff declared that the filing of the unlawful detainer case
against her, caused her some sleepless nights and humiliation. She also suffered
hypertension.

Upon the other hand, relevant matters that surfaced from the testimonies of the defendants
shows that on June 25, 1967, Melquiades Barraca, father of the defendant Glenda, donated a
parcel of land to her niece, plaintiff Lorna C. Formaran (Exhibit 3). At the time of the donation,
plaintiff was still single. She married Atty. Formaran only in September, 1967.

Subsequently, on August 12, 1967, Dr. Lorna B. Casidsid, herein plaintiff, executed a Deed of
Absolute Sale (Exhibit 1) over one-half portion of the land donated to her, in favor of defendant
Glenda. On account of the Sale (Exhibit 1) defendant Glenda was able to declare in her name
the land in question for taxation purposes (Exhibit 4) and paid the realty taxes (Exhibits 6, 6-A,
6-B and 6-C). She also was able to possess the land in question.

Defendant Glenda maintained that there was money involved affecting the sale of the land in
her favor. The sale was not to enable her to buy a dental chair for she had already one at the
time. Besides, the cost of a dental chair in 1967 was only ₱2,000.00 which she can readily
afford.

The document of sale (Exhibit 1) affecting the land in question was not immediately registered
after its execution in 1967 but only on May 25, 1991 in order to accommodate the plaintiff who
mortgaged the land to Aklan Development Bank on May 18, 1978.

Based on the admissions of the parties in their pleadings, during the pre-trial and evidence on
record, there is no contention that on June 25, 1967, the afore-described parcel of land was
donated intervivos (Exhibit 3) by spouses Melquiades Barraca and Praxedes Casidsid to
therein plaintiff, Dr. Lorna Casidsid Formaran who was yet single. She was married to Atty.
Formaran in September 1967. Praxedes was the aunt of Lorna as the latter’s father was the
brother of Praxedes.

Following the donation, plaintiff immediately took possession of the land wherein one-half (1/2)
thereof is the land in question. Since then up to the present time, is still in actual possession of
the land, including the land in question.

Indeed, on May 30, 1996, herein defendant Glenda filed a complaint for unlawful detainer
against the plaintiff before the 7th Municipal Circuit Trial Court of Ibajay-Nabas, Ibajay, Aklan,
docketed there in as Civil Case No. 183. The case was decided on September 2, 1997,
(Exhibit 2) in favor of herein defendant Glenda; ordering the herein plaintiff to vacate the land
in question.

After the plaintiff acquired ownership by way of donation over the afore-described parcel of
land which includes the land in question, she declared the same for taxation purposes under
Tax Declaration No. 12533, effective 1969 (Exhibit A-1). Revision caused the subsequent and
successive cancellation of Exhibit A-1 by Tax Declaration No. 177, effective 1974 (Exhibit A-2);

Tax Declaration No. 183 effective 1980 (Exhibit A-3); Tax Declaration No. 187, effective 1985
(Exhibit A-4); PIN-038-14-001-06-049, effective 1990 (Exhibit A-5); and APP/TD No. 93-001-
330, effective 1994 (Exhibit A-6).

The last two Tax Declarations (Exhibits A-5 and A-6) no longer covered the land in question
which was segregated therefrom when the Deed of Sale executed on August 12, 1967 (Exhibit
C) was registered for the first time on May 25, 1991.

Realty taxes of the afore-described parcel of land, including the land in question, have been
paid by the plaintiff since 1967 up to the present time (Exhibit B). However, defendant Glenda
paid for the first time the realty taxes of the land in question on January 9, 1995 (Exhibit 6) and
up to the present time (Exhibit 6-A and 6-B).1âwphi1

On account of the Deed of Absolute Sale (Exhibit C or 1) signed by the plaintiff, during the
cadastral survey, the land in question was surveyed in the name of defendant and designated
as Lot No. 188 (Exhibit 5) and the other half on the western side was designated as Lot No.
189. The land in question is particularly described as follows:

A parcel of residential land (Lot No. 188, Cad. No. 758-D Nabas Cadastre) located at
Poblacion Nabas, Aklan, Bounded on North by Lot No. 196; on the East by Lot No. 187; on the
West by Lot No. 189 all of Cad. No. 758-D; and on the South by Mabini St., containing an area
of THREE HUNDRED FIFTY SEVEN (357) SQUARE METERS, more or less."

Petitioner filed on action for annulment of the Deed of Sale (Civil Case No. 5398) against
respondents before the Regional Trial Court (RTC), of Kalibo, Aklan, Branch 5.

On December 3, 1999, the trial court rendered a Decision in favor of petitioner and against the
respondent by declaring the Deed of Absolute Sale null and void for being an absolutely
simulated contract and for want of consideration; declaring the petitioner as the lawful owner
entitled to the possession of the land in question; as well as ordering (a) the cancellation of
respondent Glenda’s Tax Declaration No. 1031, and (b) respondents to pay petitioner
₱25,000.00 for attorney’s fees and litigation expenses.

Respondents coursed an appeal to the CA. The CA, on August 30, 2007, reversed and set
aside the Decision of the trial court and ordered petitioner to vacate the land in question and
restore the same to respondents.

Hence, the present petition.

The petition sufficiently shows with convincing arguments that the decision of the CA is based
on a misappreciation of facts.

The Court believes and so holds that the subject Deed of Sale is indeed simulated, 2 as it is: (1)
totally devoid of consideration; (2) it was executed on August 12, 1967, less than two months
from the time the subject land was donated to petitioner on June 25, 1967 by no less than the
parents of respondent Glenda Ong; (3) on May 18, 1978, petitioner mortgaged the land to the
Aklan Development Bank for a ₱23,000.00 loan; (4) from the time of the alleged sale,
petitioner has been in actual possession of the subject land; (5) the alleged sale was
registered on May 25, 1991 or about twenty four (24) years after execution; (6) respondent
Glenda Ong never introduced any improvement on the subject land; and (7) petitioner’s house
stood on a part of the subject land. These are facts and circumstances which may be
considered badges of bad faith that tip the balance in favor of petitioner.

The Court is in accord with the observation and findings of the (RTC,3 Kalibo, Aklan) thus:

"The amplitude of foregoing undisputed facts and circumstances clearly shows that the sale of
the land in question was purely simulated. It is void from the very beginning (Article 1346, New
Civil Code). If the sale was legitimate, defendant Glenda should have immediately taken
possession of the land, declared in her name for taxation purposes, registered the sale, paid
realty taxes, introduced improvements therein and should not have allowed plaintiff to
mortgage the land. These omissions properly militated against defendant Glenda’s submission
that the sale was legitimate and the consideration was paid.

While the Deed of Absolute Sale was notarized, it cannot justify the conclusion that the sale is
a true conveyance to which the parties are irrevocably and undeniably bound. Although the
notarization of Deed of Absolute Sale, vests in its favor the presumption of regularity, it does
not validate nor make binding an instrument never intended, in the first place, to have any
binding legal effect upon the parties thereto (Suntay vs. Court of Appeals, G.R. No. 114950,
December 19, 1995; cited in Ruperto Viloria vs. Court of Appeals, et al., G.R. No. 119974,
June 30, 1999)."

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals rendered on
August 30, 2007 in CA G.R. CV No. 66187 is hereby REVERSED and SET ASIDE. The
Decision of the Regional Trial Court, Branch 5, Kalibo, Aklan in Civil Case No. 5398 dated
December 3, 1999 is REINSTATED.

SO ORDERED.
Land Bank of the Philippines v. Poblete, G.R. No. 196577, 691 SCRA 613, 25 February 2013

G.R. No. 196577               February 25, 2013

LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
BARBARA SAMPAGA POBLETE, Respondent.

DECISION

CARPIO, J.:

The Case

This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals'

Decision2 dated 28 September 20 I 0 and its Resolution3 dated 19 April 2011 in C A-G.R. CV
No. 91666. The Court of Appeals (C A) affirmed in toto the Decision4 of the Regional Trial
Court (RTC) of San Jose, Occidental Mindoro, Branch 46, in Civil Case No. R-1331.

The Facts

The facts, as culled from the records, are as follows:

Petitioner Land Bank of the Philippines (Land Bank) is a banking institution organized and
existing under Philippine laws. Respondent Barbara Sampaga Poblete (Poblete) is the
registered owner of a parcel of land, known as Lot No. 29, with an area of 455 square meters,
located in Buenavista, Sablayan, Occidental Mindoro, under Original Certificate of Title (OCT)
No. P-12026. In October 1997, Poblete obtained a ₱300,000.00 loan from Kabalikat ng
Pamayanan ng Nagnanais Tumulong at Yumaman Multi-Purpose Cooperative (Kapantay).
Poblete mortgaged Lot No. 29 to Kapantay to guarantee payment of the loan. Kapantay, in
turn, used OCT No. P-12026 as collateral under its Loan Account No. 97-CC-013 with Land
Bank-Sablayan Branch.

In November 1998, Poblete decided to sell Lot No. 29 to pay her loan. She instructed her son-
in-law Domingo Balen (Balen) to look for a buyer. Balen referred Angelito Joseph Maniego
(Maniego) to Poblete. According to Poblete, Maniego agreed to buy Lot No. 29 for
₱900,000.00, but Maniego suggested that a deed of absolute sale for ₱300,000.00 be
executed instead to reduce the taxes. Thus, Poblete executed the Deed of Absolute Sale
dated 9 November 1998 (Deed dated 9 November 1998) with ₱300,000.00 as
consideration.5 In the Deed dated 9 November 1998, Poblete described herself as a "widow."
Poblete, then, asked Balen to deliver the Deed dated 9 November 1998 to Maniego and to
receive the payment in her behalf. Balen testified that he delivered the Deed dated 9
November 1998 to Maniego. However, Balen stated that he did not receive from Maniego the
agreed purchase price. Maniego told Balen that he would pay the amount upon his return from
the United States. In an Affidavit dated 19 November 1998, Poblete stated that she agreed to
have the payment deposited in her Land Bank Savings Account.6

Based on a Certification issued by Land Bank-Sablayan Branch Department Manager

Marcelino Pulayan on 20 August 1999,7 Maniego paid Kapantay’s Loan Account No. 97-CC-
013 for ₱448,202.08. On 8 June 2000, Maniego applied for a loan of ₱1,000,000.00 with Land
Bank, using OCT No. P 12026 as collateral. Land Bank alleged that as a condition for the
approval of the loan, the title of the collateral should first be transferred to Maniego.

On 14 August 2000, pursuant to a Deed of Absolute Sale dated 11 August 2000 (Deed dated
11 August 2000),8 the Register of Deeds of Occidental Mindoro issued Transfer Certificate of
Title (TCT) No. T-20151 in Maniego’s name. On 15 August 2000, Maniego and Land Bank
executed a Credit Line Agreement and a Real Estate Mortgage over TCT No. T- 20151. On
the same day, Land Bank released the ₱1,000,000.00 loan proceeds to Maniego.
Subsequently, Maniego failed to pay the loan with Land Bank. On 4 November 2002, Land
Bank filed an Application for Extra-judicial Foreclosure of Real Estate Mortgage stating that
Maniego’s total indebtedness amounted to ₱1,154,388.88.

On 2 December 2002, Poblete filed a Complaint for Nullification of the Deed dated 11 August
2000 and TCT No. T-20151, Reconveyance of Title and Damages with Prayer for Temporary
Restraining Order and/or Issuance of Writ of Preliminary Injunction. Named defendants were
Maniego, Land Bank, the Register of Deeds of Occidental Mindoro and Elsa Z. Aguirre in her
capacity as Acting Clerk of Court of RTC San Jose, Occidental Mindoro. In her Complaint,
Poblete alleged that despite her demands on Maniego, she did not receive the consideration of
₱900,000.00 for Lot No. 29. She claimed that without her knowledge, Maniego used the Deed
dated 9 November 1998 to acquire OCT No. P-12026 from Kapantay. Upon her verification
with the Register of Deeds, the Deed dated 11 August 2000 was used to obtain TCT No. T-
20151. Poblete claimed that the Deed dated 11 August 2000 bearing her and her deceased
husband’s, Primo Poblete, supposed signatures was a forgery as their signatures were forged.
As proof of the forgery, Poblete presented the Death Certificate dated 27 April 1996 of her
husband and Report No. 294-502 of the Technical Services Department of the National
Bureau of Investigation showing that the signatures in the Deed dated 11 August 2000 were
forgeries. Accordingly, Poblete also filed a case for estafa through falsification of public
document against Maniego and sought injunction of the impending foreclosure proceeding.

On 7 January 2003, Land Bank filed its Answer with Compulsory Counterclaim and Cross-
claim. Land Bank claimed that it is a mortgagee in good faith and it observed due diligence
prior to approving the loan by verifying Maniego’s title with the Office of the Register of Deeds.
Land Bank likewise interposed a cross-claim against Maniego for the payment of the loan, with
interest, penalties and other charges. Maniego, on the other hand, separately filed his Answer.
Maniego denied the allegations of Poblete and claimed that it was Poblete who forged the
Deed dated 11 August 2000. He also alleged that he paid the consideration of the sale to
Poblete and even her loans from Kapantay and Land Bank.

The Ruling of the Regional Trial Court

On 28 December 2007, the RTC of San Jose, Occidental Mindoro, Branch 46, rendered a
Decision in favor of Poblete, the dispositive portion of which reads:

WHEREFORE, by preponderance of evidence, judgment is hereby rendered in favor of the

plaintiff and against the defendants, as follows:

1. Declaring the Deed of Sale dated August 11, 2000 over O.C.T. No. P-12026, as null
and void;

2. Declaring Transfer of Certificate of Title No. T-20151 as null and void, it having been
issued on the basis of a spurious and forged document;

3. The preliminary [i]njunction issued directing the defendants to refrain from

proceedings [sic] with the auction sale of the plaintiff’s properties, dated February 10,
2002, is hereby made permanent;

4. Ordering defendant Angelito Joseph Maniego to return to the plaintiff O.C.T. No. P-
12026; and

5. Ordering defendant Angelito Joseph Maniego to pay plaintiff the amount of

₱50,000.00, as and for reasonable attorney’s fees.

Judgment is furthermore rendered on the cross-claim of defendant Land Bank of the

Philippines against defendant Angelito Joseph Maniego, as follows:
 A. Ordering defendant Angelito Joseph Maniego to pay his co-defendant [L]and Bank of
the Philippines his loan with a principal of ₱1,000,000.00, plus interests, penalties and
other charges thereon; and

B. Ordering defendant Angelito Joseph Maniego to pay the costs of this suit.

SO ORDERED.9

The RTC ruled that the sale between Poblete and Maniego was a nullity. The RTC found that
the agreed consideration was ₱900,000.00 and Maniego failed to pay the consideration.
Furthermore, the signatures of Poblete and her deceased husband were proven to be
forgeries. The RTC also ruled that Land Bank was not a mortgagee in good faith because it
failed to exercise the diligence required of banking institutions. The RTC explained that had
Land Bank exercised due diligence, it would have known before approving the loan that the
sale between Poblete and Maniego had not been consummated. Nevertheless, the RTC
granted Land Bank’s cross-claim against Maniego.

In an Order dated 17 March 2008, the RTC denied the Motion for Reconsideration filed by
Land Bank for want of merit. Thereafter, Land Bank and Maniego separately challenged the
RTC’s Decision before the CA.

The Ruling of the Court of Appeals

On 28 September 2010, the CA promulgated its Decision affirming in toto the Decision of the
RTC.10 Both Land Bank and Maniego filed their Motions for Reconsideration but the CA denied
both motions on 19 April 2011.11

In a Resolution dated 13 July 2011,12 the Second Division of this Court denied the Petition for
Review on Certiorari filed by Maniego. This Resolution became final and executory on 19
January 2012.

On the other hand, Land Bank filed this petition.

The Issues

Land Bank seeks a reversal and raises the following issues for resolution:

1. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH DIVISION) ERRED IN

UPHOLDING THE FINDING OF THE TRIAL COURT DECLARING TCT NO. T-20151
AS NULL AND VOID. THE COURT OF APPEALS MISCONSTRUED AND
MISAPPRECIATED THE EVIDENCE AND THE LAW IN NOT FINDING TCT NO. T-
20151 REGISTERED IN THE NAME OF ANGELITO JOSEPH MANIEGO AS VALID.

2. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH DIVISION)

MISCONSTRUED THE EVIDENCE AND THE LAW IN NOT FINDING LAND BANK A
MORTGAGEE IN GOOD FAITH.

3. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH DIVISION)

MISCONSTRUED THE EVIDENCE AND THE LAW IN NOT FINDING THE
RESPONDENT AND ANGELITO JOSEPH MANIEGO AS IN PARI DELICTO.

4. THE COURT OF APPEALS (FORMER SPECIAL ELEVENTH DIVISION) ERRED IN

NOT APPLYING THE PRINCIPLE OF ESTOPPEL OR LACHES ON RESPONDENT IN
THAT THE PROXIMATE CAUSE OF HER LOSS WAS HER NEGLIGENCE TO
SAFEGUARD HER RIGHTS OVER THE SUBJECT PROPERTY, THEREBY
ENABLING ANGELITO JOSEPH MANIEGO TO MORTGAGE THE SAME WITH LAND
BANK.13
The Ruling of the Court

We do not find merit in the petition.

A petition for review under Rule 45 of the Rules of Court specifically provides that only
questions of law may be raised, subject to exceptional circumstances 14 which are not present
in this case. Hence, factual findings of the trial court, especially if affirmed by the CA, are
binding on us.15 In this case, both the RTC and the CA found that the signatures of Poblete
and her deceased husband in the Deed dated 11 August 2000 were forged by Maniego. In
addition, the evidence is preponderant that Maniego did not pay the consideration for the sale.
Since the issue on the genuineness of the Deed dated 11 August 2000 is essentially a
question of fact, we are not dutybound to analyze and weigh the evidence again.16

It is a well-entrenched rule, as aptly applied by the CA, that a forged or fraudulent deed is a
nullity and conveys no title.17 Moreover, where the deed of sale states that the purchase price
has been paid but in fact has never been paid, the deed of sale is void ab initio for lack of
consideration.18 Since the Deed dated 11 August 2000 is void, the corresponding TCT No. T-
20151 issued pursuant to the same deed is likewise void. In Yu Bun Guan v. Ong,19 the Court
ruled that there was no legal basis for the issuance of the certificate of title and the CA
correctly cancelled the same when the deed of absolute sale was completely simulated, void
and without effect. In Ereña v. Querrer-Kauffman,20 the Court held that when the instrument
presented for registration is forged, even if accompanied by the owner’s duplicate certificate of
title, the registered owner does not thereby lose his title, and neither does the mortgagee
acquire any right or title to the property. In such a case, the mortgagee under the forged
instrument is not a mortgagee protected by law.21

The issue on the nullity of Maniego’s title had already been foreclosed when this Court denied
Maniego’s petition for review in the Resolution dated 13 July 2011, which became final and
executory on 19 January 2012.22 It is settled that a decision that has acquired finality becomes
immutable and unalterable and may no longer be modified in any respect, even if the
modification is meant to correct erroneous conclusions of fact or law and whether it will be
made by the court that rendered it or by the highest court of the land. 23 This is without
prejudice, however, to the right of Maniego to recover from Poblete what he paid to Kapantay
for the account of Poblete, otherwise there will be unjust enrichment by Poblete.

Since TCT No. T-20151 has been declared void by final judgment, the Real Estate Mortgage
constituted over it is also void. In a real estate mortgage contract, it is essential that the
mortgagor be the absolute owner of the property to be mortgaged; otherwise, the mortgage is
void.24

Land Bank insists that it is a mortgagee in good faith since it verified Maniego’s title, did a
credit investigation, and inspected Lot No. 29. The issue of being a mortgagee in good faith is
a factual matter, which cannot be raised in this petition.25 However, to settle the issue, we
carefully examined the records to determine whether or not Land Bank is a mortgagee in good
faith.1âwphi1

There is indeed a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale
arising therefrom are given effect by reason of public policy. 26 This is the doctrine of "the
mortgagee in good faith" based on the rule that buyers or mortgagees dealing with property
covered by a Torrens Certificate of Title are not required to go beyond what appears on the
face of the title.27 However, it has been consistently held that this rule does not apply to banks,
which are required to observe a higher standard of diligence.28 A bank whose business is
impressed with public interest is expected to exercise more care and prudence in its dealings
than a private individual, even in cases involving registered lands.29 A bank cannot assume
that, simply because the title offered as security is on its face free of any encumbrances or
lien, it is relieved of the responsibility of taking further steps to verify the title and inspect the
properties to be mortgaged.30

Applying the same principles, we do not find Land Bank to be a mortgagee in good faith.

Good faith, or the lack of it, is a question of intention.31 In ascertaining intention, courts are
necessarily controlled by the evidence as to the conduct and outward acts by which alone the
inward motive may, with safety, be determined.32

Based on the evidence, Land Bank processed Maniego’s loan application upon his
presentation of OCT No. P-12026, which was still under the name of Poblete. Land Bank even
ignored the fact that Kapantay previously used Poblete’s title as collateral in its loan account
with Land Bank.33 In Bank of Commerce v. San Pablo, Jr.,34 we held that when "the person
applying for the loan is other than the registered owner of the real property being mortgaged,
[such fact] should have already raised a red flag and which should have induced the Bank x x
x to make inquiries into and confirm x x x [the] authority to mortgage x x x. A person who
deliberately ignores a significant fact that could create suspicion in an otherwise reasonable
person is not an innocent purchaser for value."

The records do not even show that Land Bank investigated and inspected the property to
ascertain its actual occupants. Land Bank merely mentioned that it inspected Lot No. 29 to
appraise the value of the property. We take judicial notice of the standard practice of banks,
before approving a loan, to send representatives to the premises of the land offered as
collateral to investigate its real owners.35 In Prudential Bank v. Kim Hyeun Soon,36 the Court
held that the bank failed to exercise due diligence although its representative conducted an
ocular inspection, because the representative concentrated only on the appraisal of the
property and failed to inquire as to who were the then occupants of the property.

Land Bank claims that it conditioned the approval of the loan upon the transfer of title to
Maniego, but admits processing the loan based on Maniego’s assurances that title would soon
be his.37 Thus, only one day after Maniego obtained TCT No. T-20151 under his name, Land
Bank and Maniego executed a Credit Line Agreement and a Real Estate Mortgage. Because
of Land Bank’s haste in granting the loan, it appears that Maniego’s loan was already
completely processed while the collateral was still in the name of Poblete. This is also
supported by the testimony of Land Bank Customer Assistant Andresito Osano.38

Where the mortgagee acted with haste in granting the mortgage loan and did not ascertain the
ownership of the land being mortgaged, as well as the authority of the supposed agent
executing the mortgage, it cannot be considered an innocent mortgagee.39

Since Land Bank is not a mortgagee in good faith, it is not entitled to protection. The injunction
against the foreclosure proceeding in the present case should be made permanent. Since Lot
No. 29 has not been transferred to a third person who is an innocent purchaser for value,
ownership of the lot remains with Poblete. This is without prejudice to the right of either party to
proceed against Maniego.

On the allegation that Poblete is in pari delicto with Maniego, we find the principle inapplicable.
The pari delicto rule provides that "when two parties are equally at fault, the law leaves them
as they are and denies recovery by either one of them."40 We adopt the factual finding of the
RTC and the CA that only Maniego is at fault.

Finally, on the issues of estoppel and laches, such were not raised before the trial
court.1âwphi1 I fence, we cannot rule upon the same. It is settled that an issue which was
neither alleged in the complaint nor raised during the trial cannot be raised for the tirst time on
appeal, as such a recourse would be offensive to the basic rules of t}1ir play, justice and due
process, since the opposing party would be deprived of the opp01iunity to introduce evidence
rebutting such new issue.41
WHEREFORE, we DENY the petition. We AFFIRM the 28 September 2010 Decision and the
19 April 2011 Resolution of the Court of Appeals in CA-Ci.R. CV No. 91666. The injunction
against the foreclosure proceeding, issued by the Regional Trial Court of San Jose, Occidental
Mindoro, Branch 46, is made permanent. Costs against Land Bank.

SO ORDERED.

NFF Industrial Corporation v. G&L Associated Brokerage, G.R. No. 178169, January 12,
2015

G.R. No. 178169               January 12, 2015

NFF INDUSTRIAL CORPORATION, Petitioner,
vs.
G & L ASSOCIATED BROKERAGE and/or GERARDO TRINIDAD, Respondents.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse
and set aside the Decision1 dated November 22, 2006 and the Order2 dated May 22, 2007,
respectively, of the Court of Appeals (CA), in the civil case entitled NFF Industrial Corporation
v. G & L Associated Brokerage, Inc. and/or Gerardo Trinidad, docketed as CA-G.R. CV No.
85060.

The facts follow.

Petitioner NFF Industrial Corporation is engaged in the business of manufacturing bulk bags,
while respondent G & L Associated Brokerage, Inc. (respondent company) is among its
customers.3 Respondent Gerardo Trinidad is the general manager of respondent company.4

According to petitioner, on July 20, 1999, respondent company ordered one thousand (1,000)
pieces ofbulk bags from petitioner, at Three Hundred Eighty Pesos (₱380.00) per piece, or a
total purchase price of Three Hundred Eighty Thousand Pesos (₱380,000.00), payable within
thirty (30) days from delivery, covered by Purchase Order No. 97-002 dated July 29, 1999.5 In
the said Purchase Order, an instruction was made that the bulk bags were for immediate
delivery to "G & L Associated Brokerage, Inc., c/o Hi-Cement Corporation, Norzagaray,
Bulacan."6 Shortly thereafter, respondent company ordered an additional one thousand (1,000)
pieces of bulk bags, thus for a total of two thousand (2,000) pieces, at the same price per bag
and with the same terms of payment as well as the same instructions for
delivery.7 Accordingly, petitioner made deliveries of the bulk bags to Hi-Cement on the
following dates and evidencedby the following documents, to wit:

Units Date of Delivery

Amount Sales Invoices
Delivered Delivery Receipts
400 July 30, ₱152,000.00 No. 0226 dated July No. 4113 dated July
1999 30, 1999 30, 1999
1,000 August 4, ₱380,000.00 No. 0229 dated No. 4120 dated
1999 August 4, 1999 August 4, 1999
600 August 6, ₱228,000.00 No. 0231 dated No. 4122 dated
8
1999 August 6, 1999 August 6, 1999
2,000   ₱760,000.00    
Petitioner alleged that the aforementioned deliveries were duly acknowledged by
representatives of respondent company.9 Petitioner also averred that all the delivery receipts
were rubber stamped,dated and signed by the security guard-on-duty, as well asother
representatives of respondent company.10 All deliveries made were likewise covered by sales
invoices.11

Based on the said invoices, the total sales price is Seven Hundred Sixty Thousand Pesos
(₱760,000.00).12 All the sales invoices were duly served upon, and received by respondent
company’s representative, one Marian Gabay.13

On the other hand, respondents alleged that on July 20, 1999, it ordered from petitioner,by
way of Purchase Order No. 97-002, one thousand (1,000) pieces of bulk bags from petitioner
at a unit price of (₱380.00) per piece for a total purchase price of Three Hundred Eighty
Thousand Pesos (₱380,000.00).14 The said bulk bags were to be used by respondent
company for the purpose of hauling cement from Hi-Cement Corporation at Norzagaray,
Bulacan, toa dam project in Casecnan, Nueva Ecija, the respondent company having been
designated as one of the many haulers at the Hi-Cement Corporation.15 On July 26, 1999,
respondent company formalized its offer through a letter containing the same terms as the
Purchase Order and providing for other details regarding the purchase.16

According to respondents, the Purchase Order specifically provides that the bulk bags were to
be delivered at Hi-Cement Corporation to Mr. Raul Ambrosio, respondent company’s checker
and authorized representative assigned thereat.17 Subsequently, however, the ordered bulk
bags were not delivered to respondent company, the same not having been received by the
authorized representative in conformity with the terms of the Purchase Order.18

Meanwhile, thirty (30) days elapsed from the time the last alleged delivery was made but no
payment was effected by respondent company.19 This prompted petitioner to send a demand
letter dated October 27, 1999 to respondent company.20 As respondent company failed to
respond to the demand letter, petitioner followed up itsclaim from the former through a series
of telephone calls.21 Again, since no concrete answer was provided by respondent company,
petitioner sent another demand letter dated November 23, 1999; and finally, a third demand
letter dated October 2, 2001.22 As the demands remained unheeded, petitioner filed a
complaint for sum of money against respondents on December 19, 2001.23

As no settlement was reached during the pre-trial stage, trial proceeded. On January 25, 2005,
the Regional Trial Court (RTC) rendered its decision in favor of petitioner. The fallo of the
Decision provides:

PRESCINDING FROM THE FOREGOING CONSIDERATIONS, judgment is hereby rendered

in favor of the plaintiff NFF INDUSTRIAL CORPORATION and against the defendant
Corporation G & L Associated Brokerage, Inc., and the latter is hereby ordered to pay the
plaintiff the following:

1. The sum of Php760,000.00 – representing overdue accounts plus interest from the
first demand on October 27, 1999 until fully paid.

2. The sum of Php152,000.00 as attorney’s fees.

3. Cost of suit.

SO ORDERED.24

Aggrieved, respondents appealed before the CA. As a result, the decision of the RTC was
reversed in the CA’s Decision25 dated November 22, 2006, in the following wise:
WHEREFORE, the appealed decision is, hereby, REVERSED AND SET ASIDE. The
Complaint against the appellant is perforce DISMISSED.
SO ORDERED.26

Undaunted, petitioner filed a Motion for Reconsideration. The same was, however, denied in
the assailed Order dated May 22, 2007.

Hence, this petition stating the following grounds:

PREPONDERANCE OF EVIDENCE SHOWS THAT THE RESPONDENT COMPANY

ACCEPTEDDELIVERY OF THE BULK BAGS.

II

RESPONDENTS’ CONDUCT PREPONDERANTLY SHOWS THAT DELIVERY OF THE BULK

BAGS HAS BEEN ACCEPTED.

III

FINDINGS OF FACT OF THE TRIAL COURT ARE ENTITLED TO GREAT WEIGHT.

IV.

TO SUSTAIN THE DECISION OF THE COURT OF APPEALS WILL CAUSE UNJUST

ENRICHMENT ON THE PART OF RESPONDENTS AT THE EXPENSE OF THE
PETITIONER.27

Simply, the issue before us is whether or not there was valid delivery on the part of petitioner in
accordance with law, which would give rise to an obligation to pay on the part of respondent for
the value of the bulk bags.

The question is basically factual since it involves an evaluation of the conflicting evidence
presented by the opposing parties, including the existence and relevance of specific
surrounding circumstances, to determine the truth or falsity of alleged facts.28

While it is well settled that factual issues are not within the province of this Court, as it is not a
trier of facts and is not required to examine or contrast the oral and documentary evidence de
novo, nevertheless, the Court has the authority to review and, in proper cases, reverse the
factual findings of lower courts in these instances: (a) when the findings of fact of the trial court
are in conflict with those of the appellate court; (b) when the judgment of the appellate court is
based on misapprehension of facts; and (c) when the appellate court manifestly overlooked
certain relevant facts which, if properly considered, would justify a different
conclusion.29 Considering that in the instant case, the findings of the CAare contrary to those of
the RTC, a minute scrutiny by this Court is in order,and resort to duly proven evidence
becomes necessary.30

Petitioner avers that it has delivered the bulk bags to respondent company, which effectively
placed the latter in control and possession thereof, as in fact, respondent company had made
use of the said bulk bags in the ordinary course of its business activities. 31 Conversely,
respondents contend that the evidence on record miserably failed to establish that the alleged
deliveries were received by the authorized representative of the respondents. Thus, there was
no delivery at all in contemplation of law.32

We find respondents' contention devoid of persuasive force.

The resolution of the issue at bar necessitates a scrutiny of the concept of "delivery" in the
context of the Law on Sales.33 Under the Civil Code, the vendor is bound to transfer the
ownership of and deliver, as well as warrant the thing which is the object of the sale.34 The
ownership of thing sold is considered acquired by the vendee once it is delivered to him in the
following wise:

Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.

Art. 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee.

Thus, ownership does not pass by mere stipulation but only by delivery.35 Manresa explains,
"the delivery of the thing x x x signifies that title has passed from the seller to the
buyer."36 Moreover, according to Tolentino, the purpose of delivery is not only for the
enjoyment of the thing but also a mode of acquiring dominion and determines the transmission
of ownership, the birth of the real right.37 The delivery under any of the forms provided by
Articles 1497 to 1505 of the Civil Code signifies that the transmission of ownership from vendor
to vendee has taken place.38 Here, emphasis is placed on Article 1497 of the Civil Code, which
contemplates what is known as real or actual delivery,when the thing sold is placed in the
control and possession of the vendee.39

In Equatorial Realty Development, Inc. v. Mayfair Theater, Inc.,40 the concept of "delivery" was
elucidated, to wit:

Delivery has been described as a composite act, a thing in which both parties must join and
the minds of both parties concur. It is an act by which one party parts with the title toand the
possession of the property, and the other acquires the right to and the possession of the same.
In its natural sense, delivery means something in addition to the delivery of property or title; it
means transfer of possession. In the Law on Sales, delivery may be either actual or
constructive, but both forms of delivery contemplate "the absolute giving up of the control and
custody of the property on the part of the vendor, and the assumption of the same by the
vendee."41

Applying the foregoing criteria to the case at bar, We find that there were various occasions of
delivery by petitioner to respondents, and the same was duly acknowledged by respondent
Trinidad. This is supported by the testimony of petitioner’s Sales Manager, Richard Agustin
Vergamos, an excerpt thereof states:

DIRECT EXAMINATION

ATTY. CORALDE

Q: So, after getting the order of two thousand pieces (2,000 pcs.) and after following the
delivery instructions of Mr. Trinidad, after you agreed to the price of three hundred
eighty pesos per piece (₱380.00/pc) what happened next, if any, Mr. Witness?

A: WE processed the order and as committed to him, we delivered the items few days
after the order.

COURT

Q: How many days?

A: Let me refer, your honor, to the document of the D.R.

xxxx
A: On July 30, 1999, we delivered four hundred pieces (400 pcs.) to Union Cement
Manufacturing Plant under the company name G & L Associated Brokerage, your
honor.

ATTY. CORALDE:

Q: So after your company delivered on July 30, 1999, what did you do next, if any, Mr.
Witness? A: After I was advised by our deliveryman, I immediately called Mr. Trinidad
that we were able todeliver only four hundred pieces (400 pcs.) of bulk bags.

Q: And what was his reaction to your report, Mr. Witness?

A: At first, I apologized because I was not able to make the five hundred pieces
required. So, in reply…

xxxx

ATTY. CORALDE

Q: So what was his reaction to your report that you delivered only four hundred pieces
(400 pcs) of bulk bags instead of five hundred pieces (500 pcs), Mr. Witness?

A: He acknowledged our delivery and thanked me for delivering the item.

xxxx

Q: So, after the conversation with Mr. Trinidad, what happened next, in so far as the
second delivery, Mr. Witness?

A: And in that call, he followed-up to me the balance of delivery.

Q: So what did you tell him?

A: I told him that the two thousand pieces (2,000 pcs.) we agreed was already in
process in our production and the one thousand pieces (1,000 pcs.) is scheduled to
deliver a few days later.

xxxx

Q: No, my question is, who advised you that there was already delivery made on August
4, 1999?

A: Our deliveryman advised me that they have already delivered the one thousand
pieces (1,000 pcs.) bulk bags to the Cement Manufacturing Plant.

Q: What did you do after receiving that information from your deliveryman?

A: After that advise[d], I called again Mr. Trinidad to inform him that we already
delivered one thousand pieces (1,000 pcs.) of bulk bags and he acknowledged our
delivery and thank me that I was able to deliver one thousand pieces (1,000 pcs.), sir.

xxxx

Q: Now, who advised you that there was a delivery of six hundred pieces (600 pcs.)?

A: Our deliveryman, sir.

 Q: So, having been informed that, what did you do next, if any, Mr.

Witness?

A: And after advised I called again MR. Gerry Trinidad to inform of the delivered six
hundred pieces (600 pcs.) bags.

Q: And then what was his reaction, Mr. Witness?

A: He confirmed our delivery, sir.

Q: So after that, did you have any occasion to talk again personally to

Mr. Gerry Trinidad, Mr. Witness?

A: Yes, sir.

Q: When was this?

A: It was when the time I haveto submit the invoices, sir.

Q: What for these invoices are (sic), Mr. Witness?

A: These invoices have to be submitted to the customer for recognizing the delivery, as
wellas for collection purposes and payment of the orders, sir.42

Based on the foregoing, it is clear that petitioner has actually delivered the bulk bags to
respondent company, albeit the same was not delivered to the person named in the Purchase
Order. In addition, by allowing petitioner’s employee to pass through the guard-on-duty, who
allowed the entry of delivery into the premises ofHi-Cement, which is the designated delivery
site, respondents had effectively abandoned whatever infirmities may have attended the
delivery of the bulk bags. As a matter of fact, if respondents were wary about the manner of
delivery, such issue should have been brought up immediately after the first delivery was
made. Instead, Mr. Trinidad acknowledged receipt of the first batch of the bulk bags and even
followed up the remaining balance of the orders for delivery.

Thus, the RTC correctly held that:

The evidence adduced by the parties clearly proved that Gerardo Trinidad himself, initially
ordered 1,000 pieces of NFF bulk bags at Php380.00 per piece from the plaintiff on or about
July 29, 1999. After testing and checking sample bags, Mr. Trinidad had approved it and even
instructed the Sales Manager of NFF in the person of Richard Bergamo to place and print the
bags with G & L logo as well as control number on all our sides of bags and thereafter agreed
to the quantity of Two Thousand [2,000] pieces as what had been agreed upon during the
meeting with the Union Cement Marketing personnel atthe Cement manufacturing [TSN March
10, 2003, pp. 25]. Initial delivery of 400 pieces of bulk bags were made on July 31, 1999 and
then followed by another delivery of additional bulk bags on August 5, 1999 while the
remaining 600 pieces of bags were delivered on August6, 1999 to complete the 2,000 pieces
ordered by the defendant. All these deliveries were made to defendant’s designated address at
"G & L Associated Brokerage, Inc., C/O HI CEMENT CORPORATION, NORZAGARAY
BULACAN." These deliveries were made in compliance with Hi-Cement’s standard/regular
operating procedure. It passed thru guard on duty, who allowed the entry of delivery into the
premises of Hi-Cement, which is the designated delivery site and then a representative of the
defendant thereat received the delivered items in behalf of the defendant.43

Respondents’ mere allegations ofnon-delivery and misdelivery deserve scant consideration.

On the matter of non-delivery, We find it bizarre that respondents failed in demanding the
delivery of the bulk bags despite its urgent need to procure the same, as admitted by
respondents’ witnesses. Customarily, failure to deliver the goods could have prompted
respondents to follow up on the orders and ensure that the same is delivered at the earliest
opportunity. In fact, if they had not actually received any quantity of bulk bags, despite their
alleged repeated demands, they could have demanded in writing or resorted to legal action for
the enforcement thereof. But there was dearth of evidence showing the same. On the matter of
misdelivery, when the instruction todeliver the partial five hundred (500) pieces of bulk bags
was made by Mr. Trinidad, the latter did not even mention the name Ramil Ambrosio. The
significance of such condition, therefore, falls flat to the actual delivery made by petitioner at
the agreed delivery site. As testified by Mr. Vergamos, to wit:

DIRECT TESTIMONY

ATTY. CORALDE

Q: Now, Mr. Witness, where was the delivery of the bulk bags required for you by Mr.
Trinidad? A: I was instructed by Mr. Gerry Trinidad to deliver the partial five hundred
pieces (500 pcs.) bags toUnion Cement Manufacturing Plant in Norzagaray, Bulacan,
under the name G & L Associated Brokerage, sir.

Q: Did he advise you of specific person to whom this delivery should be made, Mr.
Witness?

A: He did not advise me of any person, sir.44

Interestingly, respondents presented the payroll of its employees wherein the name Ramil
Ambrosio appeared only in the payroll for the periods of July 16 to 31, 1999, August 16 to 31,
1999 and September 16 to 30, 1999. However, for the period from July 30 to August 6, 1999,
during which the deliveries were made, the name Ramil Ambrosio does not appear in the
payroll of respondent company.45 Thus, it is clear that during the time the deliveries were made
on the agreed dates and for which petitioner in fact delivered the bags to respondent company,
there was no Ramil Ambrosio to actually receive the same as he obviously did not report for
work.46

More importantly, in his testimony, respondent Trinidad categorically admitted receiving the
delivery receipts,which evince the actual delivery of the bulk bags, to wit:

DIRECT EXAMINATION

ATTY. RODRIGUEZ

Q: The plaintiff also presented other Delivery Receipts, Mr. Witness, one (1) dated on
August 4, 1999, No. 0229, previously marked as Exhibit "C" for the plaintiff and another
Receipt No. 0231 dated August 6, 1999, kindly go over these Delivery Receipts, Mr.
Witness, and inform us if you have seen this Delivery Receipts before?

COURT

Q: The one with No. 0229 dated August 4, 1999, you saw it?

A: Yes, your honor, I have seen this.

Q: Where did you see it?

A: I have seen this before. This was attached to the billing they have sent us, your
honor.
 Q: How about the other receipt, Mr. Witness, No. 0231?

INTERPRETER

Witness perusing over the document hand by the counsel.

A: Yes sir, I have already seen this sir.

Q: And on what occasion did you see this Delivery Receipt, Mr. Witness?

A: Thru the billing that they have sent to us, sir.

Q: In other words, you have copies of these delivery receipts?

xxxx

ATTY. RODRIGUEZ

xxxx

Q: Mr. Witness, you mentioned that you have seen these Delivery Receipts before thru
the invoices or billings sent to you by the plaintiff in this case, if these receipts are
shown to you, will you be able to identify them?

A: Yes, sir.47

Similarly, the corresponding sales invoices were duly served upon, and received by
respondent company’s representatives, as shown by the signatures of one Marian Gabay,
respondent Trinidad’s helper at his residence, who received the sales invoices in behalf of
respondent company.48 It is worthy to stress that from the time the copies of the sales invoices
were served on respondents and thereafter, respondents were never heard to complain
relative thereto.49

On this score, We agree with petitioner that it is rather confounding that respondents, despite
receipt,on various occasions, of the billing statements and delivery receipts, failed to even call
the attention of petitioner regarding the matter.50 In the same vein, despite the subsequent
receipt of demand letters, receipt of which wereduly acknowledged and admitted by
respondents, the latter opted not to question or contest the same, which is quite unusual and
extremely inconsistent with its claim of non-delivery of the bulk bags in question.51

At any rate, We find merit in petitioner’s argument that despite its failure to strictly comply with
the instruction to deliver the bulk bags to the specified person, acceptance of delivery may be
inferred from the conduct of the respondents.52 Accordingly, respondents may be held liable to
pay for the price of the bulk bags pursuant to Article 1585 of the Civil Code, which provides
that:

ARTICLE 1585. The buyer is deemedto have accepted the goods when he intimates to the
seller that he has accepted them, or when the goods have been delivered to him, and he does
any act in relation to them which is inconsistent with the ownership of the seller, or when, after
the lapse of a reasonable time, he retains the goods without intimating to the seller that he has
rejected them.

As early as Sy v. Mina,53 it has been pronounced that the vendee’s acceptance of the
equipment and supplies and accessories, and the use it made of them is an implied conformity
to the terms of the invoices and he is bound thereby.54 The Court in that case also held that the
buyer’s failure to interpose any objection to the invoices issued to it, to evidence delivery of the
materials ordered as per their agreement, should be deemed as an implied acceptance by the
buyer of the said conditions.55

Indeed, the use by respondent of the bulk bags is an act of dominion, which is inconsistent
with the ownership of petitioner. As correctly observed by the RTC, the use of the bulk bags by
respondents can be readily verified from the records of the case, to wit:

The plaintiff’s witness affirmatively testified that the personnel of G & L Associated Brokerage
used the bulk bags by loading cement inside the bulk bags and it was lifted by a forklift and
lifted the same towards the truck belonging to G & L Associated Brokerage [TSN May 12, 2003
pp. 13]. Case records even disclosed that the Exhibits L and its submarkings which was
identified by the plaintiff’s witness Richard Agustin Bergamo who took the pictures himself
evidentlyshowing that the defendant being the haulers of the Union Cement, withdrew tonner
bags from Union Cement Bulacan Plan and used these tonner bags supplied by the plaintiff in
hauling Union Cement intended for CP Casecnan. The self-serving claim of Gerardo Trinidad
that he was constrained to make an order to some other suppliers due to alleged non-delivery
of the tonner bags likewise, deserved scant consideration. Defendant Gerardo Trinidad
admitted having used more than four thousand bags for the Casecnan Project but when asked
to produce copies of sales invoices and proof of purchase with respect to these alleged
suppliers in connection with Casecnan Project, said defendant miserably failed to produce
even a single proof and instead identified some delivery receipts covering the period year 2000
contrary to his very claim that the bulk bags were urgently needed sometime in July 1999 for
the Casecnan Project.56

Also, the fact that respondent company was the sole user of the tonner bags at the Bulacan
Plant of Union Cement during the period pertinent to this case was duly proven by the
Certification issued by Union Cement Corporation, dated July 26,2002, that respondent was
the only sole user of tonner bags at Union Cement Bulacan Plant intended for the CP
Casecnan Project(Project) from August 1999 to June 2001. To bolster this, the pictures taken
at the premises of respondent company situated near the Project clearly depict respondent
company’s act of using tonner bags supplied by petitioner, in hauling Union Cement intended
for the Project.57

At this juncture, the overriding consideration is the evidence adduced that the bulk bags
delivered by petitioner at the Union Cement Plant were actually used by respondents, and this
Court cannot allow respondents to enrich themselves at the expense of another.

Having received the aforesaid billings, the corresponding delivery receipts and demand letters
rendered by petitioner, respondents should have forthwith called the attention of petitioner, if
indeed, its insinuation that the bulk bags themselves have not been delivered or misdelivered
were true.58 In the ordinary course of business, in case of unwarranted claims of payment of a
sum of money, one would immediately protest the same.59 But no such action was taken by
respondents despite notice thereof.60 Only when respondents were required by the RTC to
submit an answer to the complaint were they constrained to contest the claims of petitioner. If
respondent were to be defeated only by its failure toeffect delivery to the designated
representative of respondent, the latter would inevitably be unjustly enriched at the expense of
the former.61

If at all, respondents’ failure to pay the purchase price may have been due to lack of funds
rather than non-delivery or misdelivery of the bulk bags. On cross-examination, Aurelio L.
Gomez, petitioner’s general manager, testified that respondents admitted after the third
delivery that they were postponing the payment because theyhave no money to pay. Thus:

CROSS-EXAMINATION

ATTY. RODRIGUEZ:
 Q: How about the other officers of the corporation, did you inquire from them?

A: Not me personally sir, but my credit collector.

Q: Did you inquire from them whatwas the result of the inquiry?

A: This was after the third delivery was made when they said that they have no money
to pay that is why they were postponing the payment sir.62

Sifting through the testimony of the witnesses and the evidence submitted, the evidence of
petitioner preponderantly established that there was valid delivery of bulk bags, which gives
rise to respondent company’s corresponding obligation to pay therefor. By preponderance of
evidence is meant that the evidence adduced by one sideis, as a whole, superior to that of the
other side.63 Essentially, preponderance of evidence refers to the comparative weight of the
evidence presented by the opposing parties.64 As such, it has been defined as "the weight,
credit, and value of the aggregate evidence on either side," and is usually considered to be
synonymous with the term greater weight of the evidence or greater weight of the credible
evidence.65 It is proof that is more convincing to the court as worthy of belief than that which is
offered in opposition thereto.66 Contrary to respondents’ view, We find that petitioner has
successfully established its case. Accordingly, We give greater weight, credit and value to its
evidence.

Finally, with regard to the liabilityof respondent Trinidad, we adopt with approval the findings of
the RTC that he was merely being sued in his capacity as General Manager of respondent
company.67 Since there was no showing of any of circumstances warranting the piercing the
veil of corporate fiction, he cannot be held jointly and severally liable for the outstanding
obligation of respondent company.68 As held in Kukan International Corporation v.
Reyes,69 citing an earlier case, those who seek to pierce the veil must clearly establish that the
separate and distinct personalities of the corporations are set up to justify a wrong, protect
fraud, or perpetrate a deception, to wit:

The same principle was the subject and discussed in Rivera v. United Laboratories, Inc.:

While a corporation may exist for any lawful purpose, the law will regard it as an association of
persons or, in case of two corporations, merge them into one, when its corporate legal entity is
used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate
fiction. The doctrine applies only when such corporate fiction is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, or when it is made as a shield to
confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit
of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.

To disregard the separate juridical personality of a corporation, the wrongdoing must be

established clearly and convincingly. It cannot be presumed. (Emphasis supplied.)70

All told, We find reason to overturn the findings of the CA and affirm the decision of the trial
court.1âwphi1 Accordingly, respondent is hereby ordered to pay petitioner the sum of Seven
Hundred Sixty Thousand Pesos (₱760,000.00), representing overdue accounts plus interest
from the first demand on October 27, 1999 until fully paid in accordance with the doctrine laid
down in Eastern Shipping Lines v. Court of Appeals,71 then later on in Nacar v. Gallery
Frames,72 as well as attorney’s fees.73

At this juncture, it is well to note that under Nacar, in the absence of stipulation by the parties,
the judgment obligor shall be liable to pay six percent (6%) interest per annum to be computed
from default, i.e.,judicial or extrajudicial demand pursuant to the provisions of Article 1169 of
the Civil Code.74 Furthermore, when the judgment of the court awarding the sum of money
becomes final and executory, the rate of legal interest shall be six percent (6%) per annum
from such finality until its satisfaction,75 taking the form of a judicial debt.

WHEREFORE, the petition is GRANTED. The Decision dated November 22, 2006 and the
Order dated May 22, 2007, respectively, of the Court of Appeals are hereby REVERSED and
SET ASIDE. The Decision of the Regional Trial Court, dated January 25, 2005, is hereby
AFFIRMED with MODIFICATION to the effect that legal interest shall be awarded to petitioner
at the following rates:

a) For the period of October 27, 199976 to June 30, 2013,77 the interest rate of twelve
percent (12%) per annum shall be imposed, compounded annually;

b) For the period of July 1, 201378 up to the day prior to the date of promulgation of this
Decision, the interest rate of six percent (6%) per annum shall be imposed,
compounded annually; and

c) From the date of promulgation of this Decision up to full payment, a straight six
percent (6%) interest per annum shall be imposed on the sum of money plus the
interest computed under paragraph (a) and (b) above.79

SO ORDERED.

\
 ADDITIONAL CASES:
JULIE NABUS,* MICHELLE NABUS* and BETTY TOLERO, Petitioners, vs. JOAQUIN
PACSON and JULIA PACSON, Respondents. (G.R. No. 161318 November 25, 2009)

G.R. No. 161318               November 25, 2009

JULIE NABUS,* MICHELLE NABUS* and BETTY TOLERO, Petitioners,
vs.
JOAQUIN PACSON and JULIA PACSON, Respondents.

DECISION

PERALTA, J.:

This is a petition for review on certiorari 1 of the Decision2 of the Court of Appeals in CA-G.R.
CV No. 44941 dated November 28, 2003. The Court of Appeals affirmed with modification the
Decision of the Regional Trial Court of La Trinidad, Benguet, Branch 10, ordering petitioner
Betty Tolero to execute a deed of absolute sale in favor of respondents, spouses Joaquin and
Julia Pacson, over the lots covered by Transfer Certificate of Title (TCT) Nos. T-18650 and T-
18651 upon payment to her by respondents of the sum of ₱57,544.[8]4 representing the
balance due for the full payment of the property subject of this case; and ordering petitioner
Betty Tolero to surrender to respondents her owner’s duplicate copy of TCT Nos. T-18650 and
T-18651.

The facts, as stated by the trial court,3 are as follows:

The spouses Bate and Julie Nabus were the owners of parcels of land with a total area of
1,665 square meters, situated in Pico, La Trinidad, Benguet, duly registered in their names
under TCT No. T-9697 of the Register of Deeds of the Province of Benguet. The property was
mortgaged by the Spouses Nabus to the Philippine National Bank (PNB), La Trinidad Branch,
to secure a loan in the amount of ₱30,000.00.

On February 19, 1977, the Spouses Nabus executed a Deed of Conditional Sale 4 covering
1,000 square meters of the 1,665 square meters of land in favor of respondents Spouses
Pacson for a consideration of ₱170,000.00, which was duly notarized on February 21, 1977.
The consideration was to be paid, thus:

THAT, the consideration of the amount of ₱170,000.00 will be paid by the VENDEE herein in
my favor in the following manner:

a. That the sum of ₱13,000.00, more or less, on or before February 21, 1977 and which
amount will be paid directly to the PNB, La Trinidad Branch, and which will form part of
the purchase price;

b. That after paying the above amount to the PNB, La Trinidad, Benguet branch, a
balance of about ₱17,500.00 remains as my mortgage balance and this amount will be
paid by the VENDEE herein at the rate of not less than ₱3,000.00 a month beginning
March 1977, until the said mortgage balance is fully liquidated, and that all payments
made by the VENDEE to the PNB, La Trinidad, Benguet branch, shall form part of the
consideration of this sale;

c. That, as soon as the mortgage obligation with the PNB as cited above is fully paid,
then the VENDEE herein hereby obligates himself, his heirs and assigns, to pay the
amount of not less than ₱2,000.00 a month in favor of the VENDOR, his heirs and
assigns, until the full amount of ₱170,000.00 is fully covered (including the payments
cited in Pars. a and b above);
THAT, as soon as the full consideration of this sale has been paid by the VENDEE, the
corresponding transfer documents shall be executed by the VENDOR to the VENDEE for the
portion sold;

THAT, the portion sold is as shown in the simple sketch hereto attached as Annex "A" and
made part hereof;

THAT, a segregation survey for the portion sold in favor of the VENDEE and the portion
remaining in favor of the VENDOR shall be executed as soon as possible, all at the expense of
the VENDEE herein;

THAT, it is mutually understood that in as much as there is a claim by other persons of the
entire property of which the portion subject of this Instrument is only a part, and that this claim
is now the subject of a civil case now pending before Branch III of the Court of First Instance of
Baguio and Benguet, should the VENDOR herein be defeated in the said civil action to the end
that he is divested of title over the area subject of this Instrument, then he hereby warrants that
he shall return any and all monies paid by the VENDEE herein whether paid to the PNB, La
Trinidad, Benguet Branch, or directly received by herein VENDOR, all such monies to be
returned upon demand by the VENDEE;

THAT, [a] portion of the parcel of land subject of this instrument is presently in the possession
of Mr. Marcos Tacloy, and the VENDOR agrees to cooperate and assist in any manner
possible in the ouster of said Mr. Marcos Tacloy from said possession and occupation to the
end that the VENDEE herein shall make use of said portion as soon as is practicable;

THAT, finally, the PARTIES hereby agree that this Instrument shall be binding upon their
respective heirs, successors or assigns.5

Pursuant to the Deed of Conditional Sale, respondents paid PNB the amount of ₱12,038.86 on
February 22, 19776 and ₱20,744.30 on July 17, 19787 for the full payment of the loan.

At the time of the transaction, Mr. Marcos Tacloy had a basket-making shop on the property,
while the spouses Delfin and Nelita Flores had a store. Tacloy and the Spouses Flores
vacated the property after respondents paid them ₱4,000.00 each.

Thereafter, respondents took possession of the subject property. They constructed an 80 by

32-feet building and a steel-matting fence around the property to house their truck body-
building shop which they called the "Emiliano Trucking Body Builder and Auto Repair Shop."

On December 24, 1977, before the payment of the balance of the mortgage amount with PNB,
Bate Nabus died. On August 17, 1978, his surviving spouse, Julie Nabus, and their minor
daughter, Michelle Nabus, executed a Deed of Extra Judicial Settlement over the registered
land covered by TCT No. 9697. On the basis of the said document, TCT No. T- 17718 8 was
issued on February 17, 1984 in the names of Julie Nabus and Michelle Nabus.

Meanwhile, respondents continued paying their balance, not in installments of ₱2,000.00 as

agreed upon, but in various, often small amounts ranging from as low as ₱10.00 9 to as high as
₱15,566.00,10 spanning a period of almost seven years, from March 9, 197711 to January 17,
1984.12

There was a total of 364 receipts of payment,13 which receipts were mostly signed by Julie
Nabus, who also signed as Julie Quan when she remarried. The others who signed were Bate
Nabus; PNB, La Trinidad Branch; Maxima Nabus; Sylvia Reyes; Michelle Nabus and the
second husband of Julie Nabus, Gereon Quan. Maxima Nabus is the mother of Bate Nabus,
while Sylvia Reyes is a niece.
The receipts showed that the total sum paid by respondents to the Spouses Nabus was
₱112,455.16,14 leaving a balance of ₱57,544.84. The sum of ₱30,000.00 which was the value
of the pick-up truck allegedly sold and delivered in 1978 to the Spouses Nabus, was not
considered as payment because the registration papers remained in the name of its owner,
Dominga D. Pacson, who is the sister of Joaquin Pacson. The vehicle was also returned to
respondents.

During the last week of January 1984, Julie Nabus, accompanied by her second husband,
approached Joaquin Pacson to ask for the full payment of the lot. Joaquin Pacson agreed to
pay, but told her to return after four days as his daughter, Catalina Pacson, would have to go
over the numerous receipts to determine the balance to be paid. When Julie Nabus returned
after four days, Joaquin sent her and his daughter, Catalina, to Atty. Elizabeth Rillera for the
execution of the deed of absolute sale. Since Julie was a widow with a minor daughter, Atty.
Rillera required Julie Nabus to return in four days with the necessary documents, such as the
deed of extrajudicial settlement, the transfer certificate of title in the names of Julie Nabus and
minor Michelle Nabus, and the guardianship papers of Michelle. However, Julie Nabus did not
return.

Getting suspicious, Catalina Pacson went to the Register of Deeds of the Province of Benguet
and asked for a copy of the title of the land. She found that it was still in the name of Julie and
Michelle Nabus.

After a week, Catalina Pacson heard a rumor that the lot was already sold to petitioner Betty
Tolero. Catalina Pacson and Atty. Rillera went to the Register of Deeds of the Province of
Benguet, and found that Julie Nabus and her minor daughter, Michelle Nabus, represented by
the former’s mother as appointed guardian by a court order dated October 29, 1982, had
executed a Deed of Absolute Sale in favor of Betty Tolero on March 5, 1984, covering the
whole lot comprising 1,665 square meters.15 The property was described in the deed of sale as
comprising four lots: (1) Lot A-2-A, with an area of 832 square meters; (2) Lot A-2-B, 168
square meters; (3) Lot A-2-C, 200 square meters; and (4) Lot A-2-D, 465 square meters. Lots
A-2-A and A-2-B, with a combined area of 1,000 square meters, correspond to the lot
previously sold to Joaquin and Julia Pacson in the Deed of Conditional Sale.

Catalina Pacson and Atty. Rillera also found that the Certificate of Title over the property in the
name of Julie and Michelle Nabus was cancelled on March 16, 1984, and four titles to the
fours lots were issued in the name of Betty Tolero, namely: TCT No. T-18650 16 for Lot A-2-A;
TCT No. 1865117 for Lot A-2-B; TCT No. T-1865218 for Lot A-2-C; and T-1865319 for Lot A-2-D.

On March 22, 1984, the gate to the repair shop of the Pacsons was padlocked. A sign was
displayed on the property stating "No Trespassing."20

On March 26, 1984, Catalina Pacson filed an affidavit-complaint regarding the padlocking
incident of their repair shop with the police station at La Trinidad, Benguet.

On March 28, 2008, respondents Joaquin and Julia Pacson filed with the Regional Trial Court
of La Trinidad, Benguet (trial court) a Complaint21 for Annulment of Deeds, with damages and
prayer for the issuance of a writ of preliminary injunction. 22 They sought the annulment of (1)
the Extra-judicial Settlement of Estate, insofar as their right to the 1,000-square-meter lot
subject of the Deed of Conditional Sale23 was affected; (2) TCT No. T-17718 issued in the
names of Julie and Michelle Nabus; and (3) the Deed of Absolute Sale 24 in favor of Betty
Tolero and the transfer certificates of title issued pursuant thereto. They also prayed for the
award of actual, moral and exemplary damages, as well as attorney’s fees.

In their Answer,25 Julie and Michelle Nabus alleged that respondent Joaquin Pacson did not
proceed with the conditional sale of the subject property when he learned that there was a
pending case over the whole property. Joaquin proposed that he would rather lease the
property with a monthly rental of ₱2,000.00 and apply the sum of ₱13,000.00 as rentals, since
the amount was already paid to the bank and could no longer be withdrawn. Hence, he did not
affix his signature to the second page of a copy of the Deed of Conditional Sale.26 Julie Nabus
alleged that in March 1994, due to her own economic needs and those of her minor daughter,
she sold the property to Betty Tolero, with authority from the court.

During the hearing on the merits, Julie Nabus testified that she sold the property to Betty
Tolero because she was in need of money. She stated that she was free to sell the property
because the Deed of Conditional Sale executed in favor of the Spouses Pacson was converted
into a contract of lease. She claimed that at the time when the Deed of Conditional Sale was
being explained to them by the notary public, Joaquin Pacson allegedly did not like the portion
of the contract stating that there was a pending case in court involving the subject property.
Consequently, Joaquin Pacson did not continue to sign the document; hence, the second page
of the document was unsigned.27 Thereafter, it was allegedly their understanding that the
Pacsons would occupy the property as lessees and whatever amount paid by them would be
considered rentals.

Betty Tolero put up the defense that she was a purchaser in good faith and for value. She
testified that it was Julie Nabus who went to her house and offered to sell the property
consisting of two lots with a combined area of 1,000 square meters. She consulted Atty.
Aurelio de Peralta before she agreed to buy the property. She and Julie Nabus brought to Atty.
De Peralta the pertinent papers such as TCT No. T-17718 in the names of Julie and Michelle
Nabus, the guardianship papers of Michelle Nabus and the blueprint copy of the survey plan
showing the two lots. After examining the documents and finding that the title was clean, Atty.
De Peralta gave her the go-signal to buy the property.

Tolero testified that upon payment of the agreed price of ₱200,000.00, the Deed of Absolute
Sale was executed and registered, resulting in the cancellation of the title of Julie and Michelle
Nabus and the issuance in her name of TCT Nos. T-18650 and T-18651 28 corresponding to the
two lots. Thereafter, she asked her common-law husband, Ben Ignacio, to padlock the gate to
the property and hang the "No Trespassing" sign.

Tolero also testified that as the new owner, she was surprised and shocked to receive the
Complaint filed by the Spouses Pacson. She admitted that she knew very well the Spouses
Pacson, because they used to buy vegetables regularly from her. She had been residing along
the highway at Kilometer 4, La Trinidad, Benguet since 1971. She knew the land in question,
because it was only 50 meters away across the highway. She also knew that the Spouses
Pacson had a shop on the property for the welding and body-building of vehicles. She was not
aware of the Deed of Conditional Sale executed in favor of the Pacsons, and she saw the
document for the first time when Joaquin Pacson showed it to her after she had already bought
the property and the title had been transferred in her name. At the time she was buying the
property, Julie Nabus informed her that the Pacsons were merely renting the property. She did
not bother to verify if that was true, because the Pacsons were no longer in the property for
two years before she bought it.

In a Decision dated September 30, 1993, the trial court ruled in favor of respondents. The
dispositive portion of the Decision reads:

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

ordering defendant Betty Tolero to execute a deed of absolute sale in favor of the Spouses
Joaquin and Julia Pacson over the lots covered by Transfer Certificates of Title Nos. T-18650
and T-18651 upon payment to her by the plaintiffs of the sum of ₱57,544.[8]4 representing the
balance due for the full payment of the property subject of this case. In addition to the
execution of a deed of absolute sale, defendant Betty Tolero shall surrender to the plaintiffs
her owner’s duplicate copy of Transfer Certificates of Title Nos. T-18650 and T-18651.
Defendants Julie Nabus, Michelle Nabus, and Betty Tolero shall also pay the plaintiffs
damages as follows: ₱50,000.00 for moral damages; ₱20,000.00 for exemplary damages; and
₱10,000.00 for attorney’s fees and expenses for litigation.29

Two issues determined by the trial court were: (1) Was the Deed of Conditional Sale between
the Spouses Pacson and the Nabuses converted into a contract of lease? and (2) Was Betty
Tolero a buyer in good faith?

The trial court held that the Deed of Conditional Sale was not converted into a contract of lease
because the original copy of the contract30 showed that all the pages were signed by all the
parties to the contract. By the presumption of regularity, all other carbon copies must have
been duly signed. The failure of Joaquin Pacson to sign the second page of one of the carbon
copies of the contract was by sheer inadvertence. The omission was of no consequence since
the signatures of the parties in all the other copies of the contract were complete. Moreover, all
the receipts of payment expressly stated that they were made in payment of the lot. Not a
single receipt showed payment for rental.

Further, the trial court held that Betty Tolero was not a purchaser in good faith as she had
actual knowledge of the Conditional Sale of the property to the Pacsons.

The trial court stated that the Deed of Conditional Sale contained reciprocal obligations
between the parties, thus:

THAT, as soon as the full consideration of this sale has been paid by the VENDEE, the
corresponding transfer documents shall be executed by the VENDOR to the VENDEE for the
portion sold;

xxxx

THAT, finally, the PARTIES hereby agree that this Instrument shall be binding upon their
respective heirs, successors or assigns.31

In other words, the trial court stated, when the vendees (the Spouses Pacson) were already
ready to pay their balance, it was the corresponding obligation of the vendors (Nabuses) to
execute the transfer documents.

The trial court held that "[u]nder Article 1191 of the Civil Code, an injured party in a reciprocal
obligation, such as the Deed of Conditional Sale in the case at bar, may choose between the
fulfillment [or] the rescission of the obligation, with the payment of damages in either case." It
stated that in filing the case, the Spouses Pacson opted for fulfillment of the obligation, that is,
the execution of the Deed of Absolute Sale in their favor upon payment of the purchase price.

Respondents appealed the decision of the trial court to the Court of Appeals.

In the Decision dated November 28, 2003, the Court of Appeals affirmed the trial court’s
decision, but deleted the award of attorney’s fees. The dispositive portion of the Decision
reads:

WHEREFORE, finding no reversible error in the September 30, 1993 Decision of the Regional
Trial Court of La Trinidad, Benguet, Branch 10, in Civil Case No. 84-CV-0079, the instant
appeal is hereby DISMISSED for lack of merit, and the assailed Decision is hereby AFFIRMED
and UPHELD with the modification that the award of attorney’s fees is deleted.32

Petitioners filed this petition raising the following issues:

I
THE [COURT OF APPEALS] ERRED IN CONSIDERING THE CONTRACT ENTERED INTO
BETWEEN THE SPOUSES BATE NABUS AND JULIE NABUS AND SPOUSES JOAQUIN
PACSON AND JULIA PACSON TO BE A CONTRACT OF SALE.

II

THE COURT A QUO ERRED IN FINDING THAT THERE ARE ONLY TWO ISSUES IN THE
CASE ON APPEAL AND THEY ARE: WHETHER THE DEED OF CONDITIONAL SALE WAS
CONVERTED INTO A CONTRACT OF LEASE; AND THAT [WHETHER] PETITIONER
BETTY TOLERO WAS A BUYER IN GOOD FAITH.

III

THAT THE TRIAL COURT ERRED IN HOLDING THAT [RESPONDENTS’] BALANCE TO

THE SPOUSES NABUS UNDER THE CONDITIONAL SALE IS ONLY ₱57,544.[8]4.

IV

THAT ASSUMING WITHOUT ADMITTING THAT PETITIONER BETTY TOLERO WAS

AWARE OF THE EXISTENCE OF THE DEED OF CONDITIONAL SALE, THE TRIAL COURT,
AS WELL AS THE [COURT OF APPEALS], ERRED IN ORDERING PETITIONER BETTY
TOLERO TO EXECUTE A DEED OF ABSOLUTE SALE IN FAVOR OF THE
[RESPONDENTS] AND TO SURRENDER THE OWNER'S DUPLICATE COPY OF TCT NOS.
T-18650 AND T-18651, WHICH WAS NOT PRAYED FOR IN THE PRAYER IN THE
COMPLAINT.

THAT THE [COURT OF APPEALS] ERRED IN FINDING BETTY TOLERO [AS] A BUYER
[WHO] FAILED TO TAKE STEPS IN INQUIRING FROM THE [RESPONDENTS] THE
STATUS OF THE PROPERTY IN QUESTION BEFORE HER PURCHASE, CONTRARY TO
FACTS ESTABLISHED BY EVIDENCE.

VI

THE [COURT OF APPEALS] ERRED IN CONSIDERING PETITIONER BETTY TOLERO A

BUYER IN BAD FAITH, IGNORING THE APPLICATION OF THE DOCTRINE IN THE
RULING OF THE SUPREME COURT IN THE CASE OF RODOLFO ALFONSO, ET AL. VS.
COURT OF APPEALS, G.R. NO. 63745.33

The main issues to be resolved are:

1) Whether or not the Deed of Conditional Sale was converted into a contract of lease;

2) Whether the Deed of Conditional Sale was a contract to sell or a contract of sale.

As regards the first issue, the Deed of Conditional Sale entered into by the Spouses Pacson
and the Spouses Nabus was not converted into a contract of lease. The 364 receipts issued to
the Spouses Pacson contained either the phrase "as partial payment of lot located in Km. 4" or
"cash vale" or "cash vale (partial payment of lot located in Km. 4)," evidencing sale under the
contract and not the lease of the property. Further, as found by the trial court, Joaquin
Pacson’s non-signing of the second page of a carbon copy of the Deed of Conditional Sale
was through sheer inadvertence, since the original contract34 and the other copies of the
contract were all signed by Joaquin Pacson and the other parties to the contract.

On the second issue, petitioners contend that the contract executed by the respondents and
the Spouses Nabus was a contract to sell, not a contract of sale. They allege that the contract
was subject to the suspensive condition of full payment of the consideration agreed upon
before ownership of the subject property could be transferred to the vendees. Since
respondents failed to pay the full amount of the consideration, having an unpaid balance of
₱57,544.84, the obligation of the vendors to execute the Deed of Absolute Sale in favor of
respondents did not arise. Thus, the subsequent Deed of Absolute Sale executed in favor of
Betty Tolero, covering the same parcel of land was valid, even if Tolero was aware of the
previous deed of conditional sale.

Moreover, petitioners contend that respondents violated the stipulated condition in the contract
that the monthly installment to be paid was ₱2,000.00, as respondents gave meager amounts
as low as ₱10.00.

Petitioners also assert that respondents’ allegation that Julie Nabus’ failure to bring the
pertinent documents necessary for the execution of the final deed of absolute sale, which was
the reason for their not having paid the balance of the purchase price, was untenable, and a
lame and shallow excuse for violation of the Deed of Conditional Sale. Respondents could
have made a valid tender of payment of their remaining balance, as it had been due for a long
time, and upon refusal to accept payment, they could have consigned their payment to the
court as provided by law. This, respondents failed to do.

The Court holds that the contract entered into by the Spouses Nabus and respondents was a
contract to sell, not a contract of sale.

A contract of sale is defined in Article 1458 of the Civil Code, thus:

Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price
certain in money or its equivalent.

A contract of sale may be absolute or conditional.

Ramos v. Heruela35 differentiates a contract of absolute sale and a contract of conditional sale

as follows:

Article 1458 of the Civil Code provides that a contract of sale may be absolute or conditional. A
contract of sale is absolute when title to the property passes to the vendee upon delivery of the
thing sold. A deed of sale is absolute when there is no stipulation in the contract that title to the
property remains with the seller until full payment of the purchase price. The sale is also
absolute if there is no stipulation giving the vendor the right to cancel unilaterally the contract
the moment the vendee fails to pay within a fixed period. In a conditional sale, as in a contract
to sell, ownership remains with the vendor and does not pass to the vendee until full payment
of the purchase price. The full payment of the purchase price partakes of a suspensive
condition, and non-fulfillment of the condition prevents the obligation to sell from arising.36

Coronel v. Court of Appeals37 distinguished a contract to sell from a contract of sale, thus:

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:

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

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because
the first essential element is lacking. In a contract to sell, the prospective seller explicitly
reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not
as yet agree or consent to transfer ownership of the property subject of the contract to sell until
the happening of an event, which for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell
the subject property when the entire amount of the purchase price is delivered to him. In other
words, the full payment of the purchase price partakes of a suspensive condition, the non-
fulfilment of which prevents the obligation to sell from arising and, thus, ownership is retained
by the prospective seller without further remedies by the prospective buyer.

xxxx

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, the prospective seller’s obligation to sell the subject property by entering
into a contract of sale with the prospective buyer becomes demandable as provided in Article
1479 of the Civil Code which states:

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

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from the
price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional

contract of sale where the seller may likewise reserve title to the property subject of the sale
until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first
element of consent is present, although it is conditioned upon the happening of a contingent
event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of
the contract of sale is completely abated. However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there had already been previous delivery of
the property subject of the sale to the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, ownership will not automatically transfer to the buyer although the property
may have been previously delivered to him. The prospective seller still has to convey title to
the prospective buyer by entering into a contract of absolute sale.38

Further, Chua v. Court of Appeals39 cited this distinction between a contract of sale and a
contract to sell:

In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not
to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract
of sale, the vendor loses ownership over the property and cannot recover it until and unless
the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the
vendor until full payment of the price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the obligation
of the vendor to convey title from becoming effective.40
It is not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties. In this case, the contract entitled "Deed of Conditional
Sale" is actually a contract to sell. The contract stipulated that "as soon as the full
consideration of the sale has been paid by the vendee, the corresponding transfer
documents shall be executed by the vendor to the vendee for the portion sold."41 Where the
vendor promises to execute a deed of absolute sale upon the completion by the vendee of the
payment of the price, the contract is only a contract to sell."42 The aforecited stipulation shows
that the vendors reserved title to the subject property until full payment of the purchase price.

If respondents paid the Spouses Nabus in accordance with the stipulations in the Deed of
Conditional Sale, the consideration would have been fully paid in June 1983. Thus, during the
last week of January 1984, Julie Nabus approached Joaquin Pacson to ask for the full
payment of the lot. Joaquin Pacson agreed to pay, but told her to return after four days as his
daughter, Catalina Pacson, would have to go over the numerous receipts to determine the
balance to be paid.

When Julie Nabus returned after four days, Joaquin Pacson sent Julie Nabus and his
daughter, Catalina, to Atty. Elizabeth Rillera for the execution of the deed of sale. Since Bate
Nabus had already died, and was survived by Julie and their minor daughter, Atty. Rillera
required Julie Nabus to return in four days with the necessary documents such as the deed of
extrajudicial settlement, the transfer certificate of title in the names of Julie Nabus and minor
Michelle Nabus, and the guardianship papers of Michelle. However, Julie Nabus did not return.

As vendees given possession of the subject property, the ownership of which was still with the
vendors, the Pacsons should have protected their interest and inquired from Julie Nabus why
she did not return and then followed through with full payment of the purchase price and the
execution of the deed of absolute sale. The Spouses Pacson had the legal remedy of
consigning their payment to the court; however, they did not do so. A rumor that the property
had been sold to Betty Tolero prompted them to check the veracity of the sale with the
Register of Deeds of the Province of Benguet. They found out that on March 5, 1984, Julie
Nabus sold the same property to Betty Tolero through a Deed of Absolute Sale, and new
transfer certificates of title to the property were issued to Tolero.1avvphi1

Thus, the Spouses Pacson filed this case for the annulment of the contract of absolute sale
executed in favor of Betty Tolero and the transfer certificates of title issued in her name.

Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their
favor was merely a contract to sell, the obligation of the seller to sell becomes demandable
only upon the happening of the suspensive condition.43 The full payment of the purchase price
is the positive suspensive condition, the failure of which is not a breach of contract, but simply
an event that prevented the obligation of the vendor to convey title from acquiring binding
force.44 Thus, for its non-fulfilment, there is no contract to speak of, the obligor having failed to
perform the suspensive condition which enforces a juridical relation. 45 With this circumstance,
there can be no rescission or fulfilment of an obligation that is still non-existent, the suspensive
condition not having occurred as yet.46 Emphasis should be made that the breach
contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an
obligation already extant, not a failure of a condition to render binding that obligation.47

The trial court, therefore, erred in applying Article 1191 of the Civil Code48 in this case by
ordering fulfillment of the obligation, that is, the execution of the deed of absolute sale in favor
of the Spouses Pacson upon full payment of the purchase price, which decision was affirmed
by the Court of Appeals. Ayala Life Insurance, Inc. v. Ray Burton Development
Corporation49 held:

Evidently, before the remedy of specific performance may be availed of, there must be
a breach of the contract.
Under a contract to sell, the title of the thing to be sold is retained by the seller until the
purchaser makes full payment of the agreed purchase price. Such payment is a positive
suspensive condition, the non-fulfillment of which is not a breach of contract but merely an
event that prevents the seller from conveying title to the purchaser. The non-payment of the
purchase price renders the contract to sell ineffective and without force and effect. Thus, a
cause of action for specific performance does not arise.50

Since the contract to sell was without force and effect, Julie Nabus validly conveyed the
subject property to another buyer, petitioner Betty Tolero, through a contract of absolute sale,
and on the strength thereof, new transfer certificates of title over the subject property were duly
issued to Tolero.51

The Spouses Pacson, however, have the right to the reimbursement of their payments to the
Nabuses, and are entitled to the award of nominal damages. The Civil Code provides:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.

Art. 2222. The court may award nominal damages in every obligation arising from any source
enumerated in article 1157, or in every case where any property right has been invaded.

As stated by the trial court, under the Deed of Conditional Sale, respondents had the right to
demand from petitioners Julie and Michelle Nabus that the latter execute in their favor a deed
of absolute sale when they were ready to pay the remaining balance of the purchase price.
The Nabuses had the corresponding duty to respect the respondents’ right, but they violated
such right, for they could no longer execute the document since they had sold the property to
Betty Tolero.52 Hence, nominal damages in the amount of ₱10,000.00 are awarded to
respondents.

Respondents are not entitled to moral damages because contracts are not referred to in Article
221953 of the Civil Code, which enumerates the cases when moral damages may be
recovered. Article 222054 of the Civil Code allows the recovery of moral damages in breaches
of contract where the defendant acted fraudulently or in bad faith. However, this case involves
a contract to sell, wherein full payment of the purchase price is a positive suspensive condition,
the non-fulfillment of which is not a breach of contract, but merely an event that prevents the
seller from conveying title to the purchaser. Since there is no breach of contract in this case,
respondents are not entitled to moral damages.

In the absence of moral, temperate, liquidated or compensatory damages, exemplary

damages cannot be granted for they are allowed only in addition to any of the four kinds of
damages mentioned.55

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV
No. 44941, dated November 28, 2003, is REVERSED and SET ASIDE. Judgment is hereby
rendered upholding the validity of the sale of the subject property made by petitioners Julie
Nabus and Michelle Nabus in favor of petitioner Betty Tolero, as well as the validity of Transfer
Certificates of Title Nos. T-18650 and T-18651 issued in the name of Betty Tolero. Petitioners
Julie Nabus and Michelle Nabus are ordered to reimburse respondents spouses Joaquin and
Julia Pacson the sum of One Hundred Twelve Thousand Four Hundred Fifty-Five Pesos and
Sixteen Centavos (₱112,455.16), and to pay Joaquin and Julia Pacson nominal damages in
the amount of Ten Thousand Pesos (₱10,000.00), with annual interest of twelve percent (12%)
until full payment of the amounts due to Joaquin and Julia Pacson.

No costs.

SO ORDERED.
SPS. LUIS V. CRUZ and AIDA CRUZ, Petitioners,vs. SPS. ALEJANDRO FERNANDO, SR.,
and RITA FERNANDO, Respondents (G.R. NO. 145470, December 9, 2005)

[G.R. NO. 145470 December 9, 2005]

SPS. LUIS V. CRUZ and AIDA CRUZ, Petitioners, v. SPS. ALEJANDRO FERNANDO, SR.,

and RITA FERNANDO, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

For resolution is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the Decision1 dated October 3, 2000 of the Court of Appeals (CA) in CA-G.R. CV No.
61247, dismissing petitioners' appeal and affirming the decision of the Regional Trial Court
(RTC) of Malolos, Bulacan, Branch 79, in Civil Case No. 877-M-94.

The antecedent facts are as follows:

Luis V. Cruz and Aida Cruz (petitioners) are occupants of the front portion of a 710-square
meter property located in Sto. Cristo, Baliuag, Bulacan. On October 21, 1994, spouses
Alejandro Fernando, Sr. and Rita Fernando (respondents) filed before the RTC a complaint
for accion publiciana against petitioners, demanding the latter to vacate the premises and to
pay the amount of P500.00 a month as reasonable rental for the use thereof. Respondents
alleged in their complaint that: (1) they are owners of the property, having bought the same
from the spouses Clodualdo and Teresita Glorioso (Gloriosos) per Deed of Sale dated March
9, 1987; (2) prior to their acquisition of the property, the Gloriosos offered to sell to petitioners
the rear portion of the property but the transaction did not materialize due to petitioners' failure
to exercise their option; (3) the offer to sell is embodied in a Kasunduan dated August 6, 1983
executed before the Barangay Captain; (4) due to petitioners' failure to buy the allotted portion,
respondents bought the whole property from the Gloriosos; and (5) despite repeated demands,
petitioners refused to vacate the property.2

Petitioners filed a Motion to Dismiss but the RTC dismissed it for lack of merit in its Order
dated March 6, 1995.3 Petitioners then filed their Answer setting forth the affirmative defenses
that: (1) the Kasunduan is a perfected contract of sale; (2) the agreement has already been
"partially consummated" as they already relocated their house from the rear portion of the lot to
the front portion that was sold to them; (3) Mrs. Glorioso prevented the complete
consummation of the sale when she refused to have the exact boundaries of the lot bought by
petitioners surveyed, and the existing survey was made without their knowledge and
participation; and (4) respondents are buyers in bad faith having bought that portion of the lot
occupied by them (petitioners) with full knowledge of the prior sale to them by the Gloriosos.4

After due proceedings, the RTC rendered a Decision on April 3, 1998 in favor of respondents.
The decretal portion of the decision provides:

PREMISES CONSIDERED, the herein plaintiffs was able to prove by preponderance of

evidence the case of accion publiciana, against the defendants and judgment is hereby
rendered as follows:

1. Ordering defendants and all persons claiming under them to vacate placefully (sic) the
premises in question and to remove their house therefore (sic);

2. Ordering defendants to pay plaintiff the sum of P500.00 as reasonable rental per month
beginning October 21, 1994 when the case was filed before this Court and every month
thereafter until they vacate the subject premises and to pay the costs of suit.

The counter claim is hereby DISMISSED for lack of merit.

SO ORDERED.5

Petitioners appealed the RTC decision but it was affirmed by the CA per its Decision dated
October 3, 2000.

Hence, the present petition raising the following issues:

1. Whether the Honorable Court of Appeals committed an error of law in holding that the
Agreement (Kasunduan) between the parties was a "mere offer to sell," and not a perfected
"Contract of Purchase and Sale"?chanroblesvirtualawlibrary

2. Whether the Honorable Court of Appeals committed an error of law in not holding that where
the parties clearly gave the petitioners a period of time within which to pay the price, but did
not fix said period, the remedy of the vendors is to ask the Court to fix the period for the
payment of the price, and not an "accion publiciana"?chanroblesvirtualawlibrary
3. Whether the Honorable Court of Appeals committed an error of law in not ordering
respondents to at least deliver the "back portion" of the lot in question upon payment of the
agreed price thereof by petitioners, assuming that the Regional Trial Court was correct in
finding that the subject matter of the sale was said "back portion", and not the "front" portion of
the property?chanroblesvirtualawlibrary

4. Whether the Honorable Court of Appeals committed an error of law in affirming the decision
of the trial court ordering the petitioners, who are possessors in good faith, to pay rentals for
the portion of the lot possessed by them?6

The RTC dwelt on the issue of which portion was being sold by the Gloriosos to petitioners,
finding that it was the rear portion and not the front portion that was being sold; while the CA
construed the Kasunduan as a mere contract to sell and due to petitioners' failure to pay the
purchase price, the Gloriosos were not obliged to deliver to them (petitioners) the portion being
sold.

Petitioners, however, insist that the agreement was a perfected contract of sale, and their
failure to pay the purchase price is immaterial. They also contend that respondents have no
cause of action against them, as the obligation set in the Kasunduan did not set a period,
consequently, there is no breach of any obligation by petitioners.

The resolution of the issues in this case principally is dependent on the interpretation of
the Kasunduan dated August 6, 1983 executed by petitioners and the Gloriosos.
The Kasunduan provided the following pertinent stipulations:

A. Na pumayag ang mga maysumbong (referring to the Gloriosos) na pagbilhan ang mga
ipinagsumbong (referring to petitioners) na bahagi ng lupa at ang ipagbibili ay may sukat na
213 metrong parisukat humigit kumulang sa halagang P40.00 bawat metrong parisukat;

b. Na sa titulong papapanaugin ang magiging kabuuang sukat na mauukol sa mga

ipinagsusumbong ay 223 metrong parisukat at ang 10 metro nito ay bilang kaloob ng mga
maysumbong sa mga Ipinagsusumbong na bahagi ng right of way;

c. Na ang right of way ay may luwang na 1.75 meters magmula sa daang Lopez
Jaena patungo sa likuran ng lote na pagtatayuan ng bahay ng mga Ipinagsusumbong na
kanyang bibilhin;

d. Na ang gugol sa pagpapasukat at pagpapanaog ng titulo ay paghahatian ng magkabilang

panig na ang panig ay magbibigay ng halagang hindi kukulanging sa halagang tig-AAPAT NA
DAANG PISO (P400.00);

e. Na ang ipinagsusumbong ay tiyakang ililipat ang bahay sa bahaging kanilang nabili o

mabibili sa buwan ng Enero 31, 1984;7 (Emphasis supplied)Ï‚rαlαωlιbrαrÿ

Under Article 1458 of the Civil Code, a contract of sale is a contract by which one of the
contracting parties obligates himself to transfer the ownership and to deliver a determinate
thing, and the other to pay therefor a price certain in money or its equivalent. Article 1475 of
the Code further provides that the contract of sale is perfected at the moment there is meeting
of the minds upon the thing which is the object of the contract and upon the price. From that
moment the parties may reciprocally demand performance subject to the provisions of the law
governing the form of contracts.

In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold, as distinguished from a contract to sell where ownership is, by agreement, reserved
in the vendor and is not to pass to the vendee until full payment of the purchase
price.8 Otherwise stated, in a contract of sale, the vendor loses ownership over the property
and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a
contract to sell, title is retained by the vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive condition, failure of which is not a
breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.

The Kasunduan provides for the following terms and conditions: (a) that the Gloriosos agreed
to sell to petitioners a portion of the property with an area of 213 meters at the price of P40.00
per square meter; (b) that in the title that will be caused to be issued, the aggregate area is
223 square meters with 10 meters thereof serving as right of way; (c) that the right of way shall
have a width of 1.75 meters from Lopez Jaena road going towards the back of the lot where
petitioners will build their house on the portion of the lot that they will buy; (d) that the
expenses for the survey and for the issuance of the title will be divided between the parties
with each party giving an amount of no less than P400.00; and (e) that petitioners will definitely
relocate their house to the portion they bought or will buy by January 31, 1984.

The foregoing terms and conditions show that it is a contract to sell and not a contract of sale.
For one, the conspicuous absence of a definite manner of payment of the purchase price in the
agreement confirms the conclusion that it is a contract to sell. This is because the manner of
payment of the purchase price is an essential element before a valid and binding
contract of sale can exist.9 Although the Civil Code does not expressly state that the minds
of the parties must also meet on the terms or manner of payment of the price, the same is
needed, otherwise there is no sale.10 As held in Toyota Shaw, Inc. v. Court of Appeals,11 a
definite agreement on the manner of payment of the price is an essential element in the
formation of a binding and enforceable contract of sale.

The Kasunduan does not establish any definite agreement between the parties concerning the
terms of payment. What it merely provides is the purchase price for the 213-square meter
property at P40.00 per square meter.

For another, the telltale provision in the Kasunduan that: "Na pumayag ang mga maysumbong
na pagbilhan ang mga ipinagsumbong na bahagi ng lupa at ang ipagbibili ay may sukat na
213 metrong parisukat humigit kumulang sa halagang P40.00 bawat metrong parisukat,"
simply means that the Gloriosos only agreed to sell a portion of the property and that the
portion to be sold measures 213 square meters.

Another significant provision is that which reads: "Na ang ipinagsusumbong ay tiyakang ililipat
ang bahay sa bahaging kanilang nabili o mabibili sa buwan ng Enero 31, 1984." The foregoing
indicates that a contract of sale is yet to be consummated and ownership of the property
remained in the Gloriosos. Otherwise, why would the alternative term "mabibili" be used if
indeed the property had already been sold to petitioners.

In addition, the absence of any formal deed of conveyance is a strong indication that the
parties did not intend immediate transfer of ownership.12

Normally, in a contract to sell, the payment of the purchase price is the positive suspensive
condition upon which the transfer of ownership depends.13 The parties, however, are not
prohibited from stipulating other lawful conditions that must be fulfilled in order for the contract
to be converted from a contract to sell or at the most an executory sale into an executed one.14

In the present case, aside from the payment of the purchase price, there existed another
suspensive condition, i.e.: that petitioners will relocate their house to the portion they bought or
will buy by January 31, 1984.

Petitioners failed to abide by the express condition that they should relocate to the rear portion
of the property being bought by January 31, 1984. Indeed, the Kasunduan discloses that it is
the rear portion that was being sold by the Gloriosos, and not the front portion as petitioners
stubbornly claim. This is evident from the provisions establishing a right of way from Lopez
Jaena road going towards the back of the lot, and requiring them to relocate their house to the
portion being sold by January 31, 1984. Petitioners are presently occupying the front portion of
the property. Why the need for a right of way and for petitioners to relocate if the front portion
on which their house stands is the portion being sold?chanroblesvirtualawlibrary

This condition is a suspensive condition noncompliance of which prevented the Gloriosos from
proceeding with the sale and ultimately transferring title to petitioners; and the Kasunduan from
having obligatory force.15 It is established by evidence that the petitioners did not transfer their
house located in the front portion of the subject property to the rear portion which, under
the Kasunduan, they intended to buy. Thus, no obligation arose on the part of the Gloriosos to
consider the subject property as having been sold to petitioners because the latter's non-
fulfillment of the suspensive condition rendered the contract to sell ineffective and unperfected.

Petitioners admit that they have not paid a single centavo to the Gloriosos. However,
petitioners argue that their nonpayment of the purchase price was due to the fact that there is
yet to be a survey made of the property. But evidence shows, and petitioners do not dispute,
that as early as August 12, 1983, or six days after the execution of the Kasunduan, a survey
has already been made and the property was subdivided into Lot Nos. 565-B-1 (front portion)
and 565-B-2 (rear portion), with Lot No. 565-B-2 measuring 223 square meters as the portion
to be bought by petitioners.

Petitioners question the survey made, asserting that it is a "table survey" made without their
knowledge and participation. It should be pointed out that the Kasunduan merely provides that
the expenses for the survey will be divided between them and that each party should give an
amount of no less than P400.00. Nowhere is it stated that the survey is a condition precedent
for the payment of the purchase price.

Petitioners further claim that respondents have no cause of action against them because their
obligation to pay the purchase price did not yet arise, as the agreement did not provide for a
period within which to pay the purchase price. They argue that respondents should have filed
an action for specific performance or judicial rescission before they can avail of accion
publiciana.

Notably, petitioners never raised these arguments during the proceedings before the RTC.
Suffice it to say that issues raised for the first time on appeal and not raised timely in the
proceedings in the lower court are barred by estoppel.16 Matters, theories or arguments not
brought out in the original proceedings cannot be considered on review or appeal where they
are raised for the first time. To consider the alleged facts and arguments raised belatedly
would amount to trampling on the basic principles of fair play, justice and due process.17

Moreover, it would be inutile for respondents to first petition the court to fix a period for the
performance of the contract. In the first place, respondents are not parties to
the Kasunduan between petitioners and the Gloriosos, and they have no standing whatsoever
to seek such recourse. In the second place, such recourse properly pertains to petitioners. It
was they who should have sought the court's intercession. If petitioners believed that they
have an actionable contract for the sale of the property, prudence and common sense dictate
that they should have sought its enforcement forthwith. Instead, petitioners whiled away their
time.

Furthermore, there is no need for a judicial rescission of the Kasunduan for the simple reason
that the obligation of the Gloriosos to transfer the property to petitioners has not yet arisen.
There can be no rescission of an obligation that is nonexistent, considering that the suspensive
conditions therefor have not yet happened.18

Hence, petitioners have no superior right of ownership or possession to speak of. Their
occupation of the property was merely through the tolerance of the owners. Evidence on
record shows that petitioners and their predecessors were able to live and build their house on
the property through the permission and kindness of the previous owner, Pedro Hipolito, who
was their relative,19 and subsequently, Teresita Glorioso, who is also their relative. They have
no title or, at the very least, a contract of lease over the property. Based as it was on mere
tolerance, petitioners' possession could neither ripen into ownership nor operate to bar any
action by respondents to recover absolute possession thereof.20

There is also no merit to petitioners' contention that respondents are buyers in bad faith. As
explained in Coronel v. Court of Appeals:

In a contract to sell, there being no previous sale of the property, a third person buying such
property despite the fulfillment of the suspensive condition such as the full payment of
the purchase price, for instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the property. There is no double
sale in such case. Title to the property will transfer to the buyer after registration because
there is no defect in the owner-seller's title per se, but the latter, of course, may be sued for
damages by the intending buyer.21 (Emphasis supplied)Ï‚rαlαωlιbrαrÿ

A person who occupies the land of another at the latter's forbearance or permission without
any contract between them is necessarily bound by an implied promise that he will vacate
upon demand.22

Considering that petitioners' continued possession of the property has already been rendered
unlawful, they are bound to pay reasonable rental for the use and occupation thereof, which in
this case was appropriately pegged by the RTC at P500.00 per month beginning October 21,
1994 when respondents filed the case against them until they vacate the premises.

Finally, petitioners seek compensation for the value of the improvements introduced on the
property. Again, this is the first time that they are raising this point. As such, petitioners are
now barred from seeking such relief.23

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated October 3,
2000 in CA-G.R. CV No. 61247 is AFFIRMED.

SO ORDERED.
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, vs. COURT OF
APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents (G.R. No.
108346, July 11, 2001)

G.R. No. 108346       July 11, 2001

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners,
vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents.

PANGANIBAN, J.:

A substantial breach of a reciprocal obligation, like failure to pay the price in the manner
prescribed by the contract, entitled the injured party to rescind the obligation. Rescission
abrogates the contract from its inception and requires a mutual restitution of benefits received.

The Case

Before us is a Petition for Review on Certiorari1 questioning the Decision2 of the Court of

Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution3 dated
December 29, 1992 denying petitioner's motion for reconsideration.4

The dispositive portion of the assailed Decision reads:

"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE
and the Decision dated November 14, 1990 dismissing the [C]omplaint is
RESINSTATED. The bonds posted by plaintiffs-appellees and defendants-appellants
are hereby RELEASED."5

The Facts

The factual antecedents of the case, as found by the CA, are as follows:

"x x x. David Raymundo [herein private respondent] is the absolute and registered
owner of a parcel of land, together with the house and other improvements thereon,
located at 1918 Kamias St., Dasmariñas Village, Makati and covered by TCT No.
142177. Defendant George Raymundo [herein private petitioners] is David's father who
negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners] for the sale of
said property, which was, however, under lease (Exh. '6', p. 232, Record of Civil Case
No. 15952).

"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp.
11-12, Record) was executed by defendant David Raymundo, as vendor, in favor of
plaintiff Avelina Velarde, as vendee, with the following terms and conditions:
'x x x      x x x      x x x

'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND

PESOS (P800,000.00), Philippine currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE, to his entire and complete
satisfaction, by these presents the VENDOR hereby SELLS, CEDES,
TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full
warranty of a legal and valid title as provided by law, unto the VENDEE, her
heirs, successors and assigns, the parcel of land mentioned and described
above, together with the house and other improvements thereon.

'That the aforesaid parcel of land, together with the house and other
improvements thereon, were mortgaged by the VENDOR to the BANK OF THE
PHILIPPINE ISLANDS, Makati, Metro Manila to secure the payment of a loan of
ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, as evidenced by a Real Estate Mortgage signed and
executed by the VENDOR in favor of the said Bank of the Philippine Islands, on
_____ and which Real Estate Mortgage was ratified before Notary Public for
Makati, _____, as Doc. No. ______, Page No. _____, Book No. ___, Series of
1986 of his Notarial Register.

'That as part of the consideration of this sale, the VENDEE hereby assumes to
pay the mortgage obligations on the property herein sold in the amount of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in favor of Bank of Philippine Islands, in the name of the VENDOR, and
further agrees to strictly and faithfully comply with all the terms and conditions
appearing in the Real Estate Mortgage signed and executed by the VENDOR in
favor of BPI, including interests and other charges for late payment levied by the
Bank, as if the same were originally signed and executed by the VENDEE.

'It is further agreed and understood by the parties herein that the capital gains tax
and documentary stamps on the sale shall be for the account of the VENDOR;
whereas, the registration fees and transfer tax thereon shall be the account of the
VENDEE.' (Exh. 'A', pp. 11-12, Record).'

"On the same date, and as part of the above-document, plaintiff Avelina Velarde, with
the consent of her husband, Mariano, executed an Undertaking (Exh. 'C', pp. 13-14,
Record).'

'x x x      x x x      x x x

'Whereas, as per deed of Sale with Assumption of Mortgage, I paid Mr. David A.
Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage obligations on the property with
the Bank of the Philippine Islands in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in
accordance with the terms and conditions of the Deed of Real Estate Mortgage
dated _____, signed and executed by Mr. David A. Raymundo with the said
Bank, acknowledged before Notary Public for Makati, _____, as Doc. No. _____,
Page No. _____, Book No. _____, Series of 1986 of his Notarial Register.

'WHEREAS, while my application for the assumption of the mortgage obligations

on the property is not yet approved by the mortgagee Bank, I have agreed to pay
the mortgage obligations on the property with the Bank in the name of Mr. David
A. Raymundo, in accordance with the terms and conditions of the said Deed of
Real Estate Mortgage, including all interests and other charges for late payment.
 'WHEREAS, this undertaking is being executed in favor of Mr. David A.
Raymundo, for purposes of attesting and confirming our private understanding
concerning the said mortgage obligations to be assumed.

'NOW, THEREFORE, for and in consideration of the foregoing premises, and the
assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, with the bank of the
Philippine Islands, I, Mrs, Avelina D, Velarde with the consent of my husband,
Mariano Z. Velardo, do hereby bind and obligate myself, my heirs, successors
and assigns, to strictly and faithfully comply with the following terms and
conditions:

'1. That until such time as my assumption of the mortgage obligations on the
property purchased is approved by the mortgagee bank, the Bank of the
Philippine Islands, I shall continue to pay the said loan in accordance with the
terms and conditions of the Deed of Real Estate Mortgage in the name of Mr.
David A. Raymundo, the original Mortgagor.

'2. That, in the event I violate any of the terms and conditions of the said Deed of
Real Estate Mortgage, I hereby agree that my downpayment of P800,000.00,
plus all payments made with the Bank of the Philippine Islands on the mortgage
loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of
liquidated damages, without necessity of notice or any judicial declaration to that
effect, and Mr. David A. Raymundo shall resume total and complete ownership
and possession of the property sold by way of Deed of Sale with Assumption of
Mortgage, and the same shall be deemed automatically cancelled and be of no
further force or effect, in the same manner as it (the) same had never been
executed or entered into.

'3. That I am executing the Undertaking for purposes of binding myself, my heirs,
successors and assigns, to strictly and faithfully comply with the terms and
conditions of the mortgage obligations with the Bank of the Philippine Islands,
and the covenants, stipulations and provisions of this Undertaking.

'That, David A. Raymundo, the vendor of the property mentioned and identified
above, [does] hereby confirm and agree to the undertakings of the Vendee
pertinent to the assumption of the mortgage obligations by the Vendee with the
Bank of the Philippine Islands. (Exh. 'C', pp. 13-14, Record).'

"This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.

"It appears that the negotiated terms for the payment of the balance of P1.8 million was
from the proceeds of a loan that plaintiffs were to secure from a bank with defendant's
help. Defendants had a standing approved credit line with the Bank of the Philippine
Islands (BPI). The parties agreed to avail of this, subject to BPI's approval of an
application for assumption of mortgage by plaintiffs. Pending BPI's approval o[f] the
application, plaintiffs were to continue paying the monthly interests of the loan secured
by a real estate mortgage.

"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan
secured by the aforementioned mortgage for three (3) months as follows: September
19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at
P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17and 18, Record).

"On December 15, 1986, plaintiffs were advised that the Application for Assumption of
Mortgage with BPI, was not approved (Exh. 'J', p. 133, Record). This prompted plaintiffs
not to make any further payment.
 "On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that
their non-payment to the mortgage bank constitute[d] non-performance of their
obligation (Exh. '3', p. 220, Record).

"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:

'This is to advise you, therefore, that our client is willing to pay the balance in
cash not later than January 21, 1987 provided: (a) you deliver actual possession
of the property to her not later than January 15, 1987 for her immediate
occupancy; (b) you cause the re- lease of title and mortgage from the Bank of
P.I. and make the title available and free from any liens and encumbrances; and
(c) you execute an absolute deed of sale in her favor free from any liens or
encumbrances not later than January 21, 1987.' (Exhs. 'k', '4', p. 223, Record).

"On January 8, 1987 defendants sent plaintiffs a notarial notice of

cancellation/rescission of the intended sale of the subject property allegedly due to the
latter's failure to comply with the terms and conditions of the Deed of Sale with
Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225-226, Record)."6

Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents

for specific performance, nullity of cancellation, writ of possession and damages. This was
docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case
was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this
Court), who dismissed the Complaint in a Decision dated November 14, 1990.7 Thereafter,
petitioners filed a Motion for Reconsideration.8

Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge
Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15,
1991,9 Judge Abad Santos granted petitioner's Motion for Reconsideration and directed the
parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to
private respondents who, in turn, were ordered to execute a deed of absolute sale and to
surrender possession of the disputed property to petitioners.

Private respondents appealed to the CA.

Ruling of the Court of Appeal

The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-
Santiago's earlier Decision dismissing petitioners' Complaint. Upholding the validity of the
rescission made by private respondents, the CA explained its ruling in this wise:

"In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the
consideration of this sale, the VENDEE (Velarde)' would assume to pay the mortgage
obligation on the subject property in the amount of P 1.8 million in favor of BPI in the
name of the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde
includes the downpayment of P800,000.00 and the balance of Pl.8 million, and the
balance of Pl.8 million cannot be paid in cash, Vendee Velarde, as part of the
consideration of the sale, had to assume the mortgage obligation on the subject
property. In other words, the assumption of the mortgage obligation is part of the
obligation of Velarde, as vendee, under the contract. Velarde further agreed 'to strictly
and faithfully comply with all the terms and conditions appearing in the Real Estate
Mortgage signed and executed by the VENDOR in favor of BPI x x x as if the same
were originally signed and executed by the Vendee. (p. 2, thereof, p. 12, Record). This
was reiterated by Velarde in the document entitled 'Undertaking' wherein the latter
agreed to continue paying said loan in accordance with the terms and conditions of the
Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it was stipulated
that in the event of violation by Velarde of any terms and conditions of said deed of real
 estate mortgage, the downpayment of P800,000.00 plus all payments made with BPI or
the mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption of
[M]ortgage would thereby be Cancelled automatically and of no force and effect (pars. 2
& 3, thereof, pp 13-14, Record).

"From these 2 documents, it is therefore clear that part of the consideration of the sale
was the assumption by Velarde of the mortgage obligation of Raymundo in the amount
of Pl.8 million. This would mean that Velarde had to make payments to BPI under the
[D]eed of [R]eal [E]state [M]ortgage the name of Raymundo. The application with BPI
for the approval of the assumption of mortgage would mean that, in case of approval,
payment of the mortgage obligation will now be in the name of Velarde. And in the event
said application is disapproved, Velarde had to pay in full. This is alleged and admitted
in Paragraph 5 of the Complaint. Mariano Velarde likewise admitted this fact during the
hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26,
t.s.n., October 8, 1989). This being the case, the non-payment of the mortgage
obligation would result in a violation of the contract. And, upon Velarde's failure to pay
the agreed price, the[n] Raymundo may choose either of two (2) actions - (1) demand
fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil Code).

"The disapproval by BPI of the application for assumption of mortgage cannot be used
as an excuse for Velarde's non-payment of the balance of the purchase price. As borne
out by the evidence, Velarde had to pay in full in case of BPI's disapproval of the
application for assumption of mortgage. What Velarde should have done was to pay the
balance of P1.8 million. Instead, Velarde sent Raymundo a letter dated January 7, 1987
(Exh. 'K', '4') which was strongly given weight by the lower court in reversing the
decision rendered by then Judge Ynares-Santiago. In said letter, Velarde registered
their willingness to pay the balance in cash but enumerated 3 new conditions which, to
the mind of this Court, would constitute a new undertaking or new agreement which is
subject to the consent or approval of Raymundo. These 3 conditions were not among
those previously agreed upon by Velarde and Raymundo. These are mere offers or, at
most, an attempt to novate. But then again, there can be no novation because there
was no agreement of all the parties to the new contract (Garcia, Jr. vs. Court of
Appeals, 191 SCRA 493).

"It was likewise agreed that in case of violation of the mortgage obligation, the Deed of
Sale with Assumption of Mortgage would be deemed 'automatically cancelled and of no
further force and effect, as if the same had never been executed or entered into.' While
it is true that even if the contract expressly provided for automatic rescission upon
failure to pay the price, the vendee may still pay, he may do so only for as long as no
demand for rescission of the contract has been made upon him either judicially or by a
notarial act (Article 1592, Civil Code). In the case at bar, Raymundo sent Velarde
notarial notice dated January 8, 1987 of cancellation/rescission of the contract due to
the latter's failure to comply with their obligation. The rescission was justified in view of
Velarde's failure to pay the price (balance) which is substantial and fundamental as to
defeat the object of the parties in making the agreement. As adverted to above, the
agreement of the parties involved a reciprocal obligation wherein the obligation of one is
a resolutory condition of the obligation of the other, the non-fulfillment of which entitles
the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the
non-payment of the mortgage obligation by appellees Velarde would create a right to
demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing
& Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellee's failure,
therefore, to pay the balance, the contract was properly rescinded (Ruiz vs. IAC, 184
SCRA 720). Consequently, appellees Velarde having violated the contract, they have
lost their right to its enforcement and hence, cannot avail of the action for specific
performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)."10

Hence, this appeal. 11

 The Issues

Petitioners, in their Memorandum,12 interpose the following assignment of errors:

"I.
The Court of Appeals erred in holding that the non-payment of the mortgage obligation
resulted in a breach of the contract.
"II
The Court of Appeals erred in holding that the rescission (resolution) of the contract by
private respondents was justified.
"III
The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three
'new conditions' constituting mere offers or an attempt to novate necessitating a new
agreement between the parties."

The Court's Ruling

The Petition is partially meritorious.

First Issue:

Breach of Contract

Petitioner aver that their nonpayment of private respondents' mortgage obligation did not
constitute a breach of contract, considering that their request to assume the obligation had
been disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations
ceased to be their obligation and, instead, it devolved upon private respondents again.

However, petitioners did not merely stop paying the mortgage obligations; they also failed to
pay the balance of the purchase price. As admitted by both parties, their agreement mandated
that petitioners should pay the purchase price balance of P1.8 million to private respondents in
case the request to assume the mortgage would be disapproved. Thus, on December 15,
1986, when petitioners received notice of the bank's disapproval of their application to assume
respondents' mortgage, they should have paid the balance of the P1.8 million loan.

Instead of doing so, petitioners sent a letter to private respondents offering to make such
payment only upon the fulfillment of certain conditions not originally agreed upon in the
contract of sale. Such conditional offer to pay cannot take the place of actual payment as
would discharge the obligation of a buyer under a contract of sale.

In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a
determinate things, and the buyer to pay therefor a price certain in money or its equivalent.13

Private respondents had already performed their obligation through the execution of the Deed
of Sale, which effectively transferred ownership of the property to petitioner through
constructive delivery. Prior physical delivery or possession is not legally required, and the
execution of the Deed of Sale is deemed equivalent to delivery.14

Petitioners, on the other hand, did not perform their correlative obligation of paying the contract
price in the manner agreed upon. Worse, they wanted private respondents to perform
obligations beyond those stipulated in the contract before fulfilling their own obligation to pay
the full purchase price.

Second Issue

Validity of the Rescission

Petitioners likewise claim that the rescission of the contract by private respondents was not
justified, inasmuch as the former had signified their willingness to pay the balance of the
purchase price only a little over a month from the time they were notified of the disapproval of
their application for assumption of mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a rescission. They cite several cases 15 in which
this Court declared that rescission of a contract would not be permitted for a slight or casual
breach. Finally, they argue that they have substantially performed their obligation in good faith,
considering that they have already made the initial payment of P800,000 and three (3) monthly
mortgage payments.

As pointed out earlier, the breach committed by petitioners was not so much their nonpayment
of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents' right to rescind the contract
finds basis in Article 1191 of the Civil Code, which explicitly provides as follows:

"Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission even after he
has chosen fulfillment, if the latter should become impossible."

The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between
them.16 The breach contemplated in the said provision is the obligor's failure to comply with an
existing obligation.17 When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission.18

In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of
sale, a violation that consequently gave rise to private respondent's right to rescind the same in
accordance with law.

True, petitioners expressed their willingness to pay the balance of the purchase price one
month after it became due; however, this was not equivalent to actual payment as would
constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was
conditioned on the performance by private respondents of additional burdens that had not
been agreed upon in the original contract. Thus, it cannot be said that the breach committed by
petitioners was merely slight or casual as would preclude the exercise of the right to rescind.

Misplaced is petitioners' reliance on the cases19 they cited, because the factual circumstances
in those cases are not analogous to those in the present one. In Song Fo there was, on the
part of the buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover,
the buyer's offer to pay was unconditional and was accepted by the seller.

In Zepeda, the breach involved a mere one-week delay in paying the balance of 1,000 which
was actually paid.

In Tan, the alleged breach was private respondent's delay of only a few days, which was for
the purpose of clearing the title to the property; there was no reference whatsoever to the
nonpayment of the contract price.

In the instant case, the breach committed did not merely consist of a slight delay in payment or
an irregularity; such breach would not normally defeat the intention of the parties to the
contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also
imposed upon private respondents new obligations as preconditions to the performance of
their own obligation. In effect, the qualified offer to pay was a repudiation of an existing
obligation, which was legally due and demandable under the contract of sale. Hence, private
respondents were left with the legal option of seeking rescission to protect their own interest.

Mutual Restitution

Required in Rescission

As discussed earlier, the breach committed by petitioners was the nonperformance of a

reciprocal obligation, not a violation of the terms and conditions of the mortgage contract.
Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract
does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this
controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code,
mutual restitution is required to bring back the parties to their original situation prior to the
inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding
mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00)
advanced by petitioners should be returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the former.

Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. 20 To
rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each
other, but to abrogate it from the beginning and restore the parties to their relative positions as
if no contract has been made.21

Third Issue

Attempt to Novate

In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third
issue raised by petitioners. Suffice it to say that the three conditions appearing on the January
7, 1987 letter of petitioners to private respondents were not part of the original contract. By that
time, it was already incumbent upon the former to pay the balance of the sale price. They had
no right to demand preconditions to the fulfillment of their obligation, which had become due.

WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that

private respondents are ordered to return to petitioners the amount of P874,150, which the
latter paid as a consequence of the rescinded contract, with legal interest thereon from
January 8, 1987, the date of rescission. No pronouncement as to costs.

SO ORDERED.1âwphi1.nêt
FREDERICK VENTURA, MARITES VENTURA-ROXAS, and PHILIP VENTURA (HEIRS OF
DECEASED DOLORES C. VENTURA), Petitioners, vs. HEIRS OF SPOUSES EUSTACIO T.
ENDAYA and TRINIDAD L. ENDAYA, namely, TITUS L. ENDAYA, ENRICO L. ENDAYA, and
JOSEPHINE ENDAYA-BANTUG,1 Respondents (G.R. No. 190016, October 2, 2013)

FREDERICK VENTURA, MARITES VENTURA-ROXAS, AND PHILIP VENTURA (HEIRS OF

DECEASED DOLORES C. VENTURA), PETITIONERS, VS. HEIRS OF SPOUSES
EUSTACIO T. ENDAYA AND TRINIDAD L. ENDAYA, NAMELY, TITUS L. ENDAYA,
ENRICO L. ENDAYA, AND JOSEPHINE ENDAYABANTUG,[1] RESPONDENTS.

DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari[2] is the Decision[3] dated August 18, 2006 of the
Court of Appeals (CA) in CA-G.R. CV No. 68465 which reversed and set aside the
Decision[4] dated August 7, 2000 of the Regional Trial Court of Parañaque City, Branch 258
(RTC) in Civil Case No. 96-0500, dismissing petitioners’ complaint for specific performance
seeking to compel respondents to execute a deed of sale over the properties subject of this
case.

The Facts
On June 29, 1981, Dolores Ventura (Dolores) entered into a Contract to Sell [5] (contract to sell)
with spouses Eustacio and Trinidad Endaya (Sps. Endaya) for the purchase of two parcels of
land covered by Transfer Certificates of Title (TCT) Nos. 392225[6] and (343392) S-
67975[7] (subject properties), denominated as Lots 8 and 9, Block 3, situated in Marian Road II,
Marian Park[8] (now Barangay San Martin de Porres),[9] Parañaque City, Metro Manila.

The contract to sell provides that the purchase price of P347,760.00 shall be paid by Dolores
in the following manner: (a) downpayment of P103,284.00 upon execution of the contract; and
(b) the balance of P244,476.00 within a 15-year period (payment period), plus 12% interest per
annum (p.a.) on the outstanding balance and 12% interest p.a. on arrearages. It further
provides that all payments made shall be applied in the following order: first, to the
reimbursement of real estate taxes and other charges; second, to the interest accrued to the
date of payment; third, to the amortization of the principal obligation; and fourth, to the
payment of any other accessory obligation subsequently incurred by the owner in favor of the
buyer. It likewise imposed upon Dolores the obligation to pay the real property taxes over the
subject properties, or to reimburse Sps. Endaya for any tax payments made by them, plus 1%
interest per month. Upon full payment of the stipulated consideration, Sps. Endaya undertook
to execute a final deed of sale and transfer ownership over the same in favor of Dolores.[10]

Meanwhile, Dolores was placed in possession of the subject properties and allowed to erect a
building thereon.[11] However, on April 10, 1992, before the payment period expired, Dolores
passed away.[12]

On November 28, 1996, Dolores’ children, Frederick Ventura, Marites Ventura-Roxas, and
Philip Ventura (petitioners), filed before the RTC a Complaint[13] and, thereafter, an Amended
Complaint[14] for specific performance, seeking to compel Sps. Endaya to execute a deed of
sale over the subject properties. In this regard, they averred that due to the close friendship
between their parents and Sps. Endaya, the latter did not require the then widowed Dolores to
pay the downpayment stated in the contract to sell and, instead, allowed her to pay amounts
as her means would permit. The payments were made in cash as well as in kind,[15] and the
same were recorded by respondent Trinidad herself in a passbook[16] given to Dolores to
evidence the receipt of said payments. As of June 15, 1996, the total payments made by
Dolores and petitioners amounted to P952,152.00, which is more than the agreed purchase
price of P347,760.00, including the 12% interest p.a. thereon computed on the outstanding
balance.[17] However, when petitioners demanded[18] the execution of the corresponding deed
of sale, Sps. Endaya refused.

For their part, Sps. Endaya filed their Answer,[19] admitting the execution and genuineness of
the contract to sell and the passbook. However, they countered that Dolores did not pay the
stipulated downpayment and remitted only a total of 22 installments. After her death in 1992,
petitioners no longer remitted any installment. Sps. Endaya also averred that prior to Dolores'
death, the parties agreed to a restructuring of the contract to sell whereby Dolores agreed to
give a “bonus” of P265,673.93 and to pay interest at the increased rate of 24% p.a. on the
outstanding balance. They further claimed that in April 1996, when the balance of the purchase
price stood at P1,699,671.69, a final restructuring of the contract to sell was agreed with
petitioners, fixing the obligation at P3,000,000.00. Thereafter, the latter paid a total of
P380,000.00 on two separate occasions,[20] leaving a balance of P2,620,000.00. In any event,
Sps. Endaya pointed out that the automatic cancellation clause under the foregoing contract
rendered the same cancelled as early as 1981 with Dolores’ failure to make a downpayment
and to faithfully pay the installments;[21] hence, petitioners’ complaint for specific performance
must fail. In addition, Sps. Endaya interposed a counterclaim for the alleged unpaid balance of
P2,620,000.00, plus damages, attorney's fees and costs of suit.[22]

In their Reply with Answer to Counterclaim,[23] petitioners denied the existence of any

restructuring of the contract to sell, invoking[24] the Dead Man's Statute[25] and the Statute of
Frauds.[26] In turn, Sps. Endaya filed a Rejoinder,[27] challenging the inapplicability of the
foregoing principles since the case was not filed against an estate or an administrator of an
estate, and in view of the partial performance of the contract to sell. [28]

While the oral depositions of Sps. Endaya were taken at the 4 th Municipal Circuit Trial Court of
Malvar-Balete, Batangas on account of their frailty and old age, they, however, did not make a
formal offer of their depositions and documentary evidence. Hence, the case was submitted for
decision on the basis of the petitioners' evidence.[29]

The RTC Ruling

In a Decision[30] dated August 7, 2000, the RTC found that petitioners were able to prove by a
preponderance of evidence the fact of full payment of the purchase price for the subject
properties.[31] As such, it ordered Sps. Endaya to execute a deed of absolute sale covering the
sale of the subject properties in petitioners’ favor and to pay them attorney's fees and costs of
suit.[32] Dissatisfied, Sps. Endaya elevated the matter to the CA.

The CA Ruling and Subsequent Proceedings

In a Decision[33] dated August 18, 2006 (August 18, 2006 Decision), the CA reversed and set
aside the RTC ruling. It found that petitioners were not able to show that they fully complied
with their obligations under the contract to sell. It observed that aside from the payment of the
purchase price and 12% interest p.a. on the outstanding balance, the contract to sell imposed
upon petitioners the obligations to pay 12% interest p.a. on the arrears and to reimburse Sps.
Endaya the amount of the pertinent real estate taxes due on the subject properties, which the
former, however, totally disregarded as shown in their summary of payments. [34]

Meanwhile, counsel for petitioners, Atty. German A. Gineta, passed away on June 12, 2006,
[35]
 hence, the notice of the August 18, 2006 Decision sent to him was returned unserved. [36] On
the other hand, the notice sent to petitioners at No. 2, Barangay San Martin de Porres,
Parañaque City, was likewise returned unserved for the reason “insufficient address.” [37]

Nonetheless, the CA deemed the service of the said notice to them as valid and complete as
of March 9, 2007 pursuant to Section 8,[38] Rule 13 of the Rules of Court (Rules). Accordingly, it
directed[39] the Division Clerk of Court to issue the corresponding Entry of Judgment. An Entry
of Judgment[40] was, thus, made in the CA Book of Entries of Judgments certifying that the
August 18, 2006 Decision became final and executory on March 25, 2007. The records were
thereafter remanded[41] to the RTC.

In July 2009, respondent Titus Endaya, heir of Sps. Endaya,[42] demanded[43] petitioners to

vacate the subject properties, which they refused.

On November 10, 2009, petitioners filed the instant petition invoking the benevolence of the
Court to set aside the CA’s August 18, 2006 Decision and, instead, reinstate the RTC Decision
in the interest of substantial justice. They claimed that they had no knowledge of the demise of
their counsel; therefore, they were unable to file a timely motion for reconsideration before the
CA or the proper petition before the Court. Further, they contend that they have proven full
payment of the purchase price within the payment period as required by the contract to sell.

For their part, the heirs of Sps. Endaya (respondents) objected[44] to the belated filing of the
petition long after the said CA Decision had lapsed into finality, especially as the petition raised
factual issues that are improper in a petition for review on certiorari under Rule 45 of the Rules.
In any case, they countered that the CA correctly held that petitioners failed to fully comply with
their obligations under the contract to sell; thus, respondents are under no obligation to
execute any deed of sale over the subject properties in favor of petitioners.

On September 22, 2010, the Court gave due course to the petition and required the parties to
file their respective memoranda,[45] which they duly submitted.
 The Issues Before the Court

The principal issues in this case are: (a) whether or not petitioners’ right to appeal before the
Court should be upheld; and (b) whether or not respondents should execute a deed of sale
over the subject properties in favor of petitioners.

The Court's Ruling

The petition is partly meritorious.

Anent the first issue, it is observed that the CA erroneously sent the notice of the assailed
August 18, 2006 Decision to petitioners at No. 2, Barangay San Martin de Porres, Parañaque
City, instead of their address of record, i.e., Marian Road 2, Brgy. San Martin de Porres,
Parañaque, Metro Manila[46] and thus, was returned unserved for the reason “insufficient
address.”[47] The notices of the Entry of Judgment[48] and the transmittal letter[49] to the Clerk of
Court of the RTC indicate this fact. As such, there was clearly no proper and valid service of
the said CA Decision which deprived petitioners of the opportunity to file a motion for
reconsideration before the CA and/or further appeal to the Court. Verily, it would be unjust and
unfair to allow petitioners to suffer the adverse effects of the premature entry of judgment
made by the CA. Therefore, the Court deems it prudent to set aside the foregoing entry and
upholds petitioners' right to appeal.

Nevertheless, with respect to the second issue, a thorough review of the records reveals no
sufficient reason to warrant the reversal of the CA’s August 18, 2006 Decision dismissing
petitioners' complaint for specific performance which sought to enforce the contract to sell and
to compel respondents to execute a deed of sale over the subject properties.

A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the latter upon his
fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price[50] and/or
compliance with the other obligations stated in the contract to sell. Given its contingent nature,
the failure of the prospective buyer to make full payment[51] and/or abide by his commitments
stated in the contract to sell prevents the obligation of the prospective seller to execute the
corresponding deed of sale to effect the transfer of ownership to the buyer from arising. As
discussed in Sps. Serrano and Herrera v. Caguiat:[52]
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. x x x.[53]
To note, while the quality of contingency inheres in a contract to sell, the same should not be
confused with a conditional contract of sale. In a contract to sell, the fulfillment of the
suspensive condition will not automatically transfer ownership to the buyer although the
property may have been previously delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of absolute sale.[54] On the other hand,
in a conditional contract of sale, the fulfillment of the suspensive condition renders the sale
absolute and the previous delivery of the property has the effect of automatically transferring
the seller’s ownership or title to the property to the buyer.[55]

Keeping with these principles, the Court finds that respondents had no obligation to petitioners
to execute a deed of sale over the subject properties. As aptly pointed out by the CA, aside
from the payment of the purchase price and 12% interest p.a. on the outstanding balance, the
contract to sell likewise imposed upon petitioners the obligation to pay the real property taxes
over the subject properties as well as 12% interest p.a. on the arrears.[56] However, the
summary of payments[57] as well as the statement of account[58] submitted by petitioners clearly
show that only the payments corresponding to the principal obligation and the 12% interest
p.a. on the outstanding balance were considered in arriving at the amount of P952,152.00. The
Court has examined the petition[59] as well as petitioners' memorandum[60] and found no
justifiable reason for the said omission. Hence, the reasonable conclusion would therefore be
that petitioners indeed failed to comply with all their obligations under the contract to sell and,
as such, have no right to enforce the same. Consequently, there lies no error on the part of the
CA in reversing the RTC Decision and dismissing petitioners’ complaint for specific
performance seeking to compel respondents to execute a deed of sale over the subject
properties.

WHEREFORE, the Entry of Judgment in CA-G.R. CV No. 68465 is hereby LIFTED. The

Decision dated August 18, 2006 of the Court of Appeals in the said case is,
however, AFFIRMED.

SO ORDERED.

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, vs. COURT OF

APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents (G.R. No.
108346, July 11, 2001)
G.R. No. 108346       July 11, 2001
Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners,
vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents.

PANGANIBAN, J.:

A substantial breach of a reciprocal obligation, like failure to pay the price in the manner
prescribed by the contract, entitled the injured party to rescind the obligation. Rescission
abrogates the contract from its inception and requires a mutual restitution of benefits received.

The Case

Before us is a Petition for Review on Certiorari1 questioning the Decision2 of the Court of

Appeals (CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution3 dated
December 29, 1992 denying petitioner's motion for reconsideration.4

The dispositive portion of the assailed Decision reads:

"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE
and the Decision dated November 14, 1990 dismissing the [C]omplaint is
 RESINSTATED. The bonds posted by plaintiffs-appellees and defendants-appellants
are hereby RELEASED."5

The Facts

The factual antecedents of the case, as found by the CA, are as follows:

"x x x. David Raymundo [herein private respondent] is the absolute and registered
owner of a parcel of land, together with the house and other improvements thereon,
located at 1918 Kamias St., Dasmariñas Village, Makati and covered by TCT No.
142177. Defendant George Raymundo [herein private petitioners] is David's father who
negotiated with plaintiffs Avelina and Mariano Velarde [herein petitioners] for the sale of
said property, which was, however, under lease (Exh. '6', p. 232, Record of Civil Case
No. 15952).

"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp.
11-12, Record) was executed by defendant David Raymundo, as vendor, in favor of
plaintiff Avelina Velarde, as vendee, with the following terms and conditions:

'x x x      x x x      x x x

'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND

PESOS (P800,000.00), Philippine currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE, to his entire and complete
satisfaction, by these presents the VENDOR hereby SELLS, CEDES,
TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full
warranty of a legal and valid title as provided by law, unto the VENDEE, her
heirs, successors and assigns, the parcel of land mentioned and described
above, together with the house and other improvements thereon.

'That the aforesaid parcel of land, together with the house and other
improvements thereon, were mortgaged by the VENDOR to the BANK OF THE
PHILIPPINE ISLANDS, Makati, Metro Manila to secure the payment of a loan of
ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, as evidenced by a Real Estate Mortgage signed and
executed by the VENDOR in favor of the said Bank of the Philippine Islands, on
_____ and which Real Estate Mortgage was ratified before Notary Public for
Makati, _____, as Doc. No. ______, Page No. _____, Book No. ___, Series of
1986 of his Notarial Register.

'That as part of the consideration of this sale, the VENDEE hereby assumes to
pay the mortgage obligations on the property herein sold in the amount of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in favor of Bank of Philippine Islands, in the name of the VENDOR, and
further agrees to strictly and faithfully comply with all the terms and conditions
appearing in the Real Estate Mortgage signed and executed by the VENDOR in
favor of BPI, including interests and other charges for late payment levied by the
Bank, as if the same were originally signed and executed by the VENDEE.

'It is further agreed and understood by the parties herein that the capital gains tax
and documentary stamps on the sale shall be for the account of the VENDOR;
whereas, the registration fees and transfer tax thereon shall be the account of the
VENDEE.' (Exh. 'A', pp. 11-12, Record).'

"On the same date, and as part of the above-document, plaintiff Avelina Velarde, with
the consent of her husband, Mariano, executed an Undertaking (Exh. 'C', pp. 13-14,
Record).'
'x x x      x x x      x x x

'Whereas, as per deed of Sale with Assumption of Mortgage, I paid Mr. David A.
Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage obligations on the property with
the Bank of the Philippine Islands in the amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in
accordance with the terms and conditions of the Deed of Real Estate Mortgage
dated _____, signed and executed by Mr. David A. Raymundo with the said
Bank, acknowledged before Notary Public for Makati, _____, as Doc. No. _____,
Page No. _____, Book No. _____, Series of 1986 of his Notarial Register.

'WHEREAS, while my application for the assumption of the mortgage obligations

on the property is not yet approved by the mortgagee Bank, I have agreed to pay
the mortgage obligations on the property with the Bank in the name of Mr. David
A. Raymundo, in accordance with the terms and conditions of the said Deed of
Real Estate Mortgage, including all interests and other charges for late payment.

'WHEREAS, this undertaking is being executed in favor of Mr. David A.

Raymundo, for purposes of attesting and confirming our private understanding
concerning the said mortgage obligations to be assumed.

'NOW, THEREFORE, for and in consideration of the foregoing premises, and the
assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, with the bank of the
Philippine Islands, I, Mrs, Avelina D, Velarde with the consent of my husband,
Mariano Z. Velardo, do hereby bind and obligate myself, my heirs, successors
and assigns, to strictly and faithfully comply with the following terms and
conditions:

'1. That until such time as my assumption of the mortgage obligations on the
property purchased is approved by the mortgagee bank, the Bank of the
Philippine Islands, I shall continue to pay the said loan in accordance with the
terms and conditions of the Deed of Real Estate Mortgage in the name of Mr.
David A. Raymundo, the original Mortgagor.

'2. That, in the event I violate any of the terms and conditions of the said Deed of
Real Estate Mortgage, I hereby agree that my downpayment of P800,000.00,
plus all payments made with the Bank of the Philippine Islands on the mortgage
loan, shall be forfeited in favor of Mr. David A. Raymundo, as and by way of
liquidated damages, without necessity of notice or any judicial declaration to that
effect, and Mr. David A. Raymundo shall resume total and complete ownership
and possession of the property sold by way of Deed of Sale with Assumption of
Mortgage, and the same shall be deemed automatically cancelled and be of no
further force or effect, in the same manner as it (the) same had never been
executed or entered into.

'3. That I am executing the Undertaking for purposes of binding myself, my heirs,
successors and assigns, to strictly and faithfully comply with the terms and
conditions of the mortgage obligations with the Bank of the Philippine Islands,
and the covenants, stipulations and provisions of this Undertaking.

'That, David A. Raymundo, the vendor of the property mentioned and identified
above, [does] hereby confirm and agree to the undertakings of the Vendee
pertinent to the assumption of the mortgage obligations by the Vendee with the
Bank of the Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
 "This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.

"It appears that the negotiated terms for the payment of the balance of P1.8 million was
from the proceeds of a loan that plaintiffs were to secure from a bank with defendant's
help. Defendants had a standing approved credit line with the Bank of the Philippine
Islands (BPI). The parties agreed to avail of this, subject to BPI's approval of an
application for assumption of mortgage by plaintiffs. Pending BPI's approval o[f] the
application, plaintiffs were to continue paying the monthly interests of the loan secured
by a real estate mortgage.

"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan
secured by the aforementioned mortgage for three (3) months as follows: September
19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at
P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15, 17and 18, Record).

"On December 15, 1986, plaintiffs were advised that the Application for Assumption of
Mortgage with BPI, was not approved (Exh. 'J', p. 133, Record). This prompted plaintiffs
not to make any further payment.

"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that
their non-payment to the mortgage bank constitute[d] non-performance of their
obligation (Exh. '3', p. 220, Record).

"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:

'This is to advise you, therefore, that our client is willing to pay the balance in
cash not later than January 21, 1987 provided: (a) you deliver actual possession
of the property to her not later than January 15, 1987 for her immediate
occupancy; (b) you cause the re- lease of title and mortgage from the Bank of
P.I. and make the title available and free from any liens and encumbrances; and
(c) you execute an absolute deed of sale in her favor free from any liens or
encumbrances not later than January 21, 1987.' (Exhs. 'k', '4', p. 223, Record).

"On January 8, 1987 defendants sent plaintiffs a notarial notice of

cancellation/rescission of the intended sale of the subject property allegedly due to the
latter's failure to comply with the terms and conditions of the Deed of Sale with
Assumption of Mortgage and the Undertaking (Exh. '5', pp. 225-226, Record)."6

Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents

for specific performance, nullity of cancellation, writ of possession and damages. This was
docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case
was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this
Court), who dismissed the Complaint in a Decision dated November 14, 1990.7 Thereafter,
petitioners filed a Motion for Reconsideration.8

Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge
Salvador S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15,
1991,9 Judge Abad Santos granted petitioner's Motion for Reconsideration and directed the
parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to
private respondents who, in turn, were ordered to execute a deed of absolute sale and to
surrender possession of the disputed property to petitioners.

Private respondents appealed to the CA.

Ruling of the Court of Appeal

The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-
Santiago's earlier Decision dismissing petitioners' Complaint. Upholding the validity of the
rescission made by private respondents, the CA explained its ruling in this wise:

"In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the
consideration of this sale, the VENDEE (Velarde)' would assume to pay the mortgage
obligation on the subject property in the amount of P 1.8 million in favor of BPI in the
name of the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde
includes the downpayment of P800,000.00 and the balance of Pl.8 million, and the
balance of Pl.8 million cannot be paid in cash, Vendee Velarde, as part of the
consideration of the sale, had to assume the mortgage obligation on the subject
property. In other words, the assumption of the mortgage obligation is part of the
obligation of Velarde, as vendee, under the contract. Velarde further agreed 'to strictly
and faithfully comply with all the terms and conditions appearing in the Real Estate
Mortgage signed and executed by the VENDOR in favor of BPI x x x as if the same
were originally signed and executed by the Vendee. (p. 2, thereof, p. 12, Record). This
was reiterated by Velarde in the document entitled 'Undertaking' wherein the latter
agreed to continue paying said loan in accordance with the terms and conditions of the
Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it was stipulated
that in the event of violation by Velarde of any terms and conditions of said deed of real
estate mortgage, the downpayment of P800,000.00 plus all payments made with BPI or
the mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption of
[M]ortgage would thereby be Cancelled automatically and of no force and effect (pars. 2
& 3, thereof, pp 13-14, Record).

"From these 2 documents, it is therefore clear that part of the consideration of the sale
was the assumption by Velarde of the mortgage obligation of Raymundo in the amount
of Pl.8 million. This would mean that Velarde had to make payments to BPI under the
[D]eed of [R]eal [E]state [M]ortgage the name of Raymundo. The application with BPI
for the approval of the assumption of mortgage would mean that, in case of approval,
payment of the mortgage obligation will now be in the name of Velarde. And in the event
said application is disapproved, Velarde had to pay in full. This is alleged and admitted
in Paragraph 5 of the Complaint. Mariano Velarde likewise admitted this fact during the
hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26,
t.s.n., October 8, 1989). This being the case, the non-payment of the mortgage
obligation would result in a violation of the contract. And, upon Velarde's failure to pay
the agreed price, the[n] Raymundo may choose either of two (2) actions - (1) demand
fulfillment of the contract, or (2) demand its rescission (Article 1191, Civil Code).

"The disapproval by BPI of the application for assumption of mortgage cannot be used
as an excuse for Velarde's non-payment of the balance of the purchase price. As borne
out by the evidence, Velarde had to pay in full in case of BPI's disapproval of the
application for assumption of mortgage. What Velarde should have done was to pay the
balance of P1.8 million. Instead, Velarde sent Raymundo a letter dated January 7, 1987
(Exh. 'K', '4') which was strongly given weight by the lower court in reversing the
decision rendered by then Judge Ynares-Santiago. In said letter, Velarde registered
their willingness to pay the balance in cash but enumerated 3 new conditions which, to
the mind of this Court, would constitute a new undertaking or new agreement which is
subject to the consent or approval of Raymundo. These 3 conditions were not among
those previously agreed upon by Velarde and Raymundo. These are mere offers or, at
most, an attempt to novate. But then again, there can be no novation because there
was no agreement of all the parties to the new contract (Garcia, Jr. vs. Court of
Appeals, 191 SCRA 493).

"It was likewise agreed that in case of violation of the mortgage obligation, the Deed of
Sale with Assumption of Mortgage would be deemed 'automatically cancelled and of no
further force and effect, as if the same had never been executed or entered into.' While
 it is true that even if the contract expressly provided for automatic rescission upon
failure to pay the price, the vendee may still pay, he may do so only for as long as no
demand for rescission of the contract has been made upon him either judicially or by a
notarial act (Article 1592, Civil Code). In the case at bar, Raymundo sent Velarde
notarial notice dated January 8, 1987 of cancellation/rescission of the contract due to
the latter's failure to comply with their obligation. The rescission was justified in view of
Velarde's failure to pay the price (balance) which is substantial and fundamental as to
defeat the object of the parties in making the agreement. As adverted to above, the
agreement of the parties involved a reciprocal obligation wherein the obligation of one is
a resolutory condition of the obligation of the other, the non-fulfillment of which entitles
the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28). Thus, the
non-payment of the mortgage obligation by appellees Velarde would create a right to
demand payment or to rescind the contract, or to criminal prosecution (Edca Publishing
& Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellee's failure,
therefore, to pay the balance, the contract was properly rescinded (Ruiz vs. IAC, 184
SCRA 720). Consequently, appellees Velarde having violated the contract, they have
lost their right to its enforcement and hence, cannot avail of the action for specific
performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)."10

Hence, this appeal. 11

The Issues

Petitioners, in their Memorandum,12 interpose the following assignment of errors:

"I.

The Court of Appeals erred in holding that the non-payment of the mortgage obligation
resulted in a breach of the contract.

"II

The Court of Appeals erred in holding that the rescission (resolution) of the contract by
private respondents was justified.

"III

The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three
'new conditions' constituting mere offers or an attempt to novate necessitating a new
agreement between the parties."

The Court's Ruling

The Petition is partially meritorious.

First Issue:

Breach of Contract

Petitioner aver that their nonpayment of private respondents' mortgage obligation did not
constitute a breach of contract, considering that their request to assume the obligation had
been disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations
ceased to be their obligation and, instead, it devolved upon private respondents again.

However, petitioners did not merely stop paying the mortgage obligations; they also failed to
pay the balance of the purchase price. As admitted by both parties, their agreement mandated
that petitioners should pay the purchase price balance of P1.8 million to private respondents in
case the request to assume the mortgage would be disapproved. Thus, on December 15,
1986, when petitioners received notice of the bank's disapproval of their application to assume
respondents' mortgage, they should have paid the balance of the P1.8 million loan.

Instead of doing so, petitioners sent a letter to private respondents offering to make such
payment only upon the fulfillment of certain conditions not originally agreed upon in the
contract of sale. Such conditional offer to pay cannot take the place of actual payment as
would discharge the obligation of a buyer under a contract of sale.

In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a
determinate things, and the buyer to pay therefor a price certain in money or its equivalent.13

Private respondents had already performed their obligation through the execution of the Deed
of Sale, which effectively transferred ownership of the property to petitioner through
constructive delivery. Prior physical delivery or possession is not legally required, and the
execution of the Deed of Sale is deemed equivalent to delivery.14

Petitioners, on the other hand, did not perform their correlative obligation of paying the contract
price in the manner agreed upon. Worse, they wanted private respondents to perform
obligations beyond those stipulated in the contract before fulfilling their own obligation to pay
the full purchase price.

Second Issue

Validity of the Rescission

Petitioners likewise claim that the rescission of the contract by private respondents was not
justified, inasmuch as the former had signified their willingness to pay the balance of the
purchase price only a little over a month from the time they were notified of the disapproval of
their application for assumption of mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a rescission. They cite several cases 15 in which
this Court declared that rescission of a contract would not be permitted for a slight or casual
breach. Finally, they argue that they have substantially performed their obligation in good faith,
considering that they have already made the initial payment of P800,000 and three (3) monthly
mortgage payments.

As pointed out earlier, the breach committed by petitioners was not so much their nonpayment
of the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents' right to rescind the contract
finds basis in Article 1191 of the Civil Code, which explicitly provides as follows:

"Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission even after he
has chosen fulfillment, if the latter should become impossible."

The right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between
them.16 The breach contemplated in the said provision is the obligor's failure to comply with an
existing obligation.17 When the obligor cannot comply with what is incumbent upon it, the
obligee may seek rescission and, in the absence of any just cause for the court to determine
the period of compliance, the court shall decree the rescission.18

In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of
sale, a violation that consequently gave rise to private respondent's right to rescind the same in
accordance with law.

True, petitioners expressed their willingness to pay the balance of the purchase price one
month after it became due; however, this was not equivalent to actual payment as would
constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay was
conditioned on the performance by private respondents of additional burdens that had not
been agreed upon in the original contract. Thus, it cannot be said that the breach committed by
petitioners was merely slight or casual as would preclude the exercise of the right to rescind.

Misplaced is petitioners' reliance on the cases19 they cited, because the factual circumstances
in those cases are not analogous to those in the present one. In Song Fo there was, on the
part of the buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover,
the buyer's offer to pay was unconditional and was accepted by the seller.

In Zepeda, the breach involved a mere one-week delay in paying the balance of 1,000 which
was actually paid.

In Tan, the alleged breach was private respondent's delay of only a few days, which was for
the purpose of clearing the title to the property; there was no reference whatsoever to the
nonpayment of the contract price.

In the instant case, the breach committed did not merely consist of a slight delay in payment or
an irregularity; such breach would not normally defeat the intention of the parties to the
contract. Here, petitioners not only failed to pay the P1.8 million balance, but they also
imposed upon private respondents new obligations as preconditions to the performance of
their own obligation. In effect, the qualified offer to pay was a repudiation of an existing
obligation, which was legally due and demandable under the contract of sale. Hence, private
respondents were left with the legal option of seeking rescission to protect their own interest.

Mutual Restitution

Required in Rescission

As discussed earlier, the breach committed by petitioners was the nonperformance of a

reciprocal obligation, not a violation of the terms and conditions of the mortgage contract.
Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract
does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this
controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code,
mutual restitution is required to bring back the parties to their original situation prior to the
inception of the contract. Accordingly, the initial payment of P800,000 and the corresponding
mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00)
advanced by petitioners should be returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the former.

Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. 20 To
rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each
other, but to abrogate it from the beginning and restore the parties to their relative positions as
if no contract has been made.21
Third Issue

Attempt to Novate

In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third
issue raised by petitioners. Suffice it to say that the three conditions appearing on the January
7, 1987 letter of petitioners to private respondents were not part of the original contract. By that
time, it was already incumbent upon the former to pay the balance of the sale price. They had
no right to demand preconditions to the fulfillment of their obligation, which had become due.

WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that

private respondents are ordered to return to petitioners the amount of P874,150, which the
latter paid as a consequence of the rescinded contract, with legal interest thereon from
January 8, 1987, the date of rescission. No pronouncement as to costs.

SO ORDERED.1âwphi1.nêt